The 2022-23 Economic Crisis Megathread

[Tamas]

PacWest appears to be the 3rd regional US bank to fold, considering sale. Probably going to be gobbled up come the weekend.

[mongers]

PacWest appears to be the 3rd regional US bank to fold, considering sale. Probably going to be gobbled up come the weekend.

Another one with significant exposure to bad commercial property loans??

[Tamas]

UK inflation did not decelerate as much as expected: 8.7% instead of 8.2%. That's a big way down from the 10%+ of last month but was expected because we have now left the drastic energy price hike behind.

Apparently -and it is not really emphasised in the news- core prices excluding food, energy and tobacco have accelerated  compared to last month, to 6.8% from 6.2% previously.

Also Land Registry data for the month of March apparently showing the biggest monthly fall in prices since at least 2001:

[Sheilbh]

So there's been more focus recently on the role of increased profit-taking in inflation (some would say profiteering) which has started to attract attention from the Fed, banks, BofE figures, the European Commission - with academic papers and even a WSJ piece on it.

I thought I'd have a look at the latest MPC report. Five mentions of profits, about forty of wages and no detailed discussion of the role of profits

As much as I'll defend the BofE chief economist's loose talk on a podcast as being about "someone" not necessarily meaning workers, it's tough to read it otherwise given that they're apparently not really looking at the profit side of things. So we're still stuck with a 1970s view of inflation in a very different context and old blunt tools of monetary policy bemoaning that actually employment and earning are holding up better than expected.

Feels like if Labour do win the BofE could do with a bit of a re-fresh to be honest between this and the repeated unforced comms errors.

[Admiral Yi]

An apples to apples comparison would be wages to prices of goods and services, not profit.

[Sheilbh]

An apples to apples comparison would be wages to prices of goods and services, not profit.

What do you mean?

[Admiral Yi]

What do you mean?

Profits don't create inflation.  There are other sources of profits other than raising prices.

[Sheilbh]

You will still need to break that down for me - it's still a little to catechistical for me

[DGuller]

Am I missing something about the "inflation is caused by profits"?  I keep running into this talking point, but it just sounds so nonsensical to me, especially since the implication is that if only greedy corporations could stop being so greedy, we wouldn't have this inflation. 

It sounds nonsensical for many reasons, but the chief one is that it leads to no practical solution.  Is the expectation that all corporations should individually decide to earn less profit than they can, so that they would pitch in towards lowering inflation?

[Admiral Yi]

Inflation is a measure of the change of prices of goods and services.  Profit is not the price of anything, neither is it a good or service.  People don't go to the shop and buy a sixer of profit.  Or complain that a bunch of bananas used to cost 3 profits but now cost 6.

[HVC]

Profits earned through increased prices would lead to inflation would it not?


I have a feeling we had this discussion recently. I may have already been wrong on this point, if so I apologize lol

[Admiral Yi]

Yeah, I think we have.

[DGuller]

Profits earned through increased prices would lead to inflation would it not?


I have a feeling we had this discussion recently. I may have already been wrong on this point, if so I apologize lol

Increased prices lead to inflation.  Not sure what profit has to do with anything.

I'm still trying to figure out how the proponents of that theory imagine economy is working.

"Sir, I propose that we sell a pound of apples for $5 instead of $2.  We're going to earn a lot more profit this way."
"No, this is irresponsible, this will lead to inflation."
"Sir, this is 2023, no one cares about keeping inflation in check anymore.  We discussed this last week at the golf club, remember?"
"Oh, right.  Okay, go ahead, charge $5 per pound.  Wait, wouldn't we earn even more profit if we charge $10 per pound?"
"Yes, now that I think of it, we would.  Okay, we'll charge $10 per pound."
"Sounds good."

[HVC]

It just seems like short hand by people who aren't necessarily financially "literate". It's not the correct terminology, but isn't wrong in the sense that there's no correlation.

[Valmy]

Pretty much the whole world is experiencing inflation right now because of the after effects of the Covid 19 pandemic right? Unless the entire business community of the world is colluding I don't see how simply wanting shareholder value would achieve that.