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The headlines of the world’s news portals flash with sad warnings: a sad Christmas is waiting. Sad, not for lack of work, money, and opportunities to buy gifts. The sadness is that so much money and wishes that factories do not have enough production capacity, there are not enough cargo containers and freighters for all the toys, scented candles and sparkling decorations to reach us consumers in time.
According to Bloomberg news, the average commodity journey from a factory in China to the consumer’s door currently takes 73 days, compared to a 40-day journey two years ago. Problems caused by a pandemic contribute to supply chain disruption, and factory closures often occur in Asian countries in an attempt to prevent the virus from spreading.
For example, in August this year, part of Ningbo port, which is the third largest in terms of cargo volume in the world, was closed for several weeks. However, the main reason for the shortage of goods and delays is that buyers’ pockets are deeper and wants are more giddy than the ability of producers and sellers to satisfy those wants.
The ‘crisis’ we are witnessing now is very unusual and quite the opposite of the situation we experienced more than a decade ago after the global financial crisis. Then real estate prices fell sharply, unemployment fell almost 20 percent, wages froze or even fell, consumption fell by almost a fifth, and investment contracted almost 40 percent. It took five years to return to pre-crisis levels.
During the pandemic, the economic recession lasted only a few months, and consumption, exports, wages and property prices began to break new records last year. Since the beginning of the pandemic, house prices in Lithuania have increased by more than a fifth, and in some cities, even more. Many Mediterranean resorts are jealous of the generous shoppers who eat thousands of euros per square meter on the modest Baltic coast.
Today, there are more people working in Lithuania than before the pandemic, and the median salary increased by more than 12 percent or 168 euros during the year. In addition, many residents, even without losing income, received additional benefits. Last year, 200 euros were received by elderly people, students, people who started looking for work, but did not necessarily want to find it. This year, 100 euros are being considered for those who are not obliged to take care of their health and safety in any way. Money is needed; money is, as an infamous institution put it.
And this is not only the uniqueness of Lithuania: similar trends are also observed that are liked by many people in other western countries. Many governments and central banks behave as if we are still in deep crisis and we divide money left and right.
Last year, Lithuania’s budget deficit reached 7.4 percent. gross domestic product (GDP), but it was relatively modest compared to some euro area countries, and in particular the United States. Just last year, America’s budget deficit was 15 percent. GDP, or more than $ 3 trillion. And despite the fact that, according to many economic indicators, the crisis is over, there are still no plans to balance public finances and live as far as possible.
This “boost” from already prosperous economies or the constant replenishment of punch at a rock party has unwanted side effects.
While unemployment remains higher in many states than it was before the pandemic began, at the same time, a growing number of businesses say the main activity limiting their activities is a shortage of workers. Up to half of American companies, the most in half a century, say they can’t find workers to fill the vacancies. The number of vacancies in Lithuania is also at record levels. Therefore, perhaps few will be surprised and now the price rally is being observed.
The party is even more intense in the financial and alternative asset markets. Rising real estate and equity values are a direct reflection of low interest rates, and rental or dividend yields of a small percentage seem very attractive compared to the alternative of lending to any government in the area of the euro at a negative interest rate. In other words, when you have to pay someone to save your money.
However, this year we have seen a number of supposed innovations and deviations from logic, such as non-fungible token (NFT) trading. This year, we saw how a digital photo of a kitten or puppy and a poorly executed pebble drawing sold for millions of dollars. It’s worth remembering the Initial Coin Offering (ICO) craze that emerged a few years ago, when only the “innovators” who created those chips stayed rich and their buyers were left empty-walled by the split gelda.
Still, the fundamental laws of economics have gone nowhere, money doesn’t grow on trees, and even the funniest bakchanalias will be over. Record economic activity and skyrocketing inflation will force governments to remember life as much as possible, without excessive borrowing, and central banks will question whether all problems can be solved by setting negative interest rates or printing money. Buying assets at any price is also likely to force you to remember basic economics and investing lessons.
The author of the comment is Swedbank’s chief economist.
