No More Economic Booms: Transitory Inflation and Transitory Growth
Analyzing deflationary pressures of the last two decades, and understanding what the future holds for us after things return to normal.
Ah, it’s been a while since we talked economics.
I think it is important to dig into an idea that most people do not evaluate as closely as they should. I’ve touched a lot on the idea of the Faustian Man quite a lot recently, and its effect on the way most modern people think in terms of how they project goals, the timespans in which they think, and how much they focus on this expansion of success and property as a means of jamming some kind of square peg into the round hole of meaning.
The ultimate fallacy of this idea of expansion ends at some point, and I would like to paint that idea of such an end through the logical conclusion the convenience-focused economy of the last hundred years takes us. The constant need to sell a new invention that overtakes the last one in quality, but maintains the same price or is cheaper, has been the omnipresent atrophic problem of the finance world. This is a genuine existential issue with economics itself, wherein, productivity and investment yield is a very closely-held property of capitalism, and yet, when you reach an obvious technological ceiling, the diminishing returns start to set in.
The way out of this is clearly not a “freer” market. The way out of this, likewise, is not a less free market. We think too two-dimensionally, but in order to confront this problem, we must analyze the evidence at hand, so we might at least find direction to where the future of the global economy is headed. If you know my work, you already know where this is going.
Now, yes, I know this doesn’t take into account the massive vehicle price distortion of the past two years; distortion that I wouldn’t just crack up to the multi-varied, inexplainable supply chain issue, but the rapidly growing online used car market that has sent car prices high as people jump in on the fun of flipping cars (like how everyone and their grandma is flipping houses). Nonetheless, the price, short of a clear anomalous supply chain issue that may or may not disappear, and is clearly not a monetary-related phenomenon, has stayed the same since before I was even born.
I will say, however, as an aside — the endless safety upgrades, unwanted electronifying of mundane functions (like electronic emergency brakes lmao), and gadgets and gizmos that no one wants but make cars more expensive has become a gaudy trend in the past ten years. Ironically, this is just more evidence to my point. See, we no longer create original vehicles that have intense originality put into them, as per the lowering general IQ and state corporations monopolization of entire markets has consolidated pretty much all industry (especially vehicle development) into a bubble of no innovation, safe maneuvering towards soccer momifying every car, and overengineering everything so that it breaks every ten-thousand miles. If you asked any honest mechanic, they’d tell you to buy a 2002 Corolla and save your damn money for retirement.
Likewise electronic goods’ prices are going down:
All I have to say about this is, yes, I’m aware cable and satellite television services are going up. Know what I have to say to that? Balance sheets, Comcast sucks, and no one is using cable television or radios, anymore. The only people who do use these services are your loaded parents or grandparents who justify spending a hundred bucks on five different streaming services. Everything else has gone down. Just think about how much a television costed the average person twenty years ago, a basic laptop, or even a phone. The only real price hikes, when they are found, are from failing companies who have too much market share for their own good. This is not inflation. Especially in the post-2008 world where Americans have no money, spend less, and technology has become so efficient and cheap. There is a ceiling to this, yes, but for now, technology in terms of instant gratification has basically reached a peak. It either goes down from here, or we get a million Henry Fords to innovate the next several generations of space exploration or something (highly doubtable).
Now for some consumer staples and energy; the important stuff.
My favorite freakout from people is how hyperfocused they are on hyperinflation! This normally comes from people who don’t really understand why it even happens. These are people who are susceptible to recency bias. We all are susceptible, but when it becomes something we plan too much for because of some pretty short or medium-term stuff, especially stuff we don’t understand, then there’s a problem. Hyperinflation(!) doesn’t just happen in a vacuum. It doesn’t just happen on its own. It takes something very simple, obvious, and relatively measurable: direct cash injections into the real economy. Without this very simple idea, there will not be the dreaded hyperinflation(!). Until we get perpetual buying power injections into the real economy, hyperinflation(!) will not come.
I plan on doing a video or article this week where I explain the four kinds of money, but put simply: if the Fed wants inflation, they will have to bypass the banking system (Easier said than done. Go ask Jamie Dimon’s opinion on that.), and act as a direct competitor to banks that can fail while being a bank that literally can’t. They will have the highest quality tender forms of bank deposits, central bank reserves, and will be able to create all the inflation they want. This is known as a central bank digital currency, and there is no way this will not fail and concurrently be implemented with many other Orwellian edicts that will effectively cause, or be symptomatic of, a civil war and civil unrest. Not to explain the technological anomaly this would be; the state doing something that could and would have to be impenetrable to hacks, impenetrable to corruption, impenetrable to scams and people taking advantage of it, etc. What a failure.
Regardless, the other ways we get hyperinflation(!) is through just handing out checks to the people left and right, and even then, I am not sure people who shout “hyperinflation(!)” really understand just how much money will have to be printed, how long it would take, and then that not simultaneously being pretty easily forewarned by a million other signs in the economy and political hemispheres. There are too many signals. But scream “hyperinflation(!)” all you want because it sounds exciting and explains why the line go up!
Anywho, my tirade has a point: the prices of these mundane non-core (food and energy) prices blowing up is not directly due to anything other than an anomalous supply chain situation that will probably be fixed. It really only is a matter of time before prices come crashing down…
Secondly, for the second week in a row oil has declined, joining shipping costs and all commodities, not just industrial metals, in retreating from highs. Gas prices should follow suit within the next few weeks. Note that the BDI has fallen by more than -50% from a peak just one month ago. This suggests that the supply chain bottleneck has passed its peak. If so, one would expect the huge increases in house and car prices to begin to abate soon.
The numbers really are looking great, economically. It seems all my previous ranting about doom and gloom and a malaise by the end of the fourth quarter has soured, and yes I am willing to admit: the line only goes up! (jk)
I would like to note, corporate profits (AKA, money left over after expenditure) was stagnant all through the 2010s, and has had a bizarre pop in the last year. Well, that means the economy is just roaring, and I was 100% wrong and should pack my bags and tip my hat and say my farewells to the permabull market whizes! Well, if only it was that easy.
Where’s the beef?
It seems consumer sentiment isn’t that hot to trot, while inflation expectation has been taking off. What does this tell you? Does it tell you the American consumer is just primed and ready to spend their money?
Just hardly back to the trendline.
So how is it that we have this astonishing lift-off in corporate profits, and yet a continuing of the same post-2008 economic malaise for the average American?
From CNN, David Bianco explains:
Manufacturers, retailers and restaurants, meanwhile, are telling investors that they didn't get to fully deliver on the surge of demand, while providing reassurances that next year will be better.
"It's really the intangible businesses versus the tangible businesses," Bianco said.
Microsoft (MSFT), for example, is riding high on the strength of its cloud business and demand for workplace collaboration software. It said last week that it earned $20.5 billion in its most recent quarter, up 48%.
Oh yikes, back to the supply chain again *sigh*. It really does seem nothing will make sense until that is back to normal. Well, it doesn’t seem our hopes of a return to normalcy last year ever materialized, so it almost feels as if that reality will continue into next year and the next, but regardless, we can’t pretend that the malaise in business that guys in the trades like me are experiencing is just anomalous. It’s a clear division between those who are making money on the completely detached stock market, and people trying to push through this low growth, unsure economy that not just two years ago they were having visions of a greater post-Obama, high growth world where there was real hope.
Unfortunately, we can’t just snap our economic problem away. There is a real issue with growth, one that will return once this goofy post-coof economy disappears; one where there is the illusion of a growing infrastructure, and yet, where all the investments are low yield, high risk, and everyone just doesn’t want to have kids and instead to move to the Rocky Mountains and live in a tiny home.
What people have to understand is that there wasn’t a booming economy before this, and there isn’t the infrastructure to maintain one after. In addition to that, elevated prices are not germane to that. You either have high growth or moneyprinting to keep these certain prices elevated, and we just aren’t going to experience either. The former won’t come, and the latter is, as we all know (except the commies), disastrous.
We’ve covered the lack of built-in inflation in prices both staple and luxury, and it is pretty blatant that prices aren’t soaring when adjusted for inflation, and likewise, as we return to the mundanity of the post-2008 economy, the prices will come down, and so will any sense of optimism for our economy. What we do with that recollection, that unemployment, lack of cash in the system for businesses to stay afloat and maintain demand, lack of excitement of banks to lend, lack of growing returns from an economy built on a constant need to convenience-ify every corner of our lives to the point we are bloated Wall-E people glued to virtual reality and parasocial relationships is all very bearish, not just in the long-term, but even in the medium-term for the American economy.
The diminishing returns are all too real, and to drive that point home, I’ll show the chart I always use, when I want to prove this point:
Simply put, a constant falling in rates paints the pretty clear picture that big money is buying more and more into treasuries for the risk-free 100% return, rather than investing in the real economy. Ideally, what gets the real economy going is eager risk into whatever new businesses and inventions that have the potential for a bunch of income for the lender, and so the banks/lenders take the huge risk because they are eager to make a high return, and are willing to lend to these new ideas.
Well, for many reasons, this just won’t be the case in the world as it stands, and if you are a nature absolutist like I am, there is no way a regime can just snap its fingers all at once and just will growth into the economy. It’s pretty clear from countless socialist regimes that we have no control over the ability for growth to happen. The only way it happens is when you have a lot of smart, industrious, disciplined young people. Surely, you can plant the seeds for this to happen in a hundred years or so by starting communities with like-minded, intelligent, civil people, but there is no way you can just bring a figurehead into power and will intelligence, trust, and risk-on into the economy. We have thirty years of a failure at the Bank of Japan to bring evidence to that. Likewise, nations like China who actively depend on hypergrowth are never going to make it in any type of emergency without doing what they’re doing right now: going full tyrant, distracting their people with patriotism and cultural guilt, and indemnifying their regime against any collapse by dialing the focus on extreme growth back. We should be doing the same, but it will take a collapse for our entitled oligarchic republic to make the right decision, unfortunately.
It seems pretty blatant that prices will start to come down somewhat soon, based on the normalization of the global economy. Likewise, this will be a return to our malaise economy of the last thirteen years, but with less vim and vigor, and an extremely bad taste in most people’s mouth as they realize their job is hanging on by a thread (or isn’t there at all), there’s hardly anymore job growth, their government seems to be ready to dehumanize them at the drop of a hat, and if they own a house, the price probably fell pretty hard.
People will become less excited for the future, they will probably be less focused on investing, starting a business, buying stocks, or even working, because they know it has all become extremely on the line, even without a flighty, authoritarian government eager to take their autonomy, livelihood, freedom of travel and freedom of worship away.
People will become more focused on their family, and sticking with like-minded people; especially those who didn’t break away because they didn’t obey the decrees of satanic leaders and march in lockstep to state-mandated racism and child abuse.
See, the issue with growth ultimately comes down to a metaphysical problem. Growth doesn’t drive people — people drive growth, and that’s the issue we have faced for more than a decade; there is a giant collateral issue with the global financial system, and there is no way trust can be instilled in that system ever again. Even bigger than that, with what we have experienced in the last couple of years, people will be less inclined to focus on the long-term, as the long-term seems to be full of insane surprises that might cut their livelihood away from them, steal their money, steal their property, all for the sake of government trying to save face. Low growth, low trust, low risk tolerance, and low prices will all be a concurrent phenomenon in the not too distant future.
RV and ammo prices will probably stay elevated, though.
“After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”