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@humanetech @vfrmedia @Alonealastalovedalongthe @jaranta @rysiek I figure that the everything bubble is going to burst in the next year or two as interest rates rise in response to inflation. At that point, as venture capital dries up because returns can be met by low risk investments, companies will need to actually make a profit on their core business to provide services.

Frankly, I don't think that amazon makes that much money on their core service. I think it's a loss leader for the services that are purchased by lots of tech startups using VC funding. Once the VC funding dries up, and once the valuation of tech companies becomes more commensurate with the revenue and profit margins of tech companies, I don't think Amazon continues spending $20 to send a $5 item to your doorstep.

Unpopular opinion, but I think the local brick and mortar store model is going to prove to be better suited to a low margin environment than an a la carte delivered direct to your house model, and we're going to see it when the economy becomes more normalized. Just like the prices of streaming services have been steadily rising (remember when netflix cost 7.99 a month and had all the content?), we're going to see the prices of online physical goods rise once the honeymoon period wears off.

@Alonealastalovedalongthe @humanetech @rysiek @jaranta @vfrmedia

I can have a carton of diet coke shipped directly to my house for free from Amazon for about the same price as a case of diet coke at the supermarket.

Let's look at what this requires in both cases.

For Walmart to sell me a case of diet coke, the manufacturer sells it to a wholesaler. The manufacturer ships it to the wholesaler on a truck that can carry tens of thousands of dollars of soft drinks, and the entire trip costs a few dollars per mile. The crate is shipped from the factory to the wholesaler. Next, it is sold to a retailer. It is again shipped on a large truck that carries tens of thousands of dollars of soft drinks, and it's unloaded there taking a few little bit of time. The supermarket building needs to exist, the company needs to pay land taxes, they need to pay for heating and cooling and electricity and maintenance, and in a decent sized city there's probably a few of each type of store to serve each area. The individual cases of diet coke are taken from the storage room at the retailer to the shelf on a trolley, and it's stocked on the shelf. From there, I pick it, bring it to the till, ring it up myself, and pay. I drive it to my specific house myself. You could argue that there's one more step where big chains have intermediate distribution facilities as well, so we add another massive building and another truck ride and we have to pick the pallet of drinks to be sent to the retailer.

For Amazon to sell me a case of diet coke, the manufacturer sells it to Amazon. Amazon has some massive distribution centers around the world, where buildings needs to exist, the company needs to pay land taxes, they need to pay for heating and cooling and electricity and maintenance. The pallet of diet coke is shipped to amazon and stored in their distribution facility. They don't need as prime real estate since the distribution center so there's some economies there. I place the order on the website. Someone has to pick my specific case of coke. Someone needs to put it in a box, and put a specific shipping label on my box. Someone needs to ship my specific box out of amazon and to an express delivery company. My box containing a box of diet coke is then sorted and processed, and sent on trucks from the distribution center approximately 2000km away, and eventually it ends up at a local distribution center for the express delivery company. It is put in a local delivery truck. A person specifically drives down my street, stops in front of my house, walks up to my door, and drops off a box containing a case of coke.

In the first case, the costs associated with a specific case of diet coke are aggregated within a pallet of diet coke for most of it's life, so rather than spending money specifically on *my* case of diet coke, it's on an entire pallet of diet coke, or even an entire shipment of diet coke consisting of many pallets of diet coke. The truck costs a relatively small amount considering the amount of merchandise, and the only time someone specifically touches *my* case of coke is moving from a pallet of diet coke to the shelf where I will pick it up and buy it.

In the second case, there's a lot of costs associated with the specific case of diet coke that can't really be distributed amongst other cases of diet coke. They're picking the specific case of diet coke. They're giving me a box. They're potentially padding the inside of the box. They're printing the label that only applies to my house and putting it on the box. They're processing my specific box to get it thousands of kilometers through all kinds of different cities, then they're giving an individual instructions and having them drive to my house and dropping it off on my doorstep, and there's paperwork involved with each step such that when it's on my doorstep I get a letter telling me it happened and a photo of my doorstep proving it was delivered.

I ship a lot of stuff, and it isn't cheap. To ship something as large as a case of diet coke you're talking about a robust cardboard box that isn't cheap, and then shipping which even at the post office isn't cheap. If I ship a case of diet coke to my mother, it'll cost me more than the cost of the case of diet coke.

Despite all this, not only do I get the case of diet coke shipped to my home for free, but the case of diet coke is competitive in price with my local supermarket, even though I'm getting objectively more for my money from Amazon and I'm getting an objectively more expensive personalized service.

This type of door-to-door grocery isn't unprecedented. We know that in previous generations, milk was delivered daily by milk men door to door, particularly before refrigeration became widespread. The lower cost of central retailing took over that. Another example of this is the switch from traditional stores where you'd fill out an order form and they'd go in the back and bring you what you wanted compared to walking around a store with displays and grabbing what you wanted. It was cheaper doing it that way to the point that it became the dominant form of retail. Mail order isn't a new concept either, but the advantages of brick and mortar retail are real and only can be reduced by insane free 1 or 2 day shipping.

Amazon is definitely treating their online store as a loss leader. The thing is, the only reason they can have their core business as a loss leader and compete with businesses with twice their revenue and more solid business models is the everything bubble. Once they can't get more free money to prop things up, once they aren't beneficiaries of venture capital startups throwing money at them to start different businesses with their money, I think we see amazon's ambitions become much more realistic.

@Alonealastalovedalongthe @humanetech @rysiek @jaranta @vfrmedia Economics is a bit of a hobby of mine, so I love having real discussions about it.

"The Everything Bubble" is a common name for the boom in a lot of investments partially since the fiscal response to the 2001 recession and much more since the 2008 great financial crisis.

Central banks are called "lenders of last resort". Banks nominally function by taking people's money, and lending it to others for an interest rate. So when you put your money in the bank, they're using that money to give people loans. Let's say that something happened and a bunch of people try to take their money out at once. People run to the bank to take out their money. This used to happen fairly often, and because banks can't recall their loans, they'd need to borrow money from elsewhere to fill the requests and then later liquidate some assets to repay that loan. The problem comes when there's nobody available to give that loan. A bank could have all kinds of assets, but because it's all locked up in investments they can't immediately liquidate, it could go out of business because people try to take out their money and can't. Governments around the world created central banks that become that lender so even if other banks won't lend, the central bank will.

The central banks ended effectively managing the money supply because by setting their own interest rates, they end up directly affecting how consumer banks set their interest rates, and that changes the growth of shrinking of the amount of money in the monetary system. Later on, the same central banks sort of became where "money comes from". The mint still mints the actual currency, but the central bank is where the numbers come from.

After the 2001 dot com crash, central banks generally dropped their interest rate to record lows, and that led in part to investment in risky things.

In the 2008 financial crisis, the central banks took this role as "where money comes from" to the next level. The banking systems around the world were getting all locked up because everyone had lost so much money, so there wasn't any liquidity to lend, so what the central banks did is they went to the banks and purchased government bonds for cash. This effectively swapped out assets for liquidity. The direct intended effect is that banks suddenly had money available to lend, keeping markets moving. A related situation that was beneficial for the government benefactors of the central banks is that by buying all these bonds, the market for government debt was modified.

Government bonds are issued at an auction. The auction is basically "how much money do we need to give you at the end to lend us this amount of money today?" so with supply and demand, if there's low supply high demand the amount of money you earn on debt shrinks, and if there's high supply low demand the amount of money you earn on debt grows.

So all the bond purchases by central banks have driven the price of debt way down, and it's massively increased the amount of money in the monetary system. Governments around the world are issuing massive amounts of debt and taking that money and spending it in the economy, then the banks that held that debt then have the debt replaced with cash, and that drives bond yields way down.

We've got a couple effects of this. First, inflation. Inflation is the reduction in the buying power of your money over time for the purposes of this discussion, and it's caused by the number of dollars chasing the same number of products or services. If you're rich, then you need to make returns of at least inflation every year, or you're less rich this year than you were last year. Second, as we discussed, safe forms of investment such as debt were artificially driven down because of the bond purchases.

So you've got all this new money in the system, and it can't go into bonds. Where does the money go?

The answer is, anywhere there is a possibility of growing greater than 2%. So we see lots of Venture Capital. We see lots of companies with highly inflated stock prices. We see wild moonshots like cryptocurrencies growing at insane rates. We see marginal companies like Tesla blowing up because the money has to go somewhere. It's an everything bubble.

That everything bubble has a lot of good effects for now -- it means that lots of people are getting rich on rising asset prices. It means that a lot of moonshot ideas are getting huge amounts of money in the hopes that they'll make incredible returns tomorrow. That means that consumers are getting a lot of services for less than the cost it takes to produce those services because tons of companies are in the "loss leader" phase of their growth. But all good things do come to an end, and that bubble will pop, and lots of companies will die, and businesses that survive will need to profit without relying on Venture Capital and cheap debt.

Hope this post federates properly! "Only" 5000 chars!
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@Alonealastalovedalongthe @humanetech @jaranta @rysiek @vfrmedia notwithstanding a couple typos I'm annoyed with reading it back.

The cause was mostly monetary not fiscal response to the recessions. central banks "ended up effectively managing the money supply", not ended effectively.