Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
The Not-So-Hidden Tax
Last fall we refinanced our home to take advantage of the historically low interested rates. We shaved over 1% off our rate, cashed out enough money to put on a new roof, and lowered our monthly payment. By the time we got our refinancing done, it was too late into the year for our preferred roofer to do the work. It’s an old 2-story farmhouse with a steep pitch and partial wood shingles underneath a couple of layers of asphalt shingles that will require a complete tear-off and re-decking. He lays off some of his crew through the winter and wouldn’t have enough manpower to do the job until spring. We weren’t having any issues with our roof and since we’re fairly responsible with our money, the cash could sit in the savings account till he’s able to come.
Fast forward to spring and we have a different problem: lumber prices (and other building materials) have skyrocketed. Unfortunately, our roof will require more lumber than the typical roof job which makes our original quote moot. I’m waiting on him to re-work our quote with the higher prices but we may have to wait till prices come back down some (or for a good hail storm).
There’s a lot of explanations for why lumber prices have ballooned. Increased demand from lockdown DIY projects. Homebuilders trying to fill a housing shortage spurred by low-interest rates. Production and supply chain delays because of COVID shutdowns. Trade barriers that make importing lumber more expensive (Thanks Trump!).
Those are all part of it, but there’s another that rarely gets mentioned: inflation.
When most people hear inflation they think of higher prices only. As Kevin Williamson (I know, I know, he didn’t like Trump so his opinion doesn’t matter) points out:
“If you look around for inflation the way most people think of it, you won’t see a lot of it. “Core” consumer prices, as they are known, have been pretty flat, and what rise in prices that consumers have seen has mostly been in oil. But, in spite of the way the term is used, inflation really should not be treated as a synonym for a general rise in consumer prices. Inflation is an increase in the money supply not linked to an increase in economic production — rising prices are one possible consequence of inflation, but are not inflation itself.”
This seems largely true. The US Government has been pumping money into the economy like crazy. Stimulus checks to people who didn’t need it. Outlandish spending bills, one after the other with no means or intention to pay for it. Artificially low interest rates are driving real estate prices through the roof. It’s starting to show up in the conventional measurements too. Global financial institutions are also taking note.
Williamson highlights the increases in luxury items and investment vehicles such as cryptocurrencies but they’re happening closer to home too. Living in a rural, agriculture-dominated area, I’ve seen the prices of farm goods explode in the last year or two. Used farm equipment, farmland, and farm inputs such as fertilizer have gone sky high (the Trump Admin dumped billions of dollars to farmers over his term, especially in the final year). Things like guns, ammo, and swimming pools have seen similar increases (if you can even find them). Some of it is simple supply and demand and the price will move closer to equilibrium. Some of it is pure inflation.
The problem with inflation is it makes your dollar today worth less tomorrow. The cash-out re-finance we did in the fall now buys less roof today than it would have 6 months ago. If your money is worth less, it’s the same as having less. Milton Friedman said, “Inflation is taxation without legislation”. The government quietly inflates its currency so it can bribe more voters in lieu of direct taxes which are more easily felt by the citizens. This is why it is sometimes referred to as “the hidden tax”.
If you know where to look, it doesn’t seem so hidden.
Published in General
Good article today in Zero Hedge: https://www.zerohedge.com/markets/things-are-out-control-supply-chain-collapse-leads-lumber-frenzy-soaring-home-prices
In fact, it was that article in Zero Hedge that prompted me to quip in our Funny Political Memes group: “Remember the old adage, ‘Don’t take any wooden nickels?’ Historically, it was meant as a light-hearted reminder to be cautious in one’s dealings … Have you seen the current price of lumber? Take the wooden nickels!”
Think I read the other day that 4X8 plywood sheeting is up 185% since last year. And it’s not just construction materiel. It’s everywhere from gas to groceries.
Good article till the end when they blame employers for the labor market issues. Yes, employers are often slow to raise wages in tight labor markets (although they were during the last few years, a feather in the cap of “Trump’s economy”) you can’t blame them for being slow when the government arbitrarily outbids them with higher unemployment benefits (in some cases outrageously).
In a related matter, the Fed just stopped publishing the weekly data on M1 & M2 money supply. They will report monthly. Why? Because the current chairman apparently believes money supply is not an important variable. Yup. MMT. Hold on to your hats. Apparently Milton Friedman’s observation that inflation is always and everywhere a monetary phenomenon is now passé.
Coincidentally, we’re facing the exact same issue. Refinanced for some home projects, including roof, and now the contractor’s original quote is way too low.
Fortunately, the roof issue we’re having is largely cosmetic. But when we put the house on the market, I’m afraid an inspector will note the slight sagging issue. So for now, our contractor will put his name on a letter we’ll keep on file saying that in his view the roof is structurally sound. (Yeah, I trust him.)
It’s not that he doesn’t like Trump. His opinion doesn’t matter because he thinks being an insulting dickweed is an acceptable replacement for a learned opinion.
You might have missed what I suspect is the main cause. Large home building companies have likely tied up all projected lumber supplies with contracts to a point where small builders who do single jobs one-by-one cannot even get a commitment for future delivery of lumber but must bid without knowing what the cost will be when they are ready to accept delivery. I spoke with two individuals trying to remodel or build this week and they cannot get a price for lumber unless they want to take delivery today. Have you noticed what pattern this fits?
But why are home building companies locking up supplies with contracts? If they’re doing it to cope with an inflationary environment, that is a consequence of inflation, isn’t it?
I didn’t mean inflation, I was talking about putting greater pressure on small business as part of political policy.
We need to replace our back deck, and our contractor warned us about how expensive it would be. Now we’re thinking of maybe a concrete patio with new, wooden steps going up to the kitchen, dining room, and guest wing . . .
It’s the same pattern that favors large companies to the point of destroying small ones?
Concrete steps.
Stad, Concrete can be very expensive, even over the higher prices of lumber.
But it’s all part of the plan.
Push the cost of living higher and higher so many in the Middle Class and a whole bunch of the Working Class fall into the degradation of Serfdom, and at the same time destroy as many small businesses as we can so the Middle/Working Class will not have that many jobs to return to when the economy comes back.
True, but it won’t rot or need restaining every couple years. Maybe I’ll ask @concretevol if there’s a Ricochetti discount . . .
Wait…..the price of concrete is a conspiracy to keep the little man down?? It must be a seriously long term plan because building materials (like everything else) have risen in price my entire career. :)