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Making the case for world war 3.... The great debt reset.
Houses are the most expensive they've ever been in the history of this country and there's no incentive for a generation z to want to take a job for $18 an hour that a baby boomer was making $9-10 an hour doing back in 1987 when house prices were a quarter to a tenth of what they are now.
You can't make the argument anymore that interest rates for mortgages are lower. This is out right just ridiculous and this country is on the edge of a precipice in my opinion. This type of concentration of wealth and pricing out of the middle class is what happens before empires collapse.
Making the case for world war 3.... The great debt reset.
Houses are the most expensive they've ever been in the history of this country and there's no incentive for a generation z to want to take a job for $18 an hour that a baby boomer was making $9-10 an hour doing back in 1987 when house prices were a quarter to a tenth of what they are now.
You can't make the argument anymore that interest rates for mortgages are lower. This is out right just ridiculous and this country is on the edge of a precipice in my opinion. This type of concentration of wealth and pricing out of the middle class is what happens before empires collapse.
you're not wrong. Something has to give. That's why I'm all in on government Tbills, I think they're gonna wipe a lot of **** out.
We're actually seeing a bit of a "richsession" instead of a "recession." Credit card data show more affluent households (>$200K/year) have shifted some of their spending to Walmart, Target, Dollar General, Dollar Tree, etc.
We're actually seeing a bit of a "richsession" instead of a "recession." Credit card data show more affluent households (>$200K/year) have shifted some of their spending to Walmart, Target, Dollar General, Dollar Tree, etc.
Yea because the actual inflation number for weekly purchases like groceries and gas is 25%+. As a result people are looking for cheaper options. I'm still convinced the latest jobs numbers are a HORRIBLE sign. Once people's credit cards are maxed out from trying to pay for necessities they'll have to get second jobs, I believe that's what we're seeing now. Super high credit card debt isn't a sign that people are happily buying, it's a sign they can't afford the things they need each week. House of cards surrounded by fans just waiting to be turned on.
I get the sense there is a deeper social issue at play here. Normally you would expect consumer spending to decrease with an increase in interest rates and prices. In econ 101, that should crush demand and yield lower debt levels. Who, in their right mind, would keep loading up a credit card balance with interest rates spiking to 20%?
Further, this seems to be skewed toward younger borrowers, many of whom have already been tossed the lifelines of a student debt pause, robust hiring, and wage growth--so this sudden jump in consumer debt would mean that they are using the windfall of a holiday from student debt payments to doubling-or-triple-down on discretionary spending rather than paying off balances.
What’s the explanation? Well, it doesn’t seem to be economics.
I think it’s social. People almost instantaneously became used to the high life financed by the government handouts of the pandemic, and the psychological effect of that flood of money is lasting long beyond the actual payments.
Actually, consumer behavior is focused on extending that high for as long as possible. When the money was gone, consumers supplemented it with debt, and even treated themselves to more consumption for the “good job” they did getting that raise or new job--even though neither the pay increase, or even the temporary loan holiday.
However, it is starting to look like the carousel is about to come to a screeching halt in June. Interest rates are almost certain to keep rising. The fed WANTS to destroy many of those new jobs. Prices for staples (food, shelter, transportation) are unlikely to come down appreciably. Student loan payments will resume. Finally, the political parties are certain to play a game of brinksmanship with the debt ceiling, all at the same time!
Whether the landing is hard or soft doesn’t really matter if you’ve overshot the runway and are out over the water now.
Woah, that's a heavy analysis! You make a lot of good points about how spending habits might not always follow the textbook economic rules.
Don't get me wrong, I try to be responsible with money. But there's definitely a psychological aspect to it, like you said. Sometimes after a long week, a little retail therapy can feel good, even if it's not the most logical decision.
I guess it's about finding a balance. Maybe those extra government benefits during the pandemic did create a bit of a "spend now, worry later" mentality, especially for younger folks. Hopefully, people can adjust as things go back to normal, whatever that normal might look like.
Here's hoping for a soft landing on that economic runway, you know? But yeah, with all the factors you mentioned coming together, it's definitely a time to be cautious and plan for the future. Maybe I'll hold off on that fancy new gadget I was eyeing...
Whether the landing is hard or soft doesn’t really matter if you’ve overshot the runway and are out over the water now.
What I am not sure of: is that water? Or rocks?
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What’s the explanation? Well, it doesn’t seem to be economics.
Of course it is economics.
It is also a good bit of simply learning the wrong lessons of economics.
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Yea because the actual inflation number for weekly purchases like groceries and gas is 25%+. As a result people are looking for cheaper options. I'm still convinced the latest jobs numbers are a HORRIBLE sign.
Not sure about "the" latest numbers, but, for the past few years, the jobs numbers (once you get past the fluff they report on MSM) have been pretty dismal, or worse.
Inflation may not be 25%, but it is substantially higher than interest rates, so inflation will not stop.
(Interest rates must be higher than inflation to stop inflation, but lower than GDP growth, or you have a recession. It is a catch 22.)
Unless the government forgive debt or give some type of grant to families like they've done in the past. Soon the debt load will be unsustainable for most lower and middle class families. Then once they go bust it will spread upwards.
The Fed was so stubborn about inflation they are deliberately trying to crash the economy but failed to do so for past few years.
Unless the government forgive debt or give some type of grant to families like they've done in the past. Soon the debt load will be unsustainable for most lower and middle class families. Then once they go bust it will spread upwards.
The Fed was so stubborn about inflation they are deliberately trying to crash the economy but failed to do so for past few years.
Government or central banks, dumping large quantities of money into the economy, whether it is by "Quantitative Easing," Zero Interest Rate Policy, Covid Relief, debt forgiveness or Guaranteed Basic Income (the worst of the worst) are inflation drivers that cannot be overcome by hiking interest rates. At most they can blunt the effect, but they will also drive us deeper into an undeclared recession.
Almost all "debt forgiveness" programs are also unconstitutional.
(Frankly, several of those other things are, as well.)
Inflation may not be 25%, but it is substantially higher than interest rates, so inflation will not stop.
(Interest rates must be higher than inflation to stop inflation, but lower than GDP growth, or you have a recession. It is a catch 22.)
This is just not true. Interest rates do not control the prices of so many items in our lives and businesses. High rates do tend to suppress borrowing and business, but they are not the be all end all. For instance, rates have about nothing to do with my life or reduce my spending. And I surely cannot be alone. About all I get is more return on my fixed income. So I have more money to spend. And that doesn't sound deflationary.
Higher rates have been a benefit to much of the middle class and in some ways helping to drive our economy.
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