Cards as an inflation hedge ?

SAllen2556 · #1 01-08-2022, 08:21 AM

Quote:

Originally Posted by BobC

Peter, I don't disagree with you at all, but when does the government ever seem to get anything completely right? LOL I was in the middle of all this crap with multiple clients, and nobody really knew what was going on from day to day. The government kept trying to adapt and keep up with ever increasing demands and issues from the pandemic's effect on the country overall, and was doing the best they could on the fly. And thank God they did something. Business owners I and colleagues dealt with didn't know what was going to happen, and many were running scared. With the imposed lock downs and quarantines, a lot may have just decided to close the doors and send people home. Which would have vastly increased the number of people getting on unemployment. That's one thing many people never even thought about, without the PPP loans keeping people working, the unemployment costs would have skyrocketed even more. So the government would have likely ended up paying out hundreds of billions of dollars whether they did it by PPP loans or not.

Those PPP loans gave a lot of businesses the economic cushion and confidence they needed to keep their doors open, keep people working, and keep the products and services they provided to the populace flowing. The vast majority of businesses in this country are small, closely held businesses. And they in turn employ a vast majority of the workers as well. Don't forget, PPP loans weren't available to the huge public companies with thousands and thousands of employees. They were specifically geared towards those smaller, closely held companies. And owners of such smaller, closely held companies were much more likely to simply shut down their businesses entirely rather than try to keep them going and maybe run up their business losses and debt (or personal losses and debt as well), to the point they'd go under anyway. This would just permanently displace even more workers into the ranks of the unemployed, and remove even more goods and services such now closed companies would have otherwise been providing to the marketplace.

Those PPP loans gave many, many business owners that cushion and safety net they needed to keep things going. And that was vital to help keep the economy going.

And those extra dollars weren't all spent on Porsches and baseball cards. I would imagine a majority of such excess dollars going to pay down business debts, hiring additional workers, funding expansion and/improvements, covering costs related to more remote working and accessibility, and on and on. And some of it was probably put aside as well as savings for a rainy day, since we still haven't seen the end of the pandemic yet. Was how things done possibly inefficient, hell yeah! What would you expect when everyone was running around like chickens with their heads cut off as the pandemic was raging? But when is our government ever really efficient? It's a "bureaucracy", which I've always thought of as a synonym for "wasteful". LOL Again, at least our government did something that likely needed to be done.

The problem is that the loans and stimulus were not financed by borrowing it was financed by increasing the quantity of money, and as a result we all have to pay for it now through inflation and higher interest rates. And inflation and higher interest rates hurt poor people first and more severely than wealthy people.

Even further, that higher income that your or your company is currently earning now gets taxed at a higher rate.

If the government actually does increase interest rates and lower the money supply what will surely follow is higher unemployment. It�s just a a matter of time.

You can�t spend your way out of a recession - or a pandemic. I thought everyone knew that from the 1970�s.

BobC · #2 01-08-2022, 01:23 PM

Quote:

Originally Posted by SAllen2556

The problem is that the loans and stimulus were not financed by borrowing it was financed by increasing the quantity of money, and as a result we all have to pay for it now through inflation and higher interest rates. And inflation and higher interest rates hurt poor people first and more severely than wealthy people.

Even further, that higher income that your or your company is currently earning now gets taxed at a higher rate.

If the government actually does increase interest rates and lower the money supply what will surely follow is higher unemployment. It�s just a a matter of time.

You can�t spend your way out of a recession - or a pandemic. I thought everyone knew that from the 1970�s.

Scott,

See what Adam says in post #75, he's got some great comments and points that are right on the money. Also, I understand your concern about the government pumping more money into the system, but that itself isn't necessarily going to cause runaway inflation. Look back at what happened after 2008 when our economy tanked due to the mortgage crisis. One of the main things they did was to push more money into the system, remember they called it quantitative easing? It took a few years to get things back on track, but it never really pushed us into an inflationary period.

As Adam also mentioned, this current inflationary situation seems by to be fueled mostly by the supply side issues we've had. It will likely take some time before things hopefully start settling down from the effects of the pandemic, and the supply chains and returning workforces will eventually catch up to the current excess demand that exists, and also allow for reserves and backup inventory all throughout the production and building industries to return to their more normal, pre-pandemic levels. In the meantime, we've got the classic supply and demand formula working against us.

Look at cars and housing for example. Their production and building were crushed because of the pandemic, and so to were their suppliers unable to continue providing parts and materials to them at pre-pandemic levels. But fortunately, everyone involved in those industries had reserves and backup inventory to keep providing what the market needed and demanded. But they blew through the backlogs and reserve inventories they had, till the demand finally exceeded what could be provided. And then, the lack of sufficient numbers of new cars and homes carried over to the secondary used car and rental markets, which also got quickly overwhelmed. And that's why we've seen new and used cars prices go through the roof, along with housing values and rents. But since it took a while to reach that point where our demand so overwhelmed the supply (and started pushing up all the prices), I think a lot of people have mistakenly thought it was all this government stimulus spending that inflated the prices instead, because it seems to fit the timeline for these rising costs perfectly.

To tie this all into our beloved hobby, this is exactly what's happened with PSA. Demand jumped, overwhelmed processing, services got shut down to work on the backlogs and get caught up, while also trying to find and train additional graders to get the work done. In the meantime, grading fees skyrocket so PSA can stop the overwhelming influx of work, yet allow them enough income to get the backlog under control, pay to find and train these new graders so desperately needed, and also pay and finance whatever other expansions or improvements PSA needs to facilitate everyone and remain in business till they can get operations, and fees and services, back to be more like they once were. Even PSA knows they can't simply leave things as they recently were, without eventually damaging the core business,potentially beyond repair.

And this highlights another reason the government would possibly want to make it look like they were overpaying businesses with these forgiven PPP loans. So these businesses would have additional funds to address problems along the lines of what PSA faced, and maybe not have to result to shutting operations and services down, and then severely jacking prices up and making the inflationary effect even worse, instead of better. So this demonstrates at least one way these excess PPP loan monies that everyone's complaining about being handed out and becoming the cause of our current inflationary issues, may actually be working to prevent inflation in many of these businesses.

Now before you go calling me out and questioning my logic about how if PPP loans may be able to stop a business doing what PSA had to do, why didn't the PPP loan monies help PSA? I don't know enough about their finances and internal operations to be able to give anyone a definitive answer, but if I'm speculating........

First off, PSA's surge in demand for them could have just been so unexpectedly fast and huge that they were one of the rare outliers where almost no amount of extra stimulus loan money could have saved them from what they've had to go through. Secondly, don't forget when the pandemic started PSA was part of a larger publicly traded company, and therefore may not have even been eligible for a PPP loan to begin with. And lastly, even if they were eligible and got a PPP loan, they got sold right at the beginning of 2021, not long after they would have the PPP loan forgiven, but just before everything blew up for them. I know none of the financial details of the sale, but it is possible that cash from the PPP loan went out to the prior owners as part of the sale, or was otherwise tied up in the sale or the business to where it couldn't be used to help the business under the new ownership.

Not sure what you mean by businesses getting taxed at higher rates, none of these forgiven PPP loans are taxable.

Exhibitman · #3 01-08-2022, 01:43 PM

That last point is correct--it made a really weird line item entry on my 2020 corporate return.

As for budget busting, the 2017 tax cut (made in the face of a deficit; funny how the so-called deficit hawks seem to go deaf, blind and dumb when they like the president who jacks up the deficit) skewed benefits to the richest population. If you're going to bitch out working people getting relief money during the pandemic at least be intellectually honest about all of the handouts to the richest 10% of the population over the preceding 50 years that increased asset and income inequality to levels not seen in 130 years. That section 199 deduction in 2017 was so dramatic in its impact on pass-through entities that the first year it was implemented I thought the CPA must have made an error calculating my taxes. I researched the law and found that the return was accurate, the law is just bizarre.

Oh, and back to the OP, not only is it an inflation hedge, look at the artwork:

Tis a thing of beauty.

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