Why S**t Costs So Much
Updated: Jun 14
Everyone's new favorite word, especially corporate America, who continue to enjoy record profits.
All of us have felt the impacts of it. Gasoline costs twice as much as it did last year. $100 at the grocery store gets you half a Pop-Tart and a case of Dasani Water, which just happens to be the WORST bottled water.
When people say all bottled water tastes the same, have them taste Dasani. It tastes like shit (unbiased opinion of course).
Everything just costs more. And it's a real problem. When prices are increasing and your wages aren't, your dollar doesn't go as far. But why is this happening? How can it be stopped? And who the f**k do you blame for only being able to afford Dasani and not Poland Spring? (The best bottled water).
What is inflation?
Simply put, inflation is the general increase in the costs of everyday items. Normally, there's about 2% inflation per year.
What we've seen in the United States in May 2022 vs May 2021 is an inflation increase of 8%. That's the largest increase in prices since 1981.
If you compare May 2022 vs May 2020 or May 2019, it's 14%. What that means is, $100 in May of 2020 is the same as $114 in May 2022.
That's a major increase that is felt across all wealth classes but most notably for lower income households.
So why does shit cost so much? Why are we seeing inflation?
The COVID-19 pandemic caused economic chaos that has never been seen before.
The economy was turned off and then like a light switch, seemingly turned back on. In what seemed like an instant, the economy was grounded to a halt as COVID-19 shut down businesses and forced people into their homes. Consumption went down and companies needed to adjust their production.
Oil companies were stuck with millions of barrels of oil with no buyers as demand shrank. And then, rather quickly, the economy came roaring back. Less than 2 years after the unemployment rate was at a near record high of 14.4% in April of 2020, the unemployment dipped closer to 3.5%, near a record low. The economy is HOT and people are working in record numbers.
When the economy is so hot, demand for goods and services rises. Companies simply can't keep up with the demand. And so with demand high and supply low compared to the demand, prices rise.
Why is supply low?
Supply chain issues are getting better but they're still causing shortages across several industries. COVID-19 lockdowns and restrictions caused factories to shut down, ceasing production of materials. Car lots that used to be filled with vehicles in different colors now have customers waiting 6-12 months to get a car due to semi-conductor chip shortages.
Semi-conductors are used in vehicles for driver assistance systems and autonomous driving. When the pandemic broke out in early 2020, car companies stopped ordering these chips. While the pandemic raged and consumers were locked up at home, their spending habits changed and began purchasing electronics, many of which use these chips.
70% of the world's semi-conductor chips are produced by either TSMC (Taiwan Semiconductor Manufacturing Company) and Samsung. Both of these companies are located in East Asia, where the pandemic began and where pandemic related lockdowns were strict.
Then, consumer habits changed and demands for vehicles skyrocketed as people did not want to use public transportation due to the pandemic. In addition, stimulus money given out by the federal government gave people the financial ability to finance or purchase new or used vehicles.
The problem was, car dealerships and manufacturers stopped ordering vehicles, underestimating the demand. Once they realized the demand was high, it was too late as the semi-conductor chip manufacturers had already taken orders from other industries.
Because 70% of the world's semi-conductors come from 2 companies, it's created a huge bottleneck. You can't just open up more semi-conductor chip facilities. It takes billion of dollars of investments and years to open up facilities.
What other Supply Chain issues are there?
The semi-conductor shortage is one example of many bottlenecks that have occurred. Below are some other examples of supply chain issues.
1) The world relies on China for cheap manufactured goods. That's caused major issues as China continues a Zero-COVID Tolerance Policy. As the world has mostly fully opened up, accepting COVID as a way of life, China continues to shut down major cities when a COVID outbreak occurs. When Shanghai shut down for 2 months earlier this year, it meant warehouses and manufacturing plants were shut down too. All those cheap goods American companies rely on were stuck in warehouses, unable to be transported or manufactured because of the Zero-COVID tolerance policies.
2) Demands for goods are high, which means there's a ton of cargo being transported. The problem is, the infrastructure in the US can't handle the demand. Cargo ships are waiting weeks at the Port or at Sea to unload their goods. In addition, when there are COVID outbreaks at the docks, workers can't work because they're sick, so the goods stay on the ship until they can unload it. And once you unload them, you need to load them onto trucks. The problem is, there's a shortage of truck drivers. The shortage has been caused by the fact many truck drivers quit because it's a tough job. During the pandemic, they realized they're able to make good money in jobs that pay just as much or more but with less headache.
Why is demand so high?
A lot of the talk in the media has centered around supply. But not a lot is said on why demand is so high. The answers are fairly simple.
Unemployment is super low. People are working and making money
The government gave out trillions of dollars in stimulus money, unemployment money and loans during the pandemic
Interest rates were super low which made borrowing money cheap. When it's cheap to borrow money, more people and businesses do it and this causes more money to circulate in the economy
Can we blame COVID related stimulus policies?
Yes and no. The government had to do something when the economy came to a halt during the pandemic. In response, between the Trump and Biden administrations, nearly $5 TRILLION DOLLARS was essentially given away in stimulus money.
It's hard to comprehend just how much money that is.
That much money now being circulated in the economy certainly is a factor in the inflation that we see. There's just a lot of "free" money that's circulating in the economy. People and businesses took this money and purchased goods, such as cars, clothes, jewelry. They also pumped money into cryptocurrencies and stocks which caused for record high prices in both assets. They pumped millions of dollars into NFT's (what the f**k is an NFT anyway?).
The war in Ukraine
The increase in fuel prices is what Americans feel the most in their wallets. The average price of gas reached $5 for the first time. This is caused by an increase in demand. The US is fully opened now and folks are moving out and about. In addition, the increase in fuel prices has been caused by the war in Ukraine.
Russia is one of the largest oil producers in the world. The US and many nations around the world have ceased to buy oil from Russia. Because of this, supply has shrunk, just in time as demand increased.
The rise in fuel prices is not only impacting you at the pump but also in airfare as planes need to fuel to fly but also in everything that you buy because you need gas/diesel for those ships and trucks to transport your goods from Point A to Point B.
In addition, the Middle East and OPEC nations don't want to increase production because they are reaping the benefits of higher priced oil (bigger profits).
Bigger profits which leads me to "greedflation"
Every quarter, public companies (companies that are listed on the stock market), must release their earnings and show how their company did for the quarter.
Lately, many of the calls and presentations have gone like this
Company CEO: "We had record profits in Q1 of this year due to strong consumer demand. However, because of rising costs, we need to raise our prices. We don't want to do this but we have to, to survive as a company because of inflation"
3 Months Later
Company CEO: " We had record profits in Q2 of this year due to strong consumer demand. Unfortunately, we hate doing this, we really do, Jesus would not want us to do this, but, because of inflation, we need to raise our prices. We're so sorry."
There is no doubt inflation is not just being caused by supply and demand imbalances and because of cheap money being circulated in the economy, but also because companies are raising their prices in the name of "inflation".
In fact, 2021 was the most profitable year for American corporations since 1950. The top 5 largest shipping companies in the world made a record $64B in profits in 2021, more than $41B than the year before.
Car dealerships are loving the fact they can charge 20-75% above MSRP on vehicles, when in the past they had to sell cars at a loss just to get them off the lot. Don't expect new cars to ever sell at a discount ever again.
Can I blame the US Government a.k.a Joe Biden?
Hmmm, sort of, but not really. Russia's inflation year over year is nearly 18%, the UK is 9%, Brazil 12%, India 7.5%.
Last I checked, Joe Biden was not the President of these countries. The UK is experiencing the highest inflation rate in 40 years. Every one of these countries and everyone around the world is facing the same challenge as this was a worldwide pandemic. In addition, the supply chain issues impacting oil, fertilizer, wheat, and chemicals due to the Russian war with Ukraine is impacting everyone around the world.
That being said, Democrats are toast in the midterm elections come this November. Biden's job approval is hovering around 30%. He might not be responsible for it, but he's still the President and politically, inflation is a death sentence.
What you can blame Joe Biden and his administration for is not acting fast enough on inflation, Through early 2021, we kept hearing the words "transitory inflation" or it will subside once the supply chain gets fixed.
Welp, inflation was not transitory and the supply chain is not fixed and Dasani water still sucks ass.
What's being done to combat inflation?
The federal reserve is raising interest rates which will make borrowing money more expensive. This in turn will hopefully slow down the economy. We're seeing the impact of rising interest rates in the housing industry, where the red hot market has slowed down as interest rates + record high housing prices have made it unaffordable for many to buy a home.
However, when you raise interest rates and try to slow down the economy, you risk slipping the economy into a recession which is what many economists expect to happen. That may be the only way to slow down inflation.
Honestly, no one knows shit, or as Ruth Langmore from Ozark would say, "No one knows shit about f**k".
The pandemic caused havoc and ever since, economists and experts have been trying to figure out what happens next, and every prediction seems to be wrong.
Housing prices soared, your grandma's 1984 Nissan Sentra with 240K miles on it is worth more than what she paid for it back in 1984. People are buying pictures that you can literally screenshot and print out for free for $10M and buying cryptocurrencies with a picture of a Shiba-Inu on it.
Yep, no one knows anything, and if they tell you they do, tell them to go drink a bottle of that nasty a** Dasani water.