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Thread: Stagflation is here !

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    Default Stagflation is here !

    Two months ago the Atlanta Fed was predicting future estimated GDP growth of 6%. Back in May they were predicting 14%. Since then they have continually revised their estimates DOWNWARD. In September it was 3.7 % and now it is 0.5%. That is too close to a recession for comfort.

    It gets worse. The number of recession predictions based on a drop in Consumer Sentiment Indices are increasing by the day. Supposedly the last two recessions were presaged by significant drops in Consumer Sentiment.

    Their estimates seem counterintuitive given all the easy money sloshing around the economy and the boom in commodities and real estate. A BIG part of the problem is the supply chain bottleneck. The maritime unions have such a stranglehold over the ports of L.A. and Long Beach that there are now over 100 ships waiting to unload. California state regulations limit who can drive trucks and what kind of trucks they can drive. Legislation designed to control the "gig economy" makes it virtually impossible for owner/drivers to operate in the state. The "old me " would have a LOT more to say about public policy with plenty of blame assigning and finger pointing. But that was the "old me ". The "new me " is trying extra hard to avoid politics lol. In any event the fact remains that at present DEMAND is not the problem. It is clearly one of supply and that applies wherever you look. From the grocery store to housing and the furnace to the gas pump and now the toy store. There is even a turkey shortage just in time for Thanksgiving ! Tofu turkey anyone ?

    The inflation numbers have been posted in another thread. Officially it is running at 5.4% but many analysts have done a deep dive into the numbers and say it is really at least 6%.

    For those who did not live through the 1970's ( as I did ) I hate to tell you that the only way out of this mess is a recession to get inflation under control and sensible monetary policy.
    Last edited by Eric Stoner; 10-21-2021 at 10:26 AM.
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    Default Re: Stagflation is here !

    ^ I am increasingly coming to the same conclusion. This is beyond bad.

    But to be clear, those supply chain bottlenecks only exist because consumer spending on goods and services has spiked. Look at the upward trajectory of PCE just in the last 6 months. Heck, it jumped .8% in August alone.

    https://fred.stlouisfed.org/series/PCE

    Sadly this has all been horribly predictable. As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” This lesson was used to finally tame the painful inflation we had in the 70s, but I guess that sometimes history is doomed to repeat itself. I can only hope that someone will finally take the credit cards away from the children before it's too late.

    And to be clear, while this inevitably touches on politics, I'm not blaming one party for this mess. Indeed I blame the former President as much as the current one as he started this whole mess by advocating for huge stimulus blowouts even as the economy was already recovering.

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    Default Re: Stagflation is here !

    Oh it's worse than that. " You Know Who" was told by Paul Ryan early in his Presidency about a VERY painful day of reckoning as the Social Security Trust Fund goes broke. According to Ryan ( and I believe him) the response from You Know Who was : " So what ? When it blows up I will be long gone."
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    Teddy Roosevelt

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    Default Re: Stagflation is here !

    I turned 41 this year. I fully expect that when I reach retirement, Social Security will be means tested at the minimum, if not completely gone. I am definitely not banking on receiving any. As for the Social Security tax, that's just so much money squandered away in Washington. My only hope is, SS survives as a sort of old age anti-poverty program. I don't have a lot of faith in our elected representatives to be able to accomplish that rather modest goal.

    Z

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    Default Re: Stagflation is here !

    This is interestingly on point for what I am seeing though amusingly (sort of) enough I have noticed a few articles coming out of ~reliable publications~ that seem to be trying very hard to convinces us that there's nothing going on, the economy is fine, and indeed people in the US at least have 'more cash now than ever'. ... Sure, Jan.

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    Default Re: Stagflation is here !

    Many on this board have not lived through a period of high inflation. I was a kid during the 70s and early 80s, when it last happened. My parents were blue collar hourly workers. It was bad.

    For starters, food, especially fresh meat, was rationed in my house because it was so damned expensive. We ate a lot more processed meats because, of course, they are cheaper. My father, ravenous after a day of crawling all over ships for a living, was the only one allowed to reach for second helpings. By 9:00 every night I laid in bed hungry again despite having dinner, but just not quite enough for an active growing boy.

    Clothes were another challenge. I wore the cheapest off brand stuff because that's all we could afford. When I lost my winter coat outside one year, my father beat my ass so bad that I couldn't sit for an hour, after which I had to go to school in an old freezer jacket that he used to use for his job.

    I could go on. High inflation is a killer for working class people and wages NEVER keep up with the price increases on essential needs. I hope I am wrong, but right now I feel like I'm watching a train wreck forming in slow motion as our policymakers don't seem to remember the lessons of the past - or they do but they are ignoring them to achieve other political goals.

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    Default Re: Stagflation is here !

    Quote Originally Posted by rickdugan View Post
    Many on this board have not lived through a period of high inflation. I was a kid during the 70s and early 80s, when it last happened. My parents were blue collar hourly workers. It was bad.

    For starters, food, especially fresh meat, was rationed in my house because it was so damned expensive. We ate a lot more processed meats because, of course, they are cheaper. My father, ravenous after a day of crawling all over ships for a living, was the only one allowed to reach for second helpings. By 9:00 every night I laid in bed hungry again despite having dinner, but just not quite enough for an active growing boy.

    Clothes were another challenge. I wore the cheapest off brand stuff because that's all we could afford. When I lost my winter coat outside one year, my father beat my ass so bad that I couldn't sit for an hour, after which I had to go to school in an old freezer jacket that he used to use for his job.

    I could go on. High inflation is a killer for working class people and wages NEVER keep up with the price increases on essential needs. I hope I am wrong, but right now I feel like I'm watching a train wreck forming in slow motion as our policymakers don't seem to remember the lessons of the past - or they do but they are ignoring them to achieve other political goals.
    I have a similar story. I lived through two bouts of inflation during the 1970's. It did affect our dinner table. I think I was in my late teens when I bought my first prime steak in a restaurant and thought :" Oh wow ! Who knew steak was supposed to be this tender." I was raised on chuck , round and stew. Today , I only buy porterhouse and t-bone but I can afford to. Clothes were about half hand me downs from a cousin who outgrew them and a few things from my late father and grandfather to supplement what little we could afford to buy. Btw, do they still sell those iron-on patches ? I used a LOT of those growing up lol. I started working when I was 14. I remember sending an explanatory letter to every college I applied for apologizing for my lack of extra-curriculars because I held down a FULL time job to help my widowed and divorced mother hang on to our house and went to high school and took AP and honors classes. In the summer I worked two jobs - Lifeguard at a pool-beach club and then valet parking cars at night. From about Memorial Day until late August. Then I'd work on my uncle's farm for about 10 days so his hired man and his son could get some time off. ( Chickens , corn, veggies and he raised Belgian horses including two State champions. ) To this day I remember slaughtering a capon for Sunday dinner and telling my aunt to NEVER ask me to do it again. She just shrugged and said : " That's life on a farm."
    The Nixon-Ford inflation was bad. The Carter inflation was brutal. I literally watched the money I had sweated and slaved for before putting it in the bank become worth less and less. Back then I knew beans about investing. And I was not alone. Far from it. All my neighbors felt the pinch and we all did as much "do it yourself" as possible. I shoveled snow for a few neighbors and did basic car maintenance ( oil changes and tune-ups ) for some of them and myself. My next door neighbor had FIVE kids in Catholic school at the same time. We both grew veggies to try and help. What we didn't eat at home we gave away. Another neighbor had chickens until somebody dropped a dime and they had to get rid of them. They still are illegal in NYC afaik. The rooster WAS an early riser and VERY noisy in the A.M. lol. Worst of all I had to sell my first car , a '67 Pontiac Le Mans COVERTIBLE ! because it ran on premium and it just got too expensive. It is STILL on the road. I met the guy that ended up with it at a local car show. Sniffle.

    Like Rick I do NOT want to see a repeat. I know I'll get through it. I have already arranged my portfolio to be defensive against inflation - Energy, commodities, real estate and TIPS. But the real victims are already the low and middle classes. I KNOW what it is like for them because I lived through it . TWICE !
    Last edited by Eric Stoner; 10-29-2021 at 10:53 AM.
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    Teddy Roosevelt

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    Default Re: Stagflation is here !

    Quote Originally Posted by Zofia View Post
    I turned 41 this year. I fully expect that when I reach retirement, Social Security will be means tested at the minimum, if not completely gone. I am definitely not banking on receiving any. As for the Social Security tax, that's just so much money squandered away in Washington. My only hope is, SS survives as a sort of old age anti-poverty program. I don't have a lot of faith in our elected representatives to be able to accomplish that rather modest goal.

    Z
    I think you'll definitely be getting it, based on the fact that if Congress were to end Social Security payments, practically every member would get voted out of office.

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    I think you'll definitely be getting it, based on the fact that if Congress were to end Social Security payments, practically every member would get voted out of office.
    With all due respect, I am definitely not planning on receiving anything from Social Security. If it should happen, great. But, I certainly don't expect it.

    Z

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    I think you'll definitely be getting it, based on the fact that if Congress were to end Social Security payments, practically every member would get voted out of office.
    I don't think there is any chance of them ending Social Security. What appears to be more and more likely is means testing and a reduction in benefits probably coupled with an increase in the Payroll Tax.
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    The credit belongs to the man who is actually in the arena... who, at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those timid souls who know neither.
    Teddy Roosevelt

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    Default Re: Stagflation is here !

    Quote Originally Posted by Zofia View Post
    With all due respect, I am definitely not planning on receiving anything from Social Security. If it should happen, great. But, I certainly don't expect it.

    Z
    It can't hurt to plan for a worst-case scenario.

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    Default Re: Stagflation is here !

    Over 1/2 million jobs were created in October. We're not anywhere close to stagflation.

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    Over 1/2 million jobs were created in October. We're not anywhere close to stagflation.
    That was a drop in the bucket. We are still 4 million jobs shorter than we were pre-COVID. Meanwhile our GDP growth is slowing.

    There is a very real risk of stagflation given the mix of circumstances, especially if we don't get those 4 million people back to work earning and producing. It's not like there aren't plenty of jobs available. The problem is that we continue to make it easy for them to sit out. Even with unemployment finally ending and federal stimulus money starting to wash out personal bank accounts, we are paying for their food through enhanced SNAP benefits (through the end of 2021) and their medical coverage through increased Obamacare subsidies (through the end of 2022). Then of course there are states and municipalities who continue to make direct stimulus payments from the hundreds of billions they received from the gargantuan $2 trillion "American Rescue Plan."

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    Default Re: Stagflation is here !

    If the concern is about the working class, that is a mostly a moot point.

    Long before covid and stimmy checks and everything else, the labor force participation rate has already been in decline—since the very late 90s. If covid accelerated that by shifting more women and elderly out, then it is what it is.

    The cost of buying a home and even rent has increasingly been out of reach for the working class. Mostly thanks to predictable steady cost of living increases year over year but stagnant wages. 2020 average apartment is $1098 a month. Landlords wants three times take home, so that is $3294 needed. That is $21 per hour that would be needed on average for a one bedroom for somebody working full-time (and btw soo many places conditioned people to accept not working by making them part-time but being “flexible” to be called in).

    Realistically, how many places offer $21 an hour? That is considered way too expensive for the “unskilled”. And let’s not even begin to talk about student loan/tuition and medical debt/entire healthcare sector issues—and the hyperinflation long allowed to happen in those sectors that I haven’t seen anybody complain about yet in this thread.

    I would personally argue things are harder for the working class now, and for some years now…than it was for those back in the 1970s

    I agree that it’s sad that the pain of inflation issues is starting to spread from the bottom to those who are homeowners as well, and the already “established” are forced to notice the trends that have been happening for a long time already. But just take solace that many before have already been making it work by strengthening their families, pooling their resources together, and causing the increase of multigenerational living—which is a decades long trend already that also got accelerated from covid.

    https://www.csmonitor.com/The-Cultur...re-the-merrier

    The post-covid exit from service and retail would have happened a way long time ago were it not for things such as SNAP and Obamacare keeping the labor supply for employers afloat in the first place, at least in my opinion. That is in response to some comment earlier blaming transfer payments.


    0D4323DE-8E0C-4D73-B3CF-B4173F9ED51C.jpg

    Personally, the way I see things. Families are strengthening, the culture has changed with a public who pays more attention to what are leaders are doing (or NOT doing)—there’s some more bumps ahead I won’t argue with that but the fundamentals are in place for positive changes coming soon. I’m personally optimistic
    Last edited by StellaRose; 11-07-2021 at 09:12 AM.

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    Default Re: Stagflation is here !

    Quote Originally Posted by StellaRose View Post
    If the concern is about the working class, that is a mostly a moot point.

    Long before covid and stimmy checks and everything else, the labor force participation rate has already been in declineósince the very late 90s. If covid accelerated that by shifting more women and elderly out, then it is what it is.
    Just because someone drops out of the labor force, it doesn't mean it's a bad thing. Many people drop out because they don't want to work and are in a financial position where they don't need to. Real estate has gone way up since the 1990s. The stock market has gone from 3,300 to 36,000 over the past 30 years. Bitcoin has also gone way up. There are many people who became wealthy through real estate investments and/or investing in stocks and digital currency, and are in a position where they don't need to work. As the labor force has been getting older, many more people are able to retire earlier because they're employers provide pensions. If you're serving in the military, you can retire after 20 years.

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    Default Re: Stagflation is here !

    Eagle - Dropping out of the labor force is not a bad thing IF there are other workers coming in and taking the place of the "drop outs". That is not what we are seeing today. Depending on who you talk to or listen to we are short anywhere from 4 to 10 million workers. The truth is probably somewhere in the middle.
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    Default Re: Stagflation is here !

    Quote Originally Posted by Eric Stoner View Post
    Eagle - Dropping out of the labor force is not a bad thing IF there are other workers coming in and taking the place of the "drop outs". That is not what we are seeing today. Depending on who you talk to or listen to we are short anywhere from 4 to 10 million workers. The truth is probably somewhere in the middle.
    This. When we lose that many workers, we lose the economic output that they produced. This bodes poorly both for near-term inflation (which goes up when too much money chases too few goods) and real GDP growth (which is negatively impacted when economic production falters).

    Worse though is when this stuff happens not because of natural forces like aging but because the government subsidizes it. Even before the pandemic Obamacare reeked havoc on our labor force participation rate. Many people in their 50s and 60s, who had accumulated significant assets but kept working to access employer sponsored health insurance, could voluntarily reduce their incomes by quitting their jobs and then getting health insurance for little to no money.

    For years we have been paying early retirees not to work by giving them subsidized health insurance that would otherwise be very expensive given their ages. People with million dollar homes and significant investment accounts are paid by us to stay out of the workforce simply by limiting their taxable incomes. During the pandemic we made it even worse by increasing the income thresholds for subsidies and adding in an enhanced food stamp sweetener, so now we are paying for the health insurance AND the food of otherwise affluent early retirees. No wonder they aren't coming back.

    Now we can argue about the social merits vs. economic costs until the cows come home, but let's not pretend that our current output issues are a result of anything other than perverse work disincentives created by government transfer payments (Eric that was directed at others, not you).

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    Default Re: Stagflation is here !

    Quote Originally Posted by Eric Stoner View Post
    Eagle - Dropping out of the labor force is not a bad thing IF there are other workers coming in and taking the place of the "drop outs". That is not what we are seeing today. Depending on who you talk to or listen to we are short anywhere from 4 to 10 million workers. The truth is probably somewhere in the middle.
    There are 7.4 million unemployed Americans.

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    There are 7.4 million unemployed Americans.
    RIGHT ! And with so many open jobs why aren't more of them WORKING ?
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    Teddy Roosevelt

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    Default Re: Stagflation is here !

    Quote Originally Posted by Eric Stoner View Post
    RIGHT ! And with so many open jobs why aren't more of them WORKING ?
    There is a large labor movement occurring and we are in the middle of a strike wave. At least watch opposing news coverage so that you can make a nuanced point. You just ignore with all your rattling on about a free market, that the system isnít meant to function for only a small group, at least in theory. It requires all to be informed and involved, which is not the current situation. The workers in numerous industries are making demands for their labor. That is actually economics not whatever stuck neoliberal 1988 notion that is taught at state schools, people donít have to take a job if it is substandard.

    I understand you disagree with this but it is laughable how very little acknowledgment is given to very well thought out ideas on the other side. I understand you are just shouting a narrative. You know very well why people arenít working the jobs available. You just disagree with them because it doesnít go with your worldview.
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    Default Re: Stagflation is here !

    Quote Originally Posted by Eric Stoner View Post
    RIGHT ! And with so many open jobs why aren't more of them WORKING ?
    People who are unemployed are part of the labor force. Employers who need more employees, need to offer the pay, benefits and working conditions to attract them.

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    Default Re: Stagflation is here !

    So the middle of the thread was about how what is going on will soon hurt the middle and working class. I respond with how the middle and working class have long been hurt. After that, the conversation shifts to how lazy the working class is thanks to government transfer payments. I take that as validation for what I said.

    I agree that a lower labor force participation rate not being that bad—especially considering the lowest rate seemed to be around 1950-1970. Do I necessarily want to return to a time period women were either shamed or barred from the workforce? Not at all, but somehow back then we managed to be a shiny unquestioned superpower at that time.

    There are pains associated with a smaller workforce, but structural changes, no matter what, aren’t fun when they are happening.

    I am feeling mellow at the moment though so I don’t want this to be complete disagreement with the OP. I will say that I agree with the original post sentiment of a recession not being a bad thing. for personal reasons I am biased and in favor of bubbles bursting, especially home prices lol

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    Default Re: Stagflation is here !

    Quote Originally Posted by kamiliam View Post
    There is a large labor movement occurring and we are in the middle of a strike wave.
    It's possible I suppose, but the more likely explanation IMHO is that we are currently paying people not to work, especially after 18 months. People who need to work to pay bills usually do so. I know that the notion that people are somehow coordinating in some mass strike movement is very romantic and appealing, but IMHO not very realistic.

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    People who are unemployed are part of the labor force. Employers who need more employees, need to offer the pay, benefits and working conditions to attract them.
    You know I keep hearing this stuff like it's some sort of chant. The reality is that we have one of the softest workforces occupying the safest and most comfortable working conditions in the world. FFS we can't even get our own domestic population to do certain jobs (crop harvesting, fish processing, office cleaning, etc.), hence the need for a steady supply of immigrants (legal or otherwise).

    Our ultimate problem is not that Walmart doesn't pay cashiers $25 per hour. The problem is that we have way too many people not qualified to do anything else besides work at Walmart. Part of this is cultural and part of it is institutional.

    From a cultural standpoint, we are raising kids (especially boys) too soft and unwilling to work in professions where they get their hands dirty. We have been so short on skilled tradesmen for so long that it is becoming an endemic problem. Machinists, electricians, welders, plumbers and others can all earn a solid living wage and some can crack six figures per year with overtime, but too many kids grow up believing that they are too good for these jobs, so instead end up ringing a register at a convenience store after High School.

    From an institutional standpoint, our education system is utterly failing the kids who are not college bound. By telling kids that college is the only worthy goal, they are neither being honest with parents whose kids are clearly not academically inclined nor are they helping these kids to find their optimal paths. We need far more VoTech schools and more guidance counselors willing to have an honest discussion with Middle School and High School parents. But instead we have 18 year olds leaving High School with no realistic college path yet no skills to earn a decent living.

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    Default Re: Stagflation is here !

    Quote Originally Posted by eagle2 View Post
    People who are unemployed are part of the labor force. Employers who need more employees, need to offer the pay, benefits and working conditions to attract them.
    According to yesterday's New York Times : Macy's is offering referral bonuses of $500 for every friend or relative that an employee refers for a job. Macy's CEO Jeff Gennette plans to hire 76,000 workers and says there is a "war for talent".

    Walmart is paying $17 an hour to start and is offering free college tuition. They are looking to hire 150,000 workers. But NONE in NYC because the City Council has kept them from opening a store in NYC. After creating a school system that generates hundreds of thousands of high school grads and drop-outs unqualified to do anything else. Even the military requires a H.S. diploma.

    Amazon warehouse jobs come with $3000 signing bonuses. They are looking to hire 150,000 workers. There would be more Amazon jobs available in NYC but AOC and her allies in the City Council blew up a deal where NYC would have gained 25,000 primary jobs and at least as many corollary employees. As the late Jack Kemp said : "Dems like employees and hate employers."

    Nordstrom is hiring 28,600 workers.

    In addition the National Retail Federation says retailers will also be hiring 500,000 to 665,000 seasonal workers.

    Retailers and other employers are offering greater flexibility in working hours especially to working parents with children in school. Continuing a national trend more stores will be closed on Thanksgiving. Stores are cutting back on OT and hiring new workers instead recognizing that their workforce is worn out from over a year of staying open during the pandemic with a declining workforce.

    As jobs go it is a seller's market for employees. Higher pay , better benefits and better working conditions are the major selling points and according to Mark Cohen , Director of Retail Studies at Columbia University's Business School , employees can pick and choose who to work for.

    The foregoing is just what is happening in retail. A similar story is being told in restaurants and other service jobs. Almost every top restaurant in Manhattan is short workers. So are hotels. And that is just one city.

    The one shortage of workers that haves the biggest impact on the rest of us is the shortage of truck drivers. Now, the excuse makers are saying it is increased strictness of Federal drug testing regulations that accounts for the shortage. I don't know about anyone else but I'd rather not have drivers high on drugs operating 18 wheelers.
    A
    The credit belongs to the man who is actually in the arena... who, at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those timid souls who know neither.
    Teddy Roosevelt

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