Worrisome Fed news

It's one of those times when I wish I knew something (anything) about economics. The Fed just said that it's keeping interest rates where they are and anticipating possibly three rate cuts next year. It sounds like we're returning to the pre-Covid scenario. This scares me.

Post 2008 panic, the Fed scrambled to create some inflation, ANY inflation, to stave off the terror of deflation. We managed to keep people spending through the Covid shutdowns by creating and giving away billions of dollars. When the shutdowns ended all that money came roaring into the economy and the result was a brief period of inflation. So now everybody seems to have a job that wants one and wages are supposed to be rising.

A growing economy, as I understand it, means that there will be inflation as more people earn more money and use it to buy more and more expensive goods and services. The Fed therefore raises interest rates to control that inflationary tendency.

Well, if the Fed is considering rate CUTS, doesn't that mean things are slowing down?

I'd like to hear from people here who actually know about this stuff (and people who don't).

 

Yeah - right. Some (millions of) people use ALL their money to pay for ever-more-expensive FOOD and RENT. They are subject to GREEDflation. And the Fed is unable to control that. Fed policy is moot, to the impoverished.

Who ever thought we'd see tents in the cities? We used to go to banks for houses and cars. Now, millions go to "banks" for food. We've gone backwards. Centuries. It's nasty. Feudalism-nasty. Serfdom-nasty. Pre-French-Revolution nasty. What do you think might be next?

 

Well, it flies, as a concept. But I don't think much of a "decentralized" monetary policy. That - under State control - would be a nightmare. Texas? Florida? (Shudder.) Don't want it here either. The idea of some Fordnik calling those shots where I live is totally absurd.

 

Good thought! My suggestion, then - let the Mob run the economy. They're already set up regionally, to serve the whole country. "Families" all have their defined territory. They did a great job with casinos - glamorous, fun places in those days. They didn't need to cheat people - they knew the business, and how to make money following the rules. People liked the mob guys - some almost worshipped them. Nobody loves a retailer these days, even a runaway success. Ask Jeff Bezos. And politicians - fuhgeddaboudit!!

It'd be colourful too. Interest rates set by a "pit boss," the muscular guy in the brocade dinner jacket. Man, look at that diamond - big as a freakin' egg! Now, THAT guy knows money!

 

Thats exactly what's wrong with the Euro Zone.

 

What? The mob? Nah, that's where it originated. Oh... you mean the bunch of diverse societies in the same space. Well, we're told diversity is supposed to work FOR us, but you're right - again, Nosborne. (It's uncanny! How d'you do it so often?)

I think self-interest may be as big a diversity-killer as prejudice and fear of the unknown. Like blood and wine stains. Mostly impossible to erase.

 

We are definitely about to take a dip into some harder times. I was listening to an investor fourth quarter earnings call today. This is for an industry that tends to be both innovative and also lead in what's happening with financials particularly with discretionary spending. They have a lot of different brand/chains/locations all across the country, and are opening new casinos. They have been down the last two quarters and have no plans to expand their staff. I also saw in the news that many employers aren't wanting to pay unemployment or severance benefits right now so they are getting really strict with annual reviews and firing many people. I expect we will be in a dip through the spring but would not be surprised if it lasted a full year.

 

It's weird. I don't like the gold standard because it's too rigid and I think it's deflationary. But the U.S. Dollar is as rubbery as week old jello and here we are, maybe sliding back into our pre Covid post 2008 malaise. Again, would somebody who actually knows about this stuff explain it to me?

Gas around here is well below three bucks now. Rents, believe it or not, seem to be falling. The ONE thing I can think of is low birth rates and therefore an aging population that spends less. We aren't going to convince women to have more kids than they think they can afford (or want to raise). Immigration is our temporary salvation, but Washington is doing its level best to discourage it. Is Washington succeeding in this?

 

One YouTuber says we're in a post-scarcity economy. Instead of the Law of Supply and Demand, supply is so overwhelming that there cannot be sufficient natural demand to consume it all. Hence advertising. But could it be that we are tired of drowning in stuff?

 

Hundred dollar cab ride, fogged in, can't fly
Greyhound, Amtrak, oughta bought a Cadillac
Too much stuff, too much stuff
It'll slow you down, fooling with too much stuff
Well, it's way too much
You're never gonna get enough
You can pile it high
But you'll never be satisfied

--Delbert McClinton

 

Delbert ALWAYS got it right. A 63-year career. The pandemic made him decide to hang up his guns, at 80. He gets to spend more time with his loved ones. What a magnificent legacy we have! And @Rich Douglas - thanks for picking exactly the right lyrics for these times.

 

I saw him twice in Alexandria Virginia (at the Birchmere, a local joint that drew quite a few traveling acts.) That song was recorded with Lyle Lovett and John Prine. Great fun.

 

Anyway...a post pandemic return to slow growth and near zero interest rates wouldn't be a good thing but might be inevitable. Nothing has really changed.

 

This is what a lot of people don't get--people who complain about inflation and interest rates. For prices to return to earlier levels, we'd have to experience a horrible recession and a deflation of the economy. No one wins there. Yes, some vital prices--like gas--could go down and it would help, but gas prices today are lower than they were in 1975, adjusted for...wait for it...inflation.

Here's two other realities. First, inflation is a little above 3% now. Historically, that's normal, matching the 50-year average. You know what else it at the 50-year average? Mortgage rates. Below, actually. Over the past 50 years, mortgage rates have averaged 7.5%, and the average rate right now is below 7%. But we've become so accustomed to "free money" (low inflation, low interest), that it's shocking to be at normal levels. Well, get used to it.

Okay, while I'm on a rant, here's a third: real wages. They've gone up. Yes, wages are rising faster than inflation. So, what's with all the kvetching? It's not financial; it's psychological. People see their wages go up and feel they're getting what they deserve. They earned that money. But they see prices going up and feel they're being gouged, that money is being taken from them. And what they do not see is that they're coming out ahead. But with higher wages and inflation, this phenomenon kicks in and people feel bad even though they're better off.

 

According to the Department of the Treasury, median real wages have increased 1.7% from 2019-2023. Obviously, there is variation, but the median is the best measurement of central tendency for this particular issue.

My take: the pandemic wrecked the economy. Trump wrecked the response to the pandemic. Biden fixed things. Biden will be blamed.

 

The pandemic wrecked a good many things, some permanently. I’m not sure which will have the greater effect long yet, the pandemic or the 2008 crisis. My money is on the 2008 crisis though because it destroyed so much household wealth.

 

It sure did. And for greater effect, my money's on the pandemic. Much wealth was lost through the pandemic. But money can be replaced. Over 1,000,000 Americans lost their lives due to COVID. That's 2.5 times the number of Americans killed in World War 2 service. Their lives cannot be replaced.