re: CPI for December comes in hot

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The market lives on hopium, anyone expecting 6 rate cuts in 2024 is/was delusional. We'll be lucky to get 3.

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We need 6 hikes, not 3 cuts.

Spending is keeping up with price increases because the reduction in the value of a dollar is being offset with more dollars in the form of credit. Demand isn't softening because there's no squeeze being felt - it's just "we can lo longer afford to pay for it, but we want it anyway, so put it on credit."

Credit is tied to risk and alternatives. Access to capital/credit tightens up when the people holding the money have safer options.

A crude example: When rates are low, you have to take risk or you won't get any return. When rates are high, you can park that money somewhere and make a little bit less of a return, but do it with relatively little risk.

Higher rates = safer alternatives become more attractive
Low rates = riskier options must be taken or you won't make any money

Money HAS to stop flying around (on a macro AND micro level) or this problem will not go away.

That ain't happening - we've got sanctuary states and cities that need hundreds of billions to feed, clothe, house, educate, and medicate 10 million plus newly arrived hard workers who just want a better life

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How can that be? Bidenomics is so wonderful! How dare you use real data and not stick to the Dim narrative

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no doubt you believe that Trump printing 7.8 trillion dollars in four years while pushing for zero interest rates had no affect on inflation, amirite?

"It DiDn'T sTaRt UnTiL tRuMp LeFt OfFiCe!"

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All it does is make the prices climb even higher. You, as an individual or business are trying to address increasing prices, but the manner in which you're doing it is making them climb even higher.

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Disagree. You're adjusting to the market. In the sequence of events, the manufacturers are the first to announce the price increase - not the distributors. Follow the breadcrumbs back to exorbitant wages and other manufacturing cost. In reality, it's a never-ending cycle...

In an ideal world, all the dynamics become frozen in place, and that, as we all know, will never happen since everyone seizes upon the opportunity to put more feathers in their respective nests. Alibaba was a fortunate man - he only had to deal with 40 thieves.

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Disagree. You're adjusting to the market. In the sequence of events, the manufacturers are the first to announce the price increase - not the distributors. Follow the breadcrumbs back to exorbitant wages and other manufacturing cost. In reality, it's a never-ending cycle...

In an ideal world, all the dynamics become frozen in place, and that, as we all know, will never happen since everyone seizes upon the opportunity to put more feathers in their respective nests. Alibaba was a fortunate man - he only had to deal with 40 thieves.

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You're wrong. You're looking at one aspect, perhaps a few, unable to see how they all connect to make a big picture.

Economics is about behaviors and interactions as they relate to markets. In other words, nothing happens in a vacuum. The variables are constantly interacting, so one decision has cascading effects.

On an individual level, all you're doing is adjusting to the market. "Prices are climbing, so we're going to stockpile inventory at the cheapest prices." <--- that's ONE piece. It's not a bad idea on a micro/individual level. In fact, it's smart.

But there are more pieces. Another piece can be labelled "everyone else is doing the same thing." When EVERYONE is doing it, stockpiling translates to Demand Pull. (Demand being pulled forward due to inflationary pressure.)

Another piece can be labelled "how is everyone able to do this?" Debt/credit mostly. But even if funded internally, the Cost of Equity (Ke) comes into play in the form of "what alternatives do investors have and what return do we have to give them in order for them to give US their money instead?"

If they have alternatives (either better returns, lower risk, or a combination of the two), then Ke rises. When creditors (which are absolutely driven by risk/return dynamics) have alternatives, your Cost of Debt (Kd) rises. Both drive your Cost of Capital, which affects a firm's ability to spend.

Back to stockpiling inventory ...

When everyone does it, it's Demand Pull and prices will continue to rise. So how can we stop this from happening?

Well, if everyone stopped doing it, then it would stop. But it's a classic Prisoner's Dilemma (the term for what you described in your last paragraph). If everyone cooperates, everyone wins a lot. But if some cooperate and some defect, the defectors can win even more. So they let you cooperate while they defect.

(If you cooperate and don't stockpile, then the next guy can stockpile and get a business advantage.)

So now you are forced to defect as well just so you can keep up. If everyone defects, then you fall to what's called Nash Equilibrium - the best position everyone can find themselves in absent cooperation from the other party(ies). The payoff is less than full cooperation, but better than you cooperating while the others defect.

The Nash position (everyone stockpiling) results in Demand Pull, which means prices keep climbing.

It can't be fixed organically via cooperation because of what I just described.

It can only be slowed by increases in the Cost of Capital to the point that stockpiling is no longer financially feasible (the risk of doing so outweighs any potential advantages).

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We need 6 hikes, not 3 cuts.

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I don't know that we need 6, but I do think JPow went on cruise control too early. We should have had another hike toward the end of the year once November CPI came in up while real estate prices increased again.

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Spending is keeping up with price increases because the reduction in the value of a dollar is being offset with more dollars in the form of credit. Demand isn't softening because there's no squeeze being felt - it's just "we can lo longer afford to pay for it, but we want it anyway, so put it on credit."

Credit is tied to risk and alternatives. Access to capital/credit tightens up when the people holding the money have safer options.

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I don't disagree with any of that, but that's more a product of consumer behavior than anything else. Consumers have gotten used to the idea of credit/debt in order to get through price increases. The problem now is that this isn't "transitory" (and never was, despite the dipshittery of Janet Yellen) and that behavior has created a consumer debt bubble (which is still growing).

This last Christmas season was punctuated with stories of businesses returning to layaway plans (now calls "buy now, pay later"). I think many didn't bother to look beyond the return of them to consider why they returned.

The current, insanely high credit card interest rates will address that, but it takes time to change behaviors. I believe going full Voker at this stage (it should have been done last year instead of the stepped increases we saw) would just push consumers to walk away from credit card debt like they did from mortgages in 2008-09 (which would then exacerbate the problem).

A big worry I have in this is the impact on social services. A big enough recession is going to cause Biden & Co to push for expanded welfare/unemployment benefits (see: Nancy's 99 weeks). That will undoubtedly extend problems as it would allow consumers to keep spending (at lower levels, but still spending). A big jump in rates pushing consumers to just walk away from credit card debt and then onto the government dole may well crash the USD by exploding deficit spending even further.

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I don't disagree with any of that, but that's more a product of consumer behavior than anything else. Consumers have gotten used to the idea of credit/debt in order to get through price increases. The problem now is that this isn't "transitory" (and never was, despite the dipshittery of Janet Yellen) and that behavior has created a consumer debt bubble (which is still growing).

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Correct. We're on the same page (see below). Economics is about behaviors and interactions, not the dollars themselves.

Consumers have gotten used to the idea because money has been damn near free for a long time. (Let's not fixate on credit card APRs...consumers/spending behavior in this context is everything from a person buying milk to a person buying a boat to a corporation funding production/growth via debt/equity).

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The cost of capital (debt/credit and equity) HAS to increase to the point that spending behavior is altered. Period.

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The current, insanely high credit card interest rates will address that, but it takes time to change behaviors. I believe going full Voker at this stage (it should have been done last year instead of the stepped increases we saw) would just push consumers to walk away from credit card debt like they did from mortgages in 2008-09 (which would then exacerbate the problem).

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It would definitely break some stuff, but that's what Volckering the economy does. It's the only way to fix it. Again, credit card debt is just one piece. Capital markets have to contract to the point that spending is checked. That applies to buying milk or funding a firm's production/growth. Everything has to slow down and future growth needs to be HEALTHY growth (that whole "target inflation" thing).

Economic growth can't happen without inflationary effects, and we want to grow. It just has to happen "smoothly" and consistently. That's what Monetary Policy is supposed to handle. But we had cheap money flying around all over the place for far too long, which is the equivalent of strapping a 1000 HP engine to a go-kart. Yeah, it's fast...too fast...and now we're in a ditch. Rates should have been raised back in 2016-2017 (or sooner) when the economy was healthy enough to take a slight hit and power on. Now we're having to do major surgery, knowing the patient (economy) is going to for sure die without it, but will likely die from the surgery itself. We're basically fricked at this point.

MBS up cause everyonr knows this is all mierda

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Off topic, but what do you think GDP over the past 3 years would be annually without deficit spending by the Federal government? I wouldn't be surprising if GDP was 20-25% less than reported.

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GDP = C + I + G + (X–M) where:

C is consumption
I is investment
G is government expenditure
X-M is exports minus imports (the net of the two)

G has been steadily climbing from mid 30s (35% ish) to about 37%-38% now, with temporary spikes up to about 45% during COVID. It's projected to continue to creep upward to 39% or so over the next 5 years.

Percentages vs. nominal value ... meaning a growing percentage of a growing number results in steeper increases in nominal value.

To answer your question ... if G is 35%-36%, I don't know if eliminating deficit spending would drop it 20-25%, but it wouldn't be an insignificant drop either (the answer is whatever percentage of G is run at a deficit).

Fed needs to raise rates another 2-3 full percentage points at least.