I’ve been scratching my head wondering how people keep spending the way they do. I fully understand how much pressure my peers are under to keep up appearances and spend like they aren’t stressed. I just do not understand what lengths they are going to, in order to keep up. Let’s talk about how as a society we’d rather swipe our way through this, than cut back on anything. In fact credit card delinquencies are at their worst in recorded history. Almost 3.5% of American’s balances on those things are past 30 days late. Which is having an impact on credit scores, now as bad as they were in 2020. I’m not done. We can tell how stressed people are by looking at what they are doing with these credit cards. The share of accounts making only the minimum payment was up 34 basis points.
Credit Cards have to be MAXED out by now.
Which is why I don’t understand how inflation readings keep coming in so hot. The price of goods is supported by demand. People are finding the money somewhere to keep buying everything, so producers do not have to cut their prices and inflation remains stubborn.
Now, you are likely aware that inflation readings came in this week. Hence the thumbnail on this video, which is an accurate depiction of loan officers everywhere on Wednesday when the Consumer Price Index (CPI) for March rose 3.5% from this time last year, and up 3.2% from February.
“The big rock in the way here is the cost of shelter.”
Said every renter, buyer, realtor, and lender….and Mark Zandi the chief economist at Moody’s Analytics. That’s us. Real Estate. Housing costs are the largest share of the CPI inflation index. Rent and owner’s equivalent rent were both up .4%. Interest rates are higher. Home prices are higher. The cost of avoiding homelessness is relentless.
While I’m not an expert on getting a good deal as a renter – though I can offer some advice as a landlord so let me know in the comments if you’d be interested in that. I am an expert on buying a home and I have always believed it is your built-in protection plan against inflation. This is likely not the only time in our lives that we will be at war on this enemy. When I was born in the late 80’s we’d just ended a war on inflation where it had hit 14%. For reference, during the current inflationary period our highest reading was 8.5%. The “Great Inflation” period that ended in the 80’s was long. It started in 1965.
Inflation was then pretty chill until about 2007 when it hit 4%. That was the bank crisis which led right into the financial crisis from the housing crash. Inflation wasn’t sticky that time and really didn’t rear its ugly head again until our current predicament.
The reason for this history lesson is that I’m halfway through life and have experienced two inflationary periods so far. You know something I’m really grateful for right now? A fixed housing expense. We bought our home in 2012 and our mortgage payment is like $2,200. That’s an amazing feeling. I’m not trying to rub it in your face because I understand many of you are looking at a higher mortgage payment right now. What I’m trying to say is that knowing what it will cost you to shelter your family for the next 30 years regardless of what happens with the economy is priceless. That is why I believe in homeownership. Plus the perks of real estate investing and passive income but that is a story for another day, specifically October 17th if you’d like to mark your calendars.
What impact does government spending have on inflation?
Maybe we’ve had it all wrong, trying to analyze consumer debt and consumer spending and consumer confidence. Maybe it’s those assholes on capital hill repeatedly screwing us. There’s a relationship between government spending and inflation for sure. That’s part of what got us here – remember those stimulus checks? When the government spends more money, it injects more cash into the economy. That cash competes for goods, which drives up the cost of goods. We see this in housing but even at McDonalds. Over the past 10 years, the prices at Mickey’s have gone up 100%. Should we blame government spending for McFlation? Who spent their stimulus check on Egg McMuffins? I’m not shaming you, I love those hashbrowns more than my husband. The coffee at McDonalds is also 100x better than Starbucks. Honestly when I drive past those golden arches the steering wheel just turns itself.
At this point you’re beginning to understand the thumbnail. I’ve reached de-lulu status for sure. Stick with me anyway. Government spending also results in higher borrowing costs because they have to finance their spending, which leads to higher government debt with higher interest rates during periods of inflation which means more inflation down the line.
But on the other hand, if the government spending targets programs that boost productivity – think infrastructure or education – it increases our economic output which is anti-inflationary. The most recent spending bill was passed in December of 2023 and 772.5 billion of it was designed for these types of programs.
Let me find a good note to end on…
Buying power, not specific to real estate, but in general has improved. The average worker’s earnings, real earnings even after accounting for inflation, increased .6% over the past year. So maybe that’s how they’re keeping up.