Note: Transcript fully created by automated AI
[00:00:00] Jesse Lin: Hi everyone. My name is Jesse Lin
[00:00:01] Angela Lin: And I’m Angela Lin. Welcome back to another episode of, but Where Are You Really from? Today we have our resident person who follows things in the economy to join us, my husband Ramon. Welcome back on the show.
[00:00:17] Jesse Lin: Thank you . Hi Dan. Hi. I follow general things in the economy, so
[00:00:22] Angela Lin: if you haven’t guessed it by the title of this episode, the gas is too damn high.
We are talking about. Things related to inflation recession, all those scary economic things you keep hearing in the news. What does it mean and what’s kind of the difference between what the government is telling us about what’s happening and how people may be actually feeling it themselves? Before we get started, I just wanted to make sure everyone’s like on the same page about what all these things even mean.
Because personally as someone who does not like to follow the news that often, like even though I went to business school and I learned all these things, they all get conflated, I think especially whether depending on like what context people are talking about stuff. So, Just so we’re on the same page, I investopedia all these for this episode.
Starting with inflation, it’s when there’s more demand than there is supply generally, so then prices of things go up accordingly, and the money is worthless than
[00:01:27] Ramon: it used to be. One way of seeing it is like when you have more paper claims, more bills, more dollars, chasing fewer. . That’s one of the definitions and it’s important I think, to differentiate between currency evaluation, what has been happening since the seventies, since the US.
Left the gold standard at the cost of houses, the cost of education, the cost of healthcare has increased like 300, 400%. But that’s different. That, uh, pure academic inflation where it’s actually part of what has been happening during C O V. that is when you have, for example, supply problems. For example, everyone wants to buy coconuts.
Um, yesterday all the coconut trees burned down and there’s, there’s only one coconut left, so the price of that coconut is gonna increase a lot. So you have like two different reasons of inflation. And during covid, both were happening at the same time, you have a lot of currency evaluation because there were a lot of stimulus checks, a lot of expansionary programs from the government.
And there were also some supply shocks, mostly in energy and mostly in goods producing. That because of the zero covid policy has have gotten worse. So that’s are the reasons why inflation has gotten worse in the last two years.
[00:02:37] Angela Lin: And then related to inflation is the interest rate. So a lot of headlines in the last several months around the Fed.
Raising interest rates or stopping, raising interest rates, blah, blah, blah. Interest rates, TLDR interest rate is kind of the cost of borrowing
[00:02:55] Ramon: money. The, the best way to think about it is the price of money. The Fed funds rate is basically the, the base for the price of money. And if you 0% basically means you can borrow for free, or even if it’s a negative interest rate, they will pay you to borrow money.
Interest rates are important because what the banks. Because the mortgage industry does is based on that rate. So for example, if the Fed fund rate is at 2%, Then they will charge three or 4% at least, because they also earn the spread and the banks earn a spread on top.
[00:03:26] Angela Lin: Whatever the Fed sets it at cascades into all the borrowing rates.
So like you mentioned, mortgages, that’s a, one of the biggest one is, is anyone considering buying a house. If the Fed raises the interest rate, it means that it’s more expensive for you to borrow to buy that house. So whenever they raise interest rates, they’re trying to discourage. People from spending, right?
Because a lot of times it’s related to inflation that like inflation comes from people trying to spend too much money or like the money is worth less. So if you discourage spending, it can hopefully curb a little bit of the inflation. I’m sure there are other reasons they raise the rate, but like that’s a.
Big one and relevant for
[00:04:08] Ramon: now. Uh, it also affects the stocks because the way stocks are valued is using the discounted cash flow model. You use the discount rate that is necessarily the fed fund rate because you take, okay, what are the profits of this company gonna have in the next 10 years? The future profits of future years.
You discount it using the same percentage rate. That’s why when the percentage is zero, To say, oh, this company is just gonna have explosive growth. And it’s, it’s infinite basically. And that’s why stocks like tech stocks do really well when the interest rate is at zero. But the more you increase the rate, the more discount you need to apply to evaluate the stocks.
The Fed hopes that what crashing the value they have of their house, the value they have of their stocks, they will consume less. They will also. Go back to work more because they’re great resignation. A lot of people left their jobs, although the number of jobs has almost recovered that we’re still way below the pandemic level and a lot of people have retired.
And also because of covid and health issues, there are less people working, although the number of jobs. Canda is almost the same because some people are taking two or three part-time jobs. And then
[00:05:06] Angela Lin: the last one that I think is relevant is what does it really mean to be in a recession? And I think this one has made headlines recently because there have been back and forths of like, is the government changing the definition of what a recession means?
Based on what I’ve been reading, there’s no universally defined. Way of talking about their recession, but a common way that economists have defined a recession in the past is two consecutive quarters of declining GDP versus domestic product. It used to be about production, but it’s not just production anymore because it includes like how much money people put into the stock market and like buying houses and all that.
So if people are putting more money into the economy, it’s like a growing GDP essentially. So two declining quarters means that it’s like people have been spending less money or investing less money into the economy. So technically we’ve had two declining quarters. So like in that traditional sense, We’re like in a recession, but I guess that’s what we wanna talk about today is kind of like the difference between these like technical terms of when we say that we’re in a recession versus like what the government’s saying.
Because a lot of the positioning that headlines have been putting out is that no, the economy’s like. Super strong right now. Jobs have been growing, actually. That’s the main one that they keep pointing to, right? Is like employment’s up. So like we can’t possibly be in a
[00:06:33] Jesse Lin: recession. Okay, so I have a bunch of questions off the bat.
Ramon, you mentioned there were two main sources of inflation, which is the devaluation of the currency and then goods becoming more scarce. Right? If I were to go to the grocery store and I previously purchased almond butter for $8 and now it is $16, this is most likely attributable. Currency devaluation.
Right? Because that’s not a good that I normally would get from China, and I haven’t heard anything about all means becoming more scarce versus like if I went to h and m and the cost of a t-shirt was like $10, now it’s like 15. That would be because of supply chain issues. Exactly. And so my question actually, when it’s connected with inflation and recession, isn’t recession like a mechanism to control inflation?
Because it’s like if you are trying to tank the economy specifically to control inflation, that would. GDP over a certain amount of time, like however long you’re trying to
[00:07:27] Ramon: take it for? Yeah, I mean it’s, it’s a really blunt tool, and that’s what the Fed is trying to do because they cannot solve the supply issues.
So that’s the only thing they can do that’s basically use this hammer to kill an end. They’re gonna kill growth, they’re gonna kill value, they’re gonna destroy a lot of growth that was created in the, in the last few years. But regarding the recession, market practitioners and people that are in the market know that two consecutive quarters of negative vdp in the last 40.
It always was a recession, but what they say is like, oh, the economists don’t say it’s a recession, because usually one year later, this academic institution said, oh, this was a recession. So it hasn’t been called officially a recession because they always do it a year later. Also for political reasons, because they don’t wanna say right now they’re in recession until later, just in case that has the incumbent party or whatever.
But so far, the trial record of two consecutive quarters of GDP has worked every single time since the, since the sixties, as
[00:08:20] Jesse Lin: defining a recess. Yeah, I think it’s also interesting because I think that sometimes saying there’s a recession can cause a recession even. There’s no really like recessionary things happening.
Like I just remember I was reading this thing about Twitter recently because of the whole like Elon Musk and Twitter saying like bots, whatever. And there was this really great example of someone hacking the A Associated Press Twitter account saying there was an attack on the White House and that like tanked the market.
Like, oh my God. A couple hundred points and it didn’t come back. Even though it was fake news, like the, the market did not really bounce back really that quickly. From that, I think it’s like really interesting to see all of these things like interplay because it’s really based built off of people’s like confidence as to what’s gonna happen.
Mm-hmm. rather than necessarily any realities.
[00:09:05] Angela Lin: Probably important to re highlight is when it comes to like, quote unquote the markets, right? Like, When it goes up and down, it largely is tied to people’s sentiment of what is going to happen more than what is actually happening. So to, to your point, if the headlines are scary and making people feel a certain way, it will reflect even if it’s not actually as bad as it’s supposedly is.
Hey listeners, wondering how you can support us. The biggest way is by increasing our visibility by following us on Instagram at where are you from? Pod on TikTok at, but where are you really from? Subscribing to our YouTube channel Under, but where are you really? From podcast rating and reviewing us on Apple Podcasts and telling your friends, the more people we can get to listen to the show, the more we can continue spotlighting different perspectives and.
And if you feel so inclined, we’re also accepting donations at buy me a coffee.com/where are you from? Thanks y’all. I think the places where people are feeling it the most is buying houses has been really difficult. For the last long time. Prices were really bloated for a long time, so like it was just like way too expensive for people to buy houses because during Covid especially people were just like, it’s not worth it to live in these tiny apartments anymore.
I can like have land. Were, so then houses were getting expensive. But then recently, in the past few months, then the Fed raised the rates. So then now to get a mortgage, it’s like very expensive to borrow, to get a house. So I think housing people are feeling the crunch there. And then gas is like, what is most making headlines because the.
So dependent on, on car culture, unless you live in New York like Jesse, but like most people have to depend on a car to get to work, to do anything. And so the pump is largely where people are feeling it. What’s interesting is just seeing like the press. parroting what Biden’s administration is saying about like the economy’s so strong because like we have the lowest unemployment and like a long time, but people like every day are feeling that crunch in terms of what they are paying for their groceries, for the gas, for trying to buy a house and all these things.
And to me it just feels like it’s largely just because the election’s coming up and they’re trying to like hang onto anything shining that they have, which is the implement rate is like one of the only things that they have going for them. Right.
[00:11:28] Jesse Lin: Feels like
[00:11:29] Ramon: important things to say there. One about the housing and one about energy housing.
I mean, what caused the problem was also the Fed because they took interest rates to zero when the covid crisis happened, and then that’s why everyone after a few months is like, let’s get a house. Because basically the mortgage rates were like the lowest ever in 40 years. So that’s why also more people, more demand, their monthly payment decreases, even if the house increases in price, 300,000 because the rate is.
So that’s why the house is increasing price so much because the monthly payment was still going down because of the cutting. So the Fed caused the problem and now they need to try to revert it, but it’s gonna be hard. It’s gonna take a long time because most people lock this rate for 30 years and they’re not gonna move.
They’re not gonna switch houses regarding energy and oil. The important thing to notice is like the US has this strategic reserve of oil. It has been. Building for 50 years or 60 years. In the last six months, they have been releasing huge quantities every month. And curiously, they’re gonna do that until November.
That is the same time as the election. And right now that reserve is at the lowest point in the last 40 or 50 years, and they will need to rebuild that reserve at some point because if something work happens or anything, they need to rebuild the petroleum that the US has a store. So it looks like they’re trying to compress prices.
but they will need to buy back all the oil that they are releasing later in November. Another thing that is hurting oil president, there has been a lot of mal-investment in the last 10, 20 years and this investment both in nuclear and oil in Europe especially, and in the us and they have wanted to make a transition that makes no sense from zero to a hundred.
It’s like, oh, let’s go all solar. Electrical and then without having a plan. Europe was fully dependent on, on Russian gas and the renewables are not enough and they also close all the nuclear plants, and now they are, they’re basically beholden to, to Russian gas and it’s gonna take them two or three years to.
to go back to a reasonable
[00:13:28] Angela Lin: level. Wait, going back to what you said about the US holding a special reserve of gas and having been releasing it into the market, so are you saying even though prices seem really high to us now, they would actually be astronomically higher if the US hadn’t been kind of like faking?
Yes. It with supply. Gas. Interesting.
[00:13:50] Ramon: Yeah. And also China has helped because China is still in zero lockdown policy and China usually has this demand for borrow. And right now it’s still like a 30% of the usual demand for borrow. That has also, I think, for political reasons, but once they see election also is over, I think they will open again and then China will go back to, uh, normal demand of borrows.
[00:14:10] Angela Lin: which will drive up the
[00:14:11] Jesse Lin: price of, so possibly aside from gas and houses. I just think generally things have gone more expensive, but I personally haven’t really noticed it because as a person of a certain income, there’s like a little bit of buffer before I’m like, that’s expensive, . But I did go to the grocery store the other day and this is where I was, this is where I was like shocked.
I bought a jar of almond butter. and like a package of like frozen, uh, fruits. Cause I wanna make a smoothie. Guess how much it cost? $40. Close. 30. Oh my god. $30 for frozen fruit. Wow. And a, a thing, the cheapest thing of almond butter. It was insane. I was like, this is crazy. Produce and stuff has been like, more or less the same.
But yeah, there, that was like the first time where I was like, is this thing coming for. ,
[00:14:59] Angela Lin: you’ve been escaping it thus far and now it’s coming for you. Yeah. I think for us, we have a different experience because we had just lived in Korea for the last three months, and so we were like benefiting from all this economic mayhem happening because.
in the global sphere, the dollar has been stronger than all the other currencies. So we’ve been ha, we had like a discount on everything essentially in Korea on top of the fact that things are cheaper already. So then I think the sticker shock for us was like knowing that, for example, um, a like. Freshly cooked meal for lunch in Korea would cost us like $15 between the two of us after the currency.
That’s very, yeah. And then here, like at least 40 plus dollars for two people. Right. With tax tip. But I think for. , you know, normal people being in the US the whole time. The, the place I noticed it is that first time we came back here and I bought groceries. I remember actually getting the receipt and being like, I don’t really see the difference.
And then I realized like, oh no, these are like San Francisco prices, but we are in Orange County, where it’s always been like a step lower in cost than San Francisco. So I was like, okay, that is a side, because I only think it’s normal because we lived in the most, the second most expensive city in the us.
Yeah. And now, Up to that level down here, which is crazy. One
[00:16:19] Ramon: thing that is gonna confuse people a lot now is inflation and how it’s measured because it’s a percentage. Now you will hear not in November, December, in January, February, next year it’s gonna be, inflation is gonna be 0%. But that doesn’t mean that the prices have gone down.
Because the way they measure inflation is they measure against the same month last year. So for example, February, 2022 versus February, 2021. And then February, 2023 will be measuring against February, 2022. Prices have increased like 10%, but next year, uh, it can be 0%, but that still means that prices are still 10% higher than it was before the inflation started.
Politicians are gonna say, oh, so your percent inflation is a lot better, but you will still see the prices have not come down, and the prices are probably not gonna come. .
[00:17:04] Angela Lin: Yeah. They actually did that already. They did that like a few weeks ago when they announced the most recent inflation numbers and they were celebrating like zero inflation.
And it’s like, that is really confusing for people who like don’t know how they know that, how the, yeah, how the numbers are like calculated because it sounds like, oh, so things are getting better. It’s like not expensive anymore, but then you go to the supermarket you’re like, no, this shit still costs like way more than it used to.
It’s just a, feels like it’s just a toying with like the terms.
[00:17:30] Jesse Lin: It’s always, for me, felt a little abstract because it’s like, it’s not like a flat thing across everything. So like some things cost more, some things are the same, some things are less. So in reality, your experience of inflation, as it’s saying, it’s different person to person, depending on like what you’re consuming.
And some people are gonna feel the pain more than others. Yeah. Unless
[00:17:48] Ramon: you’re in Europe, as European, you know, everyone is gonna fill it. I’m sorry, energy prices a lot. Germany and France and the uk, their bill is, is right now like 150, 200%. What it used to be a year before. So inflation, that’s a lot of money.
No energy. The energy price. Oh, electricity bill. Their electricity bill. So it’s gonna be pretty, pretty hard for them. Well
[00:18:10] Jesse Lin: rooting for negative 15 Inflation next January.
[00:18:15] Angela Lin: Excess. Well, on that note, uh, all right, well, since this is a mini, we wanna hear from you guys, do you feel the squeeze? And if so, where are you feeling the squeeze?
Cuz I, as you mentioned, it’s not everywhere. So like where’s the place where you’re like, what the heck? This suddenly got like way too expensive or you can’t afford it anymore. Also, how confused are you by like the headlines and what people are saying? Cuz it’s a lot of complicated stuff and it’s all kind of like intermingling together.
And as we mentioned, there’s kind of like political factors for kind of toying with the way things are represented. So how confusing is this all for you guys? Let us know on the comments wherever you’re watching. Ramon, thanks for joining us again. Thank you. Thank you, thank you. And, uh, come back next week because we’ll have another fresh episode for you then.