American Economics Thread

[PUFF_DRAGON]

Apparently the US government departments in charge of the student loan program were basically committing Enron level accounting fraud since the 1990s. This is wild lmao.

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Months later, Jeff Courtney, a former JPMorgan executive, arrived in Washington. And that’s when the trouble started.

According to a report he later produced, over three decades, Congress, various administrations and federal watchdogs had systematically made the student loan program look profitable when in fact defaults were becoming more likely.

The result, he found, was a growing gap between what the books said and what the loans were actually worth, requiring cash infusions from the Treasury to the Education Department long after budgets had been approved and fiscal years had ended, and potentially hundreds of billions in losses.

The federal budget assumes the government will recover 96 cents of every dollar borrowers default on. That sounded high to Mr. Courtney because in the private sector 20 cents would be more appropriate for defaulted consumer loans that aren’t backed by an asset.

In reality, the government is likely to recover just 51% to 63% of defaulted amounts, according to Mr. Courtney’s forecast in a 144-page report of his findings, which was reviewed by The Wall Street Journal.

Total estimated shortfall compared to the cooked numbers is half a trillion USD.

Also, you literally do not need to know anything about finance to understand that retrieving 90% of the value of loans that people defaulted on with no collateral is not happening, ever.

 

[hkbc]

Apparently the US government departments in charge of the student loan program were basically committing Enron level accounting fraud since the 1990s. This is wild lmao.

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Total estimated shortfall compared to the cooked numbers is half a trillion USD.

Also, you literally do not need to know anything about finance to understand that retrieving 90% of the value of loans that people defaulted on with no collateral is not happening, ever.

They'll just get the dollar printing presses going again, its virtual money now so don't even need to kill trees or have forced labour to pick the cotton to make the banknotes anymore!

 

[HybridHypothesis]

https://twitter.com/i/web/status/1391013996254347266

 

[KYli]

The US still in denial of inflation is on the horizon.

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[horse]

The US still in denial of inflation is on the horizon.

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But what if ...

1. What if this is just an one time price increase, due to supply side shock. Eventually more product will come online, such as the chickens, driving inflation back down.

2. With the jobs report yesterday, the number of job created was far less than expected, eventually means no demand. Generally demand causes the inflation. No demand usually meas deflation.

3. There is a third choice of stagflation. Where the prices go up, and economy remains kind of dormant.

4. The USD dollar could decline under the current money printing, which is inflationary.


There are a lot of moving parts, and this could go either way.

For example, the US dollar declines, but there is economic growth due to the stimulus bills from the US government. Naturally the Fed will increase rates, as Yellen talking out loud about tapering the past week. Any rate increase will slow down the economy and inflation at the same time.

Anything can happen.

That is why people believe in the charts and not the fundamentals. The charts priced in all possibilities. The charts will tell us what will happen, before the fundamentals tells us what will happen.

Besides, a little inflation is not bad!

 

[AndrewS]

But what if ...

1. What if this is just an one time price increase, due to supply side shock. Eventually more product will come online, such as the chickens, driving inflation back down.

2. With the jobs report yesterday, the number of job created was far less than expected, eventually means no demand. Generally demand causes the inflation. No demand usually meas deflation.

3. There is a third choice of stagflation. Where the prices go up, and economy remains kind of dormant.

4. The USD dollar could decline under the current money printing, which is inflationary.


There are a lot of moving parts, and this could go either way.

For example, the US dollar declines, but there is economic growth due to the stimulus bills from the US government. Naturally the Fed will increase rates, as Yellen talking out loud about tapering the past week. Any rate increase will slow down the economy and inflation at the same time.

Anything can happen.

That is why people believe in the charts and not the fundamentals. The charts priced in all possibilities. The charts will tell us what will happen, before the fundamentals tells us what will happen.

Besides, a little inflation is not bad!

So what does the following tell you:

a) the US budget deficit and trillions in stimulus spending
b) a 50% increase in the amount of dollars in circulation over the past year
c) 2.6 Trillion USD in excess savings over the past year

So I doubt that inflation will be a one-off.
Remember that shipping container rates are going to stay sky high till at least Christmas.

 

[KYli]

When many major US companies are using packages downsizing and prices increase to maintain their profit margin, then I think inflation is here. Is it going to be short term or long term or stagflation that is anyone guess at the moment.

 

[KenC]

Other factors in supporting of higher inflation:

a) China not buying more US treasuries
b) higher commodity prices and shipping rates
c) Goods from China will also be priced higher due to increased material cost and labour shortage.
d) Many other countries are not able to resume normal productions of goods, including medicine etc.

 

[Deleted member 15949]

Other factors in supporting of higher inflation:

a) China not buying more US treasuries
b) higher commodity prices and shipping rates
c) Goods from China will also be priced higher due to increased material cost and labour shortage.
d) Many other countries are not able to resume normal productions of goods, including medicine etc.

Factors against inflation even with fiscal/monetary policies
a) Population aging
b) Service spending is non-inflationary
c) The last *50 years* of no inflation

 

[horse]

So what does the following tell you:

a) the US budget deficit and trillions in stimulus spending
b) a 50% increase in the amount of dollars in circulation over the past year
c) 2.6 Trillion USD in excess savings over the past year

So I doubt that inflation will be a one-off.
Remember that shipping container rates are going to stay sky high till at least Christmas.

This is similar to what Japan did, with their stimulus over 20 years ago, and they still are fighting deflationary pressures today.

Then next, deflation grips continental Europe. They tired similar strategies like Japan to combat it. One irony of the 2008 crash, was the sucking out of credit from the system created deflationary pressure, and all Helicopter Ben did was what the Japanese used to do, which Helicopter Ben at that time criticized as being useless.

What goes around, comes around, as the Anglos like to say.

What I conclude for the moment, is two things,

1. Not convinced that inflation will be a feature for the United States in the next few years. Need to see more evidence, which has to come when the economy normalizes after the pandemic shock.

2. If there is inflation in the United States, it could be only them. There is no reason to believe that Japan and German beat their deflation problems. China could see deflation.


The big wild card is the currency. The USD could go down.

But, will the Europeans and Chinese decide they will not let the United States get away with it and depreciate their currencies as well? That is a big unknown.


Buy a little bit of everything, and hope for the best. That is what I try to do with my merge savings!