To a degree. Too much desperation creates guillotines.
Tell that to the Tsar, the Shah, etc.
Really my point is that too much poverty is socially and politically unstable, which is bad for business.
Which is why they are currently trying to thread that needle. Evil.
I mean it’s pretty clear that they’ve already failed spectacularly to thread that needle. They were undershooting it slightly BEFORE this thing happened. Now shit is getting real super super fast.
It turns out having the majority of your population stretched to the breaking point financially with no savings and significant debt is not a good idea. If something really bad happens they go from barely making it to not making it more or less instantly. The total lack of resilience in our economy is about to be laid bare in a ridiculous manner.
If nothing else the economic paradigm is about to shift in a pretty massive way going forward. Things aren’t going to be the same when this is over. The assumption that it’s fine for households to be paid at 90-100% of the standard of living is about to die an ugly death. Assuming that stuff like this happens every 2-3 decades and regular recessions happen every 5-10 years the correct number is probably more like 120-130% of standard of living being paid to workers with the assumption that they are going to save the extra money.
This is going to be a pretty big cultural shift as well. I expect most of us who lived through this (this is really directed at upper middle class people with <2 years of savings) will be more frugal going forward. I know I will be.
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Yeah, uncharted territory for sure.
The wild thing to me is seeing how may corporations are seemingly in the same boat. Failed state, Ponzi scheme, etc.
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I mean absolutely everyone has been getting rewarded for walking as close to the cliffs edge as possible for years. A few years back all the rage was ‘just in time’ supply chains where companies kept as little inventory and parts for production on hand as physically possible in an attempt to prevent them from having inventory go stale or having to hold significant amounts of parts on their balance sheet for extended time periods. When I first got into logistics in early 2014 it was semi common to have missed shipments take down production lines and have customers attempt to sue logistics companies for their lost productivity. It was something to legitimately worry about.
Think for ten seconds about how fragile a supply chain like that is. It’s really scary.
Warren Buffett has been having articles written about the large amount of cash on his balance sheet for months and how bad it is… because it was weighing down his results. All around the business world people who aren’t Warren Buffett who can actually get fired have been under constant pressure to push cash out the door as fast as humanly possible without much in the way of regard for whether the stuff they are buying is a good deal, or whether it makes any sense. Interest is tax deductible so in a low interest rate environment not being levered up is for suckers. If you have cash you were expected to get rid of it like it was radioactive. Your company is trading at a price to earnings ratio of 25+? Buy it! Your competitor is trading at a price to earnings ratio of 25+? Buy them out!
It’s been this way for years and years now. We’re about to find out that stability really had value. In other news Warren is probably going to own a bunch of the better businesses in the S & P 500 outright in addition to probably at least one airline when the dust clears. Because he was sitting on a mountain of cash ldo and right now cash is fucking emperor.
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Anyone want to take a crack at convincing me that the airlines shouldn’t be nationalized? I can’t think of any counter arguments at the moment.
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Even as Warren Buffett it could not have been easy or fun to write the same “we have $100 billion plus of cash, we’re trying to buy more businesses but current prices are absurd” letter every year for 7+ years. Now he’s in an almost unimaginably favorable position.
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This is an interesting observation. One possibility is that people will be forced to save for emergencies the same way they are forced to save for retirement via social security. So we may see some large pooled crisis funds that everyone has to pay into and that the money can only be pulled out of for financial hardship.
I mean one of them is going to get rescued by Berkshire Hathaway (and by rescued I mean their interest payments will continue to get made and the existing equity holders will get to split like 100M dollars lol). I don’t think they should be nationalized… I think they should be allowed to fail totally. If the industry as a whole contracted dramatically it would be a huge win for climate change.
Heh heh 
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Not to mention that airlines have been taking aggressively anti consumer actions for years. The whole point of the private sector is to deliver consumer satisfaction. When is the last time any of us has had a pleasant trip to the airport?
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I mean if you look at the generation that lived through the great depression their savings rate was absolutely crazy compared to the modern savings rate. I suspect that culturally we’re going to see a major turn away from materialism as upper middle class people adjust their lifestyles downward marginally to increase their savings rate. It’s also going to go back to being socially unacceptable to flash your bling as a wealthy person. It’s in bad taste (and dangerous because this is also going to trigger a pretty good sized crime wave frankly… desperate people do desperate things) when other people are literally starving.
To be fair airlines were a terrible terrible business for a very long time. It only started to get decent about 10 years ago as I recall. I guess it turns out they were always a terrible business.
They spend an ungodly amount of money on capital investments that exist for a very very long time… When demand is higher than supply their a license to print money, but when demand is below supply they are basically a giant incinerator that burns pallets of tightly bound hundred dollar bills. It’s the same investment structure as farming only way way worse.
The same is true of any business that has to buy ships fwiw. If demand is above supply you make a lot of money, but if demand falls or supply increases and it goes the other way you’re basically going bankrupt almost no matter what.
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This is true for the working class but there is a fairly large middle class that has been prioritizing keeping up with the Joneses. The fact is that the economy is much too large to make statement like people can’t save. Part of it is definitely values.
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I’ve been living below my means for a long time and using the money to…invest in the stock market.
Whoops.
But yes, America’s gated communities are chock full of people with $150k+ income and negative net worth. Before this thing hit I was shopping around for spring break travel and every decent hotel in a warm place was $500+ with airfare of $600+ from the Midwest. America collectively could not afford that, people are just complete idiots with money. I have a hard time believing this country will ever wise up, but we will see. Japan’s insane savings rate has been dragging down their economy for decades, ironically.
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On your last point, part if the cultural issue in the US is that for at least 20 years people have been encouraged to spend money for the greater food of economic growth. Nice in theory, but not when the top fraction of 1% harvest all the gains for themselves.
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Yeah to be clear the bottom 60% hasn’t had enough money to save. The top 40% absolutely has. I know I easily could have 250-300k more money right now if I’d lived a more moderate lifestyle, without even making any major sacrifices besides living in a slightly smaller place for the last 10 years or so in less nice parts of town.
Yeah the housing spend level is another example of people being told it’s in their interest to maximize their consumption because “real estateis an investment”.
So the stimulus bill being finalized is at $1.6 trillion, up from the $750 billion being talked about just last week. I’ve been saying by the time this is done we are going to need at least $5 trillion (just spitballing),so encouraging that they are already at $1.6 trillion before shit has really started to go down.
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