A Tale of Two Economies – WSJ:
Here’s some nasty stuff: Now that the debt-ceiling arm-wrestling contest is over, Treasury needs to raise more than $1 trillion in auctions over the next few months. That is some overhang. Who is going to buy all that debt? Not the Federal Reserve, which is in quantitative-tightening mode. And remember, U.S. banks are $2.2 trillion underwater in their bond portfolios. As deposits move to higher-yielding money-market funds, banks are selling bonds as well. Plus, their commercial real-estate loans are a mess. Defaults are the highest they have been since the 2008-09 financial crisis as city office occupancy rates hover around 50%. No shortages there.
As opposed to eggs. This spring’s egg shortage caused prices to jump 60% year over year. Now guess what’s in short supply? Baby chicks. Note the eggs came first. Shortages began during the pandemic and kept rolling: dumbbells, toilet paper, baby formula, many generic drugs, lithium, nickel and now GPUs, graphic processors used for graphics, crypto and artificial-intelligence platforms like ChatGPT.
The problem is simple: the economy never could turn on a dime, and it takes far less time to destroy something than it does to create something.
And the government-mandated pandemic shutdowns destroyed a lot of things.
So we’re still on a psychological rebound: people are trying to get out and do the things they weren’t allowed to do during the pandemic, which has caused shortages across the service sector. Tourism in Europe has gone crazy as people believe it’s now safe to travel overseas without the risk of being taught in pandemic shutdowns. In my area (in Raleigh, North Carolina), restaurants are still trying to hire, as companies try to get the manpower they need to combat all the various shortages, including shortages of service workers in restaurants and hotels, as well as shortages in health care and social services.
And some of these manpower shortages are leading to shortages in goods as well as in services.
It’s why so many economists are confused about the economy: because the economy is now in the process of rebuilding from the damage done by the government when the economy was shut down–and people are under extreme stress and anxiety and have altered their behavior accordingly.
It’d doesn’t help that there is a battle over working at home, nor does it help that, after the government killed a large number of businesses during the pandemic, government leaders are trying to force people back to their pre-pandemic lives in order to save their own tax base. (All those declining property prices? Yeah, that affects taxes, and that affects the ability of cities to afford hiring the police necessary to fight rising crime rates. Which discourages people from returning back to downtown corridors, which lowers property prices further…
And it doesn’t help that the principle tool the Federal Reserve has in fighting inflation is inherently destructive, not constructive. Raising interest rates is a destructive act, designed to kill the weaker companies–which is necessary in a traditional recession, as weaker companies are like the underbrush in a forest that chokes off the forest and which may lead to a massive forest fire.
But companies were already weakened during the pandemic–it’s why we have these shortages in the first place–so raising interest rates without attempting to strengthen supply chains or help corporations by reducing regulatory burdens will only hurt things further.
But of course we can’t help corporations; we couldn’t even clear the backlog at the Port of Los Angeles a few years ago, because it smacks too much of “trickle-down theory.”
We’re all getting a massive practical lesson in economic theory.
Sadly too many of us–including the so-called “experts” and “elite” who control this country–are learning the wrong lessons, or are too stupid to figure out the right ones.