It’s mostly a demand shock, not a supply shock, and it’s everywhere • Hacker News Board

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#341

Post by acje » Tue, Nov 09, 2021, 12:59 PM UTC

arthur5005 wrote: post #68

What this doesn’t really address is the why? Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous. Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. To me, this still looks like the bullwh…

In networking we have TCP global synchronization. This is probably going to be similar for a couple of cycles, but for goods.

Also LEAN is the practice of globally optimizing a system, with the less known drawback of making it globally fragile. We have seen this before when supply chains are disrupted, like the flooding in 2011 disrupting HHD's. https://spectrum.ieee.org/the-lessons-of-thailands-flood

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#342

Post by cm2187 » Tue, Nov 09, 2021, 1:05 PM UTC

It sorts of make sense. The big mystery was how we created so little inflation with previous QE. In fact we probably did, but because it was injected in the financial system, it created an inflation of financial assets.

But the minute the government distributes this newly printed money directly to the general public (through covid subsidies), inflation in ordinary goods follows.

I know the Fed pretends it doesn’t finance directly the budget deficit but in practice it does, and the amount of QE pretty much tracks the deficits during covid.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#343

Post by 300bps » Tue, Nov 09, 2021, 1:06 PM UTC

asdff wrote: post #197

300bps wrote: post #150

Earlier quoted context omitted.

Bond rates move inversely to price. As the fed buys bonds, it raises the price which lowers the rate. As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy. Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thi…

Not everyone is a homeowner and on top of that not every homeowner has refinanced their home during covid. I don't think people are borrowing money to buy toilet paper or a golf club. How do lower rates for corporate loans affect behavior that's at the consumer level? I'm trying to understand this relationship better.

Picture two scenarios:

Scenario 1: Fed buys $20 billion of corporate bonds per month from Microsoft.

Scenario 2: Fed does not buy $20 billion of corporate bonds per month from Microsoft.

Consider all other things being equal, in the first scenario Microsoft's borrowing costs are drastically reduced. This means that Microsoft has more money. This means that Microsoft is able to hire more people, that the people that work for them get larger bonuses because they are typically tied to the profitability of the company.

This puts more money into real people's hands to buy toilet paper and golf clubs. That then multiplies throughout the economy. Suggestions for additional reading if you are really interested in these things:

1. Money Multiplier

https://www.albany.edu/~bd445/Economics_350_Money_and_Bankin...

2. M1 vs M2 money supply

https://www.investopedia.com/terms/m/moneysupply.asp

3. Fractional reserve banking

https://www.investopedia.com/terms/f/fractionalreservebankin...

4. Fed open market operations

https://www.investopedia.com/terms/o/openmarketoperations.as...

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#344

Post by austincheney » Tue, Nov 09, 2021, 1:09 PM UTC

The LA port issue is mentioned in the article and seems to be severely misunderstood. I work with one of the senior attorneys of the Port of Los Angeles in my side job. The primary problem there, and Long Beach and many other ports, isn't anything economically driven at all. It is lost space. Even more specifically it is vendors not retrieving their containers because its cheaper to leave the container on the dock and store it in their own warehouse.

So the moment a graduated price hike was introduced for container parking (just very recently) one of the major US vendors conveniently found warehouse space for 5000 of their containers sitting empty on the LA docks. Think about this like using airport parking for your car as opposed to metered parking on a street in front of your house (everyone's house) and until recently the airport parking was substantially less per day.

---

I would have loved for the article to focus more on housing, because I see that topic frequently come up on HN from people on the west specific, especially San Fransisco, and they always get this subject incredibly wrong to fit their localized price/inventory dynamics in way that falsely equates to buying candy bars or fuel.

Here is a deeper exploration of housing using data: https://news.ycombinator.com/item?id=28974793

In short, supply trails demand. In high growth markets, which is not San Fransisco, the frequency of demand for a fixed asset versus the speed of supply is almost solely responsible for shaping the product definition.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#345

Post by wexler88 » Tue, Nov 09, 2021, 1:10 PM UTC

rsj_hn wrote: post #153

RC_ITR wrote: post #85

Earlier quoted context omitted.

What everyone is going to have a real hard time wrapping their head around for the next few years: We built a highly efficient economy for a set of behaviors. A shock happened that caused a lot people to change their behaviors (probably for a long time, since they've had 2 years of 'practice'). Our economy, which was built for those old behaviors (living in cities, riding public transit, eating at restaurants, travel…

> Natural gas extremely expensive? Let me introduce you to renewables, which btw are getting better and better every year. Shutting down a natural gas pipeline that people depend upon just before winter, and then lecturing them about solar panels is not a good look. Artificially increasing the price of natural gas causes famines, it causes food and fertilizer to be more expensive, and it makes it hard for people to h…

Solar is an excellent replacement for home heating oil during the Michigan winters.

The vast majority of people in Michigan are already connected to an extremely efficient distribution network for electricity. The marginal cost of delivering additional energy through this network does not round to zero, it is zero. Meanwhile heating oil is delivered by trucks with a large cost in depreciation, labor, and fuel (further fossil fuels burnt in support of a system which was designed to make economic sense with even without the role of heat pumps, which reduce the raw energy cost of heating with solar to around 20% of that of burning fuel.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#346

Post by empiricus » Tue, Nov 09, 2021, 1:10 PM UTC

lwouis wrote: post #287

surrealize wrote: post #37

Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequalit…

Personally, I don't want any more growth. Infinite growth is not sustainable. Developed countries are way past what's necessary for a good life. I'd like to advocate for a slow controlled de-growth so we can reach climate agreement goals, and sustain humankind for a few more centuries, in decent living conditions.

We are far from infinite growth, no reason to worry. Maybe 10x or 100x should be enough to get everybody to stop worrying about food, housing, working? Then we can argue about slowing down.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#347

Post by adrianN » Tue, Nov 09, 2021, 1:13 PM UTC

Freskis wrote: post #262

throwaway894345 wrote: post #200

Earlier quoted context omitted.

I sympathize with this, but if climate experts are to believed, we’ve stalled to the point where we have perhaps a decade to get emissions under control in order to meet targets, and most countries haven’t even begun to make significant changes. At some point there will be pain. The question is, “do we want a little pain now or a lot of pain down the road?”. And to be clear, “wearing a coat inside during winter” may…

"we have perhaps a decade to get emissions under control" Every year we're told it's our absolute last chance. Environmental brinkmanship hasn't work and the tune needs to be changed. Literally no economies are planning for mass famine or wars because no-one actually believes that is going to happen, except religious cults.

Every year the goalposts move a little bit. Thirty years ago the goal was ca. 0° of global warming. Now we're debating whether we can muster the political will to limit warming to 2° (unlikely) or 3°.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#348

Post by sleepysysadmin » Tue, Nov 09, 2021, 1:13 PM UTC

arthur5005 wrote: post #68

What this doesn’t really address is the why? Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous. Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. To me, this still looks like the bullwh…

>Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion.

US money supply M0 in late 2019 was low around 3.5 trillion.

Today it's around 6.4 trillion. This doesn't equate to 100% inflation, but it certainly equates to affording jet skis.

M2 money supply is sitting around 21 trillion and ought to be more around 16 trillion. This is the equivalent to 31% locked in, happening within a few years inflation. Though looking deeper than this, easily 40% inflation locked in.

You are incentivized to buy a jetski even on cheap debt because as this inflation erases the debt. The asset even with depreciation will end up being more expensive than you bought it selling used.

In terms of 'wealth expansion' it's sitting around 400% right now.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#349

Post by adrianN » Tue, Nov 09, 2021, 1:19 PM UTC

speeder wrote: post #325

summm wrote: post #304

Earlier quoted context omitted.

Meat can be easily substituted, so I'd consider that discretionary spending. Furthermore, producing meat consumes many times the plants, than if humans directly consumed those plants. So in an emergency, just stop producing meat and you'll have plenty of plant-based food left.

Can you eat grass? I know I can't... Yes, producing meat requires animals eating a ton of plants and they also need a lot of water. Except that can be mostly grass (that humans don't eat), and the water is just rainwater (that the animals in question will piss later, so it will end on the ground anyway). The reason why animal-based farming exists is because it is the only way we have to get any food in certain parts…

There is a certain level of meat production that uses only waste as fodder, land that has no other agricultural value, and doesn't require destroying areas of high biodiversity to make room for our animals. The current global levels of meat productions are extremely far away from this. We cut down vast swathes of forests to get cheap farmland, both for grazing as well as for producing grain and soy as fodder.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#350

Post by slv77 » Tue, Nov 09, 2021, 1:20 PM UTC

neilwilson wrote: post #274

fallingknife wrote: post #235

Earlier quoted context omitted.

MMT does sound like those radio commercials they had back in the 90s saying they would teach you how to "borrow your way out of debt" though.

Only because you haven't taken the time to understand what is being said - just the twisted version that isn't actually the case. Every financial debt has a corresponding financial asset. Why follow the 'debt' and not the 'asset'? Because you have a psychological anchor on the word 'debt' that causes an emotional reaction? All money is somebody's debt. That's how the accounting works. Rather than looking at the books…

Because at some point the credits and the debits need to be settled with real goods and services and when they can’t be someone has to take a loss. The loss either comes through default or inflation but allocating those costs are extremely painful politically. In many cases those costs end up being paid in blood.