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The Great Employment (and immigration) Scare | Stoic Markets

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Ever since the government started printing money out of thin air, inflation has been a major problem.

We watched the jobs market soar higher than anyone expected, and with that drew fears of even more inflation yet to come.

This stems from the idea of “sticky inflation”. Prices rises that are usually held after inflation ceases to be a problem.

Energy prices are notoriously volatile, rising quickly with inflation is bad, and dropping back off again after those founding issues have been resolved.

As a result, this inflation is almost the “good” kind, as it only impacts us for a finite amount of time, and it doesn’t render our currencies doomed to lose that value forever.

Sticky inflation however, is far more dangerous, as how the name suggests, once it rises, it doesn’t really fall afterwards, so the price hikes we see are permanent.

Employment costs are the largest example of dangerously sticky inflation we can see, and unfortunately, thats the main thread we’re seeing right now.

Once wages rise, people become accustomed to that rise, and they spend that increase that they now have. And humans behaving rather like humans means no one wants to go back to how much they were earning before.

As a result, very rarely do people accept paycuts, and businesses lose the ability to drop wages back down to their “true market value” after a period of inflation has hit.

On the surface, this seems to be a good thing, as it means more money in peoples pockets. But in reality, this extra money floating around has knock-on effects that essentially mean everything just costs more.

The $20 minimum wage ruling for fast-food workers in California is a brilliant example. The cost to produce that food has now gone up, but businesses still look for the same profit margins as they had before, and they’re never going to eat all those losses themselves.

So instead the raise prices, and suddenly someone used to earn $100 a day and spent $30 of it on food, and now they earn $120 a day and they pay $40 for food.

This impacts every person in the economy, and these prices changes are unavoidable, but the ultimately mean that no one is actually better off than they were before.

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But the real issue no one is talking about, isn’t just the fact that job growth in the US is sky-high, or that inflation is still a problem, and will remain a problem for years to come.

It’s that immigration is fuelling this fire far more than most people are willing to accept. It’s estimated that 50% of every single job increase in the US over the last year has been down to the millions of immigrants who have come to the country.

And this job growth is fuelling demand for products and goods all around the country, increasing the aggregate demand for the economy, and allowing more prices rises to follow.

The Federal Reserve has been forced to comment on this reality, but they’re adamant this is a good thing for the economy, and nothing to be worried about at all.

In truth, immigration into the US is accelerating every month, and it is impossible for it to not impact the supply and demand levels of the economy. At the end of the day, no one can deny that inflation is caused by supply and demand being mismatched, and that mismatch is being driven every day the borders remain open.

Stay stoic,

Max

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