The 2022-23 Economic Crisis Megathread

[Tamas]

This may say more to people here with better knowledge but I think I got the jist, re. the ECB's options. It's from the 28th June tweets of an Italian ex-bond fund manager who I have grown to trust on Twitter (@MacroAlf):

Rumors from Sintra!

The ECB's "QE, but not QE" to backstop peripheral countries will be sterilized via incentivizing banks to park newly created reserves back at the Central Bank.

What?

Maybe the ECB doesn't understand monetary mechanics: this is sterilizing very little.

To buy new Italian govies with this new anti-fragmentation tool, the ECB has to print new reserves and hence lengthen their balance sheet.

To avoid that, they either have to sell bonds they own (hard QT-like) or slowly let them mature without reinvesting (a la Fed).

If you don't do that, it's QE.

When you buy Italian govies from banks, you are swapping them on their balance sheet for reserves and rewarding them if they keep them idle at the local CB.

But you aren't draining the $4 trillion+ excess reserves out there.

You are only trying to avoid the Portfolio Rebalancing Effect: if they make enough money on these reserves, no need to go and chase other assets after you deprive them of their BTPS.

But they still own more reserves than before and the ECB balance sheet grew...

If the ECB buys from non-banks, the sterilization is even less effective.

A pension fund will sell their BTPS for bank deposits they can allocate however they want across the risk curve.

No incentive for them to not behave as if this is QE all over again.

The best way to sterilize purchases under the new anti-fragmentation would be to destroy reserves elsewhere: sell bonds (active QT) or force banks to repay TLTRO asap.

We are instead looking at another "QE, but not QE" situation if the headlines are confirmed.

[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.

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.

We should migrate those guys building resource-sucking bitcoin mining facilities into producing something that is actually useful (like them semiconductors).

[Grey Fox]

Yes. We should outlaw cryptos.

[Tonitrus]

Yes. We should outlaw cryptos.

I've been saying that for years. 

[DGuller]

The good sign is that GPUs are available again, and are selling at MSRP.  Hopefully that means that for the moments at least the semiconductors are not being sucked up by the crypto freaks.  On top of all the other problems with crypto, the fact that they made it difficult for industries that actually do something useful to get semiconductors is the cherry on top.  They really should shut that shit down, the joke is not funny anymore.

[Josquius]

Yep. Crypto embodies all that is wrong with the 21st century in so many ways.

[Tamas]

The good sign is that GPUs are available again, and are selling at MSRP.  Hopefully that means that for the moments at least the semiconductors are not being sucked up by the crypto freaks.  On top of all the other problems with crypto, the fact that they made it difficult for industries that actually do something useful to get semiconductors is the cherry on top.  They really should shut that shit down, the joke is not funny anymore.

I think currently below $20/$21k price bitcoin is below cost it takes in electricity to mine it, let alone cost of hardware, so hopefully yes this crap is close to over. 

[crazy canuck]

Cost is driven by difficulty and the difficulty is decreasing as all the would be miners who made capital investments in recent past are losing their shirts and trying to sell their mining equipment.

[Tamas]

Cost is driven by difficulty and the difficulty is decreasing as all the would be miners who made capital investments in recent past are losing their shirts and trying to sell their mining equipment.

I thought it depended on the amount of bitcoins already in existence?

[frunk]

Cost is driven by difficulty and the difficulty is decreasing as all the would be miners who made capital investments in recent past are losing their shirts and trying to sell their mining equipment.

I thought it depended on the amount of bitcoins already in existence?

Sort of.  The mining reward goes down over time for Bitcoin, but not all crypto are structured like that.  The major driver for most crypto is the difficulty setting that they peg at, to make sure a regular number of hashes are solved within a given time.  If there are more machines trying to solve the hashes they have to raise the difficulty.

[crazy canuck]

Cost is driven by difficulty and the difficulty is decreasing as all the would be miners who made capital investments in recent past are losing their shirts and trying to sell their mining equipment.

I thought it depended on the amount of bitcoins already in existence?

Sort of.  The mining reward goes down over time for Bitcoin, but not all crypto are structured like that.  The major driver for most crypto is the difficulty setting that they peg at, to make sure a regular number of hashes are solved within a given time.  If there are more machines trying to solve the hashes they have to raise the difficulty.

Yeah, Tamas-think of difficulty as the complexity of the math problem being solved combined with the number of people competing to solve it first.  The first to solve gets the reward. That competition to solve the hash function is what drives cost.

[mongers]

Milk up again, seems to be almost every other time I buy some, so this is what's called inflation*.


* Is this the inflation thread also?

[Tamas]

* Is this the inflation thread also?

Should be.

The US inflation data was slightly higher than expected at 9.1% however the data is from before the commodity freefall of a couple of weeks ago, I think. Not sure how much time it would take for those commodity prices to reflect in consumer prices, though. I mean, oil is far off its highs yet the premium petrol I have to use due to the increased ethanol content in the regular one cost me 2 pounds 5 pence per litre in Pennsylvania (the hilltop village, not the US state) yesterday.

[mongers]

* Is this the inflation thread also?

Should be.

The US inflation data was slightly higher than expected at 9.1% however the data is from before the commodity freefall of a couple of weeks ago, I think. Not sure how much time it would take for those commodity prices to reflect in consumer prices, though. I mean, oil is far off its highs yet the premium petrol I have to use due to the increased ethanol content in the regular one cost me 2 pounds 5 pence per litre in Pennsylvania (the hilltop village, not the US state) yesterday.

So for you the 2 quid per litre barrier is clearly broken. :-(

[Tamas]

This news feels a bit buried on the Guardian, but rising consumer credits and falling mortgage numbers seem to indicate people are very much feeling the crunch in the UK

UK consumer credit growth surges as mortgage approvals fall
UK consumer credit growth has accelerated at the fastest rate in three years, as households struggle to cope as inflation hits a 40-year high.

People borrowed an additional £1.8bn in consumer credit in June, up from a £900m increase in May, the latest Bank of England statistics show.

Around £1bn extra went onto credit cards, with another £800m on car dealership finance, personal loans, and other consumer credit.

The annual growth rate for all consumer credit increased to 6.5% in June; the highest rate since May 2019, while credit card borrowing surged 12.5%, the highest rates since November 2005.

The BoE also reports that approvals for house purchases, an indicator of future borrowing, fell to 63,700 in June, from 65,700 in May, below the 12-month pre-pandemic average.

Meanwhile there is heavily politicised debate going on in the US whether they are officially in recession or not following a -0.9% GDP reading. Which, incidentally, gave extra fuel to the stock market rally which started when the Fed hiked 75 basis points but declared that they'll be "data dependent" from now on without forward guidance i.e. signalling they might be slowing down from September.