The 2022-23 Economic Crisis Megathread

[Tamas]

I think the US 0.75% hike is an admission that they are just about ready to give up on the soft landing idea.

[Sheilbh]

Agreed.

[Tamas]

Eurozone inflation up to 8.6%. As I understand the ECB is facing the choice between runaway inflation or ruining Italy and the other usual over-spenders with interest rate hikes.

Also in the UK, savings are down and borrowing is up, although the latter less than expected:

Around £5.7bn was saved in banks, building societies and NS&I accounts in May, down from a net flow of £6.3bn in April.

Consumers also borrowed an additional £800m in consumer credit last month, including £400m more on credit cards.

That's below the pre-pandemic level, and also less than economists expected. Consumer credit often rises during good economic times, as people are confident they can borrow more

[Sheilbh]

Eurozone inflation up to 8.6%. As I understand the ECB is facing the choice between runaway inflation or ruining Italy and the other usual over-spenders with interest rate hikes.

They're not overspenders and the last thing Europe needs is a recurrence of the sovereign debt crisis or the morality tales about it.

The ECB is looking at "anti-fragmentation" measures to try to straddle these two issues. As ever the challenge is going to be working out what that looks like - possibly tying it to their covid recovery fund plans. Imposing conditionality on countries for costs that are in Europe largely derived from an external war and the (correct) European decision to impose sanctions seems like a really bad and wrong idea.

[Iormlund]

I don't get how the fuck interest hikes are going to help against external shocks. This is not the early noughts, when the economy was clearly overheating.

All you're going to do is mask some of the supply-induced inflation at the cost of triggering a recession. Doesn't sound like a terribly good idea to me. But I'm not an economist, so what do I know?

[Tamas]

I mean, if you have a supply problem that's because demand is higher than supply. If you decrease demand that's bound to make the supply issue smaller doesn't it.

[Iormlund]

That depends on elasticity.

What's driving inflation is mostly energy and food. And people need to eat and need to get to work and heat/cool their homes.

When rates go up their main effect on most people will be higher mortgage payments.

All that leads to less disposable income. Which again, is fine when there's a bubble forming, because salaries are also increasing. But that's not what I see and have seen for the past year.

I just don't get it.

[Tamas]

I don't think the inflation is because of the war. The war made it worse sure but prices were well in the way up before the war.

[Josquius]

I don't think the inflation is because of the war. The war made it worse sure but prices were well in the way up before the war.

Little in the world is down to a single factor.
Covid, the war, and for the Brits brexit, have all combined.

Outside of the UK, elsewhere in Europe though I believe the covid effects had been largely absorbed with little surface impact until the war?

[Iormlund]

I didn't mention the war.

That's part of it, but there are other factors. Terribly short-sighted energy policy, the effects of COVID on supply chains, etc.


But in any case, my argument is that from what I can see, shit's slowing down regardless of rates.

Pre-COVID projections had us at around 1k workers this fiscal year. We're at 700 and most have been on intermittent furlough since COVID started. My estimation is that in 2 years the plant will employ perhaps 350 people, from 1200 in 2019.
To gauge the impact on the wider economy, automotive (cars and components) was the #1 export in Spain. Historically we were only behind Germany in output.

Construction, to give another example, is downright hellish right now. Steel-makers (those who haven't closed shop yet) are quoting daily. Same with ceramics. Building was beginning to take off again but it has pretty much shut down or raised prices significantly.

And then there's stuff like chip shortage. Just two examples non-specific to our products:
I was trying to get ahold of some industrial safety switches a couple months ago. The kind we have hundreds in operation. The manufacturer gave me a delivery date of June 2023.
Same story with LIDAR perimeter safety equipment. Ordered 3 months ago. Originally 6 months delivery date, now 9 months. Who knows when they'll really get here.
If we're having these issues, you bet anyone who's building machinery is too. And that means reduced output/decreased productivity across the board in the coming months/years as old equipment wears out.

[Tamas]

Yeah, the shortages have been obvious in IT as well.

I get what you are saying. I think we'll see in the US. Inflation might have peaked there already and they have been rate hiking more vigorously than Europe. Then again, they don't have an umbilical cord to Russian gas so there's that.

[Tamas]

For what it's worth, as I understand US GDP data was revised lower in the last hours of trading yesterday (from -1%-ish to -2%) and the stockmarkets had a modest rally - not sure if because of this but definitely despite it.

It's definitely a running narrative -and indication of the sick system we have built- that recession is bullish for the stock market because it will stop Fed hikes and force them to print money again.

[Tonitrus]

Normally, I would think all these higher prices for goods/shortages would be sparking increased manufacturing capacity (to take advantage).  I know that is usually slow to ramp up, but is it even ramping up at all?

In the past, high gas/fuel prices drove the fracking/extraction boom in the US that brought prices down-ish for a while...doesn't seem to be happening at all this time.

[Crazy_Ivan80]

Yeah, the shortages have been obvious in IT as well.

I get what you are saying. I think we'll see in the US. Inflation might have peaked there already and they have been rate hiking more vigorously than Europe. Then again, they don't have an umbilical cord to Russian gas so there's that.

Mhh, in any case the Flemish financial newspaper "De Tijd" ("The Times", basically) ran an articaly yesterday on the ECB and it's handling (or apparent lack thereof) of the inflation. One the things that jumped out was the reference to Comical Ali and how it was getting some traction as a nickname for Lagarde. Comical Christine.
Seems there's a bit more going on...

[Grey Fox]

Normally, I would think all these higher prices for goods/shortages would be sparking increased manufacturing capacity (to take advantage).  I know that is usually slow to ramp up, but is it even ramping up at all?

In the past, high gas/fuel prices drove the fracking/extraction boom in the US that brought prices down-ish for a while...doesn't seem to be happening at all this time.

In some industry, yes. Semiconductor shortage is still with us and slows down every plant investment. In my industry, China is once again buying like crazy. We simply cannot deliver.