The Economy Of Scale Hit The Wall In 2022

[tabs]

As everybody knows the FED since 08 has been printing so the US government could borrow and spend to keep a moribund economy afloat. This has led the US to the point where it is imperative for the FED to reduce their Balance Sheet and raise interest rates to give incentive to buyers in a world awash in USD's and US debt. In 2013 FED President Bullard on CNBC said that the FED could go to 7T on the balance sheet without a problem. Extrapolate that by 7 or 8 years having a larger economy the FED Red Line increased to the mid 9T to 10T range. Where the FED with the pandemic got to roughly 9.3T on the Balance sheet before they started to reduce the Balance sheet. In 2019 Chairman Powell told the Trump admin that they had to spend big in order to jump start the economy as FED policy had reached the extremis of Monetary Policy. Hence with former FED Chairwoman Yellen at Treasury that is exactly what the US govt has done. With so much debt the FED had to start rising interest rates to make that debt attractive to buyers. Lest it go unsold. This in essence has left the FED in Checkmate.

With so much US debt and USD's on the float the intrinsic value of the USD is greatly diminished where Inflation reared it's head as prices on commodities and goods had to rise to maintain an equilibrium with the USD. The effect of this on the US consumer who has seen his wages remain stagnant since 1975, has no savings and has reached his credit limit is that he can no longer afford to consume. It has come down to a choice of either buying groceries and paying bills or buying a new TV. Eating is necessary and TV's are not. This has been reflected by Walmart having to discount it's general merchandise to clear inventory that is not selling. Thus DEMAND DESTRUCTION is now occurring.

This in effect is a REVERSAL OF THE BENEFITS OF A GLOBAL ECONOMY OF SCALE. The benefits of an economy of scale is, that the more units that are produced the lower the cost per unit. (The manufacturer has fixed costs of infra structure and financing) With a REVERSAL the fewer units being produced to meet actual demand raises the manufacturers unit cost, which cuts his profit margin as he can not raise pricing but has to continue to lower them to entice financially strapped consumers.. This will continue in a vicious downward spiral until the manufacturer has no profit margin left and the economy slowly grinds to a halt. In other words a deeper and deeper ongoing recessionary environment.

There is no realistic nor rational solution that will reverse this trend. Humpty Dumpty was broken in 2008 for anyone who cared to notice, as the circumstance that caused the Great USA Post WW2 Prosperity Boom, that created a broad based American Middle Class with pockets full of money no longer exist with Globalization and the competition therein. Now comes the return to reality and the great economic leveling.

[pwd72s]

By golly, I think you've got it.

Also, this process is being sped along by a bureaucracy that punishes business through onerous taxation and regulation.

[tabs]

Originally Posted by pwd72s

By golly, I think you've got it.

Also, this process is being sped along by a bureaucracy that punishes business through onerous taxation and regulation.

Since they can not continually borrow to finance their activities they need to INCREASE TAX REVENUES...

The more dinero you have in your pockets the more you are going to be soaked like a teabag..until you have no more flavor in you. Milked for every thing you have got...it is for the collective good of society.. This includes the Billionaire class...the collective is more important than individuals..especially those with money.

It is out of DESPERATION to keep the music playing that they do these things...naturally they benefit from it as they are at the top of the food chain and want to stay there. They have everything to lose if it falls.

[cstreit]

You've made a lot of suppositions of doom here (shocking) - but with no actual evidence of your claims.

Is consumer demand down? Lets see the data.
Is production of goods down? Lets see the data.

What we do know is that during COV the US savings rate went WAY up - and then afterwards flush with cash but restricted with supply chain issues - Supply/Demand went out of whack and are now correcting.

You say "Since they can not continually borrow to finance their activities they need to INCREASE TAX REVENUES..." Name me a time when that wasn't the case? Taxes always go up.

[KFC911]

Humpty fell long before 2008 Tabby .... that's when he finally hit the ground. And all the Fed's horses and all the Fed's men ....

There hasn't been fiscal responsibility in DC during my lifetime .... by anyone.

[LWJ]

I am not even an armchair economist. But, you mentioned that value of the dollar is diminished.

I see exchange rates being very favorable in the last 12 months.

This is a question, as I am out of my expertise here.

[KFC911]

Tabs is referring to inflation shrinking the value of $$$, verses the strength of the dollar verses other foreign currencies. Or he will correct me

[fintstone]

Originally Posted by LWJ

I am not even an armchair economist. But, you mentioned that value of the dollar is diminished.

I see exchange rates being very favorable in the last 12 months.

This is a question, as I am out of my expertise here.

The very definition of inflation: Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.

In this case, it is runaway inflation the last two years...the worst in the lifetime of many.

[McLovin]

Re the economy, I don’t know what to think anymore.

[fintstone]

Originally Posted by McLovin

Re the economy, I don’t know what to think anymore.

According to an article I just read: "On the heels of another rate hike this week by the Federal Reserve, credit card annual percentage rates are already near 20%, on average, and set to climb even higher. At the same time, more consumers are leaning on credit to afford increasingly expensive necessities, like food and rent.

That helped propel total credit card debt to a record $930.6 billion at the end of 2022, a 18.5% spike from a year earlier, according to the latest quarterly report by TransUnion...."

Sorta leaves me a bit pessimistic in the short and mid-term.

[McLovin]

Yet after the Fed continues to raise the Fed fund rate, mortgage rates drop to their lowest in 4 months, and the housing bubble that was beginning to deflate now starts up again.
People seem to still be spending like crazy.

[cstreit]

Lots of companies still making record profits.

A lot of inflation is very likely corporate profit-taking. They keep saying costs are going up - but still making more money than ever before?

Our family business has seen 5 major price increases over the last 2 years and we've had to pass that long to the consumer. Actually our biggest issue is the supply chain - it takes too long to get things in to satisfy demand. That will lead to more inflation - until supply chains are fixed. To me thats one of the biggest issues.

[McLovin]

It seems to me the Fed is grossly underestimating how entrenched and serious inflation is.

[Bill Douglas]

The whole world is suffering from inflation. So it kind of makes us all equal. Plus the US has the security of size. So whatever ailment your economy has, the rest of us have it worse.

[McLovin]

What’s weird to me is that no one seems to ever mention or recognize that suddenly printing literally tens of trillions of currency worldwide is by definition highly inflationary (devalues the previously existing currency).
It’s like it never happened, or has no consequences.

[McLovin]

And when the Fed said that after the application of all their brain power and resources, their conclusion was “inflation is transitory,” I came to understand that either they aren’t as smart as I thought, or they are dishonest.
Because that was an insane thing to say.
so the people who said that are in charge of understanding and solving inflation - isn’t very confidence inspiring.

[Bill Douglas]

Originally Posted by McLovin

What’s weird to me is that no one seems to ever mention or recognize that suddenly printing literally tens of trillions of currency worldwide is by definition highly inflationary (devalues the previously existing currency).
It’s like it never happened, or has no consequences.

Yeah, a loaf of bread still costs the same, it's just that it takes more of these "watered down" dollars to pay for it.

[KFC911]

Originally Posted by McLovin

What’s weird to me is that no one seems to ever mention or recognize that suddenly printing literally tens of trillions of currency worldwide is by definition highly inflationary (devalues the previously existing currency).
It’s like it never happened, or has no consequences.

Where do you think the Fed's rates should be .... near 0 or at 5, and do you think the Fed should reduce their balance sheet? Of course there are consequences to their monetary policy .... and for all central banks. They don't always get "it" right .... supply chains, foreign oil issues, Covid, consumer spending on cheap credit, etc. .... all factor in.

And "suddenly" was over the last 15-20 years ... not overnight.

[tabs]

Originally Posted by KC911

Humpty fell long before 2008 Tabby .... that's when he finally hit the ground. And all the Fed's horses and all the Fed's men ....

There hasn't been fiscal responsibility in DC during my lifetime .... by anyone.

Dwight D Eisenhower

As I have said ad nauseam the precedent was set with LBJ putting the SS Trust into the GA in 68...and the rebuke of Jimmy Carter when he said put a sweater on.. which meant America tighten your belt...followed by Ronnie telling you you were exceptional people living in a shining city on the hill as they handed out credit cards..

The FED has been left to clean up your mess...yes you.

[tabs]

Originally Posted by LWJ

I am not even an armchair economist. But, you mentioned that value of the dollar is diminished.

I see exchange rates being very favorable in the last 12 months.

This is a question, as I am out of my expertise here.

I knew this question was coming and that is why I said, "Intrinsic value."

All currencies are balanced against the USD to maintain an equilibrium..Since those nations economies are in worse shape the USD is stronger vis a vis those currencies.

Many nations have had to use their USD and Gold reserves to pay bills. Thus they need to buy USD's with their currency when a short fall occurs..

Then there is the REVERSE REPO Window where the FED takes in USD's and gives out short term Treasuries on a daily rollover basis..It is over 2T a day now.

Institutions need the secure capital of a US Treasury to use as collateral against their junk bond portfolios.. That is another can of worms to digest. Which ultimately means that a lot of corps ain't doin so swell.