The 2022-23 Economic Crisis Megathread

[Josquius]

The question is is this the big one, and prices in most places will stay down, or will they recover again with time, just over a longer time scale.
There are some areas that have never recovered from 2008 and then covid and remote work changes have changed a lot....So lets see.

[crazy canuck]

The question in my mind is whether the price increases which occurred during COVID in outlying areas will return to norm or stay more or less permanent.  I think that answer to that will largely depend on whether employers continue to allow flexible remote work arrangements.

[Tamas]

Yeah, the people I have sympathy for are the folks who stretched themselves close to breaking to get into the market right before it declined.

Losing X% off the peak valuation of our house doesn't matter to me. Having to make bigger mortgage payments (or extending the time to when we'll be mortgage free) kind of sucks, for sure, but it's manageable.

Obviously it sucks for them, but what can you do? If everyone refused to play along with these kind of prices we would not have these kind of prices. It's a game of musical chairs.

But, IDK about Canada, but it may be too early to jump to big conclusions. If soft landing is managed by this time next year we'll be back to zero interest rates and all time record house prices.

[Tamas]

In the best "duh" title of the day section we have:

Bank of England will probably need to raise rates again, says deputy governor
Central bank must tackle inflation pressures that are gaining foothold in UK economy, says Dave Ramsden

I mean, inflation is expected at 13%. Some high level economist wizardry there to expect 1.75% base rate won't cut it to bring it down.

[Tamas]

US year-on-year inflation came in at 8.5%l 0.2% below expectations with 0% month-on-month.

Maybe I am following too many market-related Twitter accounts and reading too many comments under them, but I have a suspicion if inflation does start to stagnate/come down, it will become the next front in the big tribal civil war of the US. People drawing the front line over whether they refuse to comprehend the YoY or the MoM part of the statistic.

[Jacob]

There seems to be a political thing going on of "the gov't printed money and gave it to people, that's why we have inflation" versus "inflation was primarily caused by increased oil prices due to Russia's war, and Covid related supply chain issues."

[Tamas]

There seems to be a political thing going on of "the gov't printed money and gave it to people, that's why we have inflation" versus "inflation was primarily caused by increased oil prices due to Russia's war, and Covid related supply chain issues."

When of course it is both.

[Jacob]

When of course it is both.

I'd be curious to see the data (... and analysis by credible experts).

[Tamas]

When of course it is both.

I'd be curious to see the data (... and analysis by credible experts).

In terms of handouts I think it's much more about the policies of the past decade. And I am sure inflation was going up prior to the Russian invasion. But it would be petty hard to deny it has been made materially worse by the war.

I think DGuller was writing and I agree thay structural problems wit the eternal free money asset pump system we introduced after 2008 has been triggered to overflow into the consumer realm because of covid and the war.

[Sheilbh]

I think DGuller was writing and I agree thay structural problems wit the eternal free money asset pump system we introduced after 2008 has been triggered to overflow into the consumer realm because of covid and the war.

I disagree I think the problem with QE ultimately was it didn't really reach consumers or the "real economy" it didn't improve lending, for example, which was one of the big goals because there were still not many credit-worthy borrowers out there. I wonder if it maybe contributed to the boom of capital funded companies that basically sell consumer services at a loss - Ubers etc?

I think what shifted with covid were things like cheques to individuals, furlough, lockdowns restricting opportunities for spending so in the two years running up to the war you had a lot of pent-up demand and individuals savings increased or their credit position did.

I don't think there's a clear conclusion on QE and inflation - my guess that it exacerbates rather than causes. So in the 2010s which was broadly a time of low to stagnant growth, austerity, households not building up savings and those functioning just in time supply chains it didn't do much to inflation. That started to shift in the US first but one or all of those factors have changed across the world, plus energy shocks like the turn to gas in Asia, plus the war - all of which are now exacerbated by QE.

Although I think most of the central banks are already on their QT cycles (and the BofE has said they'll keep doing QT even when rates start falling again). I think as with rate rises (and for very good reasons) the ECB is taking a slightly different approach so there's QT in Germany, France and the Netherlands but QE in Spain, Italy etc.

[Tamas]

Seems like transitory inflation really transited into German manufacturing prices last month.

German month-on-month Producers Price Index was expected to be up 0.7%. It was previously 0.6.

It is at 5.3%.

[viper37]

When of course it is both.

I'd be curious to see the data (... and analysis by credible experts).

not a credible expert, but if you look at historical data, you would see that you had a couple points of inflation prior to Ukraine invasion.  So out of 8.5% inflation, 2-2.5% of it is due go govt over-expenses, the rest is the war and its consequences (oil prices and food shortages).  Well, to be fair, as much as I loathe government over expenses, it was probably even lower than that in reality.  With covid lockdowns, people stayed at home, didn't travel, and started renovating their homes, driving the prices of some materials up.  It's very hard to eyeball.

[Sheilbh]

Via Twitter - this price signal is bascially no energy for you and feels like the point where governments need to step in and allocate/ration energy use:


An example of what this looks like, in Germany:


Meanwhile Sterling and Euro down against the dollar so importing more inflation in too.

Edit: Also I think leaders need to prepare people for this as the price of a free Europe, which I think only Macron really has. Plus the only long term solution I think is massive spending on energy transition.

The other side of this is Europe now purchasing LNG is pricing out traditional LNG markets like Pakistan and Bangladesh, so stopping blackouts here will be tied to blackouts there.

[Tamas]

Also I think leaders need to prepare people for this as the price of a free Europe, which I think only Macron really has. Plus the only long term solution I think is massive spending on energy transition.

Agreed. This IS a form of economic war, the pain of removing a critical vulnerability that made us subservient to an evil empire. You would think politicians would be more eager to make that argument.

[viper37]

Edit: Also I think leaders need to prepare people for this as the price of a free Europe, which I think only Macron really has. Plus the only long term solution I think is massive spending on energy transition.

One side of me really wants to empathize with Europe and their difficult transition.

The other side remembers their constant criticism of Canada's energy policies during Harper years.

I think my 'let them eat cake' side is winning over.