This is a problem

in #investing11 days ago


According the the chart from Statistica 80% of americans have no savings, meaning no way to be out of a job and survive for a few weeks.

At the same time many people without saving will lose their jobs.
Saving banks won't help here.

This also means that a large chunk of the economy will shut down, as probably 1/2 of the country will stop spending or reduce spending simply because they have to. The rest will stop spending as a safety mechanism.

Lots of companies will go broke or have no reason to exist (bailouts won't help here either) and this will trigger issue for the banking system as this will lead to defaults of banks.

Due to the fact that this is a global issue, while we have never had a global issue like this before, the global lock down may lead to the biggest economic the world has ever seen.

Place your bets accordingly


Lots of companies will go broke or have no reason to exist (bailouts won't help here either)

Why won't bailouts help?

The issue is revenue. And bailing out banks or giving companies loans won't create revenue. This is why helicopter money seems the best solution to me, however most of the money will still be spend top down. Out of 6 trillion package only 200m will be spend on people directly.

The thing about this "recession" is that it seems very temporary. The coronavirus disruption will go away in a month or two as quickly as it came and everything will go back to normal. Companies can start producing revenue again just like before. Unlike previous recessions that were caused by actual issues affecting companies' revenues, here it's just a temporary forced shutdown. So it seems that if the govt just provides enough money for everyone to get through the shutdown period then everything will go right back to normal afterwards.

"The thing about this "recession" is that it seems very temporary. " This seems to be consensus. But I don't believe it to be so. If the economy was not leveraged this certainly would be true. But because everyone has bills and costs to cover the reality is different.

Even a very short term falling of GDP combined with massive lay-offs will lead to a deflation which will render many companies and people insolvent.

All that should also not be in issue normally, but there is this financial system that makes it so that everyone has debts that need to be serviced.

Think about the guys that buys a few apartments on mortgages and rents them out via R&B. If he would own the property there would be no problem: he makes no money for a few months, big deal. But now because he has to pay 10 mortgages he will be broke right away. He probably has a safety net to deal with 3 of his 10 places to be empty. Sure the gov could bail him out.
This is also a problem for his bank as they will also go broke. Since they can only deal with one of is mortgages defaulting not all of them etc.....

This is an extreme example, but effectively most of our economy is leveraged like this. And so many companies won't be able to deal with this sort of disruption. And if they can it will lead to lay-offs. Which will lead to less economic activity ..... its a snowball that just started rolling off.

The problem is that the more money you print (which is essentially what is happening with a large portion of this), the less valuable it is. Inflation literally means an increase in the money supply. The effect is higher prices. That combined with the fact that more things are shutdown so that there are fewer things to spend money on does not bode well.

Inflation has nothing to do with money supply. Inflation is about price. Money supply can go up and inflation can go down, like we have had in the last decade if velocity of money goes down. Money supply is just one part of the equation. It's an important one and longterm will impact, but does not have to in the short term.

Inflation quite literally means an increase in the money supply (when speaking in economic terms). Inflation can go up and prices can go down but that isn't likely. An increase in money supply inevitably causes an increase in prices in terms of that money supply. Don't confuse the term with so-called "inflation" indexes like cpi.

"a general increase in prices and fall in the purchasing value of money." google

1: an act of inflating : a state of being inflated: such as
b: a hypothetical extremely brief period of very rapid expansion of the universe immediately following the big bang
c: empty pretentiousness : POMPOSITY
2: a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).
the act of inflating.
the state of being inflated.

Even the definitions that conflate inflation with rising prices state that the rise of prices is attributable to an increase in the money supply. What is being inflated? The supply of money. As a result, prices rise.

"Inflation has nothing to do with money supply." Really?

this is incorrect. if true could never calculate USD inflation as the money supply is not known. its about price

You can't calculate exact inflation (or at least I don't know how you would). You are conflating our government's definition of inflation with a general definition of inflation. The U.S. government calculates inflation using a certain formula (more specifically, the consumer price index). Other countries do it differently. They are indexing it indirectly by looking at prices of certain goods and services. It's accuracy as a measure of inflation (or cost of living indicator which is what it really is) is debatable.

Is this total savings or money in a savings account? Regardless, total savings is probably not that much better, and possibly worse when you account for debt.

Watched a nice video today on how the current financial system encouraged everyone to become indebted thereby increasing its fragility:

A big problem ... You have to be economical, you have to save money or valuable things.

This post has received a 51.52 % upvote from @boomerang.

Will be quite damaging, especially for some startups and companies that only existed because people obviously had too much money.

Follow the leader? Companies were doing buybacks with their extra cash instead of preparing for times of crisis. Consumers spend and spend ignoring their rainy day funds. This is common through all walks of life in this so call richest country in the world. I agree none of the current financial crisis would have been an issue if everyone and every company was saving, but that was not the case. People who now desperately need money after losing their jobs and corporations lack of cash due to lower revenue is getting bailed out. Hurt those who saved for days like today since this will lead to inflation down the road. Yet those that did save and spend within their means can sleep well at night. I am hopeful that the country will be able to get through this so I am long term bullish. Short term I am standing on the sidelines.

Part of the problem is that the government encourages you not to save. Your money sitting in a savings account loses value over time relative the price of goods and service. This is mostly because of government monetary policy. On top of that, they set interest rates artificially low, encouraging borrowing. These may not be the only factors but that are significant contributing factors.

Indeed this is a huge issue in the US. This sanitary crisis is going to hit so hard the low-income bracket. When you couple this with a lot of weapons and fear. You get a dangerous mix...

We had just put $50k into our store, opened for 2 days and then mandatory shelter in place order hit. To say we are a little screwed is an understatement.

All shows are canceled for months out now including our biggest show of the year which normally covers 2 months of bills.

Amazon also has killed sellers as they won't take in new inventory so no way to get sales the inventory they have in their warehouses and charging me storage fees on they aren't shipping prime currently. So people are shopping with 3rd party merchant fulfilled sellers as the delivery times are showing less. If I still had Amazon income this wouldn't be as bad...but loosing the store, all shows (huge part of our income), and amazon all at once is really bad.

Doing what we can to see if there is a way to weather this storm, but it will hurt for sure. Called in some debts today from a couple people that owed me money and are working...$600 is a drop in the bucket but better then nothing.

Do you understand the recent rebound of Stocks markets ?

i believe this is a technical reaction that is somewhat expected. I would guess this to be fairly volatile meaning it could go up alot.

I will be looking for short opportunities when we are higher again.

This could last weeks and months. In 2008 we had bounces lasting for many weeks