The other side of this coin is that exports are very difficult. My dad is a nut farmer and the business is completely unsustainable right now. Expenses are through the roof while simultaneously crop prices are at all time lows due to the collapse of exports. It's nuts.
We Canadians used to regularly talk about how cheap the US was, and load up on gas, food, beer, cheese and all the rest when staying in cheap hotels and getting cheap meals with cheap entertainment (concerts, sporting events, etc.). If you could be bothered electronics were cheap, cars were cheap, clothes were cheap, etc. etc.
In the last ~12 months I have been floored how expensive life in the US is now. I was just down two weeks ago, and everything was either the same dollar number as Canada or higher, but it's in US dollars.
This was a very very brief moment when the CAD appreciated. Are you sure you didn’t just end up coming of age at a particular moment, specifically 2006-2012?
Because otherwise the exchange rate has been about where it is now to substantially worse for the rest of the data set.
I read their comment differently than you did. I think the point they are making about exchange rates goes like this:
The dollar amount in CAD was normally higher than the equivalent in USD. For example, next to the bar code on the back of a paperback, it would list the prices as $15 USD or $20 CAD. Many other goods have similar price differences.
Lately in the US it seems like a lot of prices are increasing to the same number value, despite the exchange rate.
They are doing it with wage growth. Inflation is likely a result of high employment levels. There are more jobs than candidates.
Personally I believe it is due to the last of the boomers retiring. Economists/analysts are not used to thinking about demographics and they have a blind spot on this ever more important topic.
"They are doing it with wage growth. Inflation is likely a result of high employment levels. There are more jobs than candidates."
There is limited real wage growth and it is mostly concentrated at the bottom end.
There might be more jobs that "qualified" candidates. Companies are still being very picky. A lot of the jobs/employment numbers we are seeing are including more part-time or low wage positions than in the past.
The inflation is mostly because of the increase in money supply in my opinion. The economy is fragile enough that the Fed is talking about a rate drop soon despite inflafion.
Are boomers retiring? Both of my parents are near the traditional retirement age but are planning on working for another decade. Even boomers who do retire often get part time jobs.
They wish they could but they lost their shirts in 08-09 thinking their ATM, I mean houses, would continue to allow them to do nothing and get rich like it had for the prevuois 25 years.
Overvalued by a lot, we expected a full global crash in which so far in history the USA has bounced back first. But instead we pumped out 20% of all USD ever printed, which created a slow burn. As long as the keep rates where they are or higher, we should recover. I personally think rates are too low, and this last week has proven that is the right view, the market can still remain delusional far longer than I can. The longer the unrealistic expectation of rates falling at all this year, just increases the risk we'll have trouble. Cheap cash is gone, you gotta earn it now. Downvote all you like, doesn't change the fact that rates need to stay up or we risk a similar situation as the early 80's.
I mostly agree the market has entirely unrealistic expectations of rates going lower. I think the cause is structural due to the tight employment market which is not going to change any time soon. The period of low inflation and low rates is over and the market analysts are living in the previous decade.
The Fed needs an excuse to return ZIRP. There's no way around it as the economy is now designed around cheap money and inflationary valuations. And for this specific reason I present to you AI.
Generative AI has potential and there are fun experimentations, but nothing game changing for the vast majority of businesses at the moment. People always overestimate short term change a new technology bring. Sure long term as with the internet it will change everything. But for now in the broad picture of the economy this is a toy and the FED doesn’t care about it. “AI” looks more like a Hail Mary for VC before being definitely crushed by high rates at this point.
I somewhat agree with you on some points. Am not all in on AI becoming a main driver for business productivity (not yet at least) but that's not really up to me to decide. It could very well be a flop but we could be calling it no more revolutionary than the fax machine and be wrong about it just like Paul Krugman's infamous prediction in 1998.
The tech boom was as much influenced by silicon valley VC money as it was by the technological solutions themselves. AI fits into the same playbook. It's only rational to look at it in the same lens. The only difference is that tech has hit its limits as we are seeing with the layoffs but AI presents itself as a new vehicle to continue with the inflation.
The reason the Fed care about AI in my view is because it's new a conduit for letting loose the money printer. Once AI begins increasing economic output they'll have their missing piece for ZIRP. Without this, opening the floodgates again will be a catastrophic mistake as the inflation won't match the productivity output.
S&P 500 has hit an ATH not long ago with high rates. The economy seems to be working quite well. There is not even a crash in residential real estate. The commercial real estate is going bust, but there are funds just waiting for current owners to go out of business and buy up the buildings for pennies on the dollar.
"S&P 500 has hit an ATH not long ago with high rates. The economy seems to be working quite well."
The market is not the same as the economy. We are in fact seeing rising consumer debt defaults across various types. Jobs data is not as good as it seems since there are higher percentage of part-time and low wage jobs in the numbers. Consumer spending is stagnating or down in many sectors. Hiring in consumer discretionary industries like restaurants has stagnated too. I'm not sure the economy looking that good, despite the optimism (inflation even?) in the market.
The S&P 500 rally is just 7 stocks and is not a true representative of the real economy anyways. I think you have my argument confused. I'm not saying the U.S is supposed to be in a recession or headed into one.
"I mostly agree the market has entirely unrealistic expectations of rates going lower. I think the cause is structural due to the tight employment market which is not going to change any time soon."
They expect it to go lower because they got used to it over the past decade or so, and the Fed has said they are expecting a rate drop. It's not unrealistic if the people who make up the rates say it will happen. Of course that doesn't make the decison to do so reasonable.
> entirely unrealistic expectations of rates going lower
The Fed has already announced back in December that they are planning to cut rates to 4.6% by the end of 2024 (of course that might change). The bond market consensus is somewhere between 4.25% - 4.75% so how is it “entirely unrealistic”?
Govt debt growth needs to slow. Too much money spent by govt is being wasted on undeserved transfer payments, creating do-nothing jobs and has been a huge contributor to inflation.
Real efficiency is falling because of overspending in the public sector. Fewer people making things everyone wants in the private sector and more people with govt jobs digging holes and filling them in creates inflation.
> As long as the keep rates where they are or higher, we should recover.
This is not the case and is actually impossible. Impossible they will maintain them or higher. And impossible we would recover.
The US is headed towards $1T in interest payments alone annually.
$34T in national debt AND $213T in unfunded liabilities. 2/3 of the budget is non-discretionary
The longer they stay elevated the more the average interest rate on debt goes up. For the US and the world since it's the reserve currency. This pisses everyone off.
Rates will go back down to around 2% because the US AND the world cannot sustain an expensive dollar. There's 65T in eurodollar debt (US dollar denominated debt) globally. [1] I've seen higher estimates too.
"Approximately half of all cross-border loans, international debt securities, and trade invoices are denominated in U.S. dollars, while roughly 40 percent of SWIFT messages and 60 percent of global foreign exchange reserves are in dollars." [2]
We aren't going to end up back around 2% because the Fed wants to. It's because we have to. You cannot maintain the world reserve currency at these rates after everyone got drunk off the lower rates for decades. And you cannot have the debt load we have and maintain these rates or higher. There's no easy way out of a debt spiral.
Just my opinion but rates will go lower. Printing will go into hyperdrive. Inflation will rip. There will be more unrest. Personally, I'm holding inflation-hedging assets.
Historically they are not low at all relative to inflation and considering how highly the government debt to GDP ratio is raising them further would lead to severe issues. Since a surplus or even a balanced federal budget is basically politically (probably financially too) impossible at this point high growth + low rates + predictable moderately high (2-3%) inflation is the only way to keep public debt from spiraling out of control.
> risk a similar situation as the early 80's.
IMHO the early 80s are about as relevant today as the 30s were back then. So a bit but not a lot. The global economy and financial system (and the position US has in it) is extremely different
"As long as the keep rates where they are or higher, we should recover."
Yet the Fed is talking about rate drops. We're also seeing rising consumer defaults and more perilous bank debt. And those great job numbers aren't that great since we're seeing higher part-time and low wage jobs than before. I'm not sure we're going to really avoid anything.
America has always been famous for the fact that everything is extremely cheap. But now I'm seeing videos of people at Costco/Walmart showing the prices of stuff (often while finding an old price label and showing there's been a 50-100% increase over the last year) and it's actually way more expensive than what I pay in the UK.
It’s idiotic. I went to Zermatt and the little grocery store there was cheaper than Seattle Safeway. A ski resort in a land locked country with higher food quality standards that has cheaper food than a coastal US city with a port is absurd.
I think safeway is trying to take over QFC/Kroger so that’s great.
They changed the way we measure inflation big time since the 70s. My bills are up 40% in the last 3 years. The interesting thing is this is far from over. We will see how this ends. I'm not optimistic.
So you're saying that the US Bureau of Labor Statistics should throw their statistical methodology out of the window and instead use your bills to measure inflation?
I doubt the main commenter, meant it that way, why is there any need to bash them ?
It’s a political issue, well criticised and commented on, that governments intentionally game metrics like inflation, etc to look good on paper for incumbent presidents and heads of state.
Also, the inflation rate is a very inconsistent number, different regions of the US has different rent price increases, different cost of labour increases, different product prices for a lot of goods. How can the nation be entirely ruled by one common inflation rate.
All statistics like this which have to target so many regions, environments, and scenarios, always have to make decisions, that sacrifice some scenario or the other, where the “score” is a very poor indicator
This applies not just to inflation, but other metrics like gdp per capita, employment rate, etc.
There is no need for that condescending tone, especially when the author is talking about their increased cost of living, which prolly hurt their purchasing power.
His feelings are correctly placed though. Even though macro economists agree the current methodology is the least wrong, they also agree that the BLS series cannot explain why Americans have stopped saving and gone so deeply in debt. A slight error in BLS methodology, could explain that reality. So comparing the CPI to your own reality is clearly very rational.
His feelings were correctly placed. There was a vibecession last year when consumer sentiment was lower than it had been during the 2008 recession. This was in spite of low unemployment, high growth, high wage growth, low inflation and reasonable gas prices.
The reason behind the low consumer sentiment wasn't a flaw in BLS methodology, no one seriously questions any of the stats I mentioned. Rather, it's that the effect of a couple of years of high inflation continued to weigh on consumers. 6 months of low inflation didn't reverse previous price increases, nor did they forget what prices used to be.
And yet, it's fundamental human nature to adapt to circumstances. Consumer sentiment has actually increased substantially in the last 3 months. Source: American consumers are finally cheering up (The Economist - https://archive.is/vJ7gf).
> The rate of improvement is especially striking. The 30% increase since November marks the survey’s biggest rise over any three-month period in more than three decades. The level remains glum by historical standards: about 15% below its average in the five years before the covid-19 pandemic.
In summary, the BLS' methodology to calculate economic indicators is fine. And assuming those indicators continue their trend, it's likely that consumer sentiment will continue to recover.
You also claim that
> Americans have stopped saving and gone so deeply in debt
Such a strange comment. Yes, like most macroeconomists he uses a low pass filtered number (so-called “core inflation”) to look for underlying trends but is quite aware that headline inflation (includes the high frequency fluctuations) is what actual humans see at the store.
And he discussed the used car numbers — such an interesting outlier — as an indicator of supply-side shock.
You can agree or disagree with his Keynesian positions but he’s pretty clear with his thinking and calls out when he was wrong. To the degree macroeconomics can be considered a science, that’s what you want from a scientist, isn’t it?
You’re committing a fallacy of “Appeal to Authority”, even though your comment doesn’t make sense — obviously we need a consistent measure across decades if we want to compare inflation across decades. Comparing two numbers that measure different things is an apples-to-oranges comparison. (Which is what you’re arguing we should do.)
If you use a consistent measure from a 1980s basis, you’ll see that person is correct — as measured using the historic means, we’ve had ~40% inflation in the past few years and the highest rate of inflation in 40 years.
This chart uses the historic measure and bases in 1980.
The Shadowstats numbers are deeply suspicious though; the graph makes it look like Williams is just adding [0] a constant to the BLS figure, which undermines his credibility. I'm also pretty sure he changes his constant every so often because I remember at one point his data implied absurd drops in the GDP and it appears the website has been changed since then.
I'd suggest just referring to the M2 [1]. It is easier to understand, and more available for analysis. Apparently it also gets rid of the stupid "real" price rises that inflation pretends gold is experiencing [2]. It suggests prices should be about 40% higher than pre-pandemic (I checked 2019-11 -> 2023-12) which coincidentally lines up with what justinzollars is reporting.
[0] Well, smoothing in. But the two lines wiggle the same way which suggests we're just using the BLS + an adjustment that is changing in a boring way over time.
Whenever there's a change in methodology, it's common practice to retroactively recalculate the entire series so that the data are consistent. Economists aren't that dumb.
Well it's a perpetual dilemma as they have to keep changing: food is now less than 10% of a family's budget while it used to be over 30% as it is in poor countries like Russia (just happened to see that figure last week). People spend money on computers which they didnt' in the 1980s, etc.
> The interesting thing is this is far from over.
What do you think is the cause and why it is far from over? I'm curious, not trying to start an argument
In fact, 2020s inflation (using historic measure) peaked at over 15% while the 1970s spike peaked below 15% — meaning that this latest inflation sets the record compared to the 1970s.
> Responding to prior criticisms made by economist James Hamilton, John Williams explained in a private phone call that Shadowstats does not actually recalculate BLS data, rather, the Shadowstats CPI merely adds a constant to the officially reported numbers.[25]
>> I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an add factor to the reported statistics
Same article says he charges $175/year/subscription since 2006.
I'd love to get paid that much to do a high school level introductory programming assignment. The business logic is literally a one liner X-D
Inflation was consistently very high in the 70s while time time it peaked in 2022 and then went down relatively rapidly. Of course it might rebound but until that happens it’s hardly comparable.
The US inflation did not come out of devaluation of the dollar compared to other currencies. It was internal. What that means for the future however I have no idea.
But considering the US gov deficits I would assume more inflation is to come with actual devaluation.