Higher interest rates won't stop greed.
It'll hurt families who need to buy a new car or need to sell their home though.
If they refuse to address to cause of recent inflation they might as well keep jacking up interest rates. Maybe a few years of recession will do enough real harm to companies who just want to price gouge and squeeze their customers for every penny that they'll get the message, but there will also be a lot of unnecessary harm to people whose behavior has nothing to do with the rising prices we've seen.
They have been conditioned to become greedy. That’s how the system works.
You need to continually show growth. Actual profits don’t matter, it has to be expressed as growth.
The first one to blink loses as money flows out of the stock. So right now everyone is squeezing their business to avoid showing flagging growth. Jacking up prices.
Because investors only need growth, it doesn’t need to be sustainable - if there’s a general market correction that’s fine but you don’t want to be the one starting it.
Look at google. Ads is clearly on its last legs as a growth model but but aggressively pushing all levers like a cable company adding more and more ad breaks, they create the impression that things are still growing while gesturing at AI in hopes investors see the future growth there. No metric here measures the advance to the tipping point where customers abandon you to an alternative and they are not used to there being alternatives.
The current earnings season doesn’t show business health, they show greed dynamics.
> did companies only just become greedy in the last two years?
No, but their greed was kept somewhat in check by consumers who'd rightly feel ripped off if they saw a company suddenly jacked up their prices. Before the pandemic companies generally didn't collude to all raise their prices at the exact same time.
When the pandemic first hit, companies lost a lot of money which they wanted to claw back somehow. There were some legit supply chain issues, but companies who were not affected by them said "We know our prices are sky high, but supply chain issues! We're all in this together!" and consumers bought the lie. Long after the supply chain issues improved companies still used them as an excuse. I don't blame consumers here. Things were going on that were totally unprecedented and giving companies some slack seemed perfectly reasonable given that surely we were all suffering.
Then as inflation started to soar it was all the news talked about and companies again said "We know you're going into debt to buy groceries, but it's not our fault! It's this damn inflation! We're all in this together!" and fewer consumers were believing their bullshit since by then the news was already talking about how those same companies were pulling in record profits and making money hand over fist, but since every company was doing it, consumers had little choice but to pay up or go without (which isn't always an option).
Companies have also tricked a lot of people with the narrative that the pathetic amount of disaster relief people got during the pandemic is to blame for inflation. I'm surprised how many people I see who are convinced that the $1000 checks people got to help pay off the record amounts of debt families went into to keep rent paid and food on the table is the real problem. This helped to deflect attention away from the fact that companies have been price gouging.
Lately they've been trying to use that same trick for everything. Some companies had to increase egg prices because of bird flu. The news reports it's the worst outbreak in almost a decade! Consumers are primed to expect egg prices to rise. The largest egg supplier in the country wasn't impacted by bird flu in any way, but they still raised their prices because they had an excuse and made over 700% more in profits. Cal-Maine Foods made a killing by ripping off the public who were already struggling and being taken advantage of. They got away with it entirely.
So companies were always greedy, but they didn't always have convenient excuses to point at to deflect the public's anger. Now they know they can lie to the public and collude to raise prices openly without fear of any repercussions.
The scapegoating scheme actually started a little bit before the pandemic with rising gas prices (notice how many companies increased their prices and told the public it was all because of gas prices but didn't lower their prices after the price of gas dropped?). They made money on that, and the pandemic was just the next major excuse. I suspect it's going to continue with companies looking for any and every excuse to jack up prices at insane rates.
That's fair. If the only thing in the Fed's toolbox is a hammer, I can't really blame them for whacking away at screws and bolts. It's going to leave a mess though.
Inflation means there’s too much money in the system. You can pull it out with high interest rates (every bank loan is more money in circulation), which hurts everyone who doesn’t have money, or you can raise taxes, hopefully mostly on the wealthy. Guess which direction we always go?
> Inflation means there’s too much money in the system
No, inflation just means the prices for goods and services have increased. It can be caused by all kinds of things. Fluctuations in supply and demand are common drivers. In this case, it's largely the result of greed and price gouging. In 2021 supply was so much higher than demand that companies started to panic about the lack of available warehouse space!
There's absolutely too much money somewhere, but it's not in the hands of the average American. Household debt has been hitting record highs every year since the pandemic started while consumers struggle to meet their needs amidst soaring prices. The American people are seeing a decline in their standard of living as wages fail to keep up with price increases. Homelessness is rising. Utility disconnections are up. Americans are putting off healthcare because of inflation. Companies raising their prices are making money hand over fist and pulling in record profits year after year. It's easy to see where the problem is. Sadly you're right that they'd rather keep taking from those least able to afford it.
You're not really disagreeing with me. "Fluctuations in supply and demand" can cause there to be "too much money in the system". If supply drops, for example, there's too much money chasing too few goods. Same with demand rising.
That’s not actually what inflation shows. There are different types of money - and the money pumped by the fed before mostly didn’t matter because it didn’t move into the economy. Covid aid did of course.
No current inflation is a result of companies jacking prices. Because they can. Because regulation failed.
Nah, labor market is robust and these efforts are still draining money out of the economy (although asset prices aren't deflating like one would hope).
I guess the question is, "worse for whom?" Commercial real estate and regional banks still in trouble for sure, as are zombie firms who are going to hit a debt maturity wall when debt comes due and they attempt to refi that debt at current rates.
The Fed meets eight times a year. It's not as if they're reacting to the daily news. The haven't raised rates since May.
They've been raising rates as gradually as they felt they could. Two years ago, the rate was basically zero. That was very bad for the economy -- arguably, they waited much too long to start acting.
Interest always allocates money to those who don't have money (borrowers) those those that do (lenders).
High interest encourages people to stop borrowing which means the rate of repayment will exceed the rate of new borrowing, which results in a decrease of the money supply. I won't deny this but you can only do this until some regions or sectors of the economy have run out of money. Then a crisis sets in and the government will do the opposite. This is why the money supply tends to go up. It is because economists haven't figured out how to do internal distribution properly, which is kind of a big deal because the wrong internal distribution can mean that all your macroeconomic theory becomes meaningless. So the go to answer is 'infinite economic growth' because that is how you can remain clueless and yet pretend that everyone benefits from even the most unfair distribution.
The amount of times economists say that "X is an internal redistribution so it is not relevant on the macro scale" is irritating.
If they refuse to address to cause of recent inflation they might as well keep jacking up interest rates. Maybe a few years of recession will do enough real harm to companies who just want to price gouge and squeeze their customers for every penny that they'll get the message, but there will also be a lot of unnecessary harm to people whose behavior has nothing to do with the rising prices we've seen.