- Deficits don't matter!
- Vice-President Dick Cheney
His parents named him right. He is a Dick!
Eli Whitney's great idea of interchangeable parts can also be utilized in other areas, notably, the economy. When things are going well and product is flying off the shelves, production workers enjoy a full forty hour work-week and unemployment is low, the economy should be humming. Well, our unemployment is at record lows, product is flying off the shelves and everyone is looking for help. Full-time work is available. So, why all the recession talk?
What goes up...
also goes down. The connection from production to product to the shelf has many other unseen fasets. There are many parts that are needed to make a machine work properly. There are many little items that the producer must gather to make the final product. The logistics from production to the consumer level requires transportation and packaging. These are the interchangeable parts. If you do not have semiconductors, you have an unfinished product. If you don't have packaging, you cannot deliver. If you don't have your logistics together, everything stops. COVID-19 became the ultimate stopage.
Then what?
Governments provided stimulus while a vaccine was sought. When they cannot afford the stimulus, they charge it - deficits. It helped, but it was not enough. The one saving grace that most people utilized was to charge it with the credit card. This is personal deficits. They had to because bills still had to be paid and almost everyone was laid off. Then, governments worldwide provided help for housing. Moratoriums were established for renters and mortgages. Now, society is getting the backlash for these restrictions. The moratoriums are ending. Consumers now face balloon payments for back dated leases and mortgages. This forces a new dilemna. Continue to use credit with excessive interest or vacate the premise? As you can clearly see, deficits do matter and they must be repaid.
Anyway, either choice poses problems. This is where we are and another reason for recession talk. Consider the following reports from little known sections of large firms and agencies.
Global Debt Data Sources: They are following the results of the ending worldwide moratoriums on housing. Early signs say a crisis is brewing.
Mastercard Economics Institute: They cover 165 nations. They report that many old, previous businesses to the virus are failing. In 2020, 60% were behind on bills. Their bottom lines improved in 2021, but they are threading on thin ice.
World Bank - Pulse Enterprise Survey: They cover 24 low-income nations. They show 40% of businesses are behind on payments.
Lenders: They are feeling the pain from the moratoriums. They do not receive mortgage payments and landlord loans.This is part of the interchangeability and velocity of money. This is duress in the system except their influence with government (read taxpayer bailout) and or, central banks watching their back (read Fed) always helps.
Russia's War: Their action in Ukraine only adds various inflationary aspects like shortage of oil, food and worldwide currency exchange. The latest is Russia demanding oil payment in rubles.
World Bank: They reported that under-developed nations need to show more transparency in how they are solving their economic problems. Everyne needs to find ways to keep credit available to households and businesses.
All of the above are insights to consumers worldwide. They are stretched to their economic limit. Houston, we have a problem. Take care - Peace.
