Inflation... Free money or excessive profits?

[VicBee]

"...an "analysis of financial information from a sampling of the largest corporations in several industries shows massive increases in profits between 2019 and 2021."

According to the subcommittee:

• Three of the five largest companies in the shipping industry saw profits rise by 29,965%;
• The two largest public companies in the rental car industry enjoyed a profit increase of 597%
• Four of the largest public companies in the meat processing industry saw profits go up by 134%; and
• Four of the 10 largest public companies by market cap in the oil and gas industry had profits rise by 62%.

"Over the same period, profit margins increased by 201% among the companies analyzed in the shipping industry, by 262% among the companies analyzed in the rental car industry, and by 53% among the companies analyzed in the meat processing industry," the document notes.

The report also points out that "recent economic studies make clear that record corporate markups, profits, and profit margins contributed to—and continue to contribute to—ongoing Inflation."

Specifically, the document says that "studies by the Economic Policy Institute and Roosevelt Institute demonstrate that profits contributed more to price growth in the United States from mid-2020 through the end of 2021 than at any other point from 1979 to the present—and continue to contribute markedly today. This is especially true in highly concentrated industries."

 

[TrAndy2022]

...just wait until interest rates are about 6% or higher, than those effects are much more reduced because of the cost of taking leverage. Powell will keep raising rates until inflation comes down and he just admitted that the chance of any soft landing of the US economy is much reduced too. So there will be likely a hard recession.

 

[VicBee]

...just wait until interest rates are about 6% or higher, than those effects are much more reduced because of the cost of taking leverage. Powell will keep raising rates until inflation comes down and he just admitted that the chance of any soft landing of the US economy is much reduced too. So there will be likely a hard recession.

I'm not an economist and didn't do so well in college econ classes, but here are my thoughts.

I see 3 contributors to the inflation. 1. Too much money given away as COVID relief. 2. Full employment leading to excessive salary increases, and 3. Corporate mark-ups as outline in the article I pulled up.

We know there's no more free money and it's all been burned in the stock market or buying things at inflated prices. With political pressure over high corporate profits, we can imagine some efforts made to lower consumer prices. Higher interest rates will reduce the urge to buy expensive items like cars and houses.

Employment is a different beast altogether. I question whether economists have integrated the "stay at home during covid" online economy into their employment models. There could be half a million YouTubers and other platforms influencers who discovered the ability to earn enough money doing things online without having to get a traditional job. As a consequence, the economy is at full employment with strong demand for labor despite the announced lay offs at various tech companies.
Instead of preventing immigration, we should be encouraging it to loosen the labor market and stimulate income competition. But here's the irony... Neither the Left (unions) nor the Right (resentment of foreigners) want to open our borders, thus the labor market will continue to be tight regardless of interest rates. Some sectors of the economy may reduce their workforce but the consumer sector will continue to suffer lack of labor which will force some businesses to shut down for supply and demand to level off.

In the end, it's our restrictive immigration policies created by Trump and maintained by Biden that are the greatest contributing factor of our high inflation.

 

[TrAndy2022]

Even Powell says that inflation hurts the economy and labor market in the end. So high inflation is not a good thing at all (so this is no free money at all to come back to your question).

 

[countryBoy641]

I'm not an economist and didn't do so well in college econ classes, but here are my thoughts.

In the end, it's our restrictive immigration policies created by Trump and maintained by Biden that are the greatest contributing factor of our high inflation.

I see diesel fuel by me has stayed stubbornly high, currently $5.85/gal.
If we really do run out of diesel (or any other form of energy) would you say that is because of our "restrictive immigration ??"
And if we are experiencing painfully high energy prices, the obvious solution will be to encourage more immigration into America ?
That would be your solution?

 

[VicBee]

I see diesel fuel by me has stayed stubbornly high, currently $5.85/gal.
If we really do run out of diesel (or any other form of energy) would you say that is because of our "restrictive immigration ??"
And if we are experiencing painfully high energy prices, the obvious solution will be to encourage more immigration into America ?
That would be your solution?

You didn't read the article, right? It's been clearly identified that our diesel shortage and high gas prices are artificial. An election is coming and big oil wants to sway opinions any way they can.
My point about greater immigration is it's the best way to increase labor competition and consumption which are both good for the economy.

 

[nitrene]

Interesting that Biden ran as the Anti-Trump but he seems to have kept a lot of Trump's policies in place like tariffs and immigration. Looks like he really is a conservative Democrat like the progressives claim. He seems to have really increased his belligerence with China. He also kept the lumber tariffs in place against Canada.

 

[countryBoy641]

You didn't read the article, right? It's been clearly identified that our diesel shortage and high gas prices are artificial. An election is coming and big oil wants to sway opinions any way they can.
My point about greater immigration is it's the best way to increase labor competition and consumption which are both good for the economy.

No I did read the article.
Problem is those things are usually designed to be ambiguous.
I remember reading a long article "proving" that all McDonalds are really making tons of money.i
Only problem was they were citing numbers from a company owned McDonald's, but not Franchise store.
Big difference.

 

[VicBee]

No I did read the article.
Problem is those things are usually designed to be ambiguous.
I remember reading a long article "proving" that all McDonalds are really making tons of money.i
Only problem was they were citing numbers from a company owned McDonald's, but not Franchise store.
Big difference.

Why are you talking about McDonald's?

 

[Nine_Ender]

"...an "analysis of financial information from a sampling of the largest corporations in several industries shows massive increases in profits between 2019 and 2021."

According to the subcommittee:

• Three of the five largest companies in the shipping industry saw profits rise by 29,965%;
• The two largest public companies in the rental car industry enjoyed a profit increase of 597%
• Four of the largest public companies in the meat processing industry saw profits go up by 134%; and
• Four of the 10 largest public companies by market cap in the oil and gas industry had profits rise by 62%.

"Over the same period, profit margins increased by 201% among the companies analyzed in the shipping industry, by 262% among the companies analyzed in the rental car industry, and by 53% among the companies analyzed in the meat processing industry," the document notes.

The report also points out that "recent economic studies make clear that record corporate markups, profits, and profit margins contributed to—and continue to contribute to—ongoing Inflation."

Specifically, the document says that "studies by the Economic Policy Institute and Roosevelt Institute demonstrate that profits contributed more to price growth in the United States from mid-2020 through the end of 2021 than at any other point from 1979 to the present—and continue to contribute markedly today. This is especially true in highly concentrated industries."

Some realities here in Canada. One million vacant jobs in a country of 38M people. 100K new full time jobs last month in a month analysts expected a small decrease. I went car shopping started with a few Asian companies the wait ls 6-12 months on everything and the showrooms had mostly unpopular models that still had wait lists. The used car area seemed really busy at Honda even though used car prices are overinflated and a bad deal imo. No sign of their popular models anywhere so I guess it's mostly an online experience for now. Nothing like going into a few dealerships and seeing it first hand and talking to some salespeople; a real eye opener on the vast changes in supply issues.

Even if the economy slows down by design, it's no doubt going to be a soft landing here. US I have no idea might be worse then Canada because we peaked at 6.9% inflation and our commodity areas will do well in this environment. Europe has a problem this winter due to energy stuff but it'll rectify eventually. Might be an opportunity to buy cheap if I knew the stocks better. Asian markets put in a noticeable bottom Thursday overnight based on the idea Covid reopening is coming and things just got too low too fast. Copper price surge to me is a possible sign this is real. Still a trade though for now that can fail.