Too Much Money Chasing Too Few Goods

Charlie Bilello provides a litany of the assets and goods that have increased in price over the last year including:

  • Stocks
  • Junk bonds
  • Crypto-currencies
  • Housing
  • Lumber
  • Copper
  • Agricultural commodities
  • Used cars
  • Collectibles

Some of these are at 7 year or 10 year highs. I would add gold.

Maybe it’s transitory and maybe it’s not. When gold and collectibles prices rise, it’s a pretty good indication that there are people who are expecting inflation.

9 comments… add one
  • CuriousOnlooker Link

    It depends on what the definition of “inflation” is.

    Stocks, Junk bonds, Crypto-currencies, Housing, Collectibles is in the midst of speculation because of the expectation of asset inflation.

    The great question is whether expectation of asset inflation has far outstretched reality; and despite record deficits and QE, we end up in a deflationary bubble burst.

    Lumber, Copper, Agricultural commodities, Used cars are due to the lack of supply from supply chain disruptions and possibly increased demand due to the pandemic.

    The risk is the speculation of the first type bleeds into speculation of goods in the second type.

  • Drew Link

    Here’s a brain teaser for you. If stimulus money is driving up goods prices then why do we need a stimulus? There seems to be plenty of demand.

    How about this? Are financial asset prices being driven up by too much money, so-called asset inflation, or by expectations of greater future cash flows from those assets. That is, a classic change in CAPM valuation.

  • That touches on something I’m considering writing a response to in comments at OTB.

    From a Keynesian viewpoint stimulating consumption is a means to an end. The objective is to bring currently unused productive assets back into production. What if there are no currently unused productive assets? Again from a Keynesian viewpoint under that circumstance all that additional fiscal stimulus can accomplish is inflation—asset inflation, goods inflation, or both.

    That’s in the near term. In the long term there can be additional business investment to create new productive assets but, as Keynes also said, in the long term we’re all dead.

    That’s why I keep harping on production. For the last 40 years we’ve been reducing production. To provide a simple example the steel mills that we built in 1890s and were decommissioned in the 1970s and 1980s have materially no salvage value.

  • Andy Link

    Just in my area things are tight. It’s hard to get a contractor who will come out and give a bid on a small job they are so busy. Lots of stuff seems to have increased demand and reduced supply.

    Most of the middle and upper-middle-class people we know are spending the free covid money on their house or saving it for a vacation.

    Then there is the new child tax credit from the recovery bill. Since we have 3 kids, we’re going to start getting $750/month for the next year unless the Democrats make this permanent, as they clearly want to do.

    We’re running a big experiment here…

  • Drew Link

    ‘That’s why I keep harping on production.”

    That makes two of us.

    ” To provide a simple example the steel mills that we built in 1890s and were decommissioned in the 1970s and 1980s have materially no salvage value.”

    Substantially true. Interestingly, yours truly was involved in the two most prominent repurposing of, as opposed to bulldozing, old assets, Steel of West Virginia and Birmingham Steel.

    SWV was a manufacturer of “long products,” mostly rail, using cross country mills. You were in a rod mill, so you know that the throughput of an inline mill was like watching a bat out of hell coming down the line at you. SWV had guys pushing ever elongated shapes “cross country” back and forth back and forth through parallel rolling stands. The only way to make money was to make low volume special sections – high margin. It is now part of Steel Dynamics.

    Birmingham was a totally different story, taking formerly unionized electric arc and rolling mill facilities and driving productivity up to a level where, with the excess shipping costs of foreign steel, they were competitive, until they weren’t. Nucor eventually bought the assets out of bankruptcy.

  • Drew Link

    “…free covid money….”

    Hmmm.

  • steve Link

    “Here’s a brain teaser for you. If stimulus money is driving up goods prices then why do we need a stimulus? There seems to be plenty of demand.”

    Same reason we needed tax cuts.

    Steve

  • Drew Link

    Tax cuts let people make their own decisions on how best to spend. Stimulus spending is 10% to the intended purpose, with dubious benefit, and 90% political payoff, with all the attendant dead weight loss.

    Your comment is inane, but thank you for playing.

  • Grey Shambler Link

    Some needed a little help, others didn’t. The government admitted to being too muscle bound to be deft, so they went for daft.
    No means testing on the monthly child payments either?

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