Thank you for coming back with a bang! Your work is deeply appreciated.
One item, though, regarding your Item 5 which reports: Both high- and low-income households still have about 50 percent more cash in their checking accounts than they did three years ago.
One needs to recall that three years ago checking accounts did not reflect the possibility that the world was coming to an end via a pandemic, et al., which is to say checking accounts now reflect a respect for what might be necessary in an unknown future. The bigger the better!
Thanks! And yes it's very possible that the pandemic permanently changed people's savings preferences, and so we're never going to go back to 2019 levels. Also there's been some inflation since 2019, so inflation-adjusted balances would be smaller. Inflation hasn't been close to 50 percent though.
Apologies but this is not correct. Saving preferences and international flows had minimal effects at the margin and, essentially, this excess saving is simply the result of US commercial banks buying government debt and expanding their balance sheet crediting private deposits doing so. Just look at the FRED data for banks' holdings of government debt. So this was a classic helicopter money experiment but, as Benjamin Friedman explained, once the money is distributed (with a lag; something like 12 months), the inflation from this latent money printing will disappear and inflation/deflation trend will come back to previous trend. And note that commercial banks have started (slowly) to unload government debt from their balance sheets (removing deposits and reducing M2 doing so) and an even more indebted economy will tend to be even more deflationary (until and if the Fed-Treasury complex pivots again).
Number 12 is my favorite. If it's a supply chain problem at ports, then activity would have gone down at ports. The real supply shock was to services, it just didn't show up in market prices, but the shadow price of eg tourism went way up.
The delayed measurement of market rents, as you have shown in chart 3, and I have also highlighted in my own work, is such a critical point. With shelter costs being such a significant component of the CPI (and an even bigger component of the core CPI), this adds a real risk that the Fed significantly overtightens as market rents continue to roll over.
You are certainly right to also point out the key difference between the GFC and now, being the enormous post-COVID government stimulus, that means additional money actually entered the system, creating a surge in incomes and demand. This, as opposed to 'supply-chain troubles' is the real reason for our current inflation, and which is well pointed out via chart 12.
One point I would differ on is your 10th chart. I think we need to be paying more attention to the blue line, which clearly shows that durable goods prices have peaked. This comes alongside the significant fiscal and monetary tightening that has occurred over the past ~year. While the YoY durable goods growth rate may rise next month due to a negative prior year comparable, durable goods prices are set to continue decelerating sharply after that, which I believe is providing a better reflection of the real underlying economy at present: which is weakening significantly, and is likely to result in a significantly lower rate of inflation going forward. The red line is instead overly dominated by lagging rental costs, which will soon likely result in inflation being overstated versus actual market rents, creating a misleading inflation picture that is unlikely to accurately reflect reality.
I think chart #8 is the most telling. We never recovered from the 2008 crash. Instead of proper stimulus, the financial powers that be chose austerity. COVID loosened the purse strings and in 2020 the economy started to return to trend. Inflation is how capitalist societies transmit information about the need for production transitions, so it is essential for growth, but it threatens power relationships. Naturally, growth needs to be suppressed. We will NEVER recover from the 2008 crash without some major changes in our political structure.
Housing is not much more expensive if you look nationwide. Food and (especially) clothing are cheaper. Cars are cheaper. And while medical care and health care are more expensive, record numbers of people have access despite that. And health care is much better than it used to be.
Thank you for coming back with a bang! Your work is deeply appreciated.
One item, though, regarding your Item 5 which reports: Both high- and low-income households still have about 50 percent more cash in their checking accounts than they did three years ago.
One needs to recall that three years ago checking accounts did not reflect the possibility that the world was coming to an end via a pandemic, et al., which is to say checking accounts now reflect a respect for what might be necessary in an unknown future. The bigger the better!
Thanks! And yes it's very possible that the pandemic permanently changed people's savings preferences, and so we're never going to go back to 2019 levels. Also there's been some inflation since 2019, so inflation-adjusted balances would be smaller. Inflation hasn't been close to 50 percent though.
Apologies but this is not correct. Saving preferences and international flows had minimal effects at the margin and, essentially, this excess saving is simply the result of US commercial banks buying government debt and expanding their balance sheet crediting private deposits doing so. Just look at the FRED data for banks' holdings of government debt. So this was a classic helicopter money experiment but, as Benjamin Friedman explained, once the money is distributed (with a lag; something like 12 months), the inflation from this latent money printing will disappear and inflation/deflation trend will come back to previous trend. And note that commercial banks have started (slowly) to unload government debt from their balance sheets (removing deposits and reducing M2 doing so) and an even more indebted economy will tend to be even more deflationary (until and if the Fed-Treasury complex pivots again).
Number 12 is my favorite. If it's a supply chain problem at ports, then activity would have gone down at ports. The real supply shock was to services, it just didn't show up in market prices, but the shadow price of eg tourism went way up.
The delayed measurement of market rents, as you have shown in chart 3, and I have also highlighted in my own work, is such a critical point. With shelter costs being such a significant component of the CPI (and an even bigger component of the core CPI), this adds a real risk that the Fed significantly overtightens as market rents continue to roll over.
You are certainly right to also point out the key difference between the GFC and now, being the enormous post-COVID government stimulus, that means additional money actually entered the system, creating a surge in incomes and demand. This, as opposed to 'supply-chain troubles' is the real reason for our current inflation, and which is well pointed out via chart 12.
One point I would differ on is your 10th chart. I think we need to be paying more attention to the blue line, which clearly shows that durable goods prices have peaked. This comes alongside the significant fiscal and monetary tightening that has occurred over the past ~year. While the YoY durable goods growth rate may rise next month due to a negative prior year comparable, durable goods prices are set to continue decelerating sharply after that, which I believe is providing a better reflection of the real underlying economy at present: which is weakening significantly, and is likely to result in a significantly lower rate of inflation going forward. The red line is instead overly dominated by lagging rental costs, which will soon likely result in inflation being overstated versus actual market rents, creating a misleading inflation picture that is unlikely to accurately reflect reality.
i bond holders will be happy seems like
I think chart #8 is the most telling. We never recovered from the 2008 crash. Instead of proper stimulus, the financial powers that be chose austerity. COVID loosened the purse strings and in 2020 the economy started to return to trend. Inflation is how capitalist societies transmit information about the need for production transitions, so it is essential for growth, but it threatens power relationships. Naturally, growth needs to be suppressed. We will NEVER recover from the 2008 crash without some major changes in our political structure.
M2 M2 M2 M2 M2
AUTHOR TIMOTHY LEE: Okay Housing, Education, and HealthCare are much more expensive. But hey, hammers are cheaper!
Housing is not much more expensive if you look nationwide. Food and (especially) clothing are cheaper. Cars are cheaper. And while medical care and health care are more expensive, record numbers of people have access despite that. And health care is much better than it used to be.