Opinion: Higher Inflation Will Push Americans Back To Work and Cool Speculative Markets

Opinion: Higher Inflation Will Push Americans Back To Work and Cool Speculative Markets

Last Updated: Nov. 1, 2021 By Vitaliy Katsenelson

Rising prices, wage increases and self-interest will normalize the post-pandemic U.S. economy

Investors now are experiencing a perfect storm of inflation in the U.S. Perfect storms are generated from seemingly small factors. Each on its own may not be particularly significant, but the combined result is an event that significantly exceeds the sum of the parts.   Inflation is always caused by too much money chasing too few goods.

This is how the “too much money” side looks currently: During mandated pandemic shutdowns, the U.S. government dropped money on anyone who could fog a mirror. This happened while (and because) big parts of the economy that are normally large cost items in consumer budgets — travel, entertainment, restaurants — were shut down.

 When your income doesn’t change or arguably increases and your expenses decline, your savings grows. Pockets stuffed with cash resulted in healthy demand as the U.S. economy reopened. Consumer savings were also helped by the freeze on student loan payments and the eviction moratorium.

Most of the action now is happening on the “too few goods” side. The global economy is a complex machine that needs to be in a state of constant flow. Once the system is interrupted, it takes time and a lot of effort to get it moving again.

For example: Shipping containers are one of the most important technological inventions of the 20th century. Their standardized size allows goods to move effortlessly on different modes of transportation (trucks, trains, ships) across the world.

There is a container shortage in the U.S. today. Why? There are many reasons: As U.S. production shut down during the pandemic and the Chinese economy was humming, Americans were consuming goods and not sending anything back to China. Containers got stuck at U.S. ports.

That was just the beginning. Now containers are stuck at their end destinations due to a shortage of truck drivers. Ports are slow to unload ships due to labor shortages, work disruption due to COVID, and equipment shortages. Ships loaded with containers are waiting to be unloaded, and this leads to even more container shortages, effectively taking supply out of the market. Companies suffering from inventory shortages are in turn hoarding containers to store extra inventory.

The global supply chain is complex. Few manufacturers produce every part that goes into their finished products. They rely on dozens, often hundreds, of manufacturers, many of whom have parts and raw materials stuck in the container bottleneck. Today your ability to produce goods is as strong as the weakest link in your supply chain.

To continue reading, please go to the original article here:

https://www.marketwatch.com/story/why-this-perfect-storm-for-inflation-will-push-americans-back-to-work-and-cool-speculative-markets-11635752603?siteid=yhoof2