Our financial system is crumbling this week.

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Leroy
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Re: Our financial system is crumbling this week.

Post by Leroy »

That's about what places pay to process credit cards, so I get why they do it.

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IMADreamer
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Re: Our financial system is crumbling this week.

Post by IMADreamer »

Leroy wrote:
June 16 22, 1:22 pm
That's about what places pay to process credit cards, so I get why they do it.
Oh I get it. It just surprised me that all the sudden many places seem to be doing it.

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Re: Our financial system is crumbling this week.

Post by Arthur Dent »

Recessions are common and the future is unknown, so not exactly unlikely, but I think the rush to declare an impending recession is more like a kind of PTSD response to all the economic crises of our lifetimes than an appraisal of the current situation, which is kind of the opposite.

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Re: Our financial system is crumbling this week.

Post by greenback44 »

Popeye_Card wrote:
June 16 22, 11:27 am
This correction has been coming for a while. It was insane to see what markets were doing during the pandemic, and for the fed rate to stay so low for so long.
The Fed is kinda irrelevant right now. I mean, 2008, sure, that was a financial system crisis. But, now, as the cliché goes, the Fed can't print oil and it can't print wheat. Powell's justification yesterday for the rate increase was basically "No, we can't do squat about the immediate problem, but for the longer term we need to maintain our credibility." They're not a player here.

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Re: Our financial system is crumbling this week.

Post by Popeye_Card »

greenback44 wrote:
June 16 22, 2:51 pm
Popeye_Card wrote:
June 16 22, 11:27 am
This correction has been coming for a while. It was insane to see what markets were doing during the pandemic, and for the fed rate to stay so low for so long.
The Fed is kinda irrelevant right now. I mean, 2008, sure, that was a financial system crisis. But, now, as the cliché goes, the Fed can't print oil and it can't print wheat. Powell's justification yesterday for the rate increase was basically "No, we can't do squat about the immediate problem, but for the longer term we need to maintain our credibility." They're not a player here.
Well, I do think it is relevant in terms of cooling off some markets that have overheated since 2020 - housing and autos.

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Re: Our financial system is crumbling this week.

Post by greenback44 »

Again, that's a supply side problem. Look at these charts!
Image

Image
It is kinda nutty to make financing more expensive for everyone because automakers shut down at the start of the pandemic (and rental companies are trying to buy back the fleets they sold off, and chip makers stopped making auto chips, and...). If anything, financing should be less expensive so producers can get back to producing.

More generally, the idea that the Fed is supposed to fix everything by hitting one of its two buttons is a problem for our governance. Basically, we have given up on elected officials to do anything useful, and now are dependent on deeply insulated bureaucrats who don't have the tools to do more. This isn't an indication of our financial system crumbling as it is our political system collapsing.

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Re: Our financial system is crumbling this week.

Post by AdmiralKird »

The opportunity to make money in the supply-gapped industries has increased since everyone needs those parts. Since there is more money to be made to sell those at a premium, they can afford an increase of 0.75% in financing.

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Re: Our financial system is crumbling this week.

Post by AWvsCBsteeeerike3 »

Anyone care to try to interpret this?

https://www.federalreserve.gov/monetary ... report.pdf
Summary
In the first part of the year, inflation remained
well above the Federal Open Market
Committee’s (FOMC) longer-run objective
of 2 percent, with some inflation measures
rising to their highest levels in more than
40 years. These price pressures reflect supply
and demand imbalances, higher energy and
food prices, and broader price pressures,
including those resulting from an extremely
tight labor market. In the labor market,
demand has remained strong, and supply
has increased only modestly. As a result, the
unemployment rate fell noticeably below the
median of FOMC participants’ estimates of
its longer-run normal level, and nominal wages
continued to rise rapidly. Although overall
economic activity edged down in the first
quarter, household spending and business fixed
investment remained strong. The most recent
indicators suggest that private fixed investment
may be moderating, but consumer spending
remains strong.

In response to sustained inflationary pressures
and a strong labor market, the FOMC has
been adjusting its policies and communications
since last fall. At its March meeting, the
FOMC raised the target range for the federal
funds rate off the effective lower bound to ¼ to
½ percent. The Committee continued to raise
the target range in May and June, bringing
it to 1½ to 1¾ percent following the June
meeting, and indicated that ongoing increases
are likely to be appropriate. The Committee
ceased net asset purchases in early March and
began reducing its securities holdings in June.

The Committee is acutely aware that high
inflation imposes significant hardship,
especially on those least able to meet the
higher costs of essentials. The Committee’s
commitment to restoring price stability—
which is necessary for sustaining a strong labor
market—is unconditional.
I guess the inflation wasn't transitory afterall, and despite everyone knowing this except presumably the fed or the fed was just lying, they continue to paint a rosy picture.

But, what can they do to stabilize prices given, in their own words, the supply and demand imbalance? There's seemingly only two options: increase supply or decrease demand.

Not sure how they can do the former, and it seems like they're stopping monetary support of corporations through higher rates and discontinued asset purchases which in turn have decreased company values across the board. Not that I disagree ....I just don't understand.

And the later seems like corporate speak for a recession. Kind of reminds me of that line in Office Space: we, uh, fixed the glitch. Can't fix the supply problems, so let's just kill the demand for it.

Admittedly, I'm very ignorant on this topic so, by all means, please correct me if I'm wrong or add anything I missed. Looking through the rest of the report it seems like a continuous blame on the Russia war, China's covid response, and evertyhing under the sun that doesn't point the finger back at them or the federal government.

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Re: Our financial system is crumbling this week.

Post by heyzeus »

greenback44 wrote:
June 17 22, 9:29 am
Again, that's a supply side problem. Look at these charts!

It is kinda nutty to make financing more expensive for everyone because automakers shut down at the start of the pandemic (and rental companies are trying to buy back the fleets they sold off, and chip makers stopped making auto chips, and...). If anything, financing should be less expensive so producers can get back to producing.

More generally, the idea that the Fed is supposed to fix everything by hitting one of its two buttons is a problem for our governance. Basically, we have given up on elected officials to do anything useful, and now are dependent on deeply insulated bureaucrats who don't have the tools to do more. This isn't an indication of our financial system crumbling as it is our political system collapsing.
I agree with you, Greenback, and there are similar charts on housing too. Not shockingly, as vacancies have declined, prices have increased. Housing is also a supply problem. in most cases, it's the fact that cities and suburbs enact strict zoning (much of city being zoned only for single family homes) and building regulations (minimum lot sizes, height limits, parking requirements, setback requirements) that prevent housing from getting built where people actually want to live. Not shockingly, the result is exploding prices in those places.

Image

Anecdotal example: In my unexceptional suburban-style Austin neighborhood, about 5 years ago a 2000 square foot single family house was probably $350k. Today that same house is about $1mil.

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Re: Our financial system is crumbling this week.

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