Although it will be endlessly debated, it doesn't matter that much how a recession got started, nor who deserves the most blame. Once the spending-slowdown spiral gets going, it can become self-sustaining on its own, beyond anyone's control, affecting both the guilty and the innocent.
Well - artificially inducing a recession to make people poorer so they can’t afford to buy things as a way of reducing shipping container rates and backlogs is a pretty ass backwards way to run a society.
Food prices are inflating, so if we get enough people unable to afford food, prices go down.
“Victory”
I think you can apportion blame for stuff like that. And the guilty are insulated from the consequences of their actions, so I don’t agree they share in the pain.
> Well - artificially inducing a recession to make people poorer so they can’t afford to buy things as a way of reducing shipping container rates and backlogs is a pretty ass backwards way to run a society.
The fed isn't doing this because they want cheaper shit from china. They're doing it to keep inflation under control. A result of making money more expensive is lower shipping container rates, but that's not the primary goal. Do you have any better ideas for stopping inflation?
Yes. Increase shipping capacity and reduce gasoline costs. These frictionful costs make up the entirety of inflation at the moment. It’s not just cheaper shit from China - although cheaper stuff necessarily is deflationary. Food is a global commodity and it costs 4x more to ship it now than it did 3 years ago. That cost is passed to consumers.
Increasing the cost of borrowing decreases economic activity by essentially making everything more expensive on credit. Many businesses use credit facilities to finance ongoing operations throughout the year and their ability to afford to operate their business will go down, requiring them to employ less and attempt less business. This reduces inflation by pulling capital back from growth and investment as well as into savings facilities. But the other side is it induces a recession, increases unemployment, and decreases wages. This is worse than inflation IMO - if you make less money how is that different than things costing more? The supply of money might change the nominal price of something and hurts fixed income folks, but as wages are elastic as well as prices unless inflation is coupled with decreased wages and employment whats the relative difference? Further consumption based economies burn money supply down quickly if the economy is able to meet demand.
By reducing the cost of shipping and improving shipping capacities any excess cash would be consumed by having supply meet demand. That can be achieved by lowering interest rates which stimulates capital investment in supply side expansion and facilitated demand by lowering the marginal cost of credit facilities.
>Yes. Increase shipping capacity and reduce gasoline costs.
Easier said than done. How do you do this without driving more inflation in the meantime? If supply chains are constrained, deploying a bunch of oil drilling equipment is going to make it worse.
>This is worse than inflation IMO - if you make less money how is that different than things costing more?
What's bad about inflation goes beyond just "inflation was 10% so people are 10% poorer". Inflation hinders trade and financing (why would you sign a 5 year contract when you don't know what prices will be in 5 years?), discourages saving/investment, and adds inefficiencies throughout the economy as everything has to be constantly repriced. Also, failing to contain inflation when there's an expectation of a certain inflation rate leads to higher borrowing costs (for both private and public lenders), because lenders don't want to be wiped out by inflation.
>That can be achieved by lowering interest rates which stimulates capital investment in supply side expansion and facilitated demand by lowering the marginal cost of credit facilities.
That's absolutely bonkers. There's already too much dollars chasing too few goods, and your solution is to unleash even more dollars?
"So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that."
Artificially inducing and propping up an economy with cheap cash led to this. Now we have no choice. Inflation hurts the poor just as much as this does.
If my income drops by $10 is that materially different than the price going up by $10 instead? In the end I have a $10 deficit. By letting supply and demand work itself out and making sure the friction for supply meeting demand is minimal (I.e., shipping and fuel costs low and capacity high), inflation would disappear as suppliers met the demand induced by any excess liquidity in the market. The world has an amazing capacity to produce, but it’s being bottlenecked by fuel costs and shipping capacity. That means if you can improve that bottleneck the excess cash you mention is consumed into production and capital investment to meet the demand. That’s expansive to the economy and generally good for everyone. The fed trying to lower shipping rates by making demand disappear is contracting the economy, is recessionary, and leads to widespread suffering. Neither path happens over night, and both inflation and a recession hurt - but the outcome of economic expansion is better for everyone than contraction.
Note I’m not saying don’t deal with inflation. I’m saying inflation is caused by bottlenecks in supply meeting demand. Stimulus increased demand, and that increased demand can be met by suppliers but the cost of shipping in all dimensions is very high historically. Removing bottlenecks and expanding economic throughput also solves the inflation we see without everyone being miserable.
I think the train that this is transitory has left the station. Demand is still high and inflation rates are not going down despite shipping costs plummeting in recent months.
Obviously the Fed can go overboard. But the economy is no longer based on fundamentals and an inflationary spiral would be a major problem. I can't blame the fed for taking the action they are.
The source of these layoffs makes a very big difference when considering if a recession is likely and how deep it becomes.
The overall economy is doing quite well right now and it’s not obvious if things will improve or tank over the next few months. Despite officially low unemployment rate the actually important employment rate is only ~60% demonstrating a reasonable but not excessive amount of slack in the labor market.
