I've recently posted about the rise in global & national debt and the increasing dissonance between markets and the economy. This post is about inflation and the long-term economic effects of 2020.
We're currently operating on $6 trillion of stimulus. The Trump administration approved the first 4 trillion dollars, and Biden's administration added another $1.9 trillion. Around $3.5 trillion of that went to purchasing government securities. Meanwhile, the U.S. Treasury also printed another $2B in dollars (more than they produce in a normal year).
Here is an infographic showing the programs enacted to counteract the pandemic's economic impact.
via PGPF (3/15/21)
These strategies make credit easier to get by growing the money supply and lowering interest rates with banks having more reserves. Without these and the Fed's other emergency measures, the economy likely would have crashed ... but was it a "fix" ... or did it just delay the inevitable?
In the short term, the stimuli did a pretty good job of creating liquidity, preventing a substantial market crash, and increasing faith in the system.
Markets became more erratic and harder to predict. And other ripples are starting to show in the economy.
Inflation: Temporary?
It's not hard to tell that prices have risen recently. But, while consumer prices have risen 2%, on average, investors continue to invest in treasuries and push the price of 10-year yields down to where they were in February of last year. That seems to imply that despite inflation and stimulus, investors still have faith in the Fed.
The hope would then be that the inflation is transitory and not a long-term effect of the stimulus.
via Wall Street Journal
It's possible that this inflation is the result of a post-Covid demand surge (and not the beginning of a larger trend). You can also assume that the surge in prices of airfares, hotels, and sports games will drop once they become "normal" again. And, even if they don't, if wages don't rise with that new demand, it's easy to picture demand returning to normal.
The last time the Fed created money on a similar scale (the Great Recession), high long-term inflation didn't materialize, so it might not happen again.
Conclusion
I think it's unlikely that we see another 1970s style surge – and I think it's equally unlikely we see major deflation. With that said, I still don't think we've seen the end of the effects of the pandemic and the pandemic stimulus either.
One of the practical results of the Fed's bond purchases is that it creates money to finance the gigantic debt run up by Congress. With the national debt at almost $25 Trillion, it gets harder to pick a measuring rod of financial health that isn't woefully inefficient. The idea of "sound money" or a sustainable fiscal path seems increasingly questionable. But, if you believe in Modern Monetary Theory and in the United States' amazing ability to borrow, it's possible that there truly is no worry. Japan is a potential example of that - with a debt-to-GDP ratio of double the U.S.
So, even if inflation continues, it's hard to judge how bad a sign it is.
Whether or not there's a crash tomorrow (or 7 years from now), at some point, we know there will be a "correction."
Predicting the future is hard!
Curious to hear what you think.
Learning To Live (and Work) With Millennials
Simon Sinek is a best-selling author (Start With Why) and gave a Ted Talk on how great leaders inspire action (that got 30 million views).
In an interview with Tom Bilyeu (co-founder of Quest Nutrition), he addresses the issue of managing Millennials – and why they seem lazy, entitled, and unfocused.
via Inside Quest
Sinek points to four characteristics that help "create" this issue:
Sinek suggests that this generation is a product of failed parenting strategies ... being told they're special without effort, being told they can have anything they want, and being handed trophies for showing up.
Next, add technology to the mix.
Before millennials, interaction happened in person much more frequently ... meaningful trust-based relationships were built with time and effort, and when you were at dinner with friends or watching a movie, you were living in the moment, not distracted by your phone.
For added irritation, next add impatience (which is a byproduct of instant gratification).
Why wait for amusement when it's a text away? You've got Netflix making video rental a thing of the past, Tinder making dating as easy as "swiping right" and Amazon making it so you don’t have to check out when you go to a store.
Is it any wonder that these kids have short attention spans? Now imagine the Gen Z kids forced into quarantine where their only companionship was online?
Now put those kids in an environment where they're forced to realize you can't rush success, and you can't force meaningful relationships. Where they have to put in the effort and stay focused for extended periods of time
It's a story that often doesn't have a happy ending.
I thought it would be fun to ask one of them what they thought about it ... So I asked my son, Zachary. Here are his thoughts.
Posted at 09:51 PM in Business, Current Affairs, Gadgets, Healthy Lifestyle, Ideas, Just for Fun, Market Commentary, Personal Development, Science, Trading, Trading Tools, Web/Tech | Permalink | Comments (0)
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