# Stagflation - Economic and Social Implications

By [jelca thinks](https://paragraph.com/@jess) · 2022-07-14

other tech

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### **Normal Reaction to an Average Recession**

*   Low inflation, low growth
    
*   Monetary policies = easing = stimulate demand
    
    *   Lower fed funds rate to stimulate demand / economic growth
        
*   E.g. early 2000s, 2008-2009
    

### **What is Stagflation**

*   Low real growth but high nominal growth (aka lots of inflation)
    
*   Last strong case was in the 70s and 80s
    
*   Need to reduce inflation
    
*   Implement more restrictive monetary policy
    

### **Historical Treatments of Stagflation = Increasing FFR**

*   Historically, monetary policies around easing during stagflation = MISTAKE
    
    *   In the 70s: prematurely lowering FFR--> FFR < inflation --> inflation remains high
        
    *   In the 80s: High FFR, even >inflation
        

**Today's Economic State of Affairs**
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*   Today looks like stagflation with real GDP growth negative. FFR <0.5% too
    
    *   due to a large net export deficit
        
*   CPI and PCE increasing rapidly at almost double digit growth rate
    
    *   CPI is inflation for out of pocket expenditures, affects the low to middle income people the most (shelter, food, etc.)
        
    *   PCE more heavily weights healthcare / financial services
        
*   Shelter
    
    *   **Higher mortgage rates, higher cost of home ownership**
        
    *   **More rentals (seems more affordable)**
        
    *   Interest around rent stabilization regulations and policies
        
*   Inflation Expectations
    
    *   1 year: Affects wage increase expectations
        
        *   Has risen from 2-3% to 3-6%
            
    *   Long term
        
        *   Increased moderately but not as much
            
    *   **Wage increases**
        
        *   Biggest portion of the labor force hourly earnings growing 5-6%
            
        *   Aggregate wages for private nonfarm increasing ~7%
            
*   **Increasing wages and expectations push inflation even further up**
    
    *   Low supply, high demand
        
    *   Nominal spending continue to be high especially since the government gave everyone money
        
        *   Excess savings highest for rich people
            
*   **Unemployment at historical lows**
    
    *   Overall labor market still tight with low unemployment rates, despite seeing layoffs recently
        
    *   **overall strong labor market, recovered to pre-pandemic with few unemployed and many job openings**
        
    *   actually lots of people voluntarily quitting
        
*   Loans / lending
    
    *   **Higher lending capacity! loan to deposits is much lower. Pre-pandemic was ~75%**
        

**Social Implications**
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### **COVID Created Generational Conflict**

*   Millennials / Gen Z feel like they sacrificed years of their “prime time” for the old
    
*   The old want low rates to preserve asset value
    
*   Young people need inflation to wipe debt and accumulate wealth
    

### **Life of a Boomer vs Millennial**

*   Boomer
    
    *   Average childhood
        
    *   Publicly funded schools are actually great schools
        
    *   Rise of service sectors = lots of jobs = everyone becomes more wealthy
        
    *   Low asset prices = can easily buy houses
        
    *   High inflation = pay off debt easily
        
    *   Burst internet bubble = rate cuts but can buy more houses
        
    *   Pension payouts = good
        
*   Millennial
    
    *   Education becomes increasingly competitive - those who were wealthy sent their kids to the best schools and then only they could go to the best colleges
        
    *   Tuition skyrockets
        
    *   Takes loans to cover tuition
        
    *   Goes increasingly into more financial crisis and debt
        
    *   Starts family later because of financial situation
        
    *   Expensive costs for houses and healthcare - lives paycheck to paycheck
        
    *   Affects future generations
        
    *   COVID hits and everything goes more to shit
        

### **The Future is Ruled by Today's Young People**

*   Our presidents are old as hell, their time of pushing inflation down is over
    
*   New influential political members will push for more "liberal" policies and economic governance surrounding healthcare/Medicare, inflation to cancel debt, environment, etc.
    

### **What Has the Government Done Differently vs 2008**

*   Printed a hell of a lot of money and sent it to people instead of bailing out banks
    

### **What Does this Mean "Post-COVID"**

*   Everyone will want to spend because they feel pent up
    
*   Food prices shooting up because of supply chain issues (can't cross borders)
    
*   Deflationary actions such as bankruptcies and layoffs
    

### **Effects of the Bull Market Run of the 2010s**

*   Property prices skyrocket
    
*   Birth decline, fertility rates decline
    
*   Social reasons to justify not getting married and having babies/families = really messes up this generation
    
    *   this has become hip and cool for both men and women to better value themselves and be single and hoard money for themselves
        
*   RESULT: Low growth, constant stimulus checks / liquidity injections, super high asset prices, fuck load of debt
    
    *   Affected boomers too! rate cuts = bond portfolio future incomes are done, retirement savings into assets that have lost tons of value e.g. VC and EM
        

### **The Economic and Social Case for Stagflation in the Worst Case Scenario, Inflation at Best**

*   Sad b/c hedge funds implode (Five arrow!), negative real yields, bankruptcies = tectonic shifts in the market
    
*   From a social POV: Assets need to be ultimately transferred (generational wealth transfer), debt paid off, households/families formed
    

_INTL FCStone: Stagflation, Pershing Square_

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*Originally published on [jelca thinks](https://paragraph.com/@jess/stagflation)*
