RobDownSouth
Resist!
- Joined
- Apr 13, 2002
- Posts
- 77,378
Way back in October 2022, virtually every business economist, pundit and economic expert predicted a lengthy recession beginning in 2023 and lasting well into 2024, crippling Democratic chances for the 2022 midterms.
The official White House X account commemorated the occasion this week with a snarky troll to Bloomberg News, the titular leader of the doom 'n gloom crowd with a retweet...
So what happened?
First, then-President Donald Trump completely botched the Covid response. Unemployment soared as businesses closed due to Trump's inept and neglectful actions.
To prevent a complete economic Depression-with-a-D, the Treasury ended up sending out 814 billion dollars in relief payments to Americans beginning in March 2020. Americans used this one-time gift in many different ways: pay off bills, start a new business, invest in the stock market, or buy a new big screen TV.
In short, there was too much money circulating all of a sudden and since eating out was verboten and the supply chain temporarily fucked, not enough places to spend it. With the benefit of 20/20 hindsight, it appears to have been too much money dispersed, but no one knew that at the time.
As the immediate Covid crisis ebbed in late 2020, there was a fundamental change in the workplace ethic; Businesses demanded that employees return to their jobs at the same pay rates and restrictions, in essence, "act as if nothing happened", and workers used this pause to do some naval gazing and said, fuck it, this isn't worth $7.50 an hour.
Businesses and employees were at historic odds as workers pushed back extremely hard against draconian work policies put in place by businesses during the last Bush housing recession. Businesses could no longer smugly claim "You're lucky to have a job". The traditional response from the worker "Yassuh, boss! Sorry, boss!" morphed into "Fuck you and this company, I don't need this garbage"...particularly from battered Gen-Z workers entering the workforce. (Obamacare MAY have had something to exacerbate this, since "pre-existing conditions" no longer tied workers to a particular job).
The Federal Reserve memorably noted that there were too many "professional baseball card traders" in the recovering economy, and tried to squeeze all the "free cash" out of the monetary system by jacking the prime rate through the roof through a series of hikes, pushing the prime rate from a too-low 1.5% to a too-high 5.5% in 24 months.
Wall Street noted the steep climb and adjusted their portfolios according to historical norms. "Batten down the hatches, the Fed is triggering a recession, it's gonna be a bumpy ride" they told their clients.
Except....the anticipated recession never arrived. The best possible outcome (a 'Soft Landing') had somehow occurred, and the economy was humming along just fine!
What happened? Two things:
1. ChatGPT. ChatGPT was released to the general public in late November 2022. It was the first crude but tangible promise of what this fledgling new thing called "Artificial Intelligence" could do. It would take massive amounts of money to fund a new infrastructure to implement this technology on a national scale, but the profit potential was touted as "the biggest fundamental change to America since cell phones and GPS", so Wall Street invested heavily in electric utilities (AI requires massive amounts of electricity to power their specialized computers, the Nvidia corporation (which held a near-monopoly on the special graphic chips needed to compute AI, and may soon be America's first four-trillion dollar company) and the "Big 7" tech vendors who were hyperscaling their cloud computing to handle the insatiable demand to store AI results (Open AI, Apple, Microsoft, Amazon,etc). We now have a "tech bubble" in the stock market, and stocks are artificially high as a result.
2. The world has changed in the past 20 years as America has completed its 40 year transformation from a manufacturing-based economy to a hybrid information/entertainment/service economy. A manufacturing-based economy is extremely sensitive to fluctuations in the prime rate, it directly affects the cost of goods manufactured. The new hybrid American model is much less sensitive to interest rates (with the notable exceptions of housing and automobiles).
America is long-overdue for a stock market correction, but with all the changes to long-established rules, it will be interesting to see who the new winners and losers are.
The official White House X account commemorated the occasion this week with a snarky troll to Bloomberg News, the titular leader of the doom 'n gloom crowd with a retweet...
So what happened?
First, then-President Donald Trump completely botched the Covid response. Unemployment soared as businesses closed due to Trump's inept and neglectful actions.
To prevent a complete economic Depression-with-a-D, the Treasury ended up sending out 814 billion dollars in relief payments to Americans beginning in March 2020. Americans used this one-time gift in many different ways: pay off bills, start a new business, invest in the stock market, or buy a new big screen TV.
In short, there was too much money circulating all of a sudden and since eating out was verboten and the supply chain temporarily fucked, not enough places to spend it. With the benefit of 20/20 hindsight, it appears to have been too much money dispersed, but no one knew that at the time.
As the immediate Covid crisis ebbed in late 2020, there was a fundamental change in the workplace ethic; Businesses demanded that employees return to their jobs at the same pay rates and restrictions, in essence, "act as if nothing happened", and workers used this pause to do some naval gazing and said, fuck it, this isn't worth $7.50 an hour.
Businesses and employees were at historic odds as workers pushed back extremely hard against draconian work policies put in place by businesses during the last Bush housing recession. Businesses could no longer smugly claim "You're lucky to have a job". The traditional response from the worker "Yassuh, boss! Sorry, boss!" morphed into "Fuck you and this company, I don't need this garbage"...particularly from battered Gen-Z workers entering the workforce. (Obamacare MAY have had something to exacerbate this, since "pre-existing conditions" no longer tied workers to a particular job).
The Federal Reserve memorably noted that there were too many "professional baseball card traders" in the recovering economy, and tried to squeeze all the "free cash" out of the monetary system by jacking the prime rate through the roof through a series of hikes, pushing the prime rate from a too-low 1.5% to a too-high 5.5% in 24 months.
Wall Street noted the steep climb and adjusted their portfolios according to historical norms. "Batten down the hatches, the Fed is triggering a recession, it's gonna be a bumpy ride" they told their clients.
Except....the anticipated recession never arrived. The best possible outcome (a 'Soft Landing') had somehow occurred, and the economy was humming along just fine!
What happened? Two things:
1. ChatGPT. ChatGPT was released to the general public in late November 2022. It was the first crude but tangible promise of what this fledgling new thing called "Artificial Intelligence" could do. It would take massive amounts of money to fund a new infrastructure to implement this technology on a national scale, but the profit potential was touted as "the biggest fundamental change to America since cell phones and GPS", so Wall Street invested heavily in electric utilities (AI requires massive amounts of electricity to power their specialized computers, the Nvidia corporation (which held a near-monopoly on the special graphic chips needed to compute AI, and may soon be America's first four-trillion dollar company) and the "Big 7" tech vendors who were hyperscaling their cloud computing to handle the insatiable demand to store AI results (Open AI, Apple, Microsoft, Amazon,etc). We now have a "tech bubble" in the stock market, and stocks are artificially high as a result.
2. The world has changed in the past 20 years as America has completed its 40 year transformation from a manufacturing-based economy to a hybrid information/entertainment/service economy. A manufacturing-based economy is extremely sensitive to fluctuations in the prime rate, it directly affects the cost of goods manufactured. The new hybrid American model is much less sensitive to interest rates (with the notable exceptions of housing and automobiles).
America is long-overdue for a stock market correction, but with all the changes to long-established rules, it will be interesting to see who the new winners and losers are.
