26 Mar A reality that could last for years
Image by mohamed_hassan from Pixabay
“Mark Zuckerberg warns in layoffs announcement to prepare for a ‘new economic reality’ that could last ‘many years'” –https://www.yahoo.com/entertainment/mark-zuckerberg-warns-layoffs-announcement-162834242.html
“Job listing website Indeed.com will cut approximately 2,200 employees, representing almost 15% of its total workforce, the company announced Wednesday.
‘The cuts come from nearly every team, function, level and region,’ at the company, CEO Chris Hyams said in a memo released by the company. ‘The specific decisions on who and where to cut were extremely difficult, but they were made with great care,’ the memo added.
The decision to make job cuts at the company, founded in 2004, arose out of Indeed’s projection that the job market will continue to cool down following ‘the recent post-COVID boom,’ said Hyams. The company anticipates that job listings, which are the company’s bread-and-butter, will continue to decline in fiscal years 2023 and 2024.
‘Last quarter, US total job openings were down 3.5% year-over-year, while sponsored job volume fell 33%. In the US, we are expecting job openings will likely decrease to pre-pandemic levels of about 7.5 million, or even lower over the next two to three years,’ Hyams added.” https://www.cnn.com/2023/03/22/business/indeed-layoffs/index.html
“I don’t want to scare people, but I do want to say that I think we are in a once-in-a-lifetime financial transition, and I think that everybody needs to sort of strap in for that. And if you need your money in the next couple of years, I would be more cautious than not.” -Rana Foroohar, Associate Editor at the Financial Times in “Age of Easy Money”
Notice a pattern here? To me, it’s pretty clear: for the next 2 to 3 years, you better strap in and be ready for an economic 💩storm, cuz it’s a-comin.
“‘At this point, I think we should prepare ourselves for the possibility that this new economic reality will continue for many years,’ Zuckerberg wrote in a Facebook post on Tuesday regarding the latest layoffs. Zuckerberg said that tough economic conditions are to blame.
‘Higher interest rates lead to the economy running leaner, more geopolitical instability leads to more volatility, and increased regulation leads to slower growth and increased costs of innovation,’ he wrote.
‘Given this outlook, we’ll need to operate more efficiently than our previous headcount reduction to ensure success,’ he said.” -Yahoo, Ibid.
If The Fed goes back to QE, which it could (if it hasn’t already), we’ll see more inflation. If The Fed prints up more money for bank bailouts (and God knows what other bailouts), we’ll see more inflation.
Now imagine inflation + rampant unemployment. I know we’d rather not, but I think it’s better to be prepared for any contingency at this point.
“Inflation and unemployment have historically maintained an inverse relationship, as represented by the Phillips curve. Low levels of unemployment typically corresponded with higher inflation, while high unemployment corresponded with lower inflation and even deflation.
From a logical standpoint, this relationship makes sense. When unemployment is low, the demand for workers exceeds the number available. Put simply, there are more jobs available than people waiting for work. When unemployment rises, on the other hand, the availability of individuals looking for work far exceeds demand. That’s because not many employers are hiring even if more people want to get to work.
So how does this play out with inflation? Low unemployment (when more people are working) means more consumers have the discretionary income to purchase goods and the demand for goods rises. When that happens, prices follow. But during periods of high unemployment, though, customers purchase fewer goods, which puts downward pressure on prices and reduces inflation.
The Phillips Curve was developed by A. W. Phillips. This economic concept suggests that inflation and unemployment are inversely related. As such, it states that inflation is ushered into the economy by growth and expansion. According to Phillips’ theory, this cuts the unemployment rate since expansion leads to job growth.
This theory worked, to some degree. At least until things got out of control in the 1970s. This period was characterized by high levels of inflation and unemployment, thus disproving the historically contrasting relationship that these two economic metrics had.” –https://www.investopedia.com/ask/answers/040715/what-happens-when-inflation-and-unemployment-are-positively-correlated.asp
“Until the 1970s, many economists relied on a stable inverse relationship between inflation and unemployment. Data collected since the 1860s suggested unemployment fell as inflation rose and rose when inflation fell.
During economic expansion, demand was expected to drive up prices, encouraging businesses to grow and hire additional employees. During a recession, lower demand would lead to unemployment, cap price increases, and lower inflation.
The stagflation of the 1970s, a combination of slow growth and rapidly rising prices, challenged prior assumptions, leading economists to examine the causes and policies that would end the stagnant period.” –https://www.investopedia.com/articles/economics/08/1970-stagflation.asp
“What has been will be again, what has been done will be done again; there is nothing new under the sun.” -Ecclesiastes 1:9, NIV
“The resulting inflation was so high it required two recessions to reduce. Under Fed Chairman Paul Volcker, the prime lending rate exceeded 21% to help curb growth. Inflation and inflation expectations remained high when Volcker’s tightening began. Rising interest rates lowered output and employment rather than capping prices, which continued to increase.” –https://www.investopedia.com/articles/economics/08/1970-stagflation.asp
It lowered output and employment but didn’t cap prices, which continued to increase.
Is this coming to a theater near you?