The 2022-23 Economic Crisis Megathread

[Admiral Yi]

Inequality is a huge problem.
Where its particularly dodgy in the modern day is how abstract spending is from most people's real world. Gone are the times when a rich local would invest in a new mill, instead they're putting their money into a digital wotsit company based halfway across the world.

Globalized investing doesn't have much to do with inequality AFAICS. 

And of course for American investors the digital wotsit companies are not based halfway across the world, they're based in Silicon Valley.

[Tamas]

So, German inflation higher than expected, Eurozone inflation over 8%, France on brink of official recession, Italy saved from official recession by a last-minute GDP data revision, UK mortgage approvals slowing down while customer credit rising rapidly.

[Zanza]

US and Central European growth better than expected...

[The Larch]

US and Central European growth better than expected...

How do you dare to bring sunshine to Tamas' gloom parade? 

[crazy canuck]

Kid's look up what we lived through in the 70s and 80s.  When we start getting to those levels, wake me up.

[Tamas]

US and Central European growth better than expected...

Which will need to be curtailed by central banks if they want to bring down inflation.

[Sheilbh]

Which will need to be curtailed by central banks if they want to bring down inflation.

Also really striking difference in wage growth of 6.5% in the US where there's a tight labour market and 1.5% in the Eurozone where there's still a lot of spare capacity.

There's a few really striking different approaches between the US and Eurozone and I'm not sure who's right (I think the ECB is on monetary policy but not sure beyond that and I know nothing so that could be very wrong.).

[Zanza]

The US economy looks more resilient than the Eurozone economy, which is of course also more exposed to the war.

[Zanza]

By the way, first time US growth is higher than China since 1976 or so. Maybe also a sign of things to come? China has reached peak employment, population is now shrinking...

[Tamas]

The ECB did not raise rates this month, they'll do so (a whole whooping 0.25%!) in July.

They definitely seem to be on Sheilbh's transitory inflation side, what's with Germany alone producing 7%+ inflation. I can't see how 0.25% is going to put a dent into that, especially as I think the ECB's QE program is still going?

[Tamas]

Spain's inflation 8.7%. I am sure a 0.25% rate hike is going to take care of that.

[Sheilbh]

I still think the ECB might be right

Edit: In particular I think in the US there's an argument there's overheating which is contributing to inflation. There's also far, far stronger wage growth (I think around 6-7%) presumably because there's a tighter labour market. It feels more inflation-y as well as supply chain issues.

In the Eurozone I think the big drivers are supply shocks on energy some of which (like Asian consumption increasing) are the new normal and some (like the war) are more shock-y shocks. Similarly with food costs and supply chain issues. From what I can see there's not much sign in the Eurozone that there's overheating and wage growth is about 1.5%. I think the UK is closer to the Eurozone, but the BofE is behaving like it's the US (plus ca change).

But I could be totally wrong and I know nothing about this stuff.

[Zanza]

The ECB did not raise rates this month, they'll do so (a whole whooping 0.25%!) in July.

They definitely seem to be on Sheilbh's transitory inflation side, what's with Germany alone producing 7%+ inflation. I can't see how 0.25% is going to put a dent into that, especially as I think the ECB's QE program is still going?

As far as I understand, inflation in Germany is mainly driven by higher energy costs (+38%) and higher food prices (+11%), both driven from external shocks, mainly the war in Ukraine. Also supply chain issues from China lockdowns and imbalances in international container shipping. Services (weighted at 53% of our inflation rate) so far have a moderate inflation of 2.9%, thereof rents at 1.7%. 

It does not seem to be related to the money supply. Can interest rate hikes by the central bank help with external shocks? What's the expected outcome? Fixed supply chains and cheaper oil because of a ECB rate hike? 


https://www.destatis.de/EN/Press/2022/05/PE22_221_611.html


PS: Should have read Sheilbh's post first, same points made there.

[celedhring]

Energy is up 32% and food 11% over here.

[Tamas]

For what it's worth, US inflation is back on the rise and their stock market is dumping.