Downsizing America

'Secular' inflation, unaffordable autos and exploding homelessness

(Source: Getty Images)

Bill Bonner, reckoning today from Youghal, Ireland...

“...and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.”

― John Steinbeck, The Grapes of Wrath

The ‘information content’ of last week’s news was low. We learned that, overall, inflation is continuing its very modest decline. But ‘core’ inflation, without energy or food, is still over 5%...and ‘sticky’ inflation – which includes things that don’t move very quickly, such as rent, insurance, and medical care – is, well, stuck. It hasn’t come down much.

As we will see, ‘inflation’ is no accident. It’s government policy. It has a purpose. And lo…the wrath grows.    

Here’s the story.  

‘Secular’ Inflation

While the CPI has gone down, the nature of inflation has changed. The first inflation shock, at the end of 2021, was probably the result of failures in 2020. Politicians, state and federal, including most prominently Donald Trump, used a panic over the Covid virus to pump trillions of new dollars into the economy. Stimmie checks, loans you didn’t have to pay back, unemployment ‘boosters’ (so you got more money than when you were on the job), mortgage and student loan payment suspensions…etc. etc. – consumers’ pockets were stuffed with cash.

The problem was, the authorities also shut down theaters, restaurants, cruise lines, amusement parks, public beaches and anything and everywhere people went to spend money and have a good time. Their options limited, people ordered ‘stuff’ from Amazon. And all of a sudden, there wasn’t enough stuff to fill the orders. Prices rose.

But as Dan signaled to us on Friday, that first wave of inflation hit the boardwalk months ago. What’s coming now are smaller, but more persistent, waves of ‘secular’ inflation. We suppose the word ‘secular’ was chosen because economists didn’t know what else to call it. Applied to inflation, it means that the sources of price increases are hard to identify and seem to come from many different directions.

Here’s an example. The Washington Post: 

New cars, once part of the American Dream, now out of reach for many

Even as inflation is easing and global chip supply shortages are beginning to resolve, more Americans are being priced out of the nation’s new car market, industry and government data suggests. Spending on new cars by the lowest 20 percent of earners dropped to its lowest level in 11 years. Meanwhile, spending on new cars by the top 20 percent reached its highest level on record, going back to 1984, according to the most recent data from the 2021 Consumer Expenditure Survey, not adjusted for inflation.

What happened? Did the price of steel shoot up? Silicon chips? Rubber?

Did automakers suddenly get greedy? Or, are financing costs putting new autos out of reach of the people who need them?

And it’s not just autos that are becoming unaffordable.

Exploding Bidenvilles

The average house is selling for $450,000. An average mortgage, at 6.5% interest, would be about $30,000/yr – in interest alone. But average household income is only around $75,000. Can an average family afford an average house?

Economic Collapse:

Homeless Encampments Are Exploding In Size All Over America As Rents Soar And Evictions Surge

Communities all over the United States are being taken over by giant homeless encampments, but we are supposed to believe that this is perfectly normal. The Biden administration is trying very hard to convince all of us that the economy is in fine shape even though many of our most prominent corporations are currently conducting mass layoffs and even though Challenger, Gray & Christmas is telling us that the number of jobs cuts during the first three months of this year was up 396 percent compared to the same period last year. Just like in 2008 and 2009, large numbers of people that have lost their jobs or their businesses are ending up living in the streets, and as a result, homeless encampments are absolutely exploding in size from coast to coast.

Economists can study the in-puts. They can trace price increases all up and down the supply chain and explain why takin’ the Chevy to the levee ain’t as cheap as it used to be. But they would do better to look at the demand chain – specifically, at the links with politicians’ fingerprints on them.  

More on that tomorrow…and at how  inflation destroys the “hardworking American families” that politicians claim to be working for.

Regards,

Bill Bonner

Joel’s Note: Earlier this year, the Department of Housing and Urban Development released its first comprehensive Annual Homelessness Assessment Report (AHAR) in two years. The findings were not inspiring.

By the end of 2022, the number of people “experiencing homelessness” (what used to be called “homeless people”) in the USA stood at 582,462. The total, nation-wide number increased every single year measured since 2016, with a majority of states seeing increases during that period. (Delaware, Vermont, Louisiana and Maine all saw their homeless populations more than double since 2019.) California, Vermont, Oregon, Hawaii and New York had the highest homeless residents per capita.

Chronic homelessness, defined as “people who have been homeless for more than 12 months or have experienced extended periods of homelessness over the past three years,” has increased by 65% since 2016 (from 77,500 to 127,700).

More than half (52%) of the homeless population is found in major cities, with Los Angeles (54,469 individuals) and New York City (32,308) having by far the largest numbers of homeless people, collectively accounting for nearly one-fifth of the country’s rough sleepers.

Having spent hundreds of billions of dollars over six decades on its War on Poverty, the United States Government proposes to solve the problem by (wait for it…) spending more money it doesn’t have on programs that demonstrably do not work.

Last month, President Biden proposed a 2024 budget that would direct $10.3 billion in federal funding for homelessness assistance programs, a 6% increase from FY 2023 and an increase of…

• 90% for DOJ’s Transitional Housing Assistance Grants to Victims of Sexual Assault

• 64% for Projects for Assistance in Transition from Homelessness and

• 23% for Health Care for the Homeless

Apparently the 100-plus federal programs already in existence, plus the dozens of education and job-training programs, 17 different food-aid programs, and over 20 housing programs, were not sufficient. The CATO Institute crunched the numbers…

Altogether, the federal government spends more than $1.1 trillion a year on 134 welfare programs. State and local governments add about $744 billion more. Thus, government at all levels is spending roughly $1.8 trillion per year to fight poverty. Stretching back to 1965, when President Lyndon Johnson first declared a “war on poverty,” anti‐​poverty spending has totaled more than $30 trillion.

Here’s the chart…

(Sources: U.S. Census Bureau, Cato Institute, et al.)

And yet, despite the myriad programs, committees, departments and agencies, the poverty rate remains almost exactly where it was when LBJ declared “War on Poverty” in his 1964 State of the Union Address. It was 13.5% then… and is 13.2% today (having fluctuated between a low of 11% in 1973 and a high of 15% in 1982 and 2012.)

No doubt it’s a complex problem in search of a real solution. But who knows… maybe renaming “homeless people” to “people experiencing homelessness” will finally do the trick?