Dinner Table Talk

Ten Thoughts: Dinner Table Talk

April 9th, 2023

A Scene from the 1950s TV Show "Leave it to Beaver"

1. There were 3 things I was raised not to talk about at the dinner table: Money, Religion, and Politics. 

Of course, there's no need to mention the other unspeakable topics (drugs, bowel movements and sex). These were prohibited subjects regardless of whether we were sitting at the dinner table or not. While it was loosely enforced at home, it was truly meant to be a lesson on how to behave when eating dinner with other families. The point was teach my brother and I that there are some topics that are acceptable for casual conversation, and others that are not. As a child, I can't recall having many dinners where these topics came up. That changed a bit as I grew older and my parents became less concerned with (or were no longer able to) creating a wall between the outside world and the dinner table. That being said, my parents never discussed their personal finances with us at the table. It was a reality that they sought to shield us from - and for a long time, they did. I'd imagine that most parents would do the same. Every parent wants their child to feel safe and carefree, keeping those rose-colored glasses on their eyes for as long as possible before life rips them off. Unfortunately, for a growing number of families, this is impossible. You don't need to talk about the family's finances explicitly to see that there isn't as much food on the table, to hear mom and dad's stomach's grumbling, or to notice that the refridgerator is a little more sparse than it used to be. When times get tough, even the best parents fail to maintain the illusion that life is just as sweet as it's always been.

2.  I watched a video this morning that said that the only accurate way to evaluate the economy is to sit down at the dinner table with the average family in America. 

The argument made in the video was that the tools we use to measure the economy are flawed. Measures such as average household income, unemployment, the state of the markets, and GDP present a skewed picture of what is really going on in the majority of households across this country. According to the video, median household income (adjusted for inflation) has remained fairly stagnant since the 50's. A larger proportion of wealth continues to be concentrated in the hands of those in the 1%. Minimum wage is not enough to afford rent for a 1 bedroom apartment anywhere in the country. Corporations have continued to fire more and pay less, all while increasing profit margins to unprecedented levels. Clearly, with this much inequality, there is more than one "economy" to evaluate in this country. 

3. Wall Street is beginning to get nervous about the state the economy and the reality of a recession; but conversations at the dinner table would likely indicate that we are already there.

As I discussed in my last post - inflation effects those with the lowest income the most. A $0.50 per gallon increase in gas prices might mean choosing between buying gas and buying milk for the week. This is the reality for the who live below the poverty line, and even for some who live above it. While they may not be unemployed, they might not be happily employed. The parents in these families might be working two jobs each, with their kids working part-time. Yes - unemployment is still at record-low levels. But quality of employment and real wages should be factors we consider when we talk about how "healthy" the economy really is. If Wall Street were concerned with these statistics, we'd have seen this recent bearish sentiment much earlier. The truth is, however, that this is not where the money is. Money begets money, and so it is the balance sheets of the consumer that has excess cash to spend that are the primary concern of the analysts, the bankers, and the Federal Reserve. The economy will continue to chug along regardless of how the bottom third of society do. While Wall Street might feel empathetic towards these households, they are not the primary concern. A qualitative evaluation of our economy would be more human, but this not how we determine if this engine has enough gas to keep running, because it isn't as consequential. As long as those with means are able to continue pouring money into the economy, there is no need for concern. And, as I've just shown, that group has become less representative of the average American family as time has gone on.

4. Real fear about the state of the economy has started to spread, this time from the top-down. 

This past week was marked (among other things) by Jamie Dimon's comments about the economy, stating that the banking crisis is not over, and that the economic outlook is negative in the near future. While his words may not be provocative at face-value, they are a marked shift from the general tone on Wall Street, which has been that while inflation is high, the economy and the consumer is strong and therefore when we land (if we land), there's a good chance it'll be a soft landing. Jamie Dimon himself has been a member of the soft-landing team, even when other commentators were beginning to shift their outlook on how this whole thing comes back to the ground. His recent comments would seem to suggest that it won't be such a soft landing after all.

5. If there ever was concensus on what the Fed should being doing, that concensus has now been lost. 

It is not rare to hear analysts sitting on opposite sides of the table when it comes to monetary policy, but the range of opinions I've heard over the past two weeks have been notable. The Wednesday after I wrote my last post, the Fed raised the target funds rate by 25 BP and set future guidance that indicated a terminal rate of about 5.25%. Before the regional banking crisis, it seemed that it was generally agreed upon that the Fed should raise interest rates. Some even called for a 50 BP hike. That all changed once the regional banks flipped upside-down, which I commented on. Now, as we head into the second quarter of 2023, the Fed's path forward has become even more unclear. Some believe that the Fed should maintain its hawkish tone; inflation is coming down, but not very fast. However, job growth has declined, layoffs are up, and the limited data that has been released in the past two weeks are aligned with market expectations. There is another camp, which believes that the Fed needs to take a more dovish tone and pause at the next meeting, maybe even cutting rates in another. A third group argues that, given the recent banking turmoil and the speed at which the Fed has raised interest rates, it would behoove us all to take a step back and relax while these disinflationary vehicles work their way through the economy.

6. Only time will tell who is right, but that's the problem.

We all know that monetary policy takes time to work through an economy - not just a weeks, but months, years. The manipulation of interest rates is a long-term tool, and that is how it should be used and evaluated. Even so, we've gotten into the habit of analyzing economic data in relation to monetary policy like we're living paycheck to paycheck. If unemployment comes in too low, we need to raise interest rates. If the CPI is down, we need to pause. If home prices fall, its time to cut. This is how the market reacts to inflation data, and unfortunately the Fed has had a history of playing by the market's rules. I agree with Dimon - we will see the effects of the recent banking crisis play out over the coming years (along with a 0-5% rate hike in less than two years). Economic data will not fully reflect these events for some time, and even then, they may not capture the full picture. It truly presents a dilemma for the Fed. They have the responsibility of setting a pace that takes into account both events and data that have occurred, and those that are yet to come. Relying on the markets for this guidance is risky (and probably ill-advised); markets are like angsty, reactionary teens, and they don't make for great forecasters. For now, it looks like the Fed will likely hike once more and then pause to see how the story unfolds.

7. As talks of a recession begin to make their way into headlines, they are contending with the other dinner table no-no: Politics. 

I don't have any desire to turn these posts into a political commentary, or run the risk of sounding like a political pundit - but these past two weeks can't be discussed without commenting on several events that have occurred concerning our political system. This past week, Donald Trump was arraigned and charged with 34 felony counts of falsifying business records in relation to hush money paid to Stormy Daniels to cover up his affair. Politics aside; this is an unprecedented moment for the United States. No president has ever been charged with a felony, but then again Donald Trump has defined a new normal in a number of different ways. With campaigns beginning next year, it is all too likely that he will be running for President while simultaneously fighting criminal charges. And in other headlines, two lawmakers were voted out of the Tennessee State House of Representatives after protesting against gun violence. And lastly, the state of Texas is now in the legal process of blocking Mifepristone, an abortion pill. Clearly, there's plenty to talk about at the table. 

8. A rocky political landscape does not bode well for the looming debt ceiling issue. 

Behind the major news headlines currently in circulation, the debt ceiling "crisis" remains. I hesitate to call it a "crisis", since the government has never failed to meet its debt obligations and has always raised the debt limit when needed. These days, however, it takes a concerted effort to stay calm when bipartisan agreement is needed to accomplish something. The entire situation makes me nervous, which in part I'm sure is due to the fact that I have not lived through this crisis before, while those in government have many times over. Politicians have also played up their fears of default for political purposes, knowing that they are using the debt ceiling as an instrument to facilitate their agenda. Using policy as leverage to push a political agenda is nothing new; but I can't help but feel nervous that this is what they choose to use for political gain. Government spending needs to be addressed along with the budget, however, toying with the debt limit does have real consequences. The last time we came this close to defaulting on our debt (even though we knew we wouldn't), government debt was downgraded (controversially). In a time where American citizens already feel pessimistic about the economy and our political system, this does not seem like the time to put the world's faith and credit of the U.S. government on the line. 

9. The U.S. Government also plays a large role in bringing down inflation, and our political systems must be healthy for this to be addressed. 

Even though it would be easier to leave inflation with the Jerome Powell and the Fed, taming inflation involves more than just monetary policy. The manipulation of interest rates is a blunt, powerful instrument. Fiscal policy and government intervention has the power to ease the burden on the Fed, which in turn can ease the burden on the average taxpayer. Government stimulus has played a large role in the inflationary environment we are in today, and measured government spending in the future will help de-escalate the situation. This goal of bringing down inflation will be much harder (and will take much longer to accomplish) as long as these two entities are working against each other. Part of what it means is curbing the political rhetoric around inflation and truly focusing on the actions needed and realities we all need to face in order to bring this under control. Who know if this is even possible today. 

10. It's hard to keep dinner table talk light and carefree these days when there is so much in question. 

Politics and the economy have produced more questions and concerns than answers in recent weeks, with the worst yet to come, it appears. It looks like, for the time being, we will have to wait some things out. Families at the dinner table might have to cover their childrens' eyes and ears... Or maybe this is the time to educate them and have open discussions, so that they can be prepared for the changing realities that are certainly ahead of us.