Global Recession
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@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
Anecdotal stuff:
The car dealers who didn't want to know me when I as looking at a new car last year are now emailing me with offers - inc 0% finance.
Builders who were booked solid for the next 18 mths are now saying they can do my work in the next few months.
Holiday lets in Cornwall for late & next season are dropping off quite fast.
Feels like this country is kind of talking itself into it honestly.
There's a bit of that, I guess, but there's def. a change in sentiment which the expected rise in energy costs will likely solidify. As long as employment holds up, I think we should be OK though.
The energy costs suck but won’t last forever.
Your observations are all based on ppl tightening belts for reasons they likely haven’t even noticed in reality.
People have noticed stuff though. V. high energy prices may not last longer than 2-3 years (some are predicting up to 5 years) but taking an extra £2k p.a out of pay packets will likely have a huge impact in confidence, spending & the wider economy in the meantime.
Nobody has a clue. Nobody.
For the average Joanne, that's the whole point though, isn't it? They aren't gonna spend money if they think there's hard times ahead which is what the BoE and every other serious forecaster is saying.
Yep exactly. Being talked into it.
Disagree. You can't talk yourself into wishing away economic reality like the need to find an extra £160+ pcm for energy, rising mortgage payments, inflation at 10% and rising, while wages are falling in real terms. That's not doom & gloom forecasting, it's reality.
If jobs hold up, energy prices drop next year, inflation starts to fall & interest rates don't go up to levels needed to control inflation in the past, we should be reasonably OK - but that's a lot of "if's" there. I take your point on being too negative and think Nelson's view that Treasury orthodoxy needs seriously questioning is a good one, but there's some really serious economic risks out there.
I’m not saying these headwinds don’t exist. They do and they are real.
But we aren’t in one (yet) and if you keep saying one WILL happen then ppl will start tightening belts and what will happen will be worse.
That is an interesting conundrum: if belt tightening happens you risk recession, but if it doesn’t you risk inflation. Most of the economists I know would advocate for avoiding inflation even at the cost of a recession. And I suspect for your average punter inflation is worse because it has immediate personal impact that is felt for a long time. Recessions hurt differently and usually for a shorter duration.
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@JC said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
Anecdotal stuff:
The car dealers who didn't want to know me when I as looking at a new car last year are now emailing me with offers - inc 0% finance.
Builders who were booked solid for the next 18 mths are now saying they can do my work in the next few months.
Holiday lets in Cornwall for late & next season are dropping off quite fast.
Feels like this country is kind of talking itself into it honestly.
There's a bit of that, I guess, but there's def. a change in sentiment which the expected rise in energy costs will likely solidify. As long as employment holds up, I think we should be OK though.
The energy costs suck but won’t last forever.
Your observations are all based on ppl tightening belts for reasons they likely haven’t even noticed in reality.
People have noticed stuff though. V. high energy prices may not last longer than 2-3 years (some are predicting up to 5 years) but taking an extra £2k p.a out of pay packets will likely have a huge impact in confidence, spending & the wider economy in the meantime.
Nobody has a clue. Nobody.
For the average Joanne, that's the whole point though, isn't it? They aren't gonna spend money if they think there's hard times ahead which is what the BoE and every other serious forecaster is saying.
Yep exactly. Being talked into it.
Disagree. You can't talk yourself into wishing away economic reality like the need to find an extra £160+ pcm for energy, rising mortgage payments, inflation at 10% and rising, while wages are falling in real terms. That's not doom & gloom forecasting, it's reality.
If jobs hold up, energy prices drop next year, inflation starts to fall & interest rates don't go up to levels needed to control inflation in the past, we should be reasonably OK - but that's a lot of "if's" there. I take your point on being too negative and think Nelson's view that Treasury orthodoxy needs seriously questioning is a good one, but there's some really serious economic risks out there.
I’m not saying these headwinds don’t exist. They do and they are real.
But we aren’t in one (yet) and if you keep saying one WILL happen then ppl will start tightening belts and what will happen will be worse.
That is an interesting conundrum: if belt tightening happens you risk recession, but if it doesn’t you risk inflation. Most of the economists I know would advocate for avoiding inflation even at the cost of a recession. And I suspect for your average punter inflation is worse because it has immediate personal impact that is felt for a long time. Recessions hurt differently and usually for a shorter duration.
Long-term debilitating illness or horrific short term injury that is super painful in short term but will heal up.
What a choice 🙈
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@JC said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
Anecdotal stuff:
The car dealers who didn't want to know me when I as looking at a new car last year are now emailing me with offers - inc 0% finance.
Builders who were booked solid for the next 18 mths are now saying they can do my work in the next few months.
Holiday lets in Cornwall for late & next season are dropping off quite fast.
Feels like this country is kind of talking itself into it honestly.
There's a bit of that, I guess, but there's def. a change in sentiment which the expected rise in energy costs will likely solidify. As long as employment holds up, I think we should be OK though.
The energy costs suck but won’t last forever.
Your observations are all based on ppl tightening belts for reasons they likely haven’t even noticed in reality.
People have noticed stuff though. V. high energy prices may not last longer than 2-3 years (some are predicting up to 5 years) but taking an extra £2k p.a out of pay packets will likely have a huge impact in confidence, spending & the wider economy in the meantime.
Nobody has a clue. Nobody.
For the average Joanne, that's the whole point though, isn't it? They aren't gonna spend money if they think there's hard times ahead which is what the BoE and every other serious forecaster is saying.
Yep exactly. Being talked into it.
Disagree. You can't talk yourself into wishing away economic reality like the need to find an extra £160+ pcm for energy, rising mortgage payments, inflation at 10% and rising, while wages are falling in real terms. That's not doom & gloom forecasting, it's reality.
If jobs hold up, energy prices drop next year, inflation starts to fall & interest rates don't go up to levels needed to control inflation in the past, we should be reasonably OK - but that's a lot of "if's" there. I take your point on being too negative and think Nelson's view that Treasury orthodoxy needs seriously questioning is a good one, but there's some really serious economic risks out there.
I’m not saying these headwinds don’t exist. They do and they are real.
But we aren’t in one (yet) and if you keep saying one WILL happen then ppl will start tightening belts and what will happen will be worse.
That is an interesting conundrum: if belt tightening happens you risk recession, but if it doesn’t you risk inflation. Most of the economists I know would advocate for avoiding inflation even at the cost of a recession. And I suspect for your average punter inflation is worse because it has immediate personal impact that is felt for a long time. Recessions hurt differently and usually for a shorter duration.
Yes, but what is causing this inflation. It's 100% energy prices. Cost of electricity, cost of fuel. Nothing else.
Raising interest rates doesn't cause people to stop spending on these necessities. It's stops them spending money on the other services which causes the recession to be significantly worse than it needs to be.
I am by no means an economist, but there is not a single move, announcement or anything which makes any sense to me.
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@MajorRage said in Global Recession:
@JC said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
@MajorRage said in Global Recession:
@Victor-Meldrew said in Global Recession:
Anecdotal stuff:
The car dealers who didn't want to know me when I as looking at a new car last year are now emailing me with offers - inc 0% finance.
Builders who were booked solid for the next 18 mths are now saying they can do my work in the next few months.
Holiday lets in Cornwall for late & next season are dropping off quite fast.
Feels like this country is kind of talking itself into it honestly.
There's a bit of that, I guess, but there's def. a change in sentiment which the expected rise in energy costs will likely solidify. As long as employment holds up, I think we should be OK though.
The energy costs suck but won’t last forever.
Your observations are all based on ppl tightening belts for reasons they likely haven’t even noticed in reality.
People have noticed stuff though. V. high energy prices may not last longer than 2-3 years (some are predicting up to 5 years) but taking an extra £2k p.a out of pay packets will likely have a huge impact in confidence, spending & the wider economy in the meantime.
Nobody has a clue. Nobody.
For the average Joanne, that's the whole point though, isn't it? They aren't gonna spend money if they think there's hard times ahead which is what the BoE and every other serious forecaster is saying.
Yep exactly. Being talked into it.
Disagree. You can't talk yourself into wishing away economic reality like the need to find an extra £160+ pcm for energy, rising mortgage payments, inflation at 10% and rising, while wages are falling in real terms. That's not doom & gloom forecasting, it's reality.
If jobs hold up, energy prices drop next year, inflation starts to fall & interest rates don't go up to levels needed to control inflation in the past, we should be reasonably OK - but that's a lot of "if's" there. I take your point on being too negative and think Nelson's view that Treasury orthodoxy needs seriously questioning is a good one, but there's some really serious economic risks out there.
I’m not saying these headwinds don’t exist. They do and they are real.
But we aren’t in one (yet) and if you keep saying one WILL happen then ppl will start tightening belts and what will happen will be worse.
That is an interesting conundrum: if belt tightening happens you risk recession, but if it doesn’t you risk inflation. Most of the economists I know would advocate for avoiding inflation even at the cost of a recession. And I suspect for your average punter inflation is worse because it has immediate personal impact that is felt for a long time. Recessions hurt differently and usually for a shorter duration.
Yes, but what is causing this inflation. It's 100% energy prices. Cost of electricity, cost of fuel. Nothing else.
Yes energy prices have caused inflation, but I’ll be surprised if oversupply of money isn’t the major contributor. Supply chain issues / shortages and Covid-driven closure of factories in China will also have had an impact to some degree.
Raising interest rates doesn't cause people to stop spending on these necessities.
Sure they do. But more generally raising prices (of which interest rates are just one) causes a spiral of unwanted choices for consumers. We constantly make choices of that type, it’s just that when inflation rates rise rapidly - and out of step with wages - the choices become more frequent and, ultimately, destructive. And the worst thing is that inflation is a feedback loop. As well as increasing the cost of outputs it lifts the cost of inputs, so you get an ugly multiplier at work. Then it’s final curse is that it’s almost always permanent. The prices at the end of the cycle seldom drop back to pre-inflationary states.
Inflation makes everybody poorer, although some can take advantage of the environment and create offsetting income opportunities, so your pounds’ buying power is less but you have a lot more of them. But it’s devastating for the working poor, who really do make choices between electricity, food, medical treatment and loan repayments.
It's stops them spending money on the other services which causes the recession to be significantly worse than it needs to be.
I am by no means an economist, but there is not a single move, announcement or anything which makes any sense to me.
They don’t make sense to me either! But I think we both know that’s because politics does the driving, and logic and data are in the back seat of the Uber with us.
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I’d be interested to hear your thoughts on why the huge increase in the money supply was not inflationary for the previous 12 years or so. I agree with you BTW that QE was always bound to be an inflationary trigger, but can’t fathom why it’s taken so bloody long.
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@Catogrande I'd say there are at least 3 reasons.
The first is that there were deflationary offsets at work. Decreasing real-term wages, commoditisation of new technology, changes in consumer behaviour, such as streaming and watching movies at home instead of paying to go to the cinema or buying / renting a dvd. There is also always some drift in the allocation of items to the CPI divisions that may have masked this, that is we measured differently.
For example the 12 divisions that get used in the UK have had some fairly major revisions. Transport has gone from making up 16.4% of the allocation to 11.1% at a time when pump prices are at historic highs. Housing has gone up from 12.9% to 31.4%.
The second is that there was inflation in parts of the economy that we chose to downplay. Look at that housing allocation in category 4 above. That 2022 allocation may be representative of the proportion of their incomes that people spend on their housing now, but my suspicion is that in 2010 they were spending well more than 10% that way.. We may have allowed an acceleration in housing costs, funded by cheaper lending, to be understated as a driver of inflation. Maybe of the ONS had that division constituting 30% of the allocation we would have been reporting higher inflation all along?
The third is that the increased money supply did not distribute evenly throughout the economy. The pipeline into the economy was through the banking sector and I think someday analysis will show that it was overwhelmingly used for investment, both domestically (predominantly in real estate) and globally, funding a bull market that largely escaped scrutiny. I mean where's your share of the trillions?
The short answer is that it was there all along, but it wasn't take seriously. Now the mask has dropped, and here we are.
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I'm not discounting a fair bit of the "inflation" people are feeling is the result of a bit of opportunistic pricing that is being passed on with a nice convenient excuse of "of covid, supply chain, Ukraine"
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@JC said in Global Recession:
@Catogrande I'd say there are at least 3 reasons.
The first is that there were deflationary offsets at work. Decreasing real-term wages, commoditisation of new technology, changes in consumer behaviour, such as streaming and watching movies at home instead of paying to go to the cinema or buying / renting a dvd. There is also always some drift in the allocation of items to the CPI divisions that may have masked this, that is we measured differently.
For example the 12 divisions that get used in the UK have had some fairly major revisions. Transport has gone from making up 16.4% of the allocation to 11.1% at a time when pump prices are at historic highs. Housing has gone up from 12.9% to 31.4%.
The second is that there was inflation in parts of the economy that we chose to downplay. Look at that housing allocation in category 4 above. That 2022 allocation may be representative of the proportion of their incomes that people spend on their housing now, but my suspicion is that in 2010 they were spending well more than 10% that way.. We may have allowed an acceleration in housing costs, funded by cheaper lending, to be understated as a driver of inflation. Maybe of the ONS had that division constituting 30% of the allocation we would have been reporting higher inflation all along?
The third is that the increased money supply did not distribute evenly throughout the economy. The pipeline into the economy was through the banking sector and I think someday analysis will show that it was overwhelmingly used for investment, both domestically (predominantly in real estate) and globally, funding a bull market that largely escaped scrutiny. I mean where's your share of the trillions?
The short answer is that it was there all along, but it wasn't take seriously. Now the mask has dropped, and here we are.
Thanks for this JC. Housing has felt like it was being underreported for most of this century. It never felt right that inflation was ticking along near the 2% target when house prices were going up as fast as they were.
How long do you think CBs will be able to keep raising interest rates? I see the BoE thinks real mortgage distress won't kick in (it will for some, but not enough to cause problems) until rates hit around 6%. BoE also thinks inflation will come down to below 2% in 2024. Wishful thinking?
Also, what are your thoughts on raising interest rates into a recession?
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@stodders I don’t think the central banks have much option except to go after inflation hard and early. Here in NZ I think they’ll have to do a couple of 50bp raises in a row then ease back to maybe 2 rounds of 25bp, so overall 1.5% over the next 9-12 months or so. But there will be huge political pressure for them not to do that going into an election year.
The problem as I see it is that the cure for inflation is, in the short term, more inflation. Whether central banks or politicians want to admit it or not, the plan is to run people out of “spare” money so they stop spending as much. Then when they do stop spending, generally a recession kicks in. All of that is politically unpalatable and I don’t see any incumbent government surviving it TBH.
We used to live through these boom and bust cycles as a matter of course and it wasn’t until the central banks focussed on managing to a target inflation rate that we thought the cycle was broken. Ironically it was the RBNZ that blazed the trail on that front once they became independent, only to be told by those who knew better that other factors were more important. The RBNZ knows what should be done, and probably knew how to avoid being in this position in the first place, but the current government believes in captain’s calls…
There’s actually a very interesting (well, for economists; it’s a pretty low bar) theory called public choice theory that differentiates between the motives of public servants who want to get re-elected or get promoted, and the general interest actions of economic technocrats. James Buchanan has done some good work on it. So did Gordon Tullock.
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@JC said in Global Recession:
Yes energy prices have caused inflation, but I’ll be surprised if oversupply of money isn’t the major contributor. Supply chain issues / shortages and Covid-driven closure of factories in China will also have had an impact to some degree.
House price inflation has been way above 2% in this country for donkey's years, as you point out in above posts. That is the impact of oversupply of money. Secondary to that has been the increase in overseas holidays as well as the rise of the PCP funded car. It's crazy how many new / nearly new cars are on the side of the roads of some of the poorer neighbourhoods in this country.
Sure they do. But more generally raising prices (of which interest rates are just one) causes a spiral of unwanted choices for consumers. We constantly make choices of that type, it’s just that when inflation rates rise rapidly - and out of step with wages - the choices become more frequent and, ultimately, destructive. And the worst thing is that inflation is a feedback loop. As well as increasing the cost of outputs it lifts the cost of inputs, so you get an ugly multiplier at work. Then it’s final curse is that it’s almost always permanent. The prices at the end of the cycle seldom drop back to pre-inflationary states.
Yes, 100% true. Dynamics have shifted to such an extent that people don't seem to realise that if they don't upgrade their phone, look at reducing their holidays, keep the same car & perhaps stick with the older playstation / tv that they don't have anything to fear at the moment. Once you take these things out, you are probably down to a much more manageable number of people who genuinely can't eat / pay their bills. Regarding prices at the end, I think there will be a substantial reduction in essentials should energy costs reduce as well as used cars when / if the semiconductor issues recede.
Inflation makes everybody poorer, although some can take advantage of the environment and create offsetting income opportunities, so your pounds’ buying power is less but you have a lot more of them. But it’s devastating for the working poor, who really do make choices between electricity, food, medical treatment and loan repayments.
I'm a capitalist at heart and don't like windfall taxes etc, but especially with energy, I'm starting to move a bit on my positions. There is obviously a lot more to it, but if you are struggling & your energy bills are sky rocketing, it must be pretty sick to the stomach to see energy companies giving out large dividend payments. That is a straight redistribution of your money when energy is being sold at a much higher cost than it takes to produce.
I am absolutely adamant that if Sunak had sat down with every single energy company and said if these profits are put straight back into the economy with jobs, electric investment & schemes to get the cost of energy down for the consumer, we'd be in a far stronger position & there would have been no need for a windfall tax there which weakens the UK's position as a business centre.
They don’t make sense to me either! But I think we both know that’s because politics does the driving, and logic and data are in the back seat of the Uber with us.
The politics here are a shambles with this (as with most things). Sunak is part of project fear whilst Truss is part of project unicorn.
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@TeWaio said in Global Recession:
I think by October it'll be politically toxic in the UK to support Ukraine military aid, so bad will energy bills be. It'll be like how these days you can hardly find a politician who'll admit to having been pro lockdown.
It is getting impossible to see how this can be turned around.
28 mill houses in the UK with average energy bill of 4k. Thats 112 billion annually in energy. The Government can't just stump this up without serious consequences.
I can't see how things can go on without a full European war. Putin has played an absolute blinder. Britain has played it as bad as it can possibly be played. Trying to make it itself fully sustainable in a ridiculously short period of time. Europe will continue to go on looking out for itself & accruing ridiculous levels of debt, whilst pumping ludicrous levels of money into Russia, which will br used to continue to the fund the war on Ukraine, followed by other neighbouring countries, followed by a full European war.
There is not one single scenario that I can see anymore which plays out well for the UK.
We are 100% completely and utterly fucked.
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@MajorRage said in Global Recession:
@TeWaio said in Global Recession:
I think by October it'll be politically toxic in the UK to support Ukraine military aid, so bad will energy bills be. It'll be like how these days you can hardly find a politician who'll admit to having been pro lockdown.
It is getting impossible to see how this can be turned around.
28 mill houses in the UK with average energy bill of 4k. Thats 112 billion annually in energy. The Government can't just stump this up without serious consequences.
I can't see how things can go on without a full European war. Putin has played an absolute blinder. Britain has played it as bad as it can possibly be played. Trying to make it itself fully sustainable in a ridiculously short period of time. Europe will continue to go on looking out for itself & accruing ridiculous levels of debt, whilst pumping ludicrous levels of money into Russia, which will br used to continue to the fund the war on Ukraine, followed by other neighbouring countries, followed by a full European war.
There is not one single scenario that I can see anymore which plays out well for the UK.
We are 100% completely and utterly fucked.
Even if they do just freeze payments like the French have done, and borrow £112bn (lol Bank of England), that doesn't magically make enough molecules of gas appear. No amount of printed money does. Prices/markets have broken down under the weight of decades of malinvestment and net zero lies. Electricity could be a $billion per kWh and there still won't be enough of it.
As for windfall taxes on the energy companies....to quote Doomberg on Twitter: "Nothing motivates incremental production like the threat of seizing profits directly from the risk takers needed to fund it."
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@MajorRage said in Global Recession:
@dogmeat Brexit has nothing to do with it.
Agreed but the Brexit promises are now, unsurprisingly, shown to be worthless.
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@Catogrande yep. Although the pandemic must take some blame for that
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@Catogrande said in Global Recession:
@MajorRage said in Global Recession:
@dogmeat Brexit has nothing to do with it.
Agreed but
the Brexitpoliticians’ promises are now, unsurprisingly, shown to be worthless.Fixed
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Isn't Australia in a pretty strong position to produce cheap electricity in the form of solar/renewables to attract investment and industry who want cheaper energy? I know Brooks is building a big pipeline to Indonesia to sell electricity, I just wonder if we produced loads of it and made it cheap would we get factories relocating here?