Current Events in September 2022

Uh-oh. Just as football season has gotten underway there are warnings of a possible beer shortage.

It has nothing to do with barley or hops. Rather, the problem lies in a persistent CO2 shortage that began early in the COVID-19 pandemic but has now suddenly gotten worse.

The fermentation process produces carbonization naturally, giving beer its “fizz.” However, it isn’t considered sufficient so brewers typically add CO2 from other sources.

For U.S. brewers, the main source of supplementary CO2 since the late 1970s has been the “Jackson Dome,” an extinct volcano in Mississippi. But according to Axios, engineers mining the CO2 recently discovered that it has become contaminated by other gases.

As a result, operators at the Jackson Dome have shut off the supply of CO2 that was normally sold to food and beverage products. Since then, brewers have scrambled to find a replacement supply, which has affected output.

'We've been running delivery to delivery for the past few weeks, and we are certainly concerned about the supply,' Ronn Friedlander, co-founder of Aeronaut Brewing, told Axios.

The U.S. had a CO2 shortage during the early days of the pandemic when supply chain bottlenecks slowed delivery. For a time, the soft drink industry was the most affected, reducing the amount of product on store shelves.

Linked to the scramble to find more oil

Industry experts say the current shortage may be more serious and longer-lasting. Trade publication Gasworld has reported the current shortage may be tied to reduced oil supplies that occurred at the start of the Russian-Ukraine war, leading to more aggressive mining.

It says the Jackson Done contamination may have occurred when miners drilled additional wells to use the gas for enhanced oil recovery. The resulting contamination creates a gas that doesn’t meet the purity standard for use in beverages.

If U.S. beer producers are forced to curtail production in the months ahead, prices are likely to rise. In addition to the major brands there are thousands of craft and “micro” breweries all across the U.S.

Beer consumption increased throughout the pandemic. The Brewers Association reports overall U.S. beer volume sales were up 1% in 2021. At the same time, sales of craft beers grew 8%, raising small and independent brewers’ share of the U.S. beer market by volume to 13.1%.

A new report from NewsGuard, a company that tracks misinformation on the internet cites examples of how it says TikTok users are likely to bump into misinformation on the platform. While users of all ages go to the app for recipes, dance routines, and generally funny videos, searching for more serious topics may not always lead to the most accurate information.

Searching for videos on any current events topics, including climate change, COVID-19 vaccines, and Russia’s invasion of Ukraine, among several others, is likely to be met with misinformation. The NewsGuard study found that about 20% of all videos that TikTok suggests after these key searches contain inaccurate information. 

The report also points to the terms that auto-populate on TikTok when users are searching for information on COVID-19 vaccines. The search term “COVID vaccine” yielded the searches “COVID vaccine injury” and “COVID vaccine exposed,” both of which may lead to videos with misinformation. On the other hand, searching for “COVID vaccine” on Google led to prompts for booster shots and health care facilities. 

This is particularly concerning when thinking about the primary audience on TikTok – young people. It can be difficult for consumers of any age to discern what’s accurate and what’s not, but having access to legitimate information – especially where important topics are concerned – is crucial. 

In a statement, representatives from TikTok said that the company plans to remove any misinformation from the platform. The platform’s community guidelines outline that it does not tolerate misinformation of any kind, and any videos containing inaccurate information will be removed. 

A bigger social media problem

Since the start of the COVID-19 pandemic, social media has been a breeding ground for misinformation. In the last few years, Facebook, YouTube, and Twitter have all had issues related to spreading misinformation about COVID-19 and the vaccines. 

By mid-May 2020, nearly 30% of all YouTube videos contained misinformation about the pandemic. The biggest culprit was entertainment news outlets, which accounted for 30% of these videos, and they had garnered over 62 million views by that point. 

After similar instances at Twitter, the company started monitoring all tweets related to the virus. Twitter started flagging tweets with misinformation about COVID-19 and the vaccines, and by early March 2021, the platform had removed over 8,400 tweets and flagged over 11.5 million accounts. 

More recently, misinformation has been spread on nearly every social platform about abortion reversal pills. Following the Supreme Court’s decision on Roe v. Wade earlier this summer, posts on social media about abortion reversal treatment were gaining traction.

However, the treatment has yet to be proven safe or effective, and leading health care organizations have spoken out about the dangers of taking such pills. These types of posts make it difficult for consumers to know what’s true and what’s not, which further clouds these important, and potentially life-threatening choices. 

Battling misinformation

Spotting misinformation on social media can be difficult. While typos or grammatical errors can be obvious signs that certain posts aren’t to be trusted, not every inaccurate post is so clearly inaccurate. Experts encourage social media users to report and flag any posts that they think contain misinformation. 

Consumers need to be cautious and discerning when scrolling through their feeds and pay close attention to the source of social media posts. Look for those who are experts in a particular field, original creators of posts, or posts that are current – those who re-post items that are several years old aren’t likely to be accurate. 

Doing more research is never a bad thing. Because misinformation can be hard to spot, taking the time to search for answers from credible sources outside of social media is the best way to ensure you’re only accessing the facts. 

For the last few months consumer prices, as tracked by the U.S. Labor Department, have been shooting higher. In August, consumer prices were up 8.3% year-over-year.

So it might seem odd that a respected voice on Wall Street has since last year consistently warned that deflation – falling prices – is the bigger threat.

Cathie Wood, who heads the ArkInvest hedge fund, is sticking to her guns even as prices rise. Now, some other investors are starting to see it her way too. In recent days Tesla CEO Elon Musk and Jeffrey Gundlach, CEO of Doubleline Capital, have echoed her comments.

In a nutshell, here’s Wood’s hypothesis: Prices are rising now because of problems with supply. There still aren’t enough new cars, for example. But long term, she says that’s not a lasting trend.

Wood’s hedge fund invests mostly in growing technology “disruptors,” companies that shake up existing industries, like the way streaming is eating away at the cable industry. As these companies continue to grow, and as artificial intelligence (AI) is brought on line, Wood says the deflationary trend that actually began more than two decades ago, will pick right up again.

A mistake?

Wood -- and now Musk and Gundlach -- argue the Federal Reserve is making a huge mistake by continuing to hike interest rates to reduce inflation. All three worry that policy will throw the U.S. economy into a recession, reducing consumer demand precisely at the point when prices begin to fall.

“We are getting some loud voices now accompanying us on this deflation risk,” Wood said at an investor event this week. 

Musk and Gundlach have also been speaking out. Musk tweeted that the Fed should lower its key interest rate by 0.25% instead of raising it, noting that commodity prices, such as lumber and copper are well below their recent highs.

An economist weighs in

At least one economist has also joined the chorus. Writing in Politico, David Blanchflower, an economics professor at Dartmouth College, says the current Fed policy is “guessenomics, based on zero data.”

“More plausibly this path (of continuing to raise interest rates) leads to a hard landing with rising joblessness and an unnecessarily destructive economic recession,” Blanchflower writes and goes on to call for the Fed to cut, not raise interest rates. 

Fed policymakers meet next week and are expected to announce another rate hike of at least 0.75%, taking the effective federal funds rate to between 2.75% to 3%. An increase in the federal funds rate usually results in higher consumer rates on credit cards and auto loans.

The Fed’s money-tightening policy is one reason stocks – especially companies that are growing but not yet profitable – have suffered in recent months. Any sign that the Fed is considering a reversal of its present policy is likely to send the market higher.

Buying a home just got even more expensive.

Freddie Mac reports that by its measure, the average fixed-rate 30-year mortgage rate is above 6% for the first time in 14 years, at the start of the financial crisis. Freddie Mac’s Primary Mortgage Survey puts the average rate this week at 6.02, double what it was a year ago.

“Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding 6% for the first time since late 2008,” said Sam Khater, Freddie Mac’s chief economist. 

According to Mortgage News Daily, other interest rate monitors have tracked mortgage rates above 6% earlier this year. Most recently, the publication put the average rate at 6.26% on September 1. Before that, the average rate rose well over 6% in June before settling slightly lower in July.

High rates make homes less affordable

The rise in mortgage rates this year is the main reason for a huge decline in home affordability. Last year, when the average rate was 3%, the monthly principal and interest payment on a $300,000 loan was $1,265. Today, at 6% the monthly payment is $1,799.

Khater says that will affect the housing market in many ways but maybe not the way many would-be buyers hope.

“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” Khater said. “This indicates that while home price declines will likely continue, they should not be large.”

Home prices may have to fall significantly to improve affordability with a mortgage rate north of 6%. In August the National Association of Realtors reported the median existing-home sales price was $403,800 – a decline of $10,000 from the month before. However, it was still nearly 11% higher than in July 2021.

Consumers who think that Buy Now Pay Later (BNPL) loans are a perfect way to buy something on time should perhaps think a little more. After seeing BNPL grow tenfold over the past three years, the Consumer Financial Protection Bureau (CFPB) went on a mission to find out if those type loans have anything that could harm the consumer in any way.

On top of issues like the risk of fraud and the impact on credit scores, the agency concluded in its new report that while the marketing of Buy Now, Pay Later loans can make them appear to be a zero-risk credit option, there are several other things that pose a risk for consumer harm.

BNPL loans may seem similar to credit cards, but…

CFPB Director Rohit Chopra called BNPL a “close substitute for credit cards,” and that’s exactly how some consumers view the loan since it, like a credit card, allows a consumer to split a retail transaction into smaller, interest-free installments and repay over time.

In a typical BNPL loan, a consumer might purchase a $500 item and pay it back in four equal installments, with the first installment paid as a down payment due at checkout, and the next three due in two-week intervals over six weeks.

The CFPB seems to be comfortable with that, but there are things that borrowers might not know going on inside the minutiae of a BNPL loan that concerns the agency.

First out of the CFPB’s chute of concerns are the inconsistent consumer protections BNPL loans offer. The agency found that while it’s standard for credit cards to offer protection, not all BNPL loans do. These include a lack of standardized cost-of-credit disclosures, minimal dispute resolution rights, a forced opt-in to autopay, and companies that assess multiple late fees on the same missed payment.

The second concern is data harvesting and monetization. With an eye toward the digital age and especially younger consumers, many Buy Now, Pay Later lenders have shifted their business models toward everything being done via an app, which the CFPB contends allows companies like Affirm, Afterpay, Klarna, PayPal, and Zip to build a valuable digital profile of each user’s shopping preferences and behavior. 

'Harvesting and monetizing consumer data'

“The practice of harvesting and monetizing consumer data across the payments and lending ecosystems may threaten consumers’ privacy, security, and autonomy,” the agency said. “It also may lead to a consolidation of market power in the hands of a few large tech platforms that own the largest volume of consumer data, and reduce long-term innovation, choice, and price competition.”

In addition to data accumulation, the CFPB said it’s concerned about debt accumulation, too – especially when it puts a consumer at risk of overextending a reasonable amount of credit. 

When the agency unpacked Buy Now, Pay Later procedures, it found that the process is “engineered” to encourage consumers to purchase more and borrow more. 

“As a result, borrowers can easily end up taking out several loans within a short time frame at multiple lenders or Buy Now, Pay Later debts may have effects on other debts. Because most Buy Now, Pay Later lenders do not currently furnish data to the major credit reporting companies, both Buy Now, Pay Later and other lenders are unaware of the borrower’s current liabilities when making a decision to originate new loans,” the agency said.

Is a reset necessary?

Even though Buy Now, Pay Later providers are subject to some federal and state oversight, the CFPB thinks there’s more that could be done to protect the consumer. The CFPB says it has enforcement authority over providers of credit, and it has authority to supervise any non-depository covered persons, such as a Buy Now, Pay Later provider, in certain circumstances. 

Protections vary from state to state, too. For example, some states do not require licensing or registration for Buy Now, Pay Later products with no interest or finance charges.

To try and keep BNPL from going off the rails any further, the CFPB said it will continue to address individual consumer harms as it finds them, then offer advice or issue rules to ensure that Buy Now, Pay Later lenders adhere to many of the baseline protections that Congress has in place for credit cards.

As part of this review, the CFPB said it is committed to guaranteeing that Buy Now, Pay Later lenders – just like their credit card company next of kin – are subjected to appropriate supervisory examinations.

For much of 2022, consumers endured record-high gas prices at the pump. While prices have gone down, there’s more to worry about at gas stations than just high prices. Consumers may be susceptible to a number of scams every time they fill up their tanks. 

One such scam that appears to be increasing across the country is credit card skimming. A skimmer attaches to the credit card slot on a gas pump, and rather than your credit card being read by the pump, it’s read by the skimmer. The goal for criminals is to steal credit card information and either use it for themselves to make purchases or sell the information on the internet. 

Depending on what kind of pump you’re at, it can sometimes be easy to spot a skimmer. They sometimes interfere with security tape on gas pumps, or are visible on the outside of the credit card slot. However, in recent years, they’ve become more advanced and can steal credit card information using Bluetooth. 

This is particularly a threat for motorists who use their debit cards at the gas station. Not only is that money immediately taken out of your bank account, but it can make it more difficult to get the money back. Unfortunately, many victims of skimmers don’t realize what damage has been done until they check their balance weeks later. 

A widespread issue

Credit card skimming at gas stations has become problematic at pumps across the country. Reports have surfaced from countless cities nationwide, including: Nevada and California, Maryland, Alabama, Nebraska, and Oklahoma. 

The issue is growing throughout the state of Oklahoma. Skimmers were identified at several locations in Broken Arrow, Okla., and residents were reporting fraudulent purchases on their credit cards after getting gas. One Broken Arrow resident reported losing nearly $1,000 after paying at a gas pump with a skimmer. 

Skimming had a different outcome in the state of Arizona. After identifying a record-high 209 credit card skimmers at gas stations across the state, officials made it a priority to protect consumers’ safety at the pump.

Officials had gas stations install better security measures at each pump, moving from the traditional credit card slots to either tap-to-pay or chip machines. 

As of March 2022, the Department of Agriculture's Weights and Measures Services Division had received zero reports of credit card skimmers at gas stations. While not all such incidents are reported to officials, heightened security measures are beneficial to both gas stations and consumers.   

Protecting yourself at the pump

Experts from Bankrate and Florida’s Department of Agricultural and Consumer Services offered some tips for consumers to protect themselves from skimmers when they’re at the gas station. How you pay at the gas station can make a big difference.

Using a credit card versus a debit card provides better protection in the event of skimming while going inside the gas station or convenience store to pay provides an even higher level of security. 

The location of the gas pump you choose can also affect your likelihood of getting caught in a skimming scam. To avoid exposure, those who plant skimmers are the least likely to put them on pumps that are the closest to gas station employees. Choosing pumps that are close to employees, or directly in their line of sight, can improve your odds of falling prey to a skimmer. 

Be vigilant about checking your credit card and bank statements. Knowing as soon as possible if you’ve been caught by a skimmer can make it easier to get back any lost money. 

For all the talk of an impending housing market correction, or even crash, real estate economists point out that every market is different. So far, some housing markets are vulnerable to losing value and ATTOM, a real estate data firm, has found them concentrated in three states.

The company’s Special Housing Risk Report spotlights county-level housing markets around the country that are more or less vulnerable to declines, based on home affordability, unemployment and other metrics that were analyzed in the second quarter of 2022. 

According to the analysis, New Jersey, Illinois, and inland California still had the highest concentrations of the most-at-risk markets in the second quarter, with the biggest clusters in the New York City and Chicago areas. Homeowners in southern and midwestern states were less exposed to falling home values.

The report’s researchers identified patterns, based on gaps in home affordability, “underwater” mortgages, foreclosures, and unemployment. They found that New Jersey, Illinois, and California had 33 of the 50 U.S. counties most vulnerable to potential declines in home values. 

The 50 most at-risk housing markets included nine in and around New York City, six in the Chicago metropolitan area, and 13 spread through northern, central and southern California. The rest of the top 50 counties were scattered across the U.S., including three in the Philadelphia, metro area. 

Values in the South and Midwest are holding up

The South and Midwest had the highest concentration of housing markets where values either have not gone down or are not expected to decline much, if at all in the future. They are considered the “least vulnerable” housing markets.

"The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession," said Rick Sharga, executive vice president of market intelligence at ATTOM. "Given how little progress has been made reducing inflation so far, the Fed's actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens."

The risk of decline in property value was considered from a number of angles. The risk was highest in counties with a large percentage of homes facing possible foreclosure, as well as the percentage of homes at risk of being “underwater,” where the balance on the mortgage is greater than the value of the home.

Researchers also considered the percentage of average local wages required to pay for major homeownership expenses on median-priced single-family homes and local unemployment rates. 

The August Consumer Price Index (CPI) may prove to be a double whammy for people on Social Security. Not only is inflation continuing to erode their buying power, but it might also produce a lower than expected Social Security cost of living adjustment (COLA) next year.

The Senior Citizens League (TSCL) has revised its estimate for the 2023 COLA and has reduced it from its earlier 9.6% to 8.7% – which would still be the largest increase in decades.

The problem, says Mary Johnson, TSCL’s Social Security and Medicare policy analyst, is that the Social Security COLA is not based on the CPI, but rather the CPI-W, which declined last month. CPI-W is a monthly measure of the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services.

“After evaluating the August consumer price data, what I’m finding clearly illustrates the weakness in our inflation adjustment system for Social Security,” Johnson said in an update to members.

CPI-W went down last month

She notes that while the Labor Department’s CPI went up 0.1% in August, the CPI-W decreased by 1.10 percentage point year over year to 8.7%. Johnson said that reduction will likely have a big impact on Social Security recipients. She offered a quote from a longtime reader of her newsletter.

“There’s a “progressive loss of buying power of 40%, despite the SS COLA, since 2000,” the retiree wrote. “(That’s) 10% from 2021-2022 alone. This means we have lost (almost) half our real income in face of COLAs.”

Another headwind for people who depend on Social Security is the rising cost of health care, which will rise even faster in an inflationary environment. Medicare premiums will undoubtedly increase in 2023 and are deducted from seniors’ Social Security payments.

Greater emphasis on gasoline prices

Johnson says one of the biggest issues in using the CPI-W to calculate the Social Security COLA is the fact that it does not track the spending of retired households aged 62 and up and gives greater weight to gasoline and transportation costs. 

“A significant drop in gasoline prices (in August) played an outsized role in why my COLA estimate has dropped,” Johnson said. “It’s important that the public understand that to fight inflation the administration temporarily lifted the 18.3 cents per gallon federal tax on gasoline for 90 days. That period started in July and ends in September, the same third quarter period that is used to calculate the COLA.”

Johnson said Social Security recipients don’t typically buy a lot of gasoline since they are no longer commuting the work. Rather, she says seniors are more likely to spend on healthcare, housing, and food – all of which went up a lot in August.

A recent study by the ConsumerAffairs Research Team found a majority of consumers – 78% – said they believe the housing market will crash soon. In August, there was little evidence that it was moving in that direction.

While there is anecdotal evidence that home sellers are reducing their asking prices, the latest Consumer Price Index (CPI) shows the cost of putting a roof over your head continues to rise. The Shelter Index, which includes both rents and home prices, rose 0.7% in August, the fastest rate since January.

Economists point out that much of the increase was driven by rents, which are rising because so many would-be buyers have postponed their home-buying plans. It’s true that one industry report showed home prices eased slightly in July, but most of those decreases occurred in markets where prices had risen the most.

David Keiran, the chief financial officer at Senné, a real estate advisory and investment firm headquartered in Boston, says buyers are heading to the sidelines in growing numbers because they simply can’t afford the current monthly mortgage payments.

“Inflation, high mortgage rates, and record-high home prices are quickly reducing housing affordability, especially for renters looking to enter the homeownership market,” Keiran told ConsumerAffairs. “A typical monthly mortgage payment is 75% higher today than it was in June 2019. And earnings aren’t keeping up with the inflation.”

It's not like 2008

But will a slowdown in purchases lead to a housing market crash? Many housing industry analysts point out that we are far from the situation that existed in 2008 when the housing market did take a dive. Then, a wave of foreclosures triggered by defaults on subprime mortgages created a huge surplus in housing inventory.

At the same time, mortgage lenders abruptly pulled back after significant losses, greatly increasing the underwriting standards for home mortgages. With more available homes and fewer people qualified to buy, home prices plunged.

Things are a bit different now. Inventory levels, which had been at historic lows, have begun to rise a bit, providing buyers with more choices and creating more competition. But some experts think that might not last. Homeowners who have considered selling may be having second thoughts because, after all, they then have to buy something else and pay today’s high mortgage rates.

"With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year," said Doug Duncan, Fannie Mae's senior vice president and chief economist.

The role of investors

There is another factor that could keep home prices from crashing, a situation that did not exist during the 2008 housing market crash. Today, the real estate industry includes an army of investors – from private equity firms to small businesses. 

Kurt Carlton, co-founder and president of New Western, a national private source of fix-and-flip residential investment properties, says these investors are always on the prowl for an attractive housing deal.

“As prices drop in a down market, we now have a new diversity of buyers to ensure there is a bid in the market beyond traditional homeowners,” he told us.

If true, that’s good news for current homeowners, who stand to hang onto more of their equity. But it also means many who are currently priced out of the housing market may find it very difficult to afford a home purchase, at least until mortgage rates fall.