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General Category => Off the Record => Topic started by: Tamas on May 25, 2022, 05:15:04 AM

Title: The 2022-23 Economic Crisis Megathread
Post by: Tamas on May 25, 2022, 05:15:04 AM
Surprised we haven't been discussing this.

Lots of worries worldwide, and I think central banks are being slow to react to inflation finally leaving asset bubbles and storming into product and service prices. Even though "transitionary inflation" seems to have disappeared from their narrative.

The Fed acknowledge hard times ahead but continue -so far- to plan with 0.5% rate hikes despite, what, 8% official inflation? They are also stopping asset buying I think, which is showing in the stock market, as capital flees "risk on" assets.

In the UK it is even slower, and the Bank of England president would rather have people forego salary increases to combat inflation.

Meanwhile some ECB dude expressed his concern over the apparent return of wage indexing. So, even if the Fed also feels like behind the curve and playing catchup, at least they acknowledge they need to do things. Their European counterparts appear to rather blame the plebs and remain largely passive.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on May 25, 2022, 05:23:52 AM
Another choice quote from an ECB guy called Lane: "that households are upwardly revising their inflation beliefs is a concern"

If only the plebs stopped eating inflation would stop, without having to risk the value of investment portfolios. :(
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on May 25, 2022, 05:31:15 AM
I feel like I've been living through one crisis or another since 2008. It's becoming a bit wearisome.

I managed to get a decent raise from my main employer, so looks like I'm in the ECB naughty list.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on May 25, 2022, 06:16:08 AM
On the flip side, I guess, the ECB admit they were entirely incapable to predict the current inflation:

(https://pbs.twimg.com/media/FTmVrabWQAA06Io?format=png&name=900x900)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2022, 06:26:57 AM
I'm broadly on the ECB's side and think their approach is the right one - if the central banks believe their own forecasts/projections. I think it is still likely to be transitory but probably for the next couple of years. But I know nothing.

I still think a lot about this piece by Duncan Weldon from last autumn - as I think the BofE and Fed are doing things to be seen to be doing things for the sake of their credibility, which, so far, the ECB has avoided (but is saying rates will rise and are likely to be positive by autumn):
QuoteStories about inflation
Stories matter whether they are true or not. Especially when it comes to monetary policy.   
Duncan Weldon
Oct 18, 2021

Charles Goodhart, as I wrote a couple of weeks ago, thinks that economics currently has "no general theory of inflation". But if the profession lacks a generally accepted theory, it certainly has stories about inflation. And stories, as Robert Shiller has convincingly argued, have power. They are worth taking seriously whether they are true or not.

Looking at current market pricing, investors are definitely leaning more towards the "not transitory" side in the great – and ongoing – "is above-target inflation transitory or not?" debate. Still, I think the debate is far from settled. And more importantly, I think it is worth constantly keeping in mind that transitory does not necessarily mean "short-lived". Inflation could be above target for 12-24 months and, as long as the underlying dynamics have not shifted, this could still prove transitory.

Stories are a useful frame for thinking through inflation dynamics and asking if they have changed.

The stylised facts of advanced economy inflation over the last five decades are clear:
    Inflation was high and volatile in the 1970s, 1980s and, in some countries, into the early 1990s.
    From the early 1990s until the financial crisis of 2007-09 inflation was low and stable. This period is often called the Great Moderation as a result.
    From the crisis until the pandemic advanced economy inflation was generally subdued, aside from energy price related spikes that drove up the headline numbers.

But if the facts are relatively undisputed then the stories explaining those facts are still disputed.

I think one can tell two different stories about the taming of inflation that led to the Great Moderation.

The first story runs something like this and is rooted in structural changes in the shape of the macroeconomy, the supply side and changing political economy:
Beginning in the 1980s the structural bargaining power of labour was reduced a period of high unemployment following tight macro policy, by a breaking of trade union power and by the further liberalisation of the jobs market. The end of the cold war, the entry of China into the global economy and the globalisation of supply chains from the late 1980s into the 1990s supercharged these trends. The pool of labour available to Western capital almost doubled in the space of two decades. Meanwhile advanced economies became less energy-intensive. The result of less feedthrough from energy price spikes and lower goods prices due to globalisation was reduced headline inflation and lower volatility of inflation. Weaker labour bargaining power ruled out the kind of wage-price spirals which had bedevilled policymakers in the past and helped to keep services inflation low and stable.

Or one can tell a very different story, one rooted in inflation expectations and credibility. This one goes something like this:
Inflation was high and volatile in the past because macro-policy was ineffective. Monetary policy was too subject to political whims and fiscal dominance. Fiscal policy was often firmly set to manage a political business cycle (easier before elections and then overcompensating afterwards) rather than an economic one. Firms, workers and investors came to expect that policymakers would lack the resolve to tackle inflation so they set prices and wages ever higher. The solution was credible, independent central banks with a mandate to keep inflation low. These banks demonstrated their credibility by keeping policy tight to drive down inflation, even at a high cost in terms of joblessness. By the mid-1990s that hard-won credibility had helped to anchor inflation expectations. Now that firms, workers and investors had a clear view of the reaction function of central banks in the face of rising inflation they expected inflation to remain and low and stable and so set prices and wages on that basis.

Most central bankers it seems still prefer the second story – and who doesn't like a story in which one is cast as the hero?

For an example, take a look at some recent work from some ECB economists on the role of globalisation in modern inflation dynamics, which drew upon a longer paper published as part of the ECB strategy review (and which is well worth taking the time to read).

The research notes that inflation has indeed moderated among all major advanced economies. But after discussing the profound deepening of global value chains and the intensification of trade flows over the 1990s and 2000s, the authors conclude:
QuoteThe most intuitive explanation is that the concurrent inflation decline across advanced economies is due to (1) the monetary policy strategies adopted by the central banks of advanced economies over those years; (2) the wage concertation mechanisms consistent with those strategies (i.e. lower wage indexation); and (3) the consequent stabilisation of expectations.

Personally, I am not sure that is indeed the "most intuitive" explanation. "Macro policy got better everywhere at the same time" may indeed be the reason for the Great Moderation but ruling out "common factors changed the dynamics across the advanced economies" feels a step too far.

Of course both stories can have an element of truth in them. The stories are certainly not incompatible – macro policy can have become more effective at stabilising inflation alongside structural changes that made stabilising inflation easier.

My worry though is that central banks are so convinced of their own story that preserving their credibility becomes an end in and of itself. Global supply disruptions are going to hit output in the months ahead, fiscal policy is set to tighten sharply and the pandemic is not over. And yet still too many central bankers are focussed on fickle measures on inflation expectations and fretting about credibility.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on May 25, 2022, 06:36:13 AM
What I know is that the Fed have abandoned using "transitory" since, like, March.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Larch on May 25, 2022, 07:11:51 AM
Quote from: celedhring on May 25, 2022, 05:31:15 AMI feel like I've been living through one crisis or another since 2008. It's becoming a bit wearisome.

Yeah, it's all been crisis of one sort of the other for years already. It's as if it's the permanent mood since the mid 00s, we barely exit one to enter the next. From the subprimes one to the sovereign debt one to the Covid one to the current one about inflation. We just can't catch a break, It feels as if the last time there was economic optimism was in the early 00s.
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on May 25, 2022, 08:40:10 AM
I think the root of all problems is ultimately increasing wealth inequality.  The reason inflation could take refuge in asset bubbles for so long is because the rich getting richer doesn't spike demand for goods and services, but the poor getting richer does.  They just sit there and watch runaway compounding multiply their Monopoly money without bound. 

For multiple reasons I think the dam finally burst, and I agree that it seems downright silly that the sign of central banks taking inflation seriously is nudging the interest rates up by a quarter point more than previously planned.  I think a lot of "really smart people" over the years have convinced themselves that inflation is no longer a thing, and are struggling to adapt to the reality.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on May 25, 2022, 08:47:57 AM
Although I agree that wealth inequality is both cause and symptom of economic dislocations, I am very skeptical of a link to inflation.  Inflation was low during the last great gilded age.  And generally speaking, the assumption is that the superwealthy tend to save higher proportions of income and that increasing income inequality is associated therefore with lower consumption - a pattern not usually a contributor to inflationary pressure.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on May 25, 2022, 08:48:50 AM
Quote from: Tamas on May 25, 2022, 06:36:13 AMWhat I know is that the Fed have abandoned using "transitory" since, like, March.

It was a transitory use of the term.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on May 25, 2022, 09:05:00 AM
[
Quote from: Sheilbh on May 25, 2022, 06:26:57 AMI still think a lot about this piece by Duncan Weldon from last autumn

Two thoughts on that


QuoteThe stylised facts of advanced economy inflation over the last five decades are clear

Sure.  But why focus on only the last five decades?  Why isn't the post WW2 experience relevant?  Or the interwar period?  Or the Gilded Age?  The simple answer is that the people running bank econ departments, or the central banks, or the newspaper or cable news business sections weren't around then and it isn't part of their lived experience.  But it is relevant data.

QuoteOf course both stories can have an element of truth in them. The stories are certainly not incompatible – macro policy can have become more effective at stabilising inflation alongside structural changes that made stabilising inflation easier.

I agree with this.  As tempting as it is to reduce the story to a conflict between rival interpretive models, reality doesn't always work that simply and cleanly.
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on May 25, 2022, 09:05:30 AM
Quote from: The Minsky Moment on May 25, 2022, 08:47:57 AMAlthough I agree that wealth inequality is both cause and symptom of economic dislocations, I am very skeptical of a link to inflation.  Inflation was low during the last great gilded age.  And generally speaking, the assumption is that the superwealthy tend to save higher proportions of income and that increasing income inequality is associated therefore with lower consumption - a pattern not usually a contributor to inflationary pressure.
To clarify, I'm not saying that gilded ages lead to higher inflation.  I'm actually saying that they lead to apparently low inflation (if you ignore asset bubbles).  The reason central banks could print money with abandon is because it was going to the rich, who were not spending it on goods and services, and Bitcoin is not part of consumer goods basket.

What I'm saying is that gilded ages give potential energy for inflation to kick off for other reasons.  All that asset bubble wealth eventually has to go somewhere, sooner or later you or someone else have to spend that money.  If enough people do it at the same time, they suddenly realize that the printed money does exist after all.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2022, 09:22:55 AM
Quote from: Tamas on May 25, 2022, 06:36:13 AMWhat I know is that the Fed have abandoned using "transitory" since, like, March.
Yes - although I think part of that is political and reaction in the discourse plus confusion of transitory = short. I think there's still a couple of banks, maybe Morgan Stanley, that are on team transitory but I acknowledge that it is lonely here :lol: :P

I think there are a number of factors that push us to a higher price level/baseline but that will not be inflationary year-on-year if that makes sense. We're taking the hit of them as well as other shocks which are broadly temporary.

QuoteSure.  But why focus on only the last five decades?  Why isn't the post WW2 experience relevant?  Or the interwar period?  Or the Gilded Age?  The simple answer is that the people running bank econ departments, or the central banks, or the newspaper or cable news business sections weren't around then and it isn't part of their lived experience.  But it is relevant data.
Yes. I also think we tend towards explanations of the present and times close to us that over-emphasise agency and role of key decision makers. That's not to say that people aren't aware of or don't also flag the structural factors, or the path dependency of previous decisions shaping what our options are - I just think we see them less clearly and balance them differently when looking at the near past. I also think it is something that central bankers, politicians, business leaders etc are likely to emphasise (especially when claiming credit).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on May 25, 2022, 10:15:27 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: viper37 on May 25, 2022, 03:47:58 PM
Quote from: Tamas on May 25, 2022, 05:15:04 AMSurprised we haven't been discussing this.

Lots of worries worldwide, and I think central banks are being slow to react to inflation finally leaving asset bubbles and storming into product and service prices.
If the interest rates rise up to quickly, it can end up triggering a real economic crisis.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2022, 04:23:09 PM
Quote from: Josquius on May 25, 2022, 10:15:27 AMInequality 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on May 31, 2022, 08:52:27 AM
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.

(https://media.makeameme.org/created/were-getting-there-50d10ede83.jpg)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on May 31, 2022, 02:38:47 PM
US and Central European growth better than expected...
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Larch on May 31, 2022, 03:15:16 PM
Quote from: Zanza on May 31, 2022, 02:38:47 PMUS and Central European growth better than expected...

How do you dare to bring sunshine to Tamas' gloom parade?  :P
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on May 31, 2022, 04:01:47 PM
Kid's look up what we lived through in the 70s and 80s.  When we start getting to those levels, wake me up.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on May 31, 2022, 05:37:35 PM
Quote from: Zanza on May 31, 2022, 02:38:47 PMUS and Central European growth better than expected...

Which will need to be curtailed by central banks if they want to bring down inflation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on May 31, 2022, 05:42:58 PM
Quote from: Tamas on May 31, 2022, 05:37:35 PMWhich 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.).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on June 01, 2022, 02:11:36 AM
The US economy looks more resilient than the Eurozone economy, which is of course also more exposed to the war.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on June 01, 2022, 02:12:52 AM
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...
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 10, 2022, 03:00:20 AM
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. :P 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?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 10, 2022, 04:46:34 AM
Spain's inflation 8.7%. I am sure a 0.25% rate hike is going to take care of that.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on June 10, 2022, 05:00:18 AM
I still think the ECB might be right :ph34r:

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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on June 10, 2022, 09:26:06 AM
Quote from: Tamas on June 10, 2022, 03:00:20 AMThe 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. :P 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?  :huh:


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


PS: Should have read Sheilbh's post first, same points made there.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on June 10, 2022, 09:47:20 AM
Energy is up 32% and food 11% over here.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 10, 2022, 10:06:34 AM
For what it's worth, US inflation is back on the rise and their stock market is dumping.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 13, 2022, 09:40:58 AM
QuoteUK GDP declined by 0.3% in April, adding to the 0.1% drop in March -- with services, production and construction all shrinking in April.

Transitionary recession ongoing. :P
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on June 13, 2022, 10:19:17 AM
Yes :P

As pointed out by many economists there is likely to be a recession, but this isn't it. It's from the shutting down of test and trace and the wind down of vaccine program - if you strip them out of the numbers then it's still growing (https://twitter.com/edconwaysky/status/1536258872054530048?s=21&t=WCKXQtkihJAB1yc51BEhUg).

So very much a transitory figure, but I think a real recession is coming.

Interesting on size of spending on testing in the UK - from the start of the pandemic to it being shut down it's been twice the size of our manufacturing or construction contribution (growth) to GDP in that period.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 13, 2022, 10:49:47 AM
To be fair, as I understand a recession should solve/help the inflation problem and in fact we likely going to need a recession to stop inflation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on June 13, 2022, 11:10:30 AM
I don't know, given that a significant part of the inflation comes from supply shocks, we might just get stagflation. Hooray.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on June 13, 2022, 04:25:35 PM
It's a close race between politicians, traders and economists as to who has the shortest term memory . . .

From 2011-2014, oil prices hovered around and over $100 per barrel.  During the earlier part of this period, from around 2010-12, the world also experienced a food price hike, and this all took place at the tail end of massive secular commodities supercycle.

The effect on inflation in the OECD was non-existent; indeed, countries continued to struggle with deflationary pressure.

It is natural to focus on oil and food prices - they are "headline" commodities prices regularly and heavily covered in the financial press that people can intuitively understand and that has direct impact on daily lives.  It is natural to draw causal conclusions from correlations between big movements in these prices and other macro developments but a broader historical perspective shows it is important to focus on underlying trends and causes.  High oil prices have existed alongside inflations but also alongside disinflations.

It is also natural for "Western" commentators to focus on developments in the US and Europe and perhaps Japan - countries with free presses and similar economic systems and similar political systems.  But the largest manufacturer and trader in the world is China and its massive population and economy, well-integrated into other advances economies, has a huge impact.  But a problem is that China is hard for westerners to understand - its political system doesn't work like ours, its economy doesn't work like ours, public and private finance doesn't work like ours, and its press is not free.  All presenting big obstacles to understanding.

In the first half of this year there have been momentous economic events in China including, among others, complete shutdowns of entire mega-cities due to COVID, fallout from a complex real estate-public finance crisis, and internal debates over economic rebalancing.  IMO it is a fools errand to start making pronouncements about the state of the world economy and its likely prognosis without careful consideration of the impact from China.

Another crucial long-term factor affecting the world economy that always has to be kept in mind is the extraordinary demographic collapse among rich and middle income countries. It is my view that Western countries have not properly thought through the economic implications of pursuing restrictive immigration policies and stoking nativism at the same time the population dives far below replacement.  In particular, the US economy has always been designed on the assumption that labor will always be or become available in response to new technological developments, new markets, shifts in regional economic activity and/or shifts in demand or preferences. If that assumption fails to hold, it is not clear how the US economy will respond.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 14, 2022, 03:11:45 AM
Unless these indicators are lagging a bit, Bank of England might be saved the indignity of having to manually trigger a recession like their US counterparts, as people's salaries fail to follow inflation upward.

QuoteUK pay falls at fastest rate in more than 20 years
Regular real pay in the UK fell at the fastest rate this century in April, as wages fell further behind rising prices.

In April alone, regular pay packets (excluding bonuses) shrank by 3.4% once you adjust for inflation. That's the biggest monthly fall, year-on-year, in at least 20 years, today's data from the Office for National Statistics shows.

Also I think some people drawing the conclusion I have heard from the US as well: older people who had their savings boosted during the pandemic heydays have left the job market and will not return:

QuoteThere are still nearly 450,000 more people neither working or looking for work than before the pandemic, despite a small drop in economic inactivity in April.

That includes 225,000 more people with long-term sickness, and 26,000 temporarily ill.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on June 14, 2022, 11:18:34 AM
Quote from: Tamas on June 14, 2022, 03:11:45 AMUnless these indicators are lagging a bit, Bank of England might be saved the indignity of having to manually trigger a recession like their US counterparts, as people's salaries fail to follow inflation upward.


Crisis? What Crisis.

Oh look over there, there's somebody trying to build a border wall in the Irish sea and aren't those people turning up in boats in Kent of the wrong skin colour, unlike our glorious Saxon native ancestors.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on June 14, 2022, 05:14:53 PM
They're not even trying with the Rwanda excuses are they.
It's to stop human trafficking...
But Africans still have to be trafficked across a desert and two seas to be sent to Rwanda.
Why not just.... Let them apply for UK assylum in Rwanda if that's the goal?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 15, 2022, 03:05:14 AM
This is the global economic crisis thread, not the Save Big Dog thread.  :mad:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 16, 2022, 04:26:30 AM
QuoteDrama in Zurich, where Switzerland's central bank has surprisingly raised interest rates from record lows.

The Swiss National Bank raised its policy interest rate for the first time in 15 years, up from -0.75% to -0.25%.

This 50-basis-point rise makes the SNB the latest central bank to lift interest rates to fight inflation.

This is the first interest rate rise by the SNB since Septenber 2007; it had kept borrowing costs at -0.75% since 2015.

Thomas Jordan, chair of the SNB's governing council, said the bank decided to tighten monetary policy to counter increased inflationary pressure.

It will be funny when Bank Of England will stick with a 0.25 hike later today.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on June 16, 2022, 05:57:28 AM
Quote from: Tamas on June 16, 2022, 04:26:30 AM
QuoteDrama in Zurich, where Switzerland's central bank has surprisingly raised interest rates from record lows.

The Swiss National Bank raised its policy interest rate for the first time in 15 years, up from -0.75% to -0.25%.

This 50-basis-point rise makes the SNB the latest central bank to lift interest rates to fight inflation.

This is the first interest rate rise by the SNB since Septenber 2007; it had kept borrowing costs at -0.75% since 2015.

Thomas Jordan, chair of the SNB's governing council, said the bank decided to tighten monetary policy to counter increased inflationary pressure.

It will be funny when Bank Of England will stick with a 0.25 hike later today.

Can't have those Buy to Let mortgages get too expensive (not as heavily subsidised).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 16, 2022, 07:05:08 AM
Indeed!

And true enough, the hike is just 0.25. I am sure, like with Brexit, it is the rest of the world who got it wrong and we are doing it right.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on June 16, 2022, 07:26:58 AM
There is also some possibility the UK has inflationary pressures which are mostly eternal or otherwise cannot be addressed by a large rate hike.
Title: Re: The 2022 Economic Crisis Megathread
Post by: alfred russel on June 16, 2022, 07:33:39 AM
Quote from: Tamas on June 16, 2022, 07:05:08 AMIndeed!

And true enough, the hike is just 0.25. I am sure, like with Brexit, it is the rest of the world who got it wrong and we are doing it right.

The USD is already near parity with the euro. If the UK wants to be very dovish with interest rate hikes maybe we will get to parity with the GBP too.  :wacko:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on June 16, 2022, 08:17:47 AM
Quote from: Tamas on June 16, 2022, 07:05:08 AMIndeed!

And true enough, the hike is just 0.25. I am sure, like with Brexit, it is the rest of the world who got it wrong and we are doing it right.
:huh:

It's an odd world where their fifth rate rise in six months is seen as dove-ish though :ph34r: They've raised rates from 0.1% to 1.25% over six months largely through incremental increases - as I say this is the fifth rate rise.

The Fed, I think, has gone from 0.25% to 1.75%. But they've done that through larger increases so I think they've only raised rates three times.

The ECB is still at 0 but is signalling two things at once which are important (and challenging) in this context. One is that they are going to raise rates; the other is because we're starting to see spreads increase that they will continue to basically do "whatever it takes" to keep the Eurozone a single monetary area rather than seeing rate rises have a different impact in Italy than Germany.

The BofE isn't being particularly dove-ish and is acting a little bit more like the Fed than the ECB.

Interesting key points - which he provides in more detail from Duncan Weldon:
Quote1/Growth is undershooting the MPC's forecasts (made last month) and they now expect a contraction in the second quarter.
 2/The Government's Cost of Living Package is (perhaps) a smaller deal than I assumed.
3/Things are going to get worse on the inflation front before they get better.
4/The Bank is still very optimistic on the health of the jobs market.
5/Rate hikes are having differing effects.

The last point is particularly interesting that there's pass-through of rate hikes is happening largely for mortgage offers and the spread between low LTV and high LTV is narrowing - but basically rate changes are passing through as they did pre-financial crisis (not like the slightly weird 2010s). But as other central banks are also hiking, sterling is still getting weaker.

There's all the talk in the US of whether they will be able to get a "soft landing" - which I think looks less likely. As I say in Europe I think the factors in inflation are a little different - so there's a risk for the BofE and UK that they're hiking fast enough to slow an economy that was already struggling (unlike the US) but not fast enough to remove pressure on sterling in a way that might relieve some of the inflationary pressure. So basically they make gains on inflation domestically with a weaker economy, but increase it through imported cost pressure.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on June 16, 2022, 08:21:30 AM
I think the US 0.75% hike is an admission that they are just about ready to give up on the soft landing idea.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on June 16, 2022, 08:23:17 AM
Agreed.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 01, 2022, 10:38:56 AM
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:

QuoteAround £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
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on July 01, 2022, 10:45:12 AM
Quote from: Tamas on July 01, 2022, 10:38:56 AMEurozone 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on July 01, 2022, 05:17:28 PM
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?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 01, 2022, 05:46:19 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on July 01, 2022, 07:18:34 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 02, 2022, 02:46:16 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on July 02, 2022, 02:57:58 AM
Quote from: Tamas on July 02, 2022, 02:46:16 AMI 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?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on July 02, 2022, 03:23:57 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 02, 2022, 03:27:50 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 02, 2022, 03:29:51 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tonitrus on July 02, 2022, 01:09:12 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Crazy_Ivan80 on July 02, 2022, 01:21:29 PM
Quote from: Tamas on July 02, 2022, 03:27:50 AMYeah, 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...
Title: Re: The 2022 Economic Crisis Megathread
Post by: Grey Fox on July 02, 2022, 01:30:00 PM
Quote from: Tonitrus on July 02, 2022, 01:09:12 PMNormally, 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 02, 2022, 01:30:34 PM
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):

QuoteRumors 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.


Title: Re: The 2022 Economic Crisis Megathread
Post by: Tonitrus on July 02, 2022, 01:36:15 PM
Quote from: Grey Fox on July 02, 2022, 01:30:00 PM
Quote from: Tonitrus on July 02, 2022, 01:09:12 PMNormally, 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).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Grey Fox on July 02, 2022, 03:17:35 PM
Yes. We should outlaw cryptos.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tonitrus on July 02, 2022, 03:31:15 PM
Quote from: Grey Fox on July 02, 2022, 03:17:35 PMYes. We should outlaw cryptos.

I've been saying that for years.  :sleep:
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on July 02, 2022, 05:01:51 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on July 02, 2022, 05:23:44 PM
Yep. Crypto embodies all that is wrong with the 21st century in so many ways.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 02, 2022, 05:26:44 PM
Quote from: DGuller on July 02, 2022, 05:01:51 PMThe 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. 
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on July 03, 2022, 08:56:54 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 03, 2022, 09:00:37 AM
Quote from: crazy canuck on July 03, 2022, 08:56:54 AMCost 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?
Title: Re: The 2022 Economic Crisis Megathread
Post by: frunk on July 03, 2022, 09:08:17 AM
Quote from: Tamas on July 03, 2022, 09:00:37 AM
Quote from: crazy canuck on July 03, 2022, 08:56:54 AMCost 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on July 03, 2022, 09:13:59 AM
Quote from: frunk on July 03, 2022, 09:08:17 AM
Quote from: Tamas on July 03, 2022, 09:00:37 AM
Quote from: crazy canuck on July 03, 2022, 08:56:54 AMCost 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on July 16, 2022, 08:13:20 AM
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?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 16, 2022, 10:08:11 AM
Quote from: mongers on July 16, 2022, 08:13:20 AM* Is this the inflation thread also?


Should be. :P

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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on July 17, 2022, 07:30:51 AM
Quote from: Tamas on July 16, 2022, 10:08:11 AM
Quote from: mongers on July 16, 2022, 08:13:20 AM* Is this the inflation thread also?


Should be. :P

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. :-(
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on July 29, 2022, 06:20:50 AM
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

QuoteUK 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 04, 2022, 07:32:38 AM
QuoteUK to enter recession, Bank of England warns
The Bank of England is also warning that the UK economy will enter recession later this year.

The Bank has cut its growth forecasts, and now sees the economy falling into recession from the October-December quarter.

In a grim warning about the economic outlook, it says:

GDP growth in the United Kingdom is slowing.

The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year.

Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.

The Bank of England's new forecasts are frankly dire:

Governor Bailey has brought charts...

1990s style recession... lasting as long as both 1990s and Great financial crisis (though not as deep as that one)...

(https://pbs.twimg.com/media/FZUGaapXoAE5rLG?format=jpg&name=small)

Inflation now predicted by BoE to peak at over 13%... and staying close to 10% most of next year...

(https://pbs.twimg.com/media/FZUGs-1X0AELtzT?format=jpg&name=small)


EDIT: of course the FTSE100 is up 0.5% on the day because of reasons.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 04, 2022, 09:37:28 AM
Quote from: Tamas on August 04, 2022, 07:32:38 AMEDIT: of course the FTSE100 is up 0.5% on the day because of reasons.
Sterling fell which is broadly good for the FTSE100 - over 70% of their revenue is generated outside the UK so it boosts their earnings from overseas.

But yeah the whole scenario looks fairly grim (though I'd note that their inflation projections basically entirely depend on what happens with the price cap): high inflation for at least two years, a prolonged recession like the early nineties and unemployment heading up to about 6.5%. Not great on any front.

It still seems mad that going into a recession they're raising rates but....
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 04, 2022, 09:55:28 AM
Quote from: Sheilbh on August 04, 2022, 09:37:28 AMIt still seems mad that going into a recession they're raising rates but....

Well this is where they messed up. They were sitting on their arses worried they might cause a bit of a blip in the housing market and didn't start rate hiking early enough. Now they don't have the room to maneuver to ease and prevent a recession - they need to try and contain inflation somehow (I can't see how 50bps hikes coming up from 1.25% are going to cut it with 13% inflation) and it will be, by the recession.

In the US the Fed might have gone aggressive enough (they definitely were also late to start) to have a slight room to maneuver when the recession hits, but even that is pretty uncertain (the markets are pricing in this scenario, but I don't think they'll pull it off).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 04, 2022, 10:28:06 AM
We just had an HR meeting to discuss salary adjustments for the rest of 2022 and 2023. The issue of the CPI being up 9.1% over June of 2021 came up, and everyone was all kind of like "Holy shit! We can't actually give everyone a 10% raise just to keep up with inflation!"

I have no idea how we can respond to that.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 04, 2022, 10:35:48 AM
Some kind of "well. We don't have to pay them properly. But retention etc.. Etc..."

I've gotten a massive pay drop due to this stuff and no pay rise <_<
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 04, 2022, 10:40:44 AM
It kind of helps drive home for me the level of inflation that due to a promotion I actually did receive a 13%-ish pay rise at the beginning of this year. It's a big noticeable jump yet all that will manage by the end of this year is to keep me in real terms where I was at the start of it. And I am one of the lucky ones with a non-terrible wage that got a big boost. 

I guess, the Bank of England president would file me under the causes on inflation, having accepted a salary increase. :P
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 04, 2022, 12:18:32 PM
Quote from: Josquius on August 04, 2022, 10:35:48 AMSome kind of "well. We don't have to pay them properly. But retention etc.. Etc..."

I've gotten a massive pay drop due to this stuff and no pay rise <_<
I don't think it is a question of desire to pay anyone properly or not. We definitely want to pay everyone properly, the cost of not doing so is high.

But what is "properly"?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 04, 2022, 12:31:08 PM
Quote from: Tamas on August 04, 2022, 09:55:28 AMWell this is where they messed up. They were sitting on their arses worried they might cause a bit of a blip in the housing market and didn't start rate hiking early enough. Now they don't have the room to maneuver to ease and prevent a recession - they need to try and contain inflation somehow (I can't see how 50bps hikes coming up from 1.25% are going to cut it with 13% inflation) and it will be, by the recession.

In the US the Fed might have gone aggressive enough (they definitely were also late to start) to have a slight room to maneuver when the recession hits, but even that is pretty uncertain (the markets are pricing in this scenario, but I don't think they'll pull it off).
I'm just not sure I see a massive difference - I do with the ECB (and I think the ECB are right). The BofE started raising rates in December and have increased them by 1.65%, the Fed started in March and have raised them by 2.25%. The BofE's been a little more gradual over a longer time, the Fed's been a little more aggressive in a shorter period of time - but it doesn't seem that significant.

As ever I thought Duncan Weldon was interesting on this. Key points were that it is important to remember this assumes no change in fiscal policy - and there will be changes in fiscal policy. There is going to be an emergency budget and some combination of tax cuts, bill rebates and possibly other support - and possibly some fiddling around the cap.

But hiking rates into an inflation feels like the BofE MPC have decided - a point made by Chris Giles - that the only way to bring inflation back to target is through a recession.

The international comparison point and stuff on unemployment strikes me as most striking though:
QuoteThe nature of Britain's inflation

The most interesting analysis in the Report is Box E on international comparisons of inflation.
(https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F6b9f0ca9-1384-402a-a973-4d7f4ef232ce_605x385.png)

The cross-OECD picture is a useful reminder that high headline inflation is global in nature.

The Bank further notes that, as expected, energy and food inflation have picked up sharply globally. But when it comes to services and core goods there is some evidence of an Anglo-American vs Euro area divergence (partially offset by Euro area energy price inflation being higher).

QuoteCore goods price inflation in the UK was 6.5% in June, higher than the euro area, where it was 4.3%. Some of the strength of goods price inflation in the UK relative to the euro area might reflect a normalisation in price levels. Clothing and footwear prices were particularly low in the UK in 2020 because of discounting in the pandemic; inflation in this component has subsequently been higher than in the euro area. US goods price inflation picked up earlier than elsewhere, reflecting particularly strong demand, especially during the pandemic. Core goods price inflation has been somewhat higher in the UK than the euro area recently. This might reflect some UK prices recovering from unusually low levels in the pandemic. It may also reflect the tighter labour market. Higher goods price inflation in the UK and US compared to the euro area may also reflect labour market tightness. Although services inflation is often assumed to be a clearer indicator of domestic inflationary pressures, almost all goods embody some domestic labour input as well. As a result, higher goods inflation might reflect some of the same drivers of higher services price inflation

The broad brush way to think about this - in terms Andrew Bailey used at a recent press conference - is that Euro area inflation is primarily an energy price story, US inflation is a tight jobs story and British inflation is a bit of both.

Watch the labour market

Almost as interesting as the comparative analysis of inflation dynamics is the deep dive into the labour market in chapter 3.

I really like this chart on labour demand and labour supply.
(https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F268fe5ca-4500-48f7-99ac-89ae74f83e36_651x448.png)

The basic story is that labour demand recovered much faster from the pandemic than labour supply. The Bank's analysis of the labour supply story is some I will be returning to next week.

But when it comes to their jobs market outlook, I was struck by the final paragraph:
QuoteOn the other hand, labour market tightness could unwind more quickly. The labour market may respond more rapidly to slowing demand. Recruiters mentioned that greater economic uncertainty and rising costs were already slowing hiring according to the June KPMG/REC UK Report on Jobs. The Covid-related factors weighing on participation could also unwind faster than assumed in the baseline projections if, for example, the very recent decline in inactivity continues at the same pace over the coming months. Labour supply growth could also be affected by how households respond to the real income squeeze. Households may seek to boost income through working more, which could involve those currently inactive re-entering the labour market or those already in the labour force seeking to work longer hours. Although, if unemployment starts rising, households may become discouraged from entering the workforce as fewer jobs are available.

I'm more pessimistic on the jobs market than the MPC. What they outline as a possibility feels closer to my own base case. If real household income takes a large hit and consumption falls then I can see the current tightness in the jobs market unwinding pretty swiftly indeed. I don't see labour-intensive consumer facing firms posting anywhere near as many job ads if the Bank's outlook is even half right. Similarly, although it is a smaller part of the supply story than chronic illness, I can easily see a substantial proportion of the 50- and 60-somethings who chose to retire earlier than planned in 2020 and 2021 rapidly reassessing that decision in the face of a real income shock.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Crazy_Ivan80 on August 04, 2022, 12:38:59 PM
Quote from: Josquius on August 04, 2022, 10:35:48 AMSome kind of "well. We don't have to pay them properly. But retention etc.. Etc..."

I've gotten a massive pay drop due to this stuff and no pay rise <_<

Belgium has automatic indexation of wages. And while that is nice for the employees, it's hellish for overall employment as it makes employing people too expensive when compared to our neighbours. Especially if you take into account that most left of center parties here are run by retards or communists.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 04, 2022, 02:24:50 PM
Quote from: Crazy_Ivan80 on August 04, 2022, 12:38:59 PM
Quote from: Josquius on August 04, 2022, 10:35:48 AMSome kind of "well. We don't have to pay them properly. But retention etc.. Etc..."

I've gotten a massive pay drop due to this stuff and no pay rise <_<

Belgium has automatic indexation of wages. And while that is nice for the employees, it's hellish for overall employment as it makes employing people too expensive when compared to our neighbours. Especially if you take into account that most left of center parties here are run by retards or communists.

So... You're saying Belgium isn't a half bad place to work?
My gf is actually keen on there as a compromise to my yearning for Holland or the nordics
Title: Re: The 2022 Economic Crisis Megathread
Post by: Crazy_Ivan80 on August 05, 2022, 02:39:14 AM
Quote from: Josquius on August 04, 2022, 02:24:50 PM
Quote from: Crazy_Ivan80 on August 04, 2022, 12:38:59 PM
Quote from: Josquius on August 04, 2022, 10:35:48 AMSome kind of "well. We don't have to pay them properly. But retention etc.. Etc..."

I've gotten a massive pay drop due to this stuff and no pay rise <_<

Belgium has automatic indexation of wages. And while that is nice for the employees, it's hellish for overall employment as it makes employing people too expensive when compared to our neighbours. Especially if you take into account that most left of center parties here are run by retards or communists.

So... You're saying Belgium isn't a half bad place to work?
My gf is actually keen on there as a compromise to my yearning for Holland or the nordics

Nope. Only people on the outside would say that, but they're generally ignorant on the country.
My advice: go to Holland or the Nordics. They have a state that is actually performance, when compared to Belgium.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on August 05, 2022, 02:46:47 AM
Quote from: Tamas on August 04, 2022, 07:32:38 AMEDIT: of course the FTSE100 is up 0.5% on the day because of reasons.

Of course yes.  The market knows that if GDP falls then fewer central bank rate hikes will be required.  Fewer hikes is good for the market.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 02:50:46 AM
Quote from: Admiral Yi on August 05, 2022, 02:46:47 AM
Quote from: Tamas on August 04, 2022, 07:32:38 AMEDIT: of course the FTSE100 is up 0.5% on the day because of reasons.

Of course yes.  The market knows that if GDP falls then fewer central bank rate hikes will be required.  Fewer hikes is good for the market.

Yeah that's a valid argument (I mean, I think it is mistaken, but understandable) in case of the US, but one would think the UK economy is in a far more vulnerable position than the US one, interest-free YOLO money available or not.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on August 05, 2022, 02:59:39 AM
Quote from: Tamas on August 05, 2022, 02:50:46 AMYeah that's a valid argument (I mean, I think it is mistaken, but understandable) in case of the US, but one would think the UK economy is in a far more vulnerable position than the US one, interest-free YOLO money available or not.

Margin lending rates are significantly higher than the Federal Funds rate.

The relationship between interest rates and stock prices is not based on leverage (brokerages will lend you your entire position), but on the causal link between interest rates and the rate at which future earning of growth stocks are discounted.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 03:21:19 AM
Bank of England governor sticks with his primary policy: asking people not get paid more:

QuoteBoE governor warns against high pay rises and price increases
The Bank of England governor has urged workers and businesses to resist pushing for high wage and prices to match inflation.

He tells the Today Programme this would fuel inflation and hurt the least well off in society..
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on August 05, 2022, 03:24:50 AM
I just got a raise above inflation, should I feel guilty for ruining the economy?  :(
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 03:26:47 AM
Quote from: celedhring on August 05, 2022, 03:24:50 AMI just got a raise above inflation, should I feel guilty for ruining the economy?  :(

Yes. It's definitely not the fault of central bank policies of the last decade.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on August 05, 2022, 03:36:28 AM
Quote from: Tamas on August 05, 2022, 03:26:47 AMYes. It's definitely not the fault of central bank policies of the last decade.

That's not the question he asked.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 03:38:52 AM
Quote from: Admiral Yi on August 05, 2022, 03:36:28 AM
Quote from: Tamas on August 05, 2022, 03:26:47 AMYes. It's definitely not the fault of central bank policies of the last decade.

That's not the question he asked.

Quote from: Tamas on August 05, 2022, 03:26:47 AMYes.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 05, 2022, 05:50:58 AM
So... Interest rates up, inflation high etc...

But bank accounts still seem to offer virtually zero interest? :unsure:


Quote from: Crazy_Ivan80 on August 05, 2022, 02:39:14 AM]

Nope. Only people on the outside would say that, but they're generally ignorant on the country.
My advice: go to Holland or the Nordics. They have a state that is actually performance, when compared to Belgium.

From what you said it sounded good.
That would be my preference but :frog:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 05, 2022, 05:57:52 AM
Interest rates are up but base rate is still only 1.75% which is historically very low? :hmm:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 06:28:56 AM
I have recently switched my savings account to Chase where I am earning a MASSIVE 1.5% interest.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 07:46:34 AM
Did the rules on what constitutes a job changed recently in the US? The stock market ain't going to like this:

QuoteJuly nonfarm payrolls 528K, Exp. 250K
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 05, 2022, 10:06:30 AM
Quote from: celedhring on August 05, 2022, 03:24:50 AMI just got a raise above inflation, should I feel guilty for ruining the economy?  :(
Of course not.

I am sure I will give raises above inflation to my best people. 

But that will be because they are talented and I want to keep them. They get good raises regardless of what inflation is at.

The question is whether it makes sense to give people raises solely on the basis of the rise in inflation.

Should the "base" raise for everyone be based on the floor of the CPI in some fashion?

1. Is that good public policy from the standpoint of managing inflation?
2. Is that even feasible from the standpoint of running a viable company?
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 10:12:48 AM
Is it good public policy to have declining real incomes? Probably not.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Habbaku on August 05, 2022, 10:14:20 AM
Is there a country in the world whose public policy is to have declining real incomes?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 05, 2022, 10:19:05 AM
Quote from: crazy canuck on August 05, 2022, 10:12:48 AMIs it good public policy to have declining real incomes? Probably not.
Glad it is so simple.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 10:28:10 AM
Quote from: Habbaku on August 05, 2022, 10:14:20 AMIs there a country in the world whose public policy is to have declining real incomes?

I don't think so, at least I hope not. I was just answering one of Berkut's questions.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 10:28:38 AM
Quote from: Berkut on August 05, 2022, 10:19:05 AM
Quote from: crazy canuck on August 05, 2022, 10:12:48 AMIs it good public policy to have declining real incomes? Probably not.
Glad it is so simple.

Well, you did ask a pretty simple question.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 05, 2022, 10:36:44 AM
Quote from: crazy canuck on August 05, 2022, 10:28:38 AM
Quote from: Berkut on August 05, 2022, 10:19:05 AM
Quote from: crazy canuck on August 05, 2022, 10:12:48 AMIs it good public policy to have declining real incomes? Probably not.
Glad it is so simple.

Well, you did ask a pretty simple question.
ACtually, it wasn't that simple at all. You reduced it to something simple so you could provide a pat answer that doesn't advance the discussion or mean anything.

" 1. Is that good public policy from the standpoint of managing inflation?"

That is not a simple question at all, and noting that declining real incomes is generically undesired doesn't answer it even a little bit. In fact, it is a stupid response that ignores the actual complexity of the problem in favor of a strictly political agenda that is paper thin.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 10:53:13 AM
Your company paying its employees a wage which does not decrease their real wages is a no brainer.  The issue is whether your company has the ability/will to do it.  That is a more complex question but not the one you asked.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 10:54:18 AM
Advance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on August 05, 2022, 11:08:25 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.

Not something you want to see in an inflation thread.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 05, 2022, 11:16:45 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.
That won't be a problem. He has made it clear he doesn't want to discuss anything, so I simply won't respond anymore.

I am interested in other peoples views though. This is an actual, real problem for me. It is not theoretical.

We have to figure this out over the next several months, and I don't know the answer. I've never worked as a director in an economic environment with significant inflationary pressure. We've already raised our rates a lot for our customers in order to keep up with advancing salary expectations of our rather highly compensated, highly talented, and highly desired development staff, and that was *before* this inflationary spike.

It is trite to say "Raise their salaries, and pass the cost on to your customers". That might work in some industries, but not in all. In many cases, there isn't even a customer to raise rates on - we are doing product development, and we have a limited budget to support our development staff. We could reduce headcount in order to pay the remaining more, or we can try to find outside investment. Neither of those seem to be so obviously the right choice, either for the company, or for the employees, or for society in general.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 05, 2022, 11:20:54 AM
In the US where there's a really tight labour market I don't really see how you can avoid raising wages by a decent amount - in or around inflation. Because otherwise they'll just move on. It is - currently - similar in the UK. There are more vacancies being reported than people looking for work.

I'd make a priority of making sure the lowest paid who are most exposed to prices rising and likely have least cushion are most protected though - it's the junior staff on relatively low wages who'll feel this more and I think that probably needs communicating to them but also to more senior staff who may be comfortable taking a little less if there's reason behind it. That's what happened at my company at least (although we're heavily unionised and the pay deal was negoatiated at the start of the year before current inflation rates).
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 11:37:50 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.

Oh for fuck sakes, Berkut asked whether it would be counter to good public policy for his company to pay wages that are greater that the rate of inflation. Is that answer not obvious to everyone here?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 05, 2022, 11:43:21 AM
Yes, it is totally obvious to everyone. So no need for you to state the obvious, and we can go one with our discussion and you can be right.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 05, 2022, 11:53:51 AM
Quote from: The Minsky Moment on August 05, 2022, 11:08:25 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.

Not something you want to see in an inflation thread.

This calls for deflationary measures. The question is whether this falls under the US Fed or the Canadian Central Bank when it comes to jurisdicktion.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Gups on August 05, 2022, 11:57:12 AM
Quote from: Berkut on August 05, 2022, 11:16:45 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.
That won't be a problem. He has made it clear he doesn't want to discuss anything, so I simply won't respond anymore.

I am interested in other peoples views though. This is an actual, real problem for me. It is not theoretical.

We have to figure this out over the next several months, and I don't know the answer. I've never worked as a director in an economic environment with significant inflationary pressure. We've already raised our rates a lot for our customers in order to keep up with advancing salary expectations of our rather highly compensated, highly talented, and highly desired development staff, and that was *before* this inflationary spike.

It is trite to say "Raise their salaries, and pass the cost on to your customers". That might work in some industries, but not in all. In many cases, there isn't even a customer to raise rates on - we are doing product development, and we have a limited budget to support our development staff. We could reduce headcount in order to pay the remaining more, or we can try to find outside investment. Neither of those seem to be so obviously the right choice, either for the company, or for the employees, or for society in general.

We work in completely different industries but if it's of any interest, here's what my firm does on salareis.

I should say that I'm a partner in a small, specialist planning law firm. We are ten partners (all equity) with about 30 employees of which 20 are lawyers. Equity partners do not get a salary, just a share of the profits. We're  guite a new firm, founded about 5 years ago (with 6 partners and just 5 employees) but are generally regarded as best in our (small) field.

Salaries for junior lawyers have exploded in the last couple of years, mainly due to US law firms. The top US firms are paying £160K to newly qualifieds solicitors (who are generally in the mid-20s). The top UK firms are paying between £110K to £125K. We benchmark our salaries against the tier below that which is in the range of £65K to £100K but at the lower end of the scale. We also provide a decent profit share pool for both lawyers and non-lawyers. We've made a big effort to professionalise our benefit system and training programmes and develop meaning CSR and pro bono programmes involving juniors. This is actually really important for rentention, perhaps more so than pay. We've given one-off cost of living payments to anyone earning less than £40K. Most importantly we do our best to make people feel like they are part of the business - involved in decision-making, business development and other programmes.

So far only one solicitor has left since we started (and not for money reasons). We are going to have to see how the era of high inflation plays out though I suspect that the boom in junior salaries has topped out for now. We have been able to afford increases by being fairly relentless in terms of rates, debt collection and write offs. Our rent is static and expenses are under control because so many more meetings can be held online. Hybrid working has helped with productivity too.


Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 05, 2022, 12:02:43 PM
Upwards pressure has been pretty relentless in the video game industry as well. It may abate a bit with the recent signals from the tech industry giants about hiring freezes/ layoffs, but I guess we'll see.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 05, 2022, 12:04:54 PM
In the Eurozone at least a lot of inflation is from external shocks, mainly the war and related sanctions, also supply chain to China.

Especially on energy, inflation should not just be compensated, as the higher price serves as a means to achieve the policy goal of reducing fossil fuel consumption. 
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 05, 2022, 12:12:39 PM
I'm not sure I can think of a better way of undermining energy transition than making the politics of it that it'll make you poorer. Especially if there's no measures taken to make it seem fair so the hit isn't distributed unfairly.

I think that approach ends up making the gilets jaunes look like the Rotary Club.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 05, 2022, 12:13:34 PM
Quote from: Zanza on August 05, 2022, 12:04:54 PMIn the Eurozone at least a lot of inflation is from external shocks, mainly the war and related sanctions, also supply chain to China.

Especially on energy, inflation should not just be compensated, as the higher price serves as a means to achieve the policy goal of reducing fossil fuel consumption.

Yeah, I'm no economist but I think the inflation is being driven primarily by worldwide events impacting production and the supply chain -  war, sanctions, China covid zero policies, energy price increases.

Personally - though it's inconvenient for me as a hiring manager - I think it is very reasonable for working people to push for increased salaries.

Also, I think that given the demographics of the West - more workers retiring compared to new folks entering the workforce - we are entering (already in) an era where talent acquisition is going to remain an issue and workers have negotiation power. "Don't ask for wage increases because of inflation, be a team player for the sake of the economy" is just not going to cut it as an argument IMO.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 12:26:57 PM
Quote from: Gups on August 05, 2022, 11:57:12 AM
Quote from: Berkut on August 05, 2022, 11:16:45 AM
Quote from: Tamas on August 05, 2022, 10:54:18 AMAdvance warning: in this thread, it is verboten to have another Berkut-CC 5 pages long dick-measuring contest.
That won't be a problem. He has made it clear he doesn't want to discuss anything, so I simply won't respond anymore.

I am interested in other peoples views though. This is an actual, real problem for me. It is not theoretical.

We have to figure this out over the next several months, and I don't know the answer. I've never worked as a director in an economic environment with significant inflationary pressure. We've already raised our rates a lot for our customers in order to keep up with advancing salary expectations of our rather highly compensated, highly talented, and highly desired development staff, and that was *before* this inflationary spike.

It is trite to say "Raise their salaries, and pass the cost on to your customers". That might work in some industries, but not in all. In many cases, there isn't even a customer to raise rates on - we are doing product development, and we have a limited budget to support our development staff. We could reduce headcount in order to pay the remaining more, or we can try to find outside investment. Neither of those seem to be so obviously the right choice, either for the company, or for the employees, or for society in general.

We work in completely different industries but if it's of any interest, here's what my firm does on salareis.

I should say that I'm a partner in a small, specialist planning law firm. We are ten partners (all equity) with about 30 employees of which 20 are lawyers. Equity partners do not get a salary, just a share of the profits. We're  guite a new firm, founded about 5 years ago (with 6 partners and just 5 employees) but are generally regarded as best in our (small) field.

Salaries for junior lawyers have exploded in the last couple of years, mainly due to US law firms. The top US firms are paying £160K to newly qualifieds solicitors (who are generally in the mid-20s). The top UK firms are paying between £110K to £125K. We benchmark our salaries against the tier below that which is in the range of £65K to £100K but at the lower end of the scale. We also provide a decent profit share pool for both lawyers and non-lawyers. We've made a big effort to professionalise our benefit system and training programmes and develop meaning CSR and pro bono programmes involving juniors. This is actually really important for rentention, perhaps more so than pay. We've given one-off cost of living payments to anyone earning less than £40K. Most importantly we do our best to make people feel like they are part of the business - involved in decision-making, business development and other programmes.

So far only one solicitor has left since we started (and not for money reasons). We are going to have to see how the era of high inflation plays out though I suspect that the boom in junior salaries has topped out for now. We have been able to afford increases by being fairly relentless in terms of rates, debt collection and write offs. Our rent is static and expenses are under control because so many more meetings can be held online. Hybrid working has helped with productivity too.




We have gone away from annual wage increases to bi-annual increases.  We are also considering implementing retention bonuses and moving away completely from signing bonuses.

We are beginning to find that retention and competition for non lawyer staff is becoming more fierce then that for junior lawyers. 

We don't have a formal profit sharing, but we have a very robust bonusing program based on a number of factors that are unrelated to just profit.  We have also put a lot of effort into including all staff and employee lawyers in decision making, firm management, etc.

The recent spike in inflation is not really going to effect us too much since we were already giving large raises.

Regarding the spike in juniors caused by the US firms going crazy, I saw that also happening in the 90s.  But the difference then is everyone was in more of a lock step model.  Now pay is much more variable within years of call depending on ability/area of practice. 
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on August 05, 2022, 12:51:02 PM
Quote from: Sheilbh on August 05, 2022, 11:20:54 AMIn the US where there's a really tight labour market I don't really see how you can avoid raising wages by a decent amount - in or around inflation. Because otherwise they'll just move on. It is - currently - similar in the UK. There are more vacancies being reported than people looking for work.

I'd make a priority of making sure the lowest paid who are most exposed to prices rising and likely have least cushion are most protected though - it's the junior staff on relatively low wages who'll feel this more and I think that probably needs communicating to them but also to more senior staff who may be comfortable taking a little less if there's reason behind it. That's what happened at my company at least (although we're heavily unionised and the pay deal was negoatiated at the start of the year before current inflation rates).

My group is explicitly exempt of the collective agreement clause that indexed raises to CPI (along with management).  :ultra:

The unions also push for headcount reduction in salaried positions during layoffs(which is often when we are busiest since it takes 2-3 years of engineering work to launch a new product line).

And they wonder why I won't vote for or strike with them.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 05, 2022, 01:01:34 PM
Given the development of the law in Canada - including some recent significant SCC cases, wage increases contained within collective agreements effectively cannot be decreased.  But employees excluded from the bargaining unit are fair game.  I think what we are going to see is more employees who had previously been excluded, wanting to become part of a bargaining unit.  The trick is going to be which one will best suit their needs.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 05, 2022, 01:02:32 PM
Quote from: Sheilbh on August 05, 2022, 12:12:39 PMI'm not sure I can think of a better way of undermining energy transition than making the politics of it that it'll make you poorer. Especially if there's no measures taken to make it seem fair so the hit isn't distributed unfairly.

I think that approach ends up making the gilets jaunes look like the Rotary Club.
No idea about the UK or so, but here measures are taken to help out the poorer segment of society. Let's see if it will be sufficient. 

But most energy here is used not by consumers, but by companies. Higher energy prices is a powerful catalyst towards actually reducing energy usage or transforming processes so that they  can e.g. run on green electricity instead of oil or gas.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 05, 2022, 01:05:45 PM
Quote from: Jacob on August 05, 2022, 12:13:34 PM
Quote from: Zanza on August 05, 2022, 12:04:54 PMIn the Eurozone at least a lot of inflation is from external shocks, mainly the war and related sanctions, also supply chain to China.

Especially on energy, inflation should not just be compensated, as the higher price serves as a means to achieve the policy goal of reducing fossil fuel consumption.

Yeah, I'm no economist but I think the inflation is being driven primarily by worldwide events impacting production and the supply chain -  war, sanctions, China covid zero policies, energy price increases.

Personally - though it's inconvenient for me as a hiring manager - I think it is very reasonable for working people to push for increased salaries.

Also, I think that given the demographics of the West - more workers retiring compared to new folks entering the workforce - we are entering (already in) an era where talent acquisition is going to remain an issue and workers have negotiation power. "Don't ask for wage increases because of inflation, be a team player for the sake of the economy" is just not going to cut it as an argument IMO.
Sure, I am always for people asking what I consider their fair share. Wealth inequality is maybe the biggest societal issue in the West. And collective or individual action to shift the income scales a bit more again to working people is necessary and welcome. Workers should always ask for wages to grow at least at the level of inflation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on August 05, 2022, 01:07:56 PM
I'm no economist either, but I think the inflation kicking is mainly caused by the most boring explanation:  we've printed too much money.  You can't have near-zero interest rates as a new normal for 15 years without it causing an inflation at some point.  Supply shocks could've been the catalyst, or the Covid payments to people who actually spend money, but sooner or later it was bound to result in inflation.  At some point the people holding the financial instruments that were inflating in value were going to cash in and try to chase goods and services with that money.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on August 05, 2022, 01:11:31 PM
Quote from: Habbaku on August 05, 2022, 10:14:20 AMIs there a country in the world whose public policy is to have declining real incomes?

Perhaps not officially, but as a result of the Euro debacle we (the PIIGS) effectively tried the declining real incomes route.

It went as well as you could imagine, with unemployment reaching ludicrous levels (and highly qualified people like my brother or myself emigrating in droves). In the end the ECB had to intervene and threaten to set currency printing on Max.

Unemployment recovered but income didn't go up.

Then the pandemic hit. It's been an interesting couple decades here in Club Med ...
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 05, 2022, 01:11:42 PM
Quote from: Zanza on August 05, 2022, 01:02:32 PMNo idea about the UK or so, but here measures are taken to help out the poorer segment of society. Let's see if it will be sufficient. 
Yeah - but I think we've done the low-hanging fruit so far around the grid and energy networks that don't have as much direct impact on consumers lives. I think when we're getting into heating, housing, cooking, driving it's more contentious and a lot needs to be done to ensure that it's fair - which was the problem with Macron's policy on fuel, it's not that it was a high tax or that it was actually that unfair but perceived as unfair because there were distributional issues.

QuoteBut most energy here is used not by consumers, but by companies. Higher energy prices is a powerful catalyst towards actually reducing energy usage or transforming processes so that they  can e.g. run on green electricity instead of oil or gas.
I think it's probably 50/50 here. Domestic use is roughly a third; industrial and commercial is basically a third; transport is basically a third (which I assume is probably evenly split between individuals and company level).

I agree you need the price signal. But I'm not sure it's that essential because practically Europe doesn't have much energy anyway - we might be able to frack a little, or get a little more oil from Norway. Here I think the inflation and net zero ambitions point in the same direction, I think they might do in China as well - I'm less sure for countries like the US, Mexico, Canada etc where they have resources.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 05, 2022, 01:24:14 PM
Quote from: DGuller on August 05, 2022, 01:07:56 PMI'm no economist either, but I think the inflation kicking is mainly caused by the most boring explanation:  we've printed too much money.  You can't have near-zero interest rates as a new normal for 15 years without it causing an inflation at some point.  Supply shocks could've been the catalyst, or the Covid payments to people who actually spend money, but sooner or later it was bound to result in inflation.  At some point the people holding the financial instruments that were inflating in value were going to cash in and try to chase goods and services with that money.

Agreed. Maybe without pandemic and a war it would have gone fine for another 15 years, but it was bound to spill out.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on August 05, 2022, 01:33:01 PM
We're installing solar panels to mitigate the impact of energy costs. We have over a hundred welding robots, plus a gas-powered painting oven. So you can imagine what impact energy costs have had. And that was on top of steel prices skyrocketing.

There's not that much we can do otherwise.
Setting the AC temps higher is hazardous when you have hundreds of people doing strenuous tasks in the middle of a heatwave. The cooling towers can barely cope as it is (yay climate change).

That's on the business end.


For workers this is equally devastating. While public transport or remote work is an option for service workers, many people have to commute to industrial centers surrounding the cities. These need cars. Higher electricity and gas prices mean lower disposable income. For someone making 900 to 1500 €, a hundred more euros spent every month on electricity and gas is a fucking crapload of money. What are they going to do to save? Not go to work? Nah, they'll simply cut spending elsewhere. Thus recession.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 05, 2022, 01:52:07 PM
Quote from: Sheilbh on August 05, 2022, 01:11:42 PMI think it's probably 50/50 here. Domestic use is roughly a third; industrial and commercial is basically a third; transport is basically a third (which I assume is probably evenly split between individuals and company level).

I agree you need the price signal. But I'm not sure it's that essential because practically Europe doesn't have much energy anyway - we might be able to frack a little, or get a little more oil from Norway. Here I think the inflation and net zero ambitions point in the same direction, I think they might do in China as well - I'm less sure for countries like the US, Mexico, Canada etc where they have resources.
Just read that German gas consumption has already been lowered by about 17% compared to last year, most of it by industry, not by private heating consumption. Anecdotal: The company I work for needs as much gas as a decent sized city for its industrial processes, but they think they can reduce that by 50% until end of this year.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on August 05, 2022, 02:01:58 PM
Non-household gas consumption is down 20% year-on-year in Spain. In the end, high prices (and a likely recession) are going to naturally depress consumption.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 05, 2022, 06:53:35 PM
Incidentally on the BofE's projections - BBC Newsnight Economics Editor noted how strikingly more pessimistic they are:
(https://pbs.twimg.com/media/FZVl8U6XoAAJpqy?format=png&name=small)

In part this is possibly because they're more up-to-date and can take account of recent data on energy and partly assuming no fiscal response and the energy cap is raised as it normally is by the regulator which will double bills in October. But part of it seems to be that their central assumption includes energy prices staying at their current (high) levels for 6 months which it seems the other bodies don't have as an assumption. I think they're probably right that energy is likely to stay expensive for a long while - but doesn't that get to Zanza's point of, at some point, prices at that level impacting demand?

As I say it might just be more up to date but it is a really interesting/very wide divergence at this point.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 08, 2022, 06:31:26 PM
So Japan and South Korean LNG purchasers (the largest in the world) have very publically announced they need more gas for winter. I suspect it's just hedging - but that's going to make the global LNG market more expensive and more competitive for Europeans who purchase less and have, from my understanding, less history with the sellers, because Europe used more pipelie gas but also didn't like the long-term contracts that were popular with LNG suppliers.

It's another factor in what, I think, is going to be a really challenging winter.
Title: Re: The 2022 Economic Crisis Megathread
Post by: HVC on August 08, 2022, 07:33:09 PM
House prices are falling here and the usual people are panicking. Still higher then precovid.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 09, 2022, 11:23:54 AM
Quote from: HVC on August 08, 2022, 07:33:09 PMHouse prices are falling here and the usual people are panicking. Still higher then precovid.

I don't think it is the usual suspects actually - it is more the millennials who finally scraped together the down payment and bought in the last few years, hoping against hope that mortgage rates would stay at historic lows.

Those are the folks really getting squeezed.  If they cannot afford the increased payments, they will have to sell into a declining market.  Not a very comfortable position to be in.

It would great if prices stabilized so that increasing incomes could make owning property more affordable - but there is a lot of regulatory work needed to achieve that with Canada's population (and especially in the cities) continuing to climb beyond foreseeable supply.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 09, 2022, 11:54:33 AM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 09, 2022, 12:03:59 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 09, 2022, 01:09:29 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 09, 2022, 01:38:07 PM
Quote from: Jacob on August 09, 2022, 11:54:33 AMYeah, 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 09, 2022, 01:43:19 PM
In the best "duh" title of the day section we have:

QuoteBank 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. :P
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 10, 2022, 04:15:30 PM
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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 10, 2022, 05:05:23 PM
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."
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 10, 2022, 05:07:56 PM
Quote from: Jacob on August 10, 2022, 05:05:23 PMThere 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 10, 2022, 05:16:14 PM
Quote from: Tamas on August 10, 2022, 05:07:56 PMWhen of course it is both.

I'd be curious to see the data (... and analysis by credible experts).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 10, 2022, 05:20:49 PM
Quote from: Jacob on August 10, 2022, 05:16:14 PM
Quote from: Tamas on August 10, 2022, 05:07:56 PMWhen 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 10, 2022, 05:29:52 PM
Quote from: Tamas on August 10, 2022, 05:20:49 PMI 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? :hmm:

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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 19, 2022, 06:15:18 AM
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%.
Title: Re: The 2022 Economic Crisis Megathread
Post by: viper37 on August 19, 2022, 07:43:06 AM
Quote from: Jacob on August 10, 2022, 05:16:14 PM
Quote from: Tamas on August 10, 2022, 05:07:56 PMWhen 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 22, 2022, 08:28:29 AM
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:
(https://pbs.twimg.com/media/Faw6SIlXkAMuee-?format=png&name=small)

An example of what this looks like, in Germany:
(https://pbs.twimg.com/media/FaxDIkbX0AALo-t?format=png&name=small)

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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 22, 2022, 09:37:44 AM
QuoteAlso 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: viper37 on August 22, 2022, 11:08:51 AM
Quote from: Sheilbh on August 22, 2022, 08:28:29 AMEdit: 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.
Title: Re: The 2022 Economic Crisis Megathread
Post by: crazy canuck on August 22, 2022, 01:18:59 PM
From the Globe and Mail today. 

QuoteBritish consumer price inflation is set to peak at 18 per cent – nine times the Bank of England's target – in early 2023, an economist at U.S. bank Citi said on Monday, raising his forecast once again in the light of the latest jump in energy prices.

"The question now is what policy may do to offset the impact on both inflation and the real economy," Benjamin Nabarro said in a note to clients.

Consumer price inflation was last above 18 per cent in 1976.

The front-runner to become Britain's next prime minister, Liz Truss, was likely to come up with measures to support households that would have a limited offsetting impact on headline inflation, Nabarro said.

With inflation now set to peak substantially higher than the Bank of England's 13 per cent forecast in August, its Monetary Policy Committee was likely to conclude that the risks of more persistent inflation have intensified, the note said.

"This means getting rates well into restrictive territory, and quickly," Nabarro said.

"Should signs of more embedded inflation emerge, we think Bank Rate of 6-7 per cent will be required to bring inflation dynamics under control. For now though, we continue to think evidence for such effects are limited with increases in unemployment still more likely to allow the MPC to pause around the turn of the year," he added.

The BoE announced a rare half percentage-point interest rate increase earlier this month and investors expected another big move when the MPC makes its next scheduled monetary policy announcement on Sept. 15.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 22, 2022, 01:23:00 PM
Quote from: Tamas on August 22, 2022, 09:37:44 AMAgreed. 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.
I thin they're afraid to because it is rare for politicians nowadays to make calls for sacrifice from citizens, or bearing with difficulties. Covid is a rare exception and generally people in Europe responded incredibly well. Politicians don't seem to have learned that lesson.

More cynically citizens voluntarily sacrificing/enduring for a bigger cause is often associated with an expansion of rights or reciprocity from the state that the current crop of politicians perhaps don't want to follow through on.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 24, 2022, 05:44:19 AM
Interesting that Japan had announced they're looking at next gen nuclear. I suspect it's in part because they're a big LNG importer and that market's changing a lot with Europe entering to move away from Russian pipeline gas.

I mentioned earlier that Korean and Japanese importers publicly stated they want to buy a lot this winter which is odd, but I suspect for Japan (like Europe) things are pointing towards accelerating energy transition.

Edit: And worrying forecasts that (as hit the UK last autumn) wind generation is likely to be low across Europe, which means we're relying more on fossil fuels at a not great time.

Map from yesterday of day-ahead prices in Europe:
(https://pbs.twimg.com/media/Fa1nXkmXgAIK4kF?format=jpg&name=small)

I believe the average in 2010-2020 floated around €40-100. As I say I'm not sure these are meaningful or helpful market signals any more and require state intervention (which will be expensive) and, probably, state allocation/rationing which will be a huge political challenge. The movement in the past fortnight alone doesn't seem to me to signal anything but just absolute shortage and distress:
(https://pbs.twimg.com/media/FaxPZexWYAAYBBT?format=png&name=small)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 25, 2022, 06:54:06 AM
Another day and other record prices for German and French electricity forwrds - €725 and €870 per MWh respectively. Again the average for France and Germany in 2010-2020 was €41 MWh.

There's Russia, France is servicing nuclear plants which is taking longer than planned (and EdF have announced they won't be able to re-start until November), plus low winds and droughts affecting hydro. According to Javier Blas (Bloomberg energy columnist) French baseload electricity for Nov 22 - Jan 23 is now trading higher than €1,500 MWh peaking at €3,000 in December :ph34r:

Meanwhile - this tweet sounds like a threat:
QuoteGazprom
@GazpromEN
Currently, none of the turbines of the Portovaya CS are undergoing repairs in Canada.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 25, 2022, 02:19:14 PM
German economy grew by 0.1% in Q2 (compared to Q1, I.e. not the annualized rate normally cited in America).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Duque de Bragança on August 25, 2022, 04:01:53 PM
Quote from: Sheilbh on August 25, 2022, 06:54:06 AMAnother day and other record prices for German and French electricity forwrds - €725 and €870 per MWh respectively. Again the average for France and Germany in 2010-2020 was €41 MWh.

There's Russia, France is servicing nuclear plants which is taking longer than planned (and EdF have announced they won't be able to re-start until November), plus low winds and droughts affecting hydro. According to Javier Blas (Bloomberg energy columnist) French baseload electricity for Nov 22 - Jan 23 is now trading higher than €1,500 MWh peaking at €3,000 in December :ph34r:

Meanwhile - this tweet sounds like a threat:
QuoteGazprom
@GazpromEN
Currently, none of the turbines of the Portovaya CS are undergoing repairs in Canada.

That's bad news for France indeed, but "real" winters (in Eastern France) don't really start before November, more likely December.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on August 26, 2022, 03:51:54 AM
Got my gas/electricity bill for last year. I get back 200 EUR because my usage was down. My prepayments for next year go from 10x 135 EUR to 10x 248 EUR, though (it's the gas; my electricity is all renewables).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 03:55:26 AM
I signed a 3-year fixed contract in September last year. I hope there is no small print I missed which lets the provider (EDF) get out of it because it is shaping up to be an excellent move.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 26, 2022, 05:23:18 AM
Quote from: Tamas on August 26, 2022, 03:55:26 AMI signed a 3-year fixed contract in September last year. I hope there is no small print I missed which lets the provider (EDF) get out of it because it is shaping up to be an excellent move.
I was speaking to a friend last night and he fixed in April. He's already paying less than half of what I do every month and it's only likely to get worse (on the upside I should move into one of the few properties in the UK with insulation before winter so...)

QuoteGot my gas/electricity bill for last year. I get back 200 EUR because my usage was down. My prepayments for next year go from 10x 135 EUR to 10x 248 EUR, though (it's the gas; my electricity is all renewables).
Interesting - doesn't make a difference here. My electricity is renewables but from what I understand electricity is priced on a unit cost so there's no difference in price for different sources.

That's why the Treasury was apparently mulling the idea of a windfall tax on renewable power companies :lol: :bleeding: It makes sense from a purely Treasury civil servant way - renewables have not increased in price, because of the structure of the market/regulation they have earned a "windfall" as they've not faced the same increased costs but charge the same price to consumers. So if there's any sector that should get a windfall tax it's them. But that is, of course, just very "too clever by half" Treasury thinking - luckily I think that idea was ignored by the politicians.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on August 26, 2022, 05:59:01 AM
On the plus side, I will get a one time payment for increasing inflation (EUR 250), and a one time payment for increasing energy prices (EUR 250 from the government). :)

(I'm not eligible for the EUR 120 energy bill voucher, because my salary is too high :weep: )
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 06:30:04 AM
Why aren't you on a fixed contract Sheilbh?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 26, 2022, 06:44:03 AM
Quote from: Tamas on August 26, 2022, 06:30:04 AMWhy aren't you on a fixed contract Sheilbh?
Combination of reasons but basically my energy company was one of the ones that went bust last winter, so I got moved to Scottish Power. I was thinking of fixing this spring - but at around the same time was looking at buying a flat and planning to move this year. That should (touch wood) happen in the next 3-4 months, which is good. But I didn't want to be locked into a fixed contract when I knew I'd be moving.

Possibly, in retrospect, the wrong choice.

Although maybe not because where I'll be moving to has building utilities for heating and hot water so I don't have any choice on provider, it's part of the lease (and I think the intention is to join the district heating scheme once that's complete) - so I'm not sure I'd even be able to transfer my contract and might, instead, have been hit with a big bill for breaking it early.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 06:46:29 AM
Fair enough, but as I recall, moving your contract to a new address is fairly straightforward and the penalty fees for early exit aren't horrendous either (could remember wrong though!).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Richard Hakluyt on August 26, 2022, 06:55:29 AM
Quote from: Tamas on August 26, 2022, 06:30:04 AMWhy aren't you on a fixed contract Sheilbh?

Timing is important here. Our last fixed contract ended after the shit had hit the fan so we are now stuck with variable rates. Luckily for my elderly mother-in-law, her contract came up for renewal a couple of months earlier and we got her a 3-year fixed contract at very reasonable rates.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 06:57:20 AM
Quote from: Richard Hakluyt on August 26, 2022, 06:55:29 AM
Quote from: Tamas on August 26, 2022, 06:30:04 AMWhy aren't you on a fixed contract Sheilbh?

Timing is important here. Our last fixed contract ended after the shit had hit the fan so we are now stuck with variable rates. Luckily for my elderly mother-in-law, her contract came up for renewal a couple of months earlier and we got her a 3-year fixed contract at very reasonable rates.

True. I remember my September renewal was weird because for probably the first time since I lived here, changing contracts didn't mean getting a better deal. EDF was the best but still above what we paid previously. Little did I know then how bad it would become.

Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 26, 2022, 07:12:29 AM
Quote from: Tamas on August 26, 2022, 06:46:29 AMFair enough, but as I recall, moving your contract to a new address is fairly straightforward and the penalty fees for early exit aren't horrendous either (could remember wrong though!).
Yeah and the flat I'm trying to buy got pushed back. So it's now going to be November/December (or the worst time to get a new energy supplier :weep: :bleeding:

But I think I came off fixed in April/May and I thought I'd be moving into a new place in July/August so it just didn't seem urgent. I was wrong.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 09:33:27 AM
Fed chair Powell was speaking at some central banker vacation spot just now. Among other things seem to be slowly letting go of the soft landing narrative:

QuotePowell: Reducing inflation will likely require a period of below-trend growth.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Valmy on August 26, 2022, 09:45:22 AM
That seems hard to believe around here because the economy seems very strong, especially the job market, coming off the pandemic. What would be the cause of a downturn?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 26, 2022, 09:47:19 AM
Quote from: Valmy on August 26, 2022, 09:45:22 AMThat seems hard to believe around here because the economy seems very strong, especially the job market, coming off the pandemic. What would be the cause of a downturn?
Raising interest rates.

I think if there's still growth and you avoid a recession while containing inflation, that's a soft landing.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 26, 2022, 09:48:27 AM
Quote from: Valmy on August 26, 2022, 09:45:22 AMThat seems hard to believe around here because the economy seems very strong, especially the job market, coming off the pandemic. What would be the cause of a downturn?

Smart-sounding macro people I listen to kind of agree with you that factually there is no recession yet, but most data are coming down and indicating we are heading there. They say the last bastion is going to be the job market. When/if that starts weakening things will start going sour for real.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 28, 2022, 02:14:26 PM
Interesting summary of European states' measures on energy. Slightly striking that a few countries are increasing subsidies for commuting and I suppose a return to the office could help with energy - heating in single large office blocks rather than every home? :hmm:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 28, 2022, 02:16:46 PM
Quote from: Sheilbh on August 28, 2022, 02:14:26 PMInteresting summary of European states' measures on energy. Slightly striking that a few countries are increasing subsidies for commuting and I suppose a return to the office could help with energy - heating in single large office blocks rather than every home? :hmm:

You think homes will be kept cool during office hours?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 28, 2022, 02:20:23 PM
Quote from: Jacob on August 28, 2022, 02:16:46 PMYou think homes will be kept cool during office hours?
Yeah - no?

I have the central heating timed so it comes on in the morning (when I get up) and evening (when I get back) - is that not normal? I try to stick to that when I'm WFH - but it's more difficult.
Title: Re: The 2022 Economic Crisis Megathread
Post by: OttoVonBismarck on August 28, 2022, 03:08:50 PM
Home heating and cooling tends to work a little differently. If you let a house get really cold, a furnace can have it up to tolerable temperatures within like 20 minutes of kicking on, so there isn't much reason to heat an empty home--other than some baseline low level of heating to prevent icing problems or pipes freezing.

With cooling, most home cooling systems have to "keep up" with the heating that happens throughout the day or they cannot cool the home at all. If it's a 95F day and you get home at 4-5pm, the house is going to be very hot, and the AC isn't going to get it down to reasonable temp for probably 4-5 hours or more, and a lot of that will just be because it is getting into the evening hours and the outside is cooler.

If you're trying to be energy / cost conscious with cooling, something you can do with a smart system is if say you "comfort" cool temp is 73F, you can put it up to 78F from the time you wake up until maybe 2 hours before you get home, then have it go to 73F at that point and it should be "mostly okay."

A lot of environmental types argue you should never cool a home below 78F or so anyway, but that's never been an indoor temp I consider particularly comfortable.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 28, 2022, 03:15:53 PM
On that I saw someone on Twitter mention this but I really feel there's a coming split in net zero/pro-environmental types - in part because I was with friends recently and there was a divide on some things. Basically on one side I think you're going to have the more, perhaps old school, conservationist greens who are leaning into things like degrowth and think the solution is going to have to be based on reducing demand; on the other hand you've got a more modernist/future solution which is that it's going to be a new industrial revolution that require significant infrastructure to de-carbonise our world and that can't be done through cutting demand or de-growth.

I'm very much in the latter camp but I think its going to be an important political divide - and (not this winter) but perhaps in the future I think heating and cooling will be a flashpoint on this. 
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 28, 2022, 04:09:37 PM
Latter camp for me too. We have passed the point of no return so the only options open are onwards and upwards to the stars or back to the dark ages we go. Forever.

Though I'm not sure it need be such a stark division. The economic focus on endless growth need not be intrinsically linked to progressing technology and building of new infrastructure.


On the insulation topic... It seems a really tough sell to me. Its such fluffy stuff (no pun intended) and only pays off over the long term. It seems really hard to get people to accept the actual value of this.
I guess this also fits in with the housing crisis and there being no incentive for landlords to make homes energy efficient.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 28, 2022, 04:19:53 PM
I don't think de-growth is ever going to be a significant political force. Setting aside that people calling for it probably don't realise what it means in practice, people en mass won't go for the concept.

Maybe many will go for the "let's make everyone else do it except me" like they do now (although they wouldn't admit it for themselves either), but that's unlikely.

Especially if environmental concerns remain a middle class thing. The middle class can rile against the poor doing damage (like how air travel is their pet peeve for example) but they lack the numbers to bring back serfdom via democratic means.

Some new political force blaming climate change on the middle and upper classes could gain traction with some neo-communist agenda of "de-growth"-ing the better off, I guess, if things go bad enough.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 28, 2022, 04:24:00 PM
Quote from: Josquius on August 28, 2022, 04:09:37 PMOn the insulation topic... It seems a really tough sell to me. Its such fluffy stuff (no pun intended) and only pays off over the long term. It seems really hard to get people to accept the actual value of this.
I guess this also fits in with the housing crisis and there being no incentive for landlords to make homes energy efficient.

We should move this to the Brexit or climate change topic but if any significant portion of British houses are like the flat we are renting (I think it was built in the 60s or the 70s), then insulation could be a massive help. Bloody hell this country has pretty mild winters but we had to drag our bed away from the outward-facing wall to the middle of the bedroom because our heads were getting so unbearably cold (through the wooden headrest) on our first winter here that it really freaked me out how bad it got.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 28, 2022, 04:32:42 PM
Quote from: Tamas on August 28, 2022, 04:19:53 PMI don't think de-growth is ever going to be a significant political force. Setting aside that people calling for it probably don't realise what it means in practice, people en mass won't go for the concept.

Maybe many will go for the "let's make everyone else do it except me" like they do now (although they wouldn't admit it for themselves either), but that's unlikely.
Maybe - I think it's basically environmentalism pre-Green New Deal v environmentalism after the Green New Deal. I think that idea and way of communicating green politics have been transformative.

But you see it all the time in Green NIMBYism which is a thing everywhere. I was thinking about it because talking with friends and someone who is very much on the left and always been concerned about climate was sceptical about changing heating systems for housing because it would involve construction on every house/block of flats etc which would be environmentally bad - even though, as I said, the current alternative is most houses burning gas. I think their view was sort of neo-Malthus plus just consuming less. It's not a niche opinion I think it comes up a lot.

I think degrowth won't survive contact with no growth because we'll see that it's bad. But I definitely think it's a big thing in left/green circles.

Edit: I think in part it's an individualist/morality based approach (just like we saw with people shaming others during covid) rather than a collective/political approach so I think it's doomed, but it is, I think, there.
Title: Re: The 2022 Economic Crisis Megathread
Post by: OttoVonBismarck on August 28, 2022, 04:39:36 PM
I think if we're trying to make big changes in carbon emissions it really has to start with efficiency standards in the heaviest industries--cement manufacturing, fossil fuel production, and power generation are all massive orders of magnitude bigger than whether our homes are 70F/21C all winter versus 65F/18C. In America at least most people like it warmer than 70F/21C all winter long. I'm personally fine at 65/18C because I actually wear "winter appropriate clothing" and don't dress indoors in January like it's June. But these are going to be minor movers.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 29, 2022, 03:38:16 AM
I don't know how much the massive drought in China is pinging your media spheres, but it's really quite bad.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Crazy_Ivan80 on August 29, 2022, 05:16:47 AM
Quote from: Jacob on August 29, 2022, 03:38:16 AMI don't know how much the massive drought in China is pinging your media spheres, but it's really quite bad.

I've seen it pop up here and there but not too much visibility in the media, which is odd as they're always first in line to engage in fear mongering over the supposedly coming apocalypse in order to drump up support for the authoritarian greens.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on August 29, 2022, 10:11:13 AM
Quote from: Jacob on August 29, 2022, 03:38:16 AMI don't know how much the massive drought in China is pinging your media spheres, but it's really quite bad.

Zero.

Too preoccupied with our own drought with some mention going to other European countries.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 29, 2022, 10:25:02 AM
I've seen the map doing the rounds a few times but nothing about the actual impact in China.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Jacob on August 29, 2022, 11:58:40 AM
It's so bad that they're massively rationing electricity due to the drop in hydro power. In Sichuan (and Chongqing, which is traditional Sichuan as well) factories are shut down, subway trains with only on single lightbulb per car, AC cannot be set to temperatures lower than 26C and a whole bunch of other measures.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 29, 2022, 01:14:18 PM
France's PM to business leaders: "it's urgent to stop any energy consumption that isn't indispensable immediately."

We're only at the start of this and it isn't going to ping back immediately after this winter - the war is a bit part of it, but so is demand from China and Europe doesn't have enough of its own resources or enough routes for easy imports.

It isn't even just support for households - I'd be very surprised if we don't end up with rationing/state allocation by this winter in most of Europe. I've said before but I don't think Europe's in a position to pick and choose its solutions - I think we probably need to be doing everything.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on August 29, 2022, 01:36:00 PM
Van der Leyden has just announced an emergency reform of the European energy market.

I suspect the temporary suspension/reduction of carbon surcharges will be on the table.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 29, 2022, 01:41:38 PM
You can see why:
QuoteJavier Blas
@JavierBlas
9h
German power for next year broke through the €1,000 per MWh level for the first time as the European  energy crisis intensifies | #EnergyCrisis #energytwitter
(https://pbs.twimg.com/media/FbUOqrbXgAkcFS1?format=jpg&name=small)
1) margin calls driving trading. Liquidity is extremely low
2) more state support would be needed in the next 24-48 hours for European utilities to stay solvent
3) the calls for suspending the forward electricity market are growing a lot louder
As expected, the European utilities are calling on governments for bail-outs.

Uniper of Germany asks for an additional €4 billion (on top of the €9 billion it got recently).

It says it's "accumulating cash losses of well over €100 million per day."

I could be wrong but I think this is beyond support for the market because I don't think this looks like a functioning marketbut one that needs intervention.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Berkut on August 29, 2022, 01:43:53 PM
How much of this is driven by actual, real supply and demand, and how much if just rampant speculation of the futures market?
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on August 29, 2022, 01:59:18 PM
I wonder to what extent it's also the momentum of the price movement?  In the short run, the sudden price movements tend to develop a momentum of their own, as speculators observe the trend and compound it with their own opportunistic actions.  Eventually the momentum exhausts itself, but liquidity and lack of fear don't materialize suddenly.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 29, 2022, 02:07:10 PM
Quote from: Berkut on August 29, 2022, 01:43:53 PMHow much of this is driven by actual, real supply and demand, and how much if just rampant speculation of the futures market?
There will be profit-taking but a lot is real supply and demand. Europe is competing with Asia in a way that it previously wasn't  - just in 2021 Chinese demand for LNG increased by 20% because of China's energy transition away from coal and also expanding industry. They're fallinga little in 2022 which is helpful - but this is a long term shift. From 2016 to 2021 Chinese LNG imports from about 2 billion cubic feet per day to over 10 billion - in that time period European imports of Russian pipeline gas as a share of its gas supply increase because China's like a whale getting into the LNG market (and at a national level lots of governments pretend they don't have any choices to make: Germany starts its nuclear phase-out, the UK shuts down its gas storage system, Ireland decided not to build any LNG terminals).

That has had a huge impact on spot markets for LNG globally - and much of Europe is relatively new-ish to that market. Traditional LNG-dependent countries like Pakistan and Bangladesh are being priced out, there was even an auction by Pakistan where they could not buy LNG at any price. In addition a lot of the big LNG suppliers, like the Gulf States, are very big on long-term contracts and historically Euroepan importers have not wanted them and have preferred to buy on the market - which has an impact on European supply.

Also South Korea and Japan are both major LNG importers and have both issued public statements that they are looking to buy a lot of LNG this winter which is very unusual and a sign of a wider distressed market. I'd add that Japan is reversing it's anti-nuclear policies and South Korea have announced a pause to their phase out of nuclear.

There is not enough supply available for export to European countries to replace pipeline gas from Russia. At the moment European storage is looking good - it's about 80-90% of where it needs to be. But winter storage only accounts for 25% of consumption and during the winter normally the Russian pipeline is exporting at full capacity into Europe (that's why turbines get repaired in the summer). That seems less likely this year.

And this isn't just futures - these are wholesale energy prices across Europe today (just two years ago the average was about €50):
(https://pbs.twimg.com/media/FbT3bwpWYAMarHW?format=jpg&name=small)

I think Helen Thompson has been really good on this - and has been ringing a bell about energy politics for years (especially on the Talking Politics podcast, RIP :(). She's even written a book which in large part is the energy history of the 20th century. I think her key point is that the war has been a tipping point rather than a cause and that actually this is has been an issue and geopolitical risk for Europe for the last 100 years. But I think post-cold war Europe's leaders lost their energy literacy/awareness of its geopolitical importance and risk of being used as a weapon. Which we shouldn't have been because actually Russia used gas as a weapon against Ukraine all through the 2000s but we saw it as a story about Ukrainian corruption, and even after the invasion of Crimea didn't fundamentally re-assess.

Edit: And of course we've talked a lot about the impact on households and small business which is going to be huge but there's also big, gas-intensive business and the knock on effects on supply chains. For example, I read in a really interesting provocative piece that in Germany $2 trillion worth of value added depends on $20 billion - that's enormous and slightly terrifying leverage even in an economy the size of Germany's and the knock-on effect on other industries and supply chains and workers.

As I say my view is we're reaching a point where the state needs to allocate so essential services get what they need, there's some form of rationing/price controls for a certain amount for households. And we need to spend on everything that could possibly help with energy transition.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 29, 2022, 02:31:37 PM
I have heard that Germany are filling their gas reserves at record pace. So maybe it won't be THAT critical a situation come winter, and maybe that contributes to higher prices now?
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on August 29, 2022, 03:35:41 PM
Quote from: Tamas on August 29, 2022, 02:31:37 PMI have heard that Germany are filling their gas reserves at record pace. So maybe it won't be THAT critical a situation come winter, and maybe that contributes to higher prices now?

Most European nations have done so, but I've read somewhere that storage will cover just 25% of winter gas needs if Russia makes us go cold turkey.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 29, 2022, 03:47:47 PM
I think it's a giant bluff from Russia. They need to be seen as having the power over European energy but once they actually cut it their only leverage is gone, not to mention their income source.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Crazy_Ivan80 on August 29, 2022, 04:04:52 PM
Quote from: Tamas on August 29, 2022, 03:47:47 PMI think it's a giant bluff from Russia. They need to be seen as having the power over European energy but once they actually cut it their only leverage is gone, not to mention their income source.

https://www.youtube.com/watch?v=h-fdRlC7OHE&ab_channel=JoeBlogs

this one was interesting.
Can't say how true/false it is but I guess it's more trustworthy than the Russian propaganda
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 30, 2022, 02:14:52 AM
There might be a gas shortage this winter, but by winter 2023/24, enough new LNG terminals, inner-European pipelines, consumption reductions, more heat pumps, different industrial processes and better insulation etc. will have been realized to make it manageable. 

Also on renewables, China is strong because it is cheap. They don't have an inherent advantage like the fossil fuel producing countries from geology. Their strengths can be copied by the West - at a cost of course. It's not like there is no knowledge or capacity to make wind generators or solar cells in the West. One of the many poor decisions the Merkel government did was to stymie the quite dynamic German solar and wind industry. Also rare earth minerals are mainly rare at a given price point, not rare when looking at actual deposits.

By the way, the first German LNG terminal is now expected to come online around Christmas, the second shortly afterwards. Pretty fast when you consider how long such projects take here normally.

Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on August 30, 2022, 02:58:01 AM
So how is the imminent Iraqi civil war with Iranian intervention going to affect things?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 30, 2022, 05:34:04 AM
Quote from: Zanza on August 30, 2022, 02:14:52 AMThere might be a gas shortage this winter, but by winter 2023/24, enough new LNG terminals, inner-European pipelines, consumption reductions, more heat pumps, different industrial processes and better insulation etc. will have been realized to make it manageable. 

[...]

By the way, the first German LNG terminal is now expected to come online around Christmas, the second shortly afterwards. Pretty fast when you consider how long such projects take here normally.
Yes - and crucially Freeport is coming back online (which is about 20% of US LNG export capacity) after their repairs. Because the other side of this has been that major exporters like the US and Australia have been running at pretty close to capacity anyway.

I think there's a short-term re-structuring of the European market. No-one is going back to Russia after this but we're not in a place to move entirely to LNG - but we'll be going far more in that direction, plus more pipelines with Iberia/North Africa and maybe a little bit more from the UK and Norway. I think it's going to be about 2-3 years for that which will be bumpy - I'd be surprised if we are back to "normal" this side of 2024. The other side of this is that there is an existing and growing Asian LNG import market with especially China importing more gas so we're moving from a more fixed, in theory "secure" pipeline market to one that is more exposed to market shifts and has big players. I'm not sure how "normal" prices return to without something like a second shale revolution. We might be passing a peak this winter, but I think we'll be going onto a plateau for a while (again - in my view economics, security, morality, climate all point in intensifying energy transition and we just need to do lots of everything).

And looking at the next 2-3 years, even looking at this winter, the big unknown is weather. Part of the reason supplies have been good is that demand's been low because of a heatwave so the weather's been relatively benign. If we have a harsh or early winter then what this winter looks like is more uncertain, but that also applies for the next few years.

QuoteAlso on renewables, China is strong because it is cheap. They don't have an inherent advantage like the fossil fuel producing countries from geology. Their strengths can be copied by the West - at a cost of course. It's not like there is no knowledge or capacity to make wind generators or solar cells in the West. One of the many poor decisions the Merkel government did was to stymie the quite dynamic German solar and wind industry. Also rare earth minerals are mainly rare at a given price point, not rare when looking at actual deposits.
Yes. I think my point is just that we do it now and not after the crisis happens as was the case with PPE or Russian gas.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 30, 2022, 05:48:12 AM
Quote from: Tamas on August 30, 2022, 02:58:01 AMSo how is the imminent Iraqi civil war with Iranian intervention going to affect things?
If you want doom and gloom,you should look at the worst drought in the Northern hemisphere in 500 years or so. Rivers drying up in Europe and China...
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 30, 2022, 11:22:29 AM
On market intervention the EU is now considering to change its market-based energy pricing mechanism that basically has the marginal price of the most expensive energy source as main mechanism to determine prices. Also coupling electricity with gas prices. It is not clear how they want to reform it, but major market intervention is coming. This will of course affect the the rest of Europe as well, e.g. the UK.

Separately, Germany will stop to distort gas demand as the fill grade of storage is now deemed sufficient and the basically unlimited amount of tax money to buy gas will now be curtailed. This will mean that German gas shortage will no longer be exported as inflation to the rest of Europe (at least not as much).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Gups on August 30, 2022, 11:42:14 AM
Quote from: Zanza on August 30, 2022, 11:22:29 AMOn market intervention the EU is now considering to change its market-based energy pricing mechanism that basically has the marginal price of the most expensive energy source as main mechanism to determine prices. Also coupling electricity with gas prices. It is not clear how they want to reform it, but major market intervention is coming. This will of course affect the the rest of Europe as well, e.g. the UK.


I was wondering about the link between electricity and gas prices. Hope this proceeds.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on August 30, 2022, 11:56:09 AM
Meanwhile, in Vienna ...


https://www.reuters.com/business/energy/austria-prepares-pump-billions-into-vienna-power-firm-hit-by-price-jump-2022-08-29/

QuoteAustria prepares to pump billions into Vienna power firm hit by price jump

VIENNA, Aug 29 (Reuters) - Austria said on Monday it is preparing to pump billions of euros into the electricity company that supplies much of Vienna after a price surge on power markets left it unable to afford the guarantees needed to cover market transactions.

Wien Energie, which is owned by the City of Vienna, asked the federal government for help at the weekend and the city has identified an "acute financing need" of 6 billion euros ($6 billion), the finance ministry said in a statement.

"The federal government has the instruments and the will to help the City of Vienna in this financial emergency. It is about ensuring security of supply for two million people, which must happen," the ministry said, adding that talks were ongoing and there remained "many questions".

The ministry said it was considering a loan worth billions of euros, to be handled by the Federal Financing Agency that issues government bonds and other debt instruments.

Wien Energie pointed to a "sudden explosion" in the European power price on Friday - to 1,000 euros from 700 per megawatt-hour (MWh) - that it said increased the size of the guarantees required on the market, even for contracts concluded in the past where delivery is pending.

Earlier on Monday, Uniper (UN01.DE) requested more financial help from the German government, raising the bill for bailing out the utility group to 19 billion euros as soaring gas and power prices burn up its cash reserves.

Wien Energie sells power futures, contracts to supply power it will generate in as much as two years' time, while also buying power and gas on the market in long-term deals, it said in a statement. Most of its power generation comes from gas-fired plants.

"Wien Energie and (its parent company) Wiener Stadtwerke are solid, economically healthy companies with excellent credit ratings. No losses need to be covered," the company said.

As Austria's biggest energy provider by number of customers and the one with the biggest gas-fuelled plants, it is the hardest-hit by market-price pressure, it added.



https://www.reuters.com/business/energy/vienna-power-firm-denies-speculating-futures-it-seeks-state-loan-2022-08-30/

QuoteVienna power firm denies speculating in futures as it seeks state loan

VIENNA, Aug 30 (Reuters) - Vienna's main power company, which has asked the federal government for billions of euros in credit to cover margin costs so it can keep trading on the European power-futures market, denied on Tuesday that it had made speculative trades.

Wien Energie, which provides much of the Austrian capital's electricity and gas, appealed for help this weekend after the European power market hit record highs, driving up the so-called margin deposits the company must keep on hand to trade.

The City of Vienna, which owns Wien Energie through parent company Wiener Stadtwerke, points to assistance schemes for companies in such situations in neighbouring countries such as Germany, arguing Austria should have such a scheme of its own.

"The interesting thing is that, since the German issue keeps coming up, Wien Energie would probably not have been able to avail itself of this German umbrella scheme because speculation is not allowed at all," Finance Minister Magnus Brunner, a conservative, told reporters on Tuesday.

Funding talks are taking place in a context of political rivalry between the conservative-led national government and the Social Democrat-led government of the City of Vienna.

Wiener Stadtwerke and the city government rejected Brunner's accusation.

"There is no speculation at Wien Energie," Wiener Stadtwerke's deputy chief Peter Weinelt told a news conference.

European power futures fell on Tuesday to 651 euros ($652) from all-time highs above 1,000 euros on Monday, after European Commission President Ursula von der Leyen said the European Union was working on emergency intervention in the market. In January prices stood at 100 to 150 euros.

Vienna's finance chief Peter Hanke told the news conference the city was currently in talks with the federal treasury on a credit line of two billion euros although given Tuesday's price fall it was not needed yet.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on August 30, 2022, 01:56:04 PM
Quote from: Gups on August 30, 2022, 11:42:14 AM
Quote from: Zanza on August 30, 2022, 11:22:29 AMOn market intervention the EU is now considering to change its market-based energy pricing mechanism that basically has the marginal price of the most expensive energy source as main mechanism to determine prices. Also coupling electricity with gas prices. It is not clear how they want to reform it, but major market intervention is coming. This will of course affect the the rest of Europe as well, e.g. the UK.


I was wondering about the link between electricity and gas prices. Hope this proceeds.
I think the reason why gas is even used under the current merit order mechanism is that you can start and stop gas powerplants fairly flexibly - unlike most other power sources. Otherwise it would be prohibitively expensive and would be priced out of the market.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on August 31, 2022, 04:51:04 AM
On Berk's point a sign of how constrained supply is - via Bloomberg Singapore reporter, companies are making "patchwork" LNG shipments by mixing leftovers from larger shipments (which can be dangerous and is rare) to sell into Europe:
https://twitter.com/sstapczynski/status/1564827463779516416?s=21&t=3NcnLmzqqz_HxdRoySsV4A

There's financial shenanigans and issues in the market - but at its heart I think there is an issue with supply.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on September 07, 2022, 06:08:35 AM
Austria introduces an electricity price cap from December this year (I think) till summer 2024. A household's power consumption up to 2900 kWh is capped at a price of 0.10 EUR for consumers. Above this, market rate applies.

There's some concerns re: fairness. Me, living alone, I easily stay under that cap. However, if you're a family of four ... not so easy. There's additional benefits for low income households, but not sure if that will buffer everything.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on September 07, 2022, 06:27:05 AM
Quote from: Syt on September 07, 2022, 06:08:35 AMAustria introduces an electricity price cap from December this year (I think) till summer 2024. A household's power consumption up to 2900 kWh is capped at a price of 0.10 EUR for consumers. Above this, market rate applies.

There's some concerns re: fairness. Me, living alone, I easily stay under that cap. However, if you're a family of four ... not so easy. There's additional benefits for low income households, but not sure if that will buffer everything.
There was an article on why the UK was going for a blunt energy price cap for all consumers. From the reporting it sounded like the key issue is the same fact that shapes every policy for a modern state: databases.

Basically the energy providers don't know household information or income. Parts of the state know bits but they don't all talk to each other. So providing really targeted price cap is difficult and requires building something new or a big IT project linking various databases, while you can do an energy cap for everyone using existing databases quickly even if it's blunt and expensive - I wonder if there's something similar shaping policy there?

Plus you can support lower income households through the tax system or welfare system where they have the data.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on September 07, 2022, 06:38:34 AM
Quote from: Sheilbh on September 07, 2022, 06:27:05 AMPlus you can support lower income households through the tax system or welfare system where they have the data.

That's how they're currently planning extra benefits at the moment, e.g. households exempt from paying TV license fee will get an extra payment from the state to cover some additional electricity costs etc. The Austrian state is generally a bit stingier in its welfare model, but they'll use it for their planned measures. There was another one previously where the city of Vienna sent a 150 EUR coupon to everyone that they could then send to their energy provider (I received it and submitted it, but I earn a few hundred per year too much <_< ). The thing with sending the money to the consumer is that you can't guarantee it will be used for the intended purpose. I'm generally not one to say poor people will spend it on booze, but I can see cases where persons may have to choose between paying energy bills or another, similarly important expense (rent, food ... ). I think vouchers would therefore be better, but that again relies on people jumping through the administrative hoops of using them properly; and that also might be a challenge to some who struggle with organizing such things.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on September 07, 2022, 02:29:29 PM
This sounds very sensible but I really wish VdL hadn't used "flatten the curve" in describing EU measures on energy :ph34r:
https://twitter.com/disclosetv/status/1567462388898594816?s=20&t=xecdJLAf3B7IlYwT_El0ng
Title: Re: The 2022 Economic Crisis Megathread
Post by: Valmy on September 07, 2022, 02:55:39 PM
Sounds like most of Britain's housing stock was built before 1900 so there are probably plenty of fireplaces to get through those long winter months. Hope you guys have wood stockpiled.

The chimneysweeps can finally get back in business.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 07, 2022, 03:10:24 PM
Quote from: Valmy on September 07, 2022, 02:55:39 PMSounds like most of Britain's housing stock was built before 1900 so there are probably plenty of fireplaces to get through those long winter months. Hope you guys have wood stockpiled.

The chimneysweeps can finally get back in business.

I wish. Stupid past owners took my chimney out and putting a glue in would be too much of a faff. Plus no idea how reliable my wood supply would be.
I think a majority of houses though they may have a sealed up chimney have a gas fire or nothing.
My parents however will be more than fine. Their entire side garden has been taken over by wood. <_<
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 08, 2022, 03:45:44 AM
Hungary is really having it bad, according to most pundits largely because of politics as the EU withholding money is leaving the state budget in an especially precarious position.

Despite yanking up base interest rate to 11%, the national currency is at record low levels against the Euro (which itself is a bit sickly against the dollar), and August's inflation came in at a whooping 15.6% with the inflation of some basic foodstuffs between 45-65%.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on September 08, 2022, 05:07:38 AM
Does it hurt Orban? If so, that's a welcome development.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 08, 2022, 06:04:52 AM
Quote from: Zanza on September 08, 2022, 05:07:38 AMDoes it hurt Orban? If so, that's a welcome development.

In theory it does, but like all dicators he'll make damn sure he avoids that hurt no matter the cost to others. In other words I think the country is guaranteed to descend at least Turkey level troubles, and on the long run it'll resemble Venezuela.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on September 08, 2022, 06:20:34 AM
Quote from: Syt on August 26, 2022, 05:59:01 AMOn the plus side, I will get a one time payment for increasing inflation (EUR 250), and a one time payment for increasing energy prices (EUR 250 from the government). :)

(I'm not eligible for the EUR 120 energy bill voucher, because my salary is too high :weep: )

So this law was to apply to "all Persons who have their legal main residence in Austria for at least 6 months before [some date]."

The ÖVP is now pushing to amend the law to exclude all asylum seekers to avoid creating additional "pull factors" for economic refugees.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 08, 2022, 06:46:35 AM
Quote from: Syt on September 08, 2022, 06:20:34 AM
Quote from: Syt on August 26, 2022, 05:59:01 AMOn the plus side, I will get a one time payment for increasing inflation (EUR 250), and a one time payment for increasing energy prices (EUR 250 from the government). :)

(I'm not eligible for the EUR 120 energy bill voucher, because my salary is too high :weep: )

So this law was to apply to "all Persons who have their legal main residence in Austria for at least 6 months before [some date]."

The ÖVP is now pushing to amend the law to exclude all asylum seekers to avoid creating additional "pull factors" for economic refugees.

Pff.
Because of course I'm going to go on  a dangerous trek across the world for 120 euros.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on September 08, 2022, 07:21:33 AM
500, not 120. But yeah.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on September 09, 2022, 06:35:46 AM
(https://i.imgur.com/Fchl0FP.jpg)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 09, 2022, 06:57:26 AM
Bank of England so shocked by Queen's death they are delaying their interest rate decision from next Thursday to the Thursday after.

I mean, what's the rush.
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on September 09, 2022, 10:53:15 AM
So the UK strategy for winter is to make cash an attractive alternative for generating heat?
Title: Re: The 2022 Economic Crisis Megathread
Post by: PJL on September 09, 2022, 10:58:48 AM
Quote from: DGuller on September 09, 2022, 10:53:15 AMSo the UK strategy for winter is to make cash an attractive alternative for generating heat?

One way would have been to make any notes with the Queen on it cease to be legal tender by the end of this month. That way, any spare notes left over can be used to light fires etc.  :D . Unfortunately we now have those polymer cash notes, so I don't think those burn as easily.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 16, 2022, 03:22:32 AM
So this week's data showed that US inflation stopped decreasing and in fact creeped up 0.1% month-on-month which might have finally made it sink in for the stock market that the Fed is not going to return to money-printing party times anytime soon. Especially as other recent data seemed to show that recession may be coming but its not here yet.

In the UK, however, we had the slight inflation decrease the US had the month previous.

Also, retail sales volumes plummeted by 1.6% month-on-month in the UK. This may prove Sheilbh right in the sense that the Bank of England won't have to raise interest rates too high, demand will collapse on its own together with the British economy. :P

I need to figure out how this recession is likely going to affect UK property prices.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 16, 2022, 04:50:05 AM
Funnily enough, the terrible UK retail sales data is making the FTSE the only European stock market in the green this morning.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Richard Hakluyt on September 16, 2022, 05:40:47 AM
It has been quite the safe haven for the past year or so, at least for people using sterling  :hmm:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 16, 2022, 07:10:29 AM
Quote from: Richard Hakluyt on September 16, 2022, 05:40:47 AMIt has been quite the safe haven for the past year or so, at least for people using sterling  :hmm:


The one good move I made this year was selling half of my stocks in my account back around the start of the year and then (albeit quite too late, could have been much better) converting those pounds into dollars (via a money market fund you get access to there). The stocks I kept on have been absolutely massacred but at least the paper-gains on my dollahs' are easing the pain. :)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Maladict on September 22, 2022, 10:48:53 AM
My energy provider is going to triple gas and electricity rates in October, after doubling them in April. I'm not up for renewal until January, any chance the war is over by then?  :(
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on September 22, 2022, 06:51:59 PM
Quote from: Maladict on September 22, 2022, 10:48:53 AMMy energy provider is going to triple gas and electricity rates in October, after doubling them in April. I'm not up for renewal until January, any chance the war is over by then?  :(

 :(

I'm currently on 0.30 GBP per kwH for electricity and I think about 0.08GBP for gas kwh, no idea what they're going up to in October. Gas isn't an issue at the moment as I'm not using any, at all. 
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 23, 2022, 02:34:15 AM
I don't want to look at what mine is. I'm stuck with it anyway. The press are finally starting to take notice that energy companies are shirking their legal responsibilities and not letting people switch.
Really at this point there's zero point in a privatised system at all. Yet we have tories.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 23, 2022, 03:02:08 AM
Quote from: Josquius on September 23, 2022, 02:34:15 AMI don't want to look at what mine is. I'm stuck with it anyway. The press are finally starting to take notice that energy companies are shirking their legal responsibilities and not letting people switch.
Really at this point there's zero point in a privatised system at all. Yet we have tories.

I don't get it. If people switched now that would be great for energy companies wouldn't it? If you have a fixed rate agreed last year or before (like I do), your provider is likely losing money on you at this stage, so the best thing that could happen to them is if you switched to a current tariff fixed or otherwise. Whether with them or with another provider, they'll end up with more money than before.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 23, 2022, 03:15:39 AM
Quote from: Tamas on September 23, 2022, 03:02:08 AM
Quote from: Josquius on September 23, 2022, 02:34:15 AMI don't want to look at what mine is. I'm stuck with it anyway. The press are finally starting to take notice that energy companies are shirking their legal responsibilities and not letting people switch.
Really at this point there's zero point in a privatised system at all. Yet we have tories.

I don't get it. If people switched now that would be great for energy companies wouldn't it? If you have a fixed rate agreed last year or before (like I do), your provider is likely losing money on you at this stage, so the best thing that could happen to them is if you switched to a current tariff fixed or otherwise. Whether with them or with another provider, they'll end up with more money than before.

I think the legal max for what they can charge still puts them at a loss.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 23, 2022, 03:23:41 AM
Quote from: Josquius on September 23, 2022, 03:15:39 AM
Quote from: Tamas on September 23, 2022, 03:02:08 AM
Quote from: Josquius on September 23, 2022, 02:34:15 AMI don't want to look at what mine is. I'm stuck with it anyway. The press are finally starting to take notice that energy companies are shirking their legal responsibilities and not letting people switch.
Really at this point there's zero point in a privatised system at all. Yet we have tories.

I don't get it. If people switched now that would be great for energy companies wouldn't it? If you have a fixed rate agreed last year or before (like I do), your provider is likely losing money on you at this stage, so the best thing that could happen to them is if you switched to a current tariff fixed or otherwise. Whether with them or with another provider, they'll end up with more money than before.

I think the legal max for what they can charge still puts them at a loss.

Ok but the legal max now is higher than it was before so why not want people to switch?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 23, 2022, 03:33:01 AM
Quote from: Tamas on September 23, 2022, 03:23:41 AMOk but the legal max now is higher than it was before so why not want people to switch?

If your competitor is earning -10 you're still losing out if you take on a customer that earns you -5.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 23, 2022, 03:52:40 AM
Quote from: Josquius on September 23, 2022, 03:33:01 AM
Quote from: Tamas on September 23, 2022, 03:23:41 AMOk but the legal max now is higher than it was before so why not want people to switch?

If your competitor is earning -10 you're still losing out if you take on a customer that earns you -5.

I don't think I am explaining it well, but whatever. How are the energy companies supposed to be stopping people from switching anyhow? They cannot forbid you from switching, most they can do is charge you the penalty fee you agreed to when signing up with them.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on September 23, 2022, 04:10:49 AM
Also I thought Martin Lewis and all of the comparison sites were basically saying that people shouldn't switch?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 23, 2022, 04:13:30 AM
Quote from: Tamas on September 23, 2022, 03:52:40 AM
Quote from: Josquius on September 23, 2022, 03:33:01 AM
Quote from: Tamas on September 23, 2022, 03:23:41 AMOk but the legal max now is higher than it was before so why not want people to switch?

If your competitor is earning -10 you're still losing out if you take on a customer that earns you -5.

I don't think I am explaining it well, but whatever. How are the energy companies supposed to be stopping people from switching anyhow? They cannot forbid you from switching, most they can do is charge you the penalty fee you agreed to when signing up with them.
Legally they can't but in practice they are. They're just plain telling anyone who tries that they aren't accepting new customers.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 23, 2022, 04:21:37 AM
Quote from: Josquius on September 23, 2022, 04:13:30 AM
Quote from: Tamas on September 23, 2022, 03:52:40 AM
Quote from: Josquius on September 23, 2022, 03:33:01 AM
Quote from: Tamas on September 23, 2022, 03:23:41 AMOk but the legal max now is higher than it was before so why not want people to switch?

If your competitor is earning -10 you're still losing out if you take on a customer that earns you -5.

I don't think I am explaining it well, but whatever. How are the energy companies supposed to be stopping people from switching anyhow? They cannot forbid you from switching, most they can do is charge you the penalty fee you agreed to when signing up with them.
Legally they can't but in practice they are. They're just plain telling anyone who tries that they aren't accepting new customers.

Ah so its not your current one keeping you but new ones rejecting you? Ok makes more sense now, but I guess that's because they don't want to take your business even at the max price allowed. But if you could only switch at the max price allowed why would you want to switch? You literally cannot get a worse deal with your current supplier.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on September 23, 2022, 04:28:06 AM
Quote from: Tamas on September 23, 2022, 04:21:37 AMAh so its not your current one keeping you but new ones rejecting you? Ok makes more sense now, but I guess that's because they don't want to take your business even at the max price allowed. But if you could only switch at the max price allowed why would you want to switch? You literally cannot get a worse deal with your current supplier.
Generally yes. As Sheilbh says switching isn't recommended for most anyway.
Though there are situations where people might want to open an account- moving into a renovated wreck, currently on a payment meter, etc... and are hitting trouble.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 23, 2022, 04:45:13 AM
Quote from: Josquius on September 23, 2022, 04:28:06 AM
Quote from: Tamas on September 23, 2022, 04:21:37 AMAh so its not your current one keeping you but new ones rejecting you? Ok makes more sense now, but I guess that's because they don't want to take your business even at the max price allowed. But if you could only switch at the max price allowed why would you want to switch? You literally cannot get a worse deal with your current supplier.
Generally yes. As Sheilbh says switching isn't recommended for most anyway.
Though there are situations where people might want to open an account- moving into a renovated wreck, currently on a payment meter, etc... and are hitting trouble.

Fair enough.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 25, 2022, 04:18:24 AM
https://www.bloomberg.com/opinion/articles/2022-09-23/bond-yields-leave-the-ice-age-as-post-volcker-trend-ends-for-world-economy?leadSource=uverify%20wall

QuoteWhat Comes After a Week That Shook the World
The 'Ice Age' for bond yields is melting. The ripple effects mean that the rules most investors have learned to live by no longer apply.

Divide and Rule
We're living through arguably the most truly global attempt to tighten financial conditions in memory. This is shifting the tectonic plates beneath the world economy, and threatens dangerous developments in society and in politics as we all try to adapt. And yet what strikes the eye after a week of market landmarks and aggressive interventions by central banks is the continuing discord. There's a broad acknowledgement that the future involves tighter conditions to combat inflation, and with it an elevated risk of recession; but even though these sobering things are now widely accepted, deep differences remain. This is an attempt to sum up the most important developments after an epochal week.

The Ice Age Is Over (Really)
The downward trend in 10-year Treasury yields that has persisted ever since the Fed under Paul Volcker slew inflation is over. There have been false alarms before. Dig through the archives and you'll find I wrote at very great length about what appeared to be the end of the trend during a bond selloff as long ago as 2007. But that market seizure triggered the credit crisis, which would bring Treasury yields to previously unimaginable lows. High inflation in 2022 will make that prohibitively difficult to repeat.

There are many ways to measure a trend, and I want to resist any temptation toward pseudo-scientific technical analysis. But on any sensible approach, the trend has been broken. If Jerome Powell and the Fed succeed as they hope, and replicate Volcker, then maybe they can start another downward wave. But that will be a new trend, not a resumption of this one.

The following chart (a screenshot from the terminal because I had problems with my graphic software, for which I apologize), shows various trend lines that might link the high points for the 10-year yield since Black Monday in 1987. Any version of the line has been breached. And critically, after a series of lower highs, this cycle has left the yield significantly higher than at the top of the previous cycle. Traders can no longer rely on the post-Volcker momentum behind falling rates, which explains why the Fed feels the need to replicate its illustrious former chairman:

(https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i5ZsDZ8fB9j0/v1/800x-1.png)

....

Inversion Submersion
One more reason to think that things have changed is that we now have an extreme inversion of the yield curve. In other words, the 10-year yield is lower than the two-year yield, even though it would usually be higher to account for the extra uncertainty that goes with investing further into the future. When the curve inverts, it's often regarded as a recession indicator. It's also a sign that the market thinks that the Federal Reserve is about to overdo it, raising rates a lot in the short run to drive slower growth in the longer term.

It's thus pretty significant that the yield curve has now inverted to the extent of more than 50 basis points for the first time in more than 40 years (since, not coincidentally, Volcker was hiking rates to fight inflation):

The Treasury Yield Curve Hits its Deepest Inversion in 4 Decades
The traditional recession indicator looks very, very negative


Source: Bloomberg

The curve has steepened slightly since I drew this chart, but the market's basic message remains. Why is the bond market so concerned? As this chart from SocGen shows, this is now the fastest tightening, in terms of the number of extra basis points added, since Volcker in the summer of 1980. Interestingly, this tightening is slightly slower than the one overseen by Arthur Burns (to whom history has been much harsher than Volcker).

(https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iQ0SnkjwH77A/v1/600x-1.png)

In terms of the last four decades, it really is different this time. It's not so different from what came before, but the rules that most people now active in markets have learned to live by no longer apply.

Keeping a United Front
Yesterday I commented on the wide spread of opinions within the Fed on where they think the fed funds rate will be in 2024. That's concerning. Then on Thursday, the Bank of England's monetary policy committee split three ways over what the rate should be now; one member voted for a 25 basis-point hike, three voted for 75 basis points, and five — the minimum needed for a majority — opted for 50 basis points. That's not exactly clear. As a result, gilt yields surged, and yet the pound managed to drop to yet another 37-year low against the dollar.

The UK also has a specific issue with the clash between fiscal and monetary policy. The BOE is prompted to tighten, despite the grim economic conditions, because the new government under Liz Truss says that it's about to embark on a fiscal splurge, focused around tax cuts and handouts to alleviate the energy crisis. Are they going to coexist, or will the UK's financial authorities cancel each other out?

Japan suffers on a variation of that dynamic. The Bank of Japan and the Ministry of Finance are traditionally at loggerheads. In the wake of the Fed's rate hike, the BOJ reaffirmed that it was doing nothing at all to change its monetary policy, which remains the most lenient in the world. That prompted the ministry to make its first intervention to prop up the yen in 24 years, pulling the currency back to its level of early last week.

Meanwhile, the Swiss National Bank met and agreed to a hike of 50 basis points, meaning that it leaves the ranks of countries with a negative base rate. This was a big deal. Switzerland is a sanctuary of low inflation in the middle of Europe, and its currency continues to be regarded, like the yen, as a haven. But thanks to the intervention in the yen, and an environment in which other central banks were hiking even more aggressively, the yen rose and the franc fell. Yes, that is the exact opposite of what should be expected to happen when the yen was backed by a central bank that stood pat, and the franc was backed by a historically important hike

etc
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 28, 2022, 05:39:43 AM
I mentioned in the Brexit thread but an excellent example just happened of the challenge the Federal Reserve faces.

They are dedicated to cool down the economy, remove excess liquidity and thus reduce inflation. You can argue whether that's a good idea or not, but that's what they intend to do.

The problem is, significant portion of the financial market thinks they are bluffing and do not have the guts to see this through. The US stock market rallied hard throughout August because the Fed chair Powell gave what was read as signs that interest rate hikes may be coming to an end. There were also signs the US might be entering a recession, which in this warped world of "investing" via borrowed/printed money was bullish for the markets, as it showed the Fed would need to reverse their rate hikes - the Fed Pivot.

Now since August Powell has found his balls somewhere, and on a couple of occasions made very clear that they are going to hike as long as necessary, and while not wanting to trigger a recession, they don't mind doing so if that's what it takes. Coupled with positive economic data showing recession is not quite here YET, markets fell hard the last couple of weeks.

Then today, in comes the Bank of England, announcing what amounts to renewed Quantitative Easing: purchase of government bonds to stop yields from going to the moon.

This triggered an immediate 0.7% jump in American stock market futures, reversing a 1.5% fall at the time - the only possible explanation for that which I see is that the Bank of England pivoting back to QE gave markets the hope that if they cannot stay the course, the Fed won't either.

It's kind of incredible in a way, that we have stock markets actively hoping for and reacting positively for bad economic/fiscal news, simply because they see that as the catalyst for a new round of money printing they can pump into the asset bubble.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on September 28, 2022, 02:56:24 PM
The US market rallied in August because there were indications inflation was not going to be as high as forecast, therefore the Fed would not have to hike as much.

Powell "found his balls" when these indications proved to be false and inflation did in fact stay high.

A hike of 50 bips instead of 75 is not "a new round of money printing."  It's less contractionary than had been expected.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on September 28, 2022, 04:51:13 PM
Quote from: Admiral Yi on September 28, 2022, 02:56:24 PMThe US market rallied in August because there were indications inflation was not going to be as high as forecast, therefore the Fed would not have to hike as much.

Powell "found his balls" when these indications proved to be false and inflation did in fact stay high.

A hike of 50 bips instead of 75 is not "a new round of money printing."  It's less contractionary than had been expected.

0.50 vs 0.75 would not create a big month-long bear market rally. It was clear -I have been told, won't pretend I figured this on my own- that the bond markets at the time (back around June/July already I think) priced in the Fed stopping with hikes around November/December and then decreasing the interest rate quite early in 2023. THIS expectation of a Fed pivot that drove the rally in all likelihood, and this expectation was disproven first by Powell's Jackson Hole speech and then later by the last 0.75 hike and the uncharacteristically clear messaging in both occasions that they are still targeting a 2% inflation and will keep at it until they achieve it.

The bond market expectations changed radically after those two speeches and the rate decision, as I understand, and they are (or rather, until today were) moving to accept the Fed promises as truths as opposed to bluffs.

The madness today around and after the Bank of England decision shows me that significant forces still expect to see this Fed pivot, or at the very least want to play along people who do. The market turnaround happened exactly on the BoE announcement. Funnily enough I think the FTSE100 remained kind of flat.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on September 29, 2022, 04:29:21 AM
Spain's early inflation data shows a record drop from its record high of 10.5%, to 9%. Mostly because of energy prices (although other products also drop a little). Hopefully it's the same for the rest of the EU...



Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on October 03, 2022, 11:44:50 AM
So, what the Hell is going on with Credit Suisse and Deutsche Bank?
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on October 03, 2022, 05:34:10 PM
Quote from: Iormlund on October 03, 2022, 11:44:50 AMSo, what the Hell is going on with Credit Suisse and Deutsche Bank?

Likely financing arms sales to Putin.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on October 08, 2022, 04:12:59 PM
Quote from: Tamas on September 28, 2022, 05:39:43 AMThen today, in comes the Bank of England, announcing what amounts to renewed Quantitative Easing: purchase of government bonds to stop yields from going to the moon.
Just a bit on this - this isn't quite right.

The issue wasn't yields themselves. The issue was pension funds. Obviously they hold vast amounts of government bonds. In general it is a good thing for them to see bond yields go up because they need to hold fewer to get the income they need.

But the increase in yields caused them an issue because, as sensible financial institution, they'd hedged their position against yields falling. In addition, obviously, they're holding foreign government bonds which are also hedged (including forex hedging). From what I understand the yield rise wouldn't have been an issue for them if it took place over a few months because they could unwind positions and adjust. Because it was so rapid, from what I've read, they were facing margin calls on very different positions and the BofE intervention was because there was a fear that there just wasn't enough liquidity and that massive pension funds would go under facing these margin calls. They'd end up in a vicious cycle of selling off bonds to meet demands for cash immediately which would put them at risk. It was explicitly to "restore orderly conditions" for pension funds.

The interesting (alarming) thing is that from what I've read the Treasury wasn't aware of this risk within the financial system and neither was the BofE until it materialised - it's not clear any other central bank was either. Which just makes you wonder what other risks are baked into the financial system that we're not yet aware of and neither are the central banks. One banker the FT quoted said "it was not quite a Lehman moment. But it got close." The issue wasn't to stop gilts rising in and of itself but stopping a risk of massive asset-holders going under.

Particularly striking because, I've mentioned before, but on OECD/IMF comparsions the UK rates really well on its pension system because there is such a large sink of pension assets (I think about 100-150% of GDP) - but in the safety of having that across multiple big funds it's perhaps more exposed to something like this? And who is the beneficiary of what is effectively a massive bail-out by a techocratic wing of government which isn't subject to democratic control in a private meeting one day? :hmm:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on October 08, 2022, 06:20:30 PM
Yeah rising yields mean the bonds are losing value so I meant what you explained in detail. :)

Allegedly it is normal for these funds to do 100 to 1 leverage deals on those bonds because of how stable they used to be. So when they started doing wild moves the funds were looking at margin calls they couldn't hope to pay at the days' close.



Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on October 09, 2022, 10:34:53 AM
Quote from: Sheilbh on October 08, 2022, 04:12:59 PMThe interesting (alarming) thing is that from what I've read the Treasury wasn't aware of this risk within the financial system and neither was the BofE until it materialised - it's not clear any other central bank was either.

That's an extraordinary statement. That isn't seem obscure risk tucked into a shadowy corner of the financial system.  It's a very common risk in the hands of the largest holders of assets.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on October 09, 2022, 11:12:09 AM
Quote from: The Minsky Moment on October 09, 2022, 10:34:53 AMThat's an extraordinary statement. That isn't seem obscure risk tucked into a shadowy corner of the financial system.  It's a very common risk in the hands of the largest holders of assets.
In which case perhaps the question is more what other systemic risks do policymakers not really comprehend because they perceive it as basically de-risked, or, perhaps, what other risks they choose to ignore until they are forced to intervene?

Relatedly I suppose you have to wonder if that's a good way to run the financial system where there are these very common risks built into the financial products we all rely on (pensions and mortgages especially), but we are "safe" because the (non-democratic etc) central banks will act as the fire brigade. I feel like you'd hope that was somewhat addressed 15 years after the financial crisis - I'm not sure it is (perhaps it is in banking itself with ring-fencing, stress tests etc)?
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on October 09, 2022, 02:10:19 PM
At risk of stating a truism, if you are going to have a financial system based on an ample supply of a low-risk financial asset, then policy has to be oriented around de-risking that asset.

Because of the dollar's unique role in the international financial system, the US has been able to get away with some degree of fiscal flexibility without causing too much disruption to the treasury securities market.  But sterling has not been in the same position since the era of jodhpurs and pith helmets.

A key weakness of the Trumpian flavored neo-Thatcherism now in vogue with some Tory Party cadres is the same weakness that has infected British policymaking for decades - the failure to recognize that ends are limited by means.  Muggings by reality do not discriminate between political camps.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on October 09, 2022, 03:16:28 PM
Quote from: The Minsky Moment on October 09, 2022, 02:10:19 PMBecause of the dollar's unique role in the international financial system, the US has been able to get away with some degree of fiscal flexibility without causing too much disruption to the treasury securities market.  But sterling has not been in the same position since the era of jodhpurs and pith helmets.
For sure - although in the case of the UK (and the rest of Europe in my view) part of the story here is high debt, low growth and austerity in a decade of exceptionally low interest rates. It's striking that the political consequences/perceptions for a failure to follow market signals only seems to work one way.

I'm very critical of Truss and Kwarteng - I'm not thrilled at the sight of people on liberal/left side of the debate becoming quite such market fundamentalists because it strengthens their argument at this moment. I think part of it was the substance but maybe not as much as the brash style of trying to be seen to "do something", doubling down, dismissing concerns etc (and now u-turning). I genuinely wonder what the reaction would have been if, except for the energy support package, this was all announced in the normal budget in April, I think it would have been significantly less volatile (though low liquidity also didn't help). I think in large part it was credibility more than anything actually substantive.

I think there is a case to be made for the some of the supply side reforms Kwarteng talked about in his budget. But he's shot his credibility (and his PM's) so there's no chance of passing them. It's a bit like a political version of a doom loop :bleeding:

QuoteA key weakness of the Trumpian flavored neo-Thatcherism now in vogue with some Tory Party cadres is the same weakness that has infected British policymaking for decades - the failure to recognize that ends are limited by means.  Muggings by reality do not discriminate between political camps.
Out of interest how do you think that weakness was reflected in, say, the Cameron, Blair or Major years? I can see an argument on Blair's foreign policy but less clear on Cameron, Major - or Thatcher for that matter.

Having said that I'm not sure that's really what was going on that it was a judgement by the markets on the fundamentals. Almost everything had been pre-briefed before the panic and I just struggle to believe that the surprise elimination of the 45% rate at a cost of £2 billion caused that much more of a reaction than the energy support package worth 6% of GDP (announced two weeks prior) or the other £43 billion worth of tax cuts/unwinding tax rises implemented by Sunak in April that been pre-briefed.

I also didn't think there was any real Trump flavour to Johnson, but there's even less to Truss. I can't honestly think of a single Trumpian feature of Truss.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on October 09, 2022, 03:45:24 PM
https://asiatimes.com/2022/10/global-margin-call-hits-european-debt-markets/

QuoteNEW YORK – Risk gauges in Germany's government debt market rose last week to levels higher than recorded in the 2008 world financial crash, as margin calls forced the liquidation of derivatives positions held by banks, insurers and pension funds.

Big institutional investors that spent the past ten years insuring their portfolios against falling interest rates now face massive losses as hedges blow up. A key measure of market risk, the spread between German government bonds (Bunds) and interest rate swap agreements jumped above the previous record set in 2008.

The cost of hedging German government debt with interest-rate options, or option-implied volatility, meanwhile rose to the highest level on record.

The blowout in the euro derivatives market follows a near-collapse of the British government debt, or gilts, market, averted at the last minute by a 50 billion pound bond-buying spree by the Bank of England.

The world's central banks responded to the 2008 world financial crash and the European financial crisis of 2011 by pushing bond yields down.

"Real" yields, namely the yield on inflation-indexed government bonds, went deeply into negative numbers in Germany and the UK, followed by the US market. That pulled the rug from under insurance companies and pension funds, which invest pension payments and insurance premiums to provide for future income.

To compensate, European and UK institutions locked in long interest rates with derivative contracts, or interest-rate swaps, that receive a long-term interest rate while paying a short-term interest rate. Swaps are a leveraged position that requires collateral worth a fraction of the notional amount of the contract.

When the Fed jacked up interest rates in late 2021, the value of interest rate swaps that pay fixed and receive floating imploded. Pension funds and insurers were stuck with the equivalent of a ten-to-one margin position in long government bonds. The price of long government bonds fell by nearly 20% across the Group of Seven countries, and the value of derivatives contracts evaporated.

That left the institutions with margin calls that they could meet only by liquidating assets. That in turn led to a run on the UK government bond market, followed closely by the rest of European bond markets. The Bank of England's emergency bond-buying delayed a market crash, but the UK gilts market remains on a knife edge, with option hedging costs at an all-time high.

A portfolio manager at one of Germany's largest insurance companies said, "It's a global margin call. I hope we survive."

Weaker European banks may have trouble finding short-term funding. The cost of credit default swaps that insure 5-year bonds of Credit Suisse is now higher than it was in 2008, at nearly 400 basis points (4 percentage points) above the cost of interbank funding.

The venerable Swiss institution is a special case, with a series of losses due to poor risk controls. Credit Suisse probably will survive – bank regulators will force it to sell assets and shrink – but it will also call in collateral from customers.

American pension funds and insurers haven't faced the same kind of margin calls, but they stand to suffer painful losses. As interest rates fell, they shifted to real income-earning assets like commercial real estate. The value of commercial real estate investment companies on the US stock market has fallen by 35%, about the same amount as the tech-heavy NASDAQ Index.

If that's any indication, the $20 trillion value of the commercial real estate market has lost about $7 trillion this year, in addition to losses of nearly 20% on corporate bond and stock portfolios.

Stocks and bonds, the largest components of pension portfolios, are down about 20% during 2022.

European stocks are down 30% in dollar terms, and Japanese stocks are down by 25%. The publicly traded stock of private equity firms like Blackstone and KKR has lost 35% during 2022 to date.

All in – depending on which survey of pension fund asset allocation you believe – the average US pension has probably lost more than 20% of its asset value this year.

The Fed-driven asset bubble of the past ten years brought US pension funds up to minimum funding requirements to meet liabilities as of 2021. Now the Fed may take it all away again, and the biggest problem for major US corporations may be unfunded pension fund liabilities.


Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on October 09, 2022, 03:53:01 PM
Quote from: Sheilbh on October 09, 2022, 03:16:28 PMOut of interest how do you think that weakness was reflected in, say, the Cameron, Blair or Major years? I can see an argument on Blair's foreign policy but less clear on Cameron, Major - or Thatcher for that matter.

I don't think it applies to any of them, even Blair who was careful to maneuver under the wing of American hard power (but not careful enough to consider the limits of that power).  It's more a throwback to an older era, a kind of minor league financial Suez.

QuoteI also didn't think there was any real Trump flavour to Johnson, but there's even less to Truss. I can't honestly think of a single Trumpian feature of Truss.

I don't think it's a feature of her personally, rather it's a leakage of American style polarized rightwingery into the Tory Party ranks.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on October 09, 2022, 04:27:21 PM
Quote from: The Minsky Moment on October 09, 2022, 03:53:01 PMI don't think it applies to any of them, even Blair who was careful to maneuver under the wing of American hard power (but not careful enough to consider the limits of that power).  It's more a throwback to an older era, a kind of minor league financial Suez.
I'd be a little harder on Blair because I think he over-promised to the Americans on what Britain/he could do as an ally - especially in Iraq and Afghanistan where, bluntly, British forces lost and often had to be bailed out.

Agree on a minor financial Suez - I think conditioned more by the last ten years of extremely low interest rates and an ideologically driven misunderstanding of what markets want.

QuoteI don't think it's a feature of her personally, rather it's a leakage of American style polarized rightwingery into the Tory Party ranks.
Although that doesn't work without an American style polarised society - as we're seeing in the public response to this (including among Tory voters), but also as we saw in the response to Johnson's scandals (over, by Trump standards, exceptionally minor indiscretions - breaking covid rules) and covid more generally. More fundamentally I don't think Britain has a political environment where opponents are enemies or where loser's consent has been eroded as it has in the US - and I don't think that's happening.

My own take on the last few years of British politics is that Trumpian politics was really a feature of the Corbyn project more than anything that's been going on in the Tory party - that was just standard Tory nonsense.

Tamas - interesting and worrying but it feels like there's a real disconnect with the real economy (especially in the US). And one of the big challenges for policymakers is surely narrowing the gap between the two?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on October 09, 2022, 04:57:24 PM
QuoteTamas - interesting and worrying but it feels like there's a real disconnect with the real economy (especially in the US). And one of the big challenges for policymakers is surely narrowing the gap between the two?

Yeah. One thing I have found incredible as I have been mentioning is that the current financial system has resulted in the US stock market actively hoping for an economic downturn, just so they could get QE back. The BoE announcement launched a violent (altough to be fair only a day or two long) US rally.

I think in a decade or two the 2008-2022 (or who knows how long) period will be looked back at as one crisis. The emergency rates of (near) zero were kept way too long and now the resulting system cannot react to the unexpected schocks without getting close to breaking and I think it is going to break, just not sure how profoundly.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Syt on October 10, 2022, 01:31:34 AM
Quote from: Syt on August 26, 2022, 05:59:01 AMOn the plus side, I will get a one time payment for increasing inflation (EUR 250), and a one time payment for increasing energy prices (EUR 250 from the government). :)

(I'm not eligible for the EUR 120 energy bill voucher, because my salary is too high :weep: )

So there's two ways people get sent the money:
1. if the federal revenue service has your bank details you get it sent to your bank account
2. if they don't have it they send it as vouchers that you can use in shops or cash in at post offices

I received a tax refund in July, and I checked online that they have my bank details.

So obviously I have a notification in my mail box now to pick up the vouchers at the post office.  :rolleyes:
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on October 28, 2022, 02:36:34 AM
Spain's advance inflation data for October shows another big drop (from 8.9 to 7.3) for a third consecutive month. Most of it from falling energy prices. Non-energy inflation is flat, which I guess it's better than "skyrocketing" and hopefully starts to fall in the following months (it does tend to lag behind).
Title: Re: The 2022 Economic Crisis Megathread
Post by: Admiral Yi on October 28, 2022, 02:46:35 AM
Quote from: celedhring on October 28, 2022, 02:36:34 AMSpain's advanced inflation data shows another big drop (from 8.9 to 7.6) for a third consecutive month. Most of it from falling energy prices. Non-energy inflation is flat, which I guess it's better than "skyrocketing" and hopefully starts to fall in the following months (it does tend to lag behind).

Sweet, sweet fracked American natural gas filling the void.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on October 28, 2022, 05:19:41 AM
Gas price was briefly negative this week as the storage tanks are full and there is an over-supply.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on October 28, 2022, 09:29:56 AM
QuoteThe Netherlands may be the first country to hit the limits of growth

The other morning I cycled around the Dutch town where I grew up. Behind our old house, the field where I spent half my childhood is now covered with homes. So is my old football club. My high school is now in a built-up area. At the local train station, the bike shed was full on a Saturday afternoon. When I got to Amsterdam, the business-traveller economy appeared to have broken down: endless waits for Ubers, nobody at hotel reception, restaurants closed at lunchtime for want of waiters. 

I know over-construction and understaffing are now global problems, but they are particularly acute in the Netherlands. The country has run out of space and staff. Sure, a recession may temporarily loosen the jobs market, but the problem was acute pre-pandemic and will simply resurface whenever growth resumes. The Netherlands is probably the first country to hit the limits of economic growth.

Other overdeveloped places such as the Bay Area, New York and Singapore may follow, running out of room for new workers and businesses. This raises the question: can a rich place be happy if its economy stops growing? 

With hindsight, the Netherlands was too well-suited to the era of globalisation. The trading nation with Europe's biggest port experienced 26 years of unbroken economic growth until 2008, then a world record. Now it tops ETH Zurich's KOF Globalisation Index as the world's most globalised country.

And so its population mushroomed. When the counter hit 14 million in 1979, Queen Juliana said, "Our country is full." In 2010, Statistics Netherlands said the population would probably never reach 18 million. Today it's 17.7 million and rising. The country has 507 people per sq km, nearly five times the EU's average. Worse, the quantity of liveable land will shrink due to a paradoxical mix of rising seas and droughts damaging the foundations of houses.

But the Dutch economy's demand for new workers seems insatiable. Eighty-four per cent of employers report labour shortages, one government study found. Recruitment signs are almost standard in shop windows. Employers even offer new recruits free holidays. 

One constraint on growth is that the Dutch enjoy the developed world's shortest average work week, at just 30.3 hours. Six workers in 10 – predominantly women – are either part-timers or temps. The government is planning a bonus for anyone going full-time, but many people prefer daytime cappuccinos in the local café, assuming they can get served. Why give up your relaxt life and permanent contract to alleviate understaffing in old-age homes? Importing more migrant workers isn't a popular idea. In June, the far right shouted down the minister who suggested recruiting youths from poor French suburbs.

And so every growth opportunity hits capacity constraints. I recently queued for three hours at Schiphol airport, global aviation's second-biggest hub, because it cannot find enough security guards. The foreign students flooding Dutch universities cannot find housing. Amidst an energy crisis, the Dutch are closing Europe's largest natural gas reserve because, in a packed country, drilling-induced earthquakes upset the neighbours.

Or take ASML, the global leader in chipmaking equipment. Based in a small town in the relatively quiet Dutch south-east, it's a pillar of the western alliance in the budding confrontation with China. ASML hires hundreds of new employees every month, but just try finding them homes and babysitters. And local treehuggers have delayed ASML's dreamt-of bike path to its headquarters.

Fantastically productive Dutch farms have made this tiny country the world's second-largest agricultural exporter. But many of its 15 million pigs and cows live next to protected natural areas, so their nitrogen emissions break EU laws. The government is enraging farmers by closing farms. In theory, that frees space for new homes, but who will build them and where would the builders stay? In short, to use Liz Truss's language, Dutch reality is an anti-growth coalition.

Even automation wouldn't fix sectors like old-age care and construction. Eventually the country might have to target "stabilisation of population size" by limiting labour migration, advised the head of the Dutch labour inspectorate. The new State Commission Demographic Developments 2050 – and Dutch state commissions shape policy – may agree.

Does a rich country need more carbon-emitting growth? "We focus far too much on purchasing power, but extra purchasing power barely makes us happier," says Sandra Phlippen, ABN Amro Bank's chief economist. However, she notes, we've seen in recent years how people in stagnant economies "become angry and unsatisfied". If the limits of growth are in sight, watch out. 
https://www.ft.com/content/4c56c9b2-f4ad-4956-9216-655acebd845d

Maybe a first glimpse of our economic future?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on October 28, 2022, 10:26:17 AM
I wish. The Dutch are great at development. Doing lots of land reclamation, building flats, and transit and cycling oriented development.
If other countries learned a bit from the Netherlands in development the world would be a better place.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on October 29, 2022, 01:02:36 AM
The French and German economies grew against expectations at 0.2% and 0.3% respectively in the third quarter. Economists now expect a contraction in the fourth quarter.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Maladict on October 29, 2022, 11:44:49 AM
Quote from: Zanza on October 28, 2022, 09:29:56 AMMaybe a first glimpse of our economic future?

Maybe, maybe not. The government just signed off on a plan to build a million new houses over the next ten years. Whether that's a realistic goal, I don't know.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on October 31, 2022, 12:09:29 PM
Some of the reporting on the 'Cost of Living Crisis' is a rather unfocused, there is a item on the bbc newsight about prepayment meters being forced on people, one illustration was a woman who now only had 60p of electricity left on the meter.
 
What they didn't enquire about was how she ran up a debt of 11,000 quid with the electricity company, did she not realise she was overspending a bit and should be taking action, maybe 'economise?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 02, 2022, 03:35:25 PM
Some journalist's mortgage is nearing the end of its fixed term, I recon :P

https://www.theguardian.com/commentisfree/2022/nov/02/the-guardian-view-on-the-bank-of-england-on-the-side-of-profit-not-people
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 03, 2022, 08:31:43 AM
So I was on the Guardian Liveblog of today's BofE rise and in the round up of events before the BofE's committee met, they included a line from Lagarde that a "mild recession" is not enough to tame inflation - and, again, it just makes me wonder about how we're fighting inflation.

In the US (and the UK a bit) there is real inflation in the economy so I can see how traditional policy responses make sense. But I just don't think that applies to Europe where the big price rises are input costs due to global events. I don't see how rate rises or a mild recession can help - a big recession might cut consumption/demand enough but I'm not sure if that's the right answer here.

It feels to me like there's a war in Europe and Europe (including the UK) is in an economic war with Russia. There are huge supply shocks because of that. But we are following peacetime, standard economic policy and I don't know if that's sustainable.

It also makes me wonder given that other supply shocks - I think food inflation in Germany for example - are also coming from outside. Whether it's Chinese lockdowns, disruptions to food supply, climate impact on food production. I've said it before but I'm not sure that our monetary/economic policy model is the right one for dealing with the impact of Ukrain on European prices - but I think that's also more likely to be the near future. We will experience more and more supply shocks because of, if nothing else, climate. It feels to me a little bit dancing on the Titanic (or maybe like the inter-war years) of dealing with emergency situations with a policy framework for "normal times".

Maybe I'm wrong but I just still don't see the connection between European interest rates and Russia's invasion of Ukraine.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 03, 2022, 09:04:15 AM
As we keep going back to this, how does "normal" inflation get affected by the rate hikes? By the rate hikes reducing demand, don't they?

We talk about supply shock as if demand being higher than supply is somehow a separate case from demand being higher than supply.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 03, 2022, 09:17:15 AM
Quote from: Tamas on November 03, 2022, 09:04:15 AMAs we keep going back to this, how does "normal" inflation get affected by the rate hikes? By the rate hikes reducing demand, don't they?
Yeah reducing demand and, I think importantly, the bargaining power of workers. But there is no wage-price spiral. Wages in Europe are going up by about 5% and prices by about 10% - wages are chasing prices, not the other way round.

QuoteWe talk about supply shock as if demand being higher than supply is somehow a separate case from demand being higher than supply.
It isn't. My point is if there are large external shocks - in this case, in my view, Europe in an economic war - the requirements are different. This is where I think wartime economics starts to come in where you're looking at things like price controls, profit caps, rationing etc.

For example we're seeing gas/energy intensive industries in Europe shutter or reduce production - I'm not sure that should just be purely market driven by price but also reducing demand, when it is the result of this sort of external shock. Europe responds correctly to the Russian invasion of Ukraine but accidentally de-industrialises certain doesn't strike me as necessarily a good outcome.

I think the same will apply to climate shocks - I don't think we can just keep cutting demand (and, again, possibly losing sectors of the economy) but instead will need a response that at least sustains the economy and in particular strengthens our resilience. In the immediate case, for example, it seems that investment in alternative energy sources which is capital heavy probably shouldn't be hit by big interest rises.

It feels like addressing, say, economic war with Russia, climate, Chinese lockdowns actually probably need cheaper money.

Edit: And I think the UK is in a slightly different situation and the US is in a very different situation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Zanza on November 03, 2022, 03:15:59 PM
QuoteThe Bank of England has warned the UK is facing its longest recession since records began, as it raised interest rates by the most in 33 years.

It warned the UK would face a "very challenging" two-year slump with unemployment nearly doubling by 2025.

Bank boss Andrew Bailey warned of a "tough road ahead" for UK households, but said it had to act forcefully now or things "will be worse later on".
https://www.bbc.com/news/business-63471725

 :(
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 03, 2022, 03:57:03 PM
Yeah - shallow but long:
(https://pbs.twimg.com/media/Fgo4EtXXwAIl-td?format=jpg&name=small)

QuoteSome journalist's mortgage is nearing the end of its fixed term, I recon :P
Just read this and that is a very weird editorial.

Especially in the context of the Guardian which has for a decade written about low rates helping the financial sector (and it's part of the left's "Financialisation" theory of everything, but now flip around and say raising rates also helps the financial sector? But also it seems like their origin theory of it is the inflation target and not having a dual mandate like the Fed - but I'm not sure dual mandate Fed v BofE have had particularly divergent policies in the last decade or now.

FWIW I think there were more problems with the decade of QE - but the bit that seems missing in the Guardian piece is that I think the BofE (and all other central banks) were setting policy because fiscal policy was not being used the way it should have.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 04, 2022, 01:27:27 PM
So this isn't what I meant but a really interesting piece from Helen Thompson - whose book Disorder is really good on where we are in the 21st century. On the conflict facing central bankers and other policy makers between financial stability and inflation:
QuoteWhen finance and oil collide
Central banks are being pulled in opposing directions by energy inflation and market instability.
By Helen Thompson

During the 2008 financial crash Western policymakers learned to adapt to what then might have seemed like prodigious challenges. The remedies they devised are now exhausted. What comes next will require a near-total reinvention of policy for a much more dangerous world.

On 9 August 2007, which the former boss of the bank Northern Rock described as "the day the world changed", the international financial system broke down. The problem was that banks found themselves unable to borrow in short-term funding markets. Initially powerless to unfreeze these markets, the US Federal Reserve was forced to adopt a new set of policies. It began by offering dollar swaps to foreign central banks later that year. Then, in 2008, it launched the first of its quantitative easing (QE) programmes. Originally aimed at the American mortgage sector, QE soon became the second means by which the Fed managed global financial markets. Since then, at moments of serious economic volatility, most dramatically during the Covid-19 pandemic, the Fed has reached for the same playbook.

This post 2007-2008 monetary regime also inadvertently addressed the oil crisis that had destabilised the world economy since the mid-2000s. By 2005 global oil production was stagnant at a time when Asian demand was rising. The result was a massive surge in oil prices through 2007 and the first half of 2008. This pushed Western economies into recession, causing prices to crash through the second half of 2008. Freed from any concerns over inflation, the Fed drove interest rates down to zero. This created an environment of extraordinarily cheap credit for high-cost oil producers. Searching for returns anywhere they could find them, investors poured money into energy companies. The American shale sector boomed. The injection of a new supply of oil allowed the world economy to grow even as Asian demand kept increasing through the 2010s and total production in the Middle East, Russia and elsewhere remained largely static.

The political and geopolitical consequences of the new monetary remedies were significant. By inflating asset prices, QE turbo-charged wealth inequality. Those countries that didn't have access to the Fed's dollar swaps were acutely vulnerable. Ukraine's exposure in 2013 triggered the sequence of events that led from President Viktor Yanukovych's request for Russian financial support to his removal from power to Vladimir Putin's annexation of Crimea in March 2014. By 2015 the glut of oil supply was destabilising the most vulnerable net oil exporting countries, notably Venezuela and Iraq. Meanwhile the shale gas boom created fierce competition in Europe's gas markets between Russia's Gazprom and American liquid natural gas (LNG) exporters. This divided the EU between those, like Poland, which began to import from across the Atlantic and those, like Germany, which remained wedded to Russian gas at a time when Russia had seized part of Ukraine.

The re-emergence of the US as the world's largest oil and gas producer also incited counteraction. Russia constructed a gas pipeline to China and built up its own LNG export capacity. Moscow also reached a rapprochement with Saudi Arabia, and Russia's entry into the world's oil-producers cartel in September 2016 turned Opec into Opec Plus.

For all the turmoil after 2008, the monetary realm – dollar swaps plus QE – absorbed the economic shocks for most of the 2010s. The international financial system and oil markets were largely parallel worlds: profoundly connected in the deep plumbing of the global economy but separate on the surface. For the last few years, however, they have been colliding. As a result, the Fed has been pulled in two opposing directions, between responding to oil-generated inflation on the one hand, and needing to calm financial markets on the other.

This problem was first evident in 2019. At that time oil production declined without a concurrent fall in demand. Even if the US shale sector continued to grow it couldn't compensate for the underlying weak supply from the world's other producers. Under these conditions, energy-driven inflation was a significant risk. Already, in 2018, the Fed had raised interest rates four times to restrain inflation, and promised further increases for the following year. But even this moderate monetary tightening proved hazardous for the financial markets. Spooked, the Fed cut rates three times in the second half of 2019. That September it also introduced another QE programme.

The pandemic provided a temporary respite. The early days of the pandemic emphatically demonstrated that only QE and dollar swaps could stabilise the financial markets. With everyone in lockdown, and demand crashing, the supply of oil was not then a concern. But the world economic recovery immediately reintroduced the problem of oil. By mid-2021 a number of Opec Plus producers, including Iraq and Kuwait, were struggling to meet their quotas, pushing prices up. In August 2021 Joe Biden's administration asked Opec Plus to increase production, but Saudi Arabia was not inclined to assist a president who had shown no interest in positive relations with Riyadh. To compound the mounting inflationary pressures, gas prices rose sharply in Europe and Asia, an upshot of Putin's pre-war move to restrict gas supply to Europe and a sharp increase in China's gas demand.

In the summer of 2021, confronted with energy-driven inflation, some non-G7 central banks, including Brazil's, began to increase interest rates. By contrast, the Fed resisted any move until March this year. Whether or not this reflected reasonable judgement that the inflationary pressures were transitory, the Fed is simply constrained by the fact that monetary tightening is not compatible with financial stability. In the highly-leveraged international financial system, financial actors need permanently liquid bond markets to support their borrowing. As was acutely demonstrated when British pension funds found themselves on the precipice after the UK's mini-Budget on 23 September, any absence of liquidity risks disaster. While the Tory government's fiscal plans might have been considered reckless at any time, Kwasi Kwarteng promised a new borrowing spree when it had been evident for months that there was low liquidity in bond markets. Under these conditions, there is, quite simply, a limit beyond which central banks will not be able to raise interest rates without precipitating a systemic collapse – that limit is in sight.

By cutting rates or returning to QE, central banks will jeopardise their credibility as guardians of price stability. None of the recessionary fears for Western economies, weak demand in China or US sales from its Strategic Petroleum Reserve have killed energy inflation. Even before the formal cuts in production that Opec Plus announced on 5 October (due to take effect from November), the inability of several Opec members to produce to quota was keeping oil prices at a higher level than is acceptable to the Fed. Leaving aside diplomatic support for Moscow, Saudi Arabia is clearly unwilling to allow oil prices to crash to the levels recorded in the second half of 2008 and early 2009 during the last pre-pandemic recession. The Saudis now have a strong interest in maintaining a floor for prices at a higher level than what is compatible with the Fed's newfound determination to suppress inflation. Unlike after 2008, monetary policy cannot act as a shock-absorber for energy problems by financially incentivising more supply while the consequent energy inflation prevents monetary policy acting as a shock-absorber for the financial markets by incentivising interest rate hikes.

Even without Putin's war against Ukraine the underlying predicament – the collision between finance and oil – would exist. But Russia's territorial conquest has become an extraordinary secondary energy shock: in the middle of a pre-existing energy crisis the entire energy superstructure – who sells what fossil-fuel energy in what form to who and by what transit – is in turmoil. The competition for gas leaves Asian countries that can no longer access the LNG market, such as Pakistan and Bangladesh, without supply; meanwhile the European countries that have paid exorbitant prices for LNG labour under burgeoning trade deficits. Each outcome presents a currency risk at a time when almost all countries' currencies are weakening against the dollar and when depreciation against the dollar only increases the costs of oil and gas imports.

War always lets loose multiple contingencies, and Russia's war is no exception. But this war pursued by the state that has hitherto been the world's most important energy exporter is also pressing hard on pre-existing fault lines. In the energy war, Opec Plus's plan to cut oil production has been to Russia's advantage, just when Ukraine has been making military progress. It is hard to find a historical precedent. Where wars have been fought as both battlefield and energy wars, as in the Second World War, energy and military power have worked in tandem. In the Ukrainian theatre they are not doing so. Meanwhile, the international financial system's vulnerabilities can only be defended by actions that will intensify the inflationary problems caused by the energy war. Since the risks in bond markets are so acute, monetary policy in Western countries will soon be directed at financial stability not oil prices. It will be left to governments to confront energy inflation and energy scarcity in ways for which the last decade and a half has left politicians unprepared.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on November 04, 2022, 02:53:56 PM
Quote from: Sheilbh on November 04, 2022, 01:27:27 PMSo this isn't what I meant but a really interesting piece from Helen Thompson - whose book Disorder is really good on where we are in the 21st century. On the conflict facing central bankers and other policy makers between financial stability and inflation:
QuoteWhen finance and oil collide
Central banks are being pulled in opposing directions by energy inflation and market instability.
By Helen Thompson
...

So the moral of the story is we should have invaded Saudi Arabia, not Iraq. We'd be swimming in that sweet, sweet crude now.
 :licklips:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 04, 2022, 03:25:15 PM
Quote from: Sheilbh on November 03, 2022, 03:57:03 PMJust read this and that is a very weird editorial.

Especially in the context of the Guardian which has for a decade written about low rates helping the financial sector (and it's part of the left's "Financialisation" theory of everything, but now flip around and say raising rates also helps the financial sector? But also it seems like their origin theory of it is the inflation target and not having a dual mandate like the Fed - but I'm not sure dual mandate Fed v BofE have had particularly divergent policies in the last decade or now.

FWIW I think there were more problems with the decade of QE - but the bit that seems missing in the Guardian piece is that I think the BofE (and all other central banks) were setting policy because fiscal policy was not being used the way it should have.

Exactly that editorial only makes sense if you imagine somebody frustrated by the rates on their property portfolio pushing them out of profitability.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Josquius on November 04, 2022, 05:25:58 PM
Was QE right in the pandemic?
From what I've heard that was a key error - countries learned from 2008 the best thing to do when markets collapsed was to spend big and early.... But covid was a different kind of collapse where it wasn't just the market breaking but actually less physical stuff being produced and shipped which led to massive inflation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 04, 2022, 06:34:28 PM
Quote from: Josquius on November 04, 2022, 05:25:58 PMWas QE right in the pandemic?
From what I've heard that was a key error - countries learned from 2008 the best thing to do when markets collapsed was to spend big and early.... But covid was a different kind of collapse where it wasn't just the market breaking but actually less physical stuff being produced and shipped which led to massive inflation.

Yeah I understand why they though they needed it, but it should had been scaled back when it was becoming clear the economy was going to be ok.

Still, the bigger problem was the QE of the preceding 10 years. They had to overdose a crack addict (the economy / financial markets) to make sure it doesn't crash down. End result is that it is now crashing from a bigger high.

Also I do wonder if this German politician guy recently (forgot which one, but I think it was German) was indeed right: for more than a decade we could export our inflation to Russia (by their cheap energy) and China (by their cheap workforce). Remove those and the developed world gets very real very fast.
Title: Re: The 2022 Economic Crisis Megathread
Post by: HisMajestyBOB on November 04, 2022, 07:03:08 PM
Are all mortgages in UK adjustable rate mortgages?
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 04, 2022, 07:06:33 PM
Quote from: HisMajestyBOB on November 04, 2022, 07:03:08 PMAre all mortgages in UK adjustable rate mortgages?

Something like almost 70% of them are 2 year fixed mortgages (total term 20-25 years is average I think), rest are mostly 5 years, if you do 10 years fixed you are already considered a weirdo who refuses to pay mortgage brokers every couple of years.

Title: Re: The 2022 Economic Crisis Megathread
Post by: HisMajestyBOB on November 04, 2022, 10:13:43 PM
Huh, interesting. I'm guessing that's the only mortgage product British banks offer?
Here the most common are 15, 20, and 30 year fixed, with the rate fixed for the whole life of the mortgage. There are adjustable rate mortgages (fixed rate for a period, then changes every year based on an index), but they're not common, especially given the historically low interest rates. And even then, the shortest fixed period on those is three years, with five being more common.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Iormlund on November 05, 2022, 04:44:29 AM
Here most people "own" their flats and about 80% have adjustable rate mortgages. Fixed rate is a fairly recent phenomenon.
Also housing is the main expense of a family, prices being much higher relative to earnings than in Northern Europe.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 05, 2022, 04:53:36 AM
Quote from: HisMajestyBOB on November 04, 2022, 10:13:43 PMHuh, interesting. I'm guessing that's the only mortgage product British banks offer?
Here the most common are 15, 20, and 30 year fixed, with the rate fixed for the whole life of the mortgage. There are adjustable rate mortgages (fixed rate for a period, then changes every year based on an index), but they're not common, especially given the historically low interest rates. And even then, the shortest fixed period on those is three years, with five being more common.

Yeah it is weird, in Hungary as well full fixed term is the norm.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Richard Hakluyt on November 05, 2022, 05:04:58 AM
Last mortgage I had was a bank of England base rate plus 0.5% and that was for the full term. A year or so after I took it out base rates fell to 0.25%  :yeah:

Ing bank, who gave me the mortgage, have since exited the UK domestic financial scene.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Legbiter on November 05, 2022, 11:22:10 AM
Quote from: Zanza on October 29, 2022, 01:02:36 AMThe French and German economies grew against expectations at 0.2% and 0.3% respectively in the third quarter. Economists now expect a contraction in the fourth quarter.

I'd assume the next 2 years will be awful in the Eurozone and Britain wrt inflation and economic growth and with lingering effects for a few years after that before growth returns. :hmm:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 05, 2022, 11:48:50 AM
Quote from: HisMajestyBOB on November 04, 2022, 10:13:43 PMHuh, interesting. I'm guessing that's the only mortgage product British banks offer?
Here the most common are 15, 20, and 30 year fixed, with the rate fixed for the whole life of the mortgage. There are adjustable rate mortgages (fixed rate for a period, then changes every year based on an index), but they're not common, especially given the historically low interest rates. And even then, the shortest fixed period on those is three years, with five being more common.
Although you normally re-fix at the end of the initial period. So typically people re-fix their rate every 2-5 years for the life of the mortgage or remortgage.

My understanding is that the US is relatively unique in having fixed rate mortgages for the whole life and relatively easy re-mortgaging/financing (I'd guess becaue of US state involvement in the mortgage market). I think in the rest of the world there's basically a trade off - you have fixed rates mortgages but are locked in/can't re-mortgage for longer (or only in certain conditions); or you have periodic fixed rates and can remortgage earlier/more easily.

It does mean rising rates will have very different impacts in different countries though:
(https://www.google.com/url?q=https://substack.com/redirect/20848a2d-0831-498b-bb21-e009b1d6519b?r%3D7j9if&source=gmail&ust=1667752186417000&usg=AOvVaw0iKZKihKu5qgB_0Syytvm0)
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 05, 2022, 12:15:57 PM
QuoteAlthough you normally re-fix at the end of the initial period. So typically people re-fix their rate every 2-5 years for the life of the mortgage or remortgage

Sure but that's still a bad idea for a regular household if there's a reasonable chance for the interest rates to rise. I know its a splendid system for mortgage brokers who assure return business, and for banks, but I think the average customer is being taken for a ride.

Having said that, if we buy something a year from now, I'll probably be leaning toward a short fixed term mortgage as likely we will be close to / past the end of the hiking cycle, and nearing the point where rates will need to come back down to due to the economy falling apart.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 05, 2022, 12:28:24 PM
Quote from: Tamas on November 05, 2022, 12:15:57 PMSure but that's still a bad idea for a regular household if there's a reasonable chance for the interest rates to rise. I know its a splendid system for mortgage brokers who assure return business, and for banks, but I think the average customer is being taken for a ride.
I'm not sure it's that simple - on average mortgage rates in the UK are about half what they are in the US. Over the term of a mortgage it's not clear that would cost more than the £500 you pay to a mortgage broker ever 2-5 yeares.

Which makes sense - more certainty and a higher price, or more risk and a lower price. It's probably been better for the last decade for UK owners getting the benefit of a very low rate environment rather than having to fully re-mortgage, but is likely to be better for American owners in the next few years.

Although as I say I think the thing that's weird about America is the ease of re-mortgaging plus fixed rates.

QuoteHaving said that, if we buy something a year from now, I'll probably be leaning toward a short fixed term mortgage as likely we will be close to / past the end of the hiking cycle, and nearing the point where rates will need to come back down to due to the economy falling apart.
Well same - hopefully.

I'm incredibly lucky though. I managed to get all the documents signed - so the mortgage is locked in - on the day before the mini-budget :ph34r: :bleeding: I know some people who were at a similar stage but not quite ready to sign who had their mortgage offer pulled and recalculated with a higher rate.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 05, 2022, 01:55:22 PM
QuoteWhich makes sense - more certainty and a higher price, or more risk and a lower price. It's probably been better for the last decade for UK owners getting the benefit of a very low rate environment rather than having to fully re-mortgage, but is likely to be better for American owners in the next few years.

Sure but now there'll be all kinds of hand-wringing and I wouldn't be surprised to see some kind of a help for people to get out of their risky play once they stop benefiting from it. People shouldn't gamble with their basic living conditions, and shouldn't be bailed out when it goes bad for them.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 06, 2022, 08:17:45 AM
Quote from: Tamas on November 05, 2022, 01:55:22 PMSure but now there'll be all kinds of hand-wringing and I wouldn't be surprised to see some kind of a help for people to get out of their risky play once they stop benefiting from it. People shouldn't gamble with their basic living conditions, and shouldn't be bailed out when it goes bad for them.
I was thinking that historically the state's bailed out mortgage providers but generally not mortgage holders. So surely no-one would be so cynical, regressive and shameless.

Enter the Lib Dems <_< :bleeding:
https://www.bbc.co.uk/news/uk-politics-63514047

Renters should riot if this ever comes close.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 06, 2022, 08:28:10 AM
Quote from: Sheilbh on November 06, 2022, 08:17:45 AM
Quote from: Tamas on November 05, 2022, 01:55:22 PMSure but now there'll be all kinds of hand-wringing and I wouldn't be surprised to see some kind of a help for people to get out of their risky play once they stop benefiting from it. People shouldn't gamble with their basic living conditions, and shouldn't be bailed out when it goes bad for them.
I was thinking that historically the state's bailed out mortgage providers but generally not mortgage holders. So surely no-one would be so cynical, regressive and shameless.

Enter the Lib Dems <_< :bleeding:
https://www.bbc.co.uk/news/uk-politics-63514047

Renters should riot if this ever comes close.

In Hungary in the aftermath of the great financial crisis we had a brutal version of this. In the boom years the banks convinced a LOT of people to take out mortgages in Swiss Franks since those had miniscule interest rates compared to HUF denominated ones. They convinced people oh don't worry about the exchange rate that's been stable forever. Then CHF ran away compared to HUF and a lot of people who maxed themselves out on CHF rates found themselves deeply under water.

So the government in 2010 or 2011 introduced some measures that let most people -except the poorest- do early repayment on their CHF mortgages with very favourable terms, the state making up the rest (can't recall the details). So, those who were sane and took out HUF mortgages kept paying the higher interest rates throughout their mortgage term. Those who were gullible/foolish/reckless got to pay much lower rates, and then when it all predictably blew up in their faces, the taxpayers paid them to get out without a scratch.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on November 06, 2022, 09:31:32 AM
Quote from: Tamas on November 03, 2022, 09:04:15 AMAs we keep going back to this, how does "normal" inflation get affected by the rate hikes? By the rate hikes reducing demand, don't they?

We talk about supply shock as if demand being higher than supply is somehow a separate case from demand being higher than supply.
Just to come back to this because I was thinking about it and I think a key difference is that supply shocks of the past were not necessarily tied to something structural.

While now I think there are structural factors that are making shocks more likely and probably meaning they have a bigger impact - so I'm not sure the same old solutions will necessarily work. For example in energy I think the key fact is the rise of consumption in Asia - unlike previous energy shocks it's not just supply shocks from producer countries but a persistently higher level of demand as well. Similarly I think because of climate change there are going to be more and stronger supply shocks to food production, for example - again I think that's a structural factor that is persistent and not going to shift. I think a similar argument could even be made around China's zero covid policies - not least because from everything I've read they do have relatively broad support in China but are also very closely tied to Xi.

So you're right about "normal" inflation. I think the thing that's missing from previous bouts of inflation is organised labour - this is the first post-war experience of inflation without a strong union presence - and the thing that's new is that there are structural shifts that either make us more exposed to supply shocks or make them more likely. I'm not sure just getting locked into cycles of having to reduce demand by inducing recessions every time that happens is the right solution - it feels like we should be looking to whether we can break out of those structural causes (for example, can decarbonisation or onshoring help?).
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on November 19, 2022, 08:52:26 PM
The 6 pts of milk I bought today has gone up 16p,that's 7.3% in one go; I noticed as on both occasions it was the only thing I've bought in the last week or so. :hmm:

Looking back, that milk in the UK as risen by 47% this year, so over 50% annualised.

Makes a mockery of the 11.1% inflation rate just announced.

You can see how struggling households "face difficult choices" / are fucked.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on November 20, 2022, 05:01:06 AM
Yeah we are lucky to earn enough not to have to worry and my wife is pretty good at budgeting (which is good because saving money is not something I excel at), but the jump on our weekly groceries cost this year is quite staggering. Add 10% rent hike and our (big) salary increases the last couple of years are burned in maintaining the QoL and saving levels we were accustomed to before them.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on December 07, 2022, 04:33:43 AM
If this chart is to be believed, Americans have been burning through their excess Covid savings with gusto:

(https://preview.redd.it/household-excess-savings-likely-gone-by-mid-2023-v0-87qqhlsvh24a1.png?auto=webp&s=3fbebe96fd58b835d2e6bc852fae016832e1f02b)


The Fed however have been giving signals that they are ready to slow down the rate hikes, but won't be reducing rates until they get back to 2% inflation.
Title: Re: The 2022 Economic Crisis Megathread
Post by: HVC on December 07, 2022, 12:45:33 PM
This can't be good. Smart people explain to me how this is over blown 

85 Trillion dollars "missing" (https://www.msn.com/en-ca/money/other/itll-wipe-out-every-dollar-in-the-world-new-crash-fears-as-dollar80trillion-goes-missing/ar-AA14ZBgx?li=AAggFp5)

Title: Re: The 2022 Economic Crisis Megathread
Post by: Sheilbh on December 07, 2022, 12:50:51 PM
Quote from: HVC on December 07, 2022, 12:45:33 PMThis can't be good. Smart people explain to me how this is over blown
It's from the Daily Express so we're fine :)

Their entire business model is whipping up the fears of elderly people, articles about upcoming super-cures for cancer/dementia/alzheimers and updates on Princess Diana.
Title: Re: The 2022 Economic Crisis Megathread
Post by: celedhring on December 07, 2022, 12:54:14 PM
Quote from: HVC on December 07, 2022, 12:45:33 PMThis can't be good. Smart people explain to me how this is over blown

85 Trillion dollars "missing" (https://www.msn.com/en-ca/money/other/itll-wipe-out-every-dollar-in-the-world-new-crash-fears-as-dollar80trillion-goes-missing/ar-AA14ZBgx?li=AAggFp5)



It's a two-paragraph Daily Express article. I'm willing to not lose sleep on that.
Title: Re: The 2022 Economic Crisis Megathread
Post by: HVC on December 07, 2022, 12:56:26 PM
What about Reuters

https://www.reuters.com/markets/currencies/global-markets-bis-urgent-2022-12-05/

Or Wall Street journal

https://www.wsj.com/livecoverage/stock-market-news-today-12-05-2022/card/hidden-dollar-debt-poses-policy-risk-to-financial-system-policymakers-bis-7wtTgmPlaqxLQkZRXwos

:ph34r:
Title: Re: The 2022 Economic Crisis Megathread
Post by: Barrister on December 07, 2022, 01:00:24 PM
This appears to be the original source of the story:

https://www.bis.org/publ/qtrpdf/r_qt2212h.htm#:~:text=The%20%2480%20trillion%2Dplus%20in,of%20daily%20global%20FX%20turnover.

So it's a concern that there could be a liquidity crisis on foreign exchange swaps (FX swaps).

So it's not a nothing story, but it's well above my knowledge to assess how worried we should be.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on December 07, 2022, 03:08:29 PM
Quote{BIS} researchers can predict financial crises three years in advance using machine learning to aggregate predictions from different models.

That's trillions of dollars worth of financial comedy right there.

As to the substance, it's reporting the notional dollar value of open foreign exchange swaps.  An FX swap put simply is an agreement to exchange one currency for another at some future date, or to exchange interest payments on one currency for interest payments on another.

While the swap is outstanding - which may be a matter of days or weeks - each party to the transaction owes each other a payment.  The BIS is pointing out that most institutions doing these deals don't record those payment obligations as debt on their balance sheet.  That's the "missing" debt they are talking about.

Again, these are mostly short term deals and mostly major currency pairs like dollar-euro or dollar-pound, etc. So the real exposure is not the notional value of the contract but the likely incremental movement in the currency pair over the time to maturity.

That said there are other risks namely:

+ liquidity - under the typical model agreements, positions have to be regularly "marked to market" - if there is a significant move in currency value or rates, one party may have to make a significant margin call payment in cash on short notice, while the position is still open. 

+ settlement - one of the parties fails on or before maturity, as in Lehman 08.  A cascade of such settlement fails could result in pretty nasty looking exposures.  Hence the Fed decision to back up the market in 08-09 with central bank provided swap lines.
Title: Re: The 2022 Economic Crisis Megathread
Post by: Tamas on December 07, 2022, 03:16:42 PM
Quote from: The Minsky Moment on December 07, 2022, 03:08:29 PM
Quote{BIS} researchers can predict financial crises three years in advance using machine learning to aggregate predictions from different models.

That's trillions of dollars worth of financial comedy right there.

As to the substance, it's reporting the notional dollar value of open foreign exchange swaps.  An FX swap put simply is an agreement to exchange one currency for another at some future date, or to exchange interest payments on one currency for interest payments on another.

While the swap is outstanding - which may be a matter of days or weeks - each party to the transaction owes each other a payment.  The BIS is pointing out that most institutions doing these deals don't record those payment obligations as debt on their balance sheet.  That's the "missing" debt they are talking about.

Again, these are mostly short term deals and mostly major currency pairs like dollar-euro or dollar-pound, etc. So the real exposure is not the notional value of the contract but the likely incremental movement in the currency pair over the time to maturity.

That said there are other risks namely:

+ liquidity - under the typical model agreements, positions have to be regularly "marked to market" - if there is a significant move in currency value or rates, one party may have to make a significant margin call payment in cash on short notice, while the position is still open. 

+ settlement - one of the parties fails on or before maturity, as in Lehman 08.  A cascade of such settlement fails could result in pretty nasty looking exposures.  Hence the Fed decision to back up the market in 08-09 with central bank provided swap lines.

From the Reuters article:

QuoteThe report also focused on findings from the recent BIS global FX market survey, which estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability.

The amount at risk represents about one third of total deliverable FX turnover and is up from $1.9 trillion from three years earlier when the last FX survey was carried out.

FX trading also continues to shift away from multilateral trading platforms towards "less visible" venues hindering policymakers "from appropriately monitoring FX markets," it said.
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on December 07, 2022, 03:22:20 PM
Quote from: Tamas on December 07, 2022, 03:16:42 PM
QuoteThe report also focused on findings from the recent BIS global FX market survey, which estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability

I'm not sure how to intepret that statement.  Technically, every single currency trade is "at risk" of a settlement failure.  you can never be 100% sure of settlement on any kind of trade.  I'm not sure what "issues" Reuters is referring to.  One issue with FX swaps is that the bilateral nature means that you can't usually net risk across counterparties through a central exchange. I guess that's it??
Title: Re: The 2022 Economic Crisis Megathread
Post by: HVC on December 07, 2022, 03:31:56 PM
Feel better, thank minksky. What's the point of these short term swaps? Gambling on exchange changes? Or is it supposed to act as a currency hedge?
Title: Re: The 2022 Economic Crisis Megathread
Post by: The Minsky Moment on December 07, 2022, 03:44:15 PM
Quote from: HVC on December 07, 2022, 03:31:56 PMFeel better, thank minksky. What's the point of these short term swaps? Gambling on exchange changes? Or is it supposed to act as a currency hedge?

Currency hedging and securing lower borrowing costs. 

According to BIS, pension funds are big players in these markets.  That's probably a hedging rationale.  Pension funds invest in overseas securities to diversify returns but may not desire to acquire the foreign exchange exposure they take on as a by-product of those investments.  A swap is one way to address that.
Title: Re: The 2022 Economic Crisis Megathread
Post by: DGuller on December 08, 2022, 12:34:13 AM
Quote from: HVC on December 07, 2022, 12:45:33 PMThis can't be good. Smart people explain to me how this is over blown

85 Trillion dollars "missing" (https://www.msn.com/en-ca/money/other/itll-wipe-out-every-dollar-in-the-world-new-crash-fears-as-dollar80trillion-goes-missing/ar-AA14ZBgx?li=AAggFp5)


QuoteIts researchers can predict financial crises three years in advance using machine learning to aggregate predictions from different models.
:lol:

EDIT:  Damn, scooped by Minsky.
Title: Re: The 2022 Economic Crisis Megathread
Post by: mongers on January 28, 2023, 10:59:40 AM
Backin the real world Sainsbury's et al are taking the piss with their cheese prices, bog standard cheddar up a quid since last time.
Title: Re: The 2022 Economic Crisis Megathread
Post by: HVC on January 28, 2023, 11:37:48 AM
Probably shouldn't be eating cheese in the bathroom, just saying.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 15, 2023, 09:08:29 AM
Things are turning out interesting.

Markets have been on a push for most of this year, seemingly fueled by the Fed becoming quite dovish in their talk.

But, yesterday's US inflation number showing it is picking up again (+0.5% month-on-month versus +0.1% the previous) and today retail sails came out at +3% vs. 2% expected, -1.1% previous.

The inflation number didn't bother the stock markets one bit and it doesn't look like higher than expected consumption will either.

To me this is saying we are heading toward a redo of the 70s, where the first attempt to curb inflation is being let go too early.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: PJL on February 15, 2023, 09:41:18 AM
I do think interest rates are going to go up more than what the consensus is saying. The economy still seems far too strong for inflation to get to 2%. Wouldn't surprise me to see interest rates hit 6% in the UK.

Or to put it another way, only a hard landing and a recession will stop inflation.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HisMajestyBOB on February 15, 2023, 09:55:47 AM
I wish I had bought a bigger house in 2021. Seems likely we'll be stuck in our current place for a while. At least my current mortgage rate is low.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on February 16, 2023, 04:51:37 AM
https://fortune.com/2023/02/14/smead-sticky-inflation-decade-millennials-gen-z-spending/

QuoteInflation will remain 'sticky' for a decade—and Gen Z and millennials are to blame, an investment chief says

Despite inflation and recession fears, Americans have continued spending over the past year, keeping businesses open and people employed. Even now, as the money many people saved during the pandemic dries up, spending is still going strong. But the commitment by U.S. consumers to buy, and then buy some more, is a double-edged sword. While it's keeping the economy humming, it could also lead to inflation and high prices for years to come.

Flush with $2.5 trillion in excess savings at the beginning of last year, U.S. households let loose on the economy once the pandemic's emergency phase ended. In March 2022, when U.S. inflation had risen to nearly 8.5% and the Federal Reserve had just announced its first interest rate hike to cool the economy, consumer spending was still 18% higher than in March 2020 and 12% higher than what pre-pandemic forecasts had predicted, according to consulting firm McKinsey.

During the pandemic, households tapped their high savings and federal stimulus checks to reinvigorate the economy, which in 2021 grew at its fastest pace in decades. But the rampant spending partly caused the high inflation today. With the spending expected to continue for some time, it could mean that inflation will stick around longer than it would otherwise.

Part of what's behind the expected buying boom and "sticky" inflation is demographics. Nearly 100 million Americans are at an age when they tend to spend big, according to Bill Smead, chief investment officer at investment firm Smead Capital Management.

"We have 92 million people between 22 and 42, and they're all going to spend their money on necessities the next 10 years, whether the stock markets are good or bad," Smead said in an interview Tuesday with CNBC.

With all the big purchases such as homes over the next decade, the economy will continue to run hot, making the Fed's long-term goal of reducing inflation much harder to achieve, Smead said.

Young Americans' spending

Smead's argument is largely backed up by recent survey data. In 2021, nearly 70 million Americans were between the ages of 19 and 35, and around 150 million, or almost half the U.S. population, was between 19 and 54. These are prime spending years, according to the Bureau of Labor Statistics, as expenses for almost every category—including food, housing, clothing, and transport—increase the most between ages 25 to 54, when incomes tend to peak and people make most of their  big purchases.

Millennials and most members of Generation X are still in their spending prime, and many will continue to be so over the next decade. The older members of Generation Z, who are now in their mid-20s and relatively early in their careers, are also expected to join the big spending club in the next few years.

Millennials, who surpassed baby boomers as the largest age group in the U.S. in 2020, will likely make up most of the spending as they age into homebuying. The number of Americans aged 18 to 44 and responsible for the most spending is forecasted to grow by almost 5% between 2020 and 2030, according to the Census Bureau, which is good news for the economy, but not so much for reducing inflation.

"We think the inflation is going to be far stickier and longer lasting," Smead said, referring to high prices becoming hard to bring down past a certain level.

Sticky inflation is hard to shake off

It isn't the first time Smead has blamed younger generations for high U.S. inflation. Last summer, when inflation was consistently breaking 40-year records, Smead said in an interview with CNBC that "too many people with too much money chasing too few goods" is what really causes inflation. The next few years of spending by young Americans, he said, was comparable to when baby boomers replaced the Silent Generation as the country's biggest spending demographic, shortly before the inflationary crisis of the 1970s.

January's consumer prices, a common indicator of inflation, were 6.4% higher than a year ago, the BLS said Tuesday, the seventh straight month of year-over-year declines. But January prices were also slightly higher than in December, as costs rose for some items including fuel, food, and clothing.

Stubborn inflation, combined with a consistently strong job market, mean the economy is strong, but it may also make the Fed's goal of reducing inflation harder. For example, Mohamed El-Erian, an economist and president of Queens' College at the University of Cambridge, told Bloomberg last month that inflation would likely become "sticky" at 4% around mid-2023.

Whether inflation becomes sticky and for how long is still up for debate. While both Gen Z and millennials age into what have traditionally been prime spending years, they also may be less likely to spend in general.

Millennials have been the hardest-hit by inflation over the past year and, along with Gen Z, were less likely to spend than older generations during the pandemic, especially on big-ticket items including homes and cars. An example is historically low homeownership rates among 30-somethings last year compared to baby boomers and Gen Xers when adjusted for age. Young Americans, even wealthy ones, have delayed big purchases more than previous generations, with many blaming slow wage growth, student debt, and job losses.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on February 16, 2023, 04:53:25 AM
Millennial suck they aren't spending on housing or goods. The millennial suck they're spending too much. Dammed if you do and dammed I'd you don't :D
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on February 16, 2023, 04:54:20 AM
Buying too many avocado toasts. :(
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on February 16, 2023, 05:00:53 AM
Thats one advantage of gen z becoming a thing this past few years- millenials suck because we can't afford nice things. Gen z on the other hand are getting shit as they don't even want things.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Valmy on February 16, 2023, 10:19:21 AM
The message seems more like having young working people generating income and spending it instead of sitting on it like older people will generate inflation, not that there is anything bad the Millenials and Gen Z are actually doing wrong besides just existing.

It seems to me a high demand for goods and services may drive in inflation but it also drives employment and business opportunities. So it seems like a good environment to be young and a bad one to be old.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 16, 2023, 05:40:48 PM
Thought this was really interesting - in particular that the height of Reaganism/neo-liberal consensus was the period with the lowest profits (I imagine different in financial sectors) :hmm:
(https://pbs.twimg.com/media/FpGh0qtakAICZdb?format=jpg&name=small)

It is striking in terms of the contribution of inflation in those record profits. Definitely seems to increase the logic of windfall taxes.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Legbiter on February 16, 2023, 08:51:59 PM
Quote from: Valmy on February 16, 2023, 10:19:21 AMThe message seems more like having young working people generating income and spending it instead of sitting on it like older people will generate inflation, not that there is anything bad the Millenials and Gen Z are actually doing wrong besides just existing.

It seems to me a high demand for goods and services may drive in inflation but it also drives employment and business opportunities. So it seems like a good environment to be young and a bad one to be old.

Yeah in my case I've never known the local Central Bank to be able to tamp down on 10%+ inflation in less than 5-7 years. And single digit real inflation has been around 5-6% for my entire lifetime. Interest rates below 5% happened I think once in my lifetime, during covid.

But yeah, this is absolutely the the best environment for a young go-getter to get his/her bag, money-wise. Optimism rules the day despite bumps in the road if the nation has generations of people to speak of after the Boomers.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on February 16, 2023, 09:23:08 PM
Quote from: Sheilbh on February 16, 2023, 05:40:48 PMThought this was really interesting - in particular that the height of Reaganism/neo-liberal consensus was the period with the lowest profits (I imagine different in financial sectors) :hmm:

Profit share is hard to evaluate in isolation because owners of capital can reap gains in forms other than profit, including interest and reinvested capital.  Employee share of value added is probably more illuminating, although not perfect because owners in close company structures can take gains as wage income as well.

In the the mid 80s, the employment comp share of value added did decline to a low point of 62.3% in 1984.  Profits did not spike because capital investment and interest costs also increased.  Employee comp share rose again in the late 80s and early 90s only to fall back and hit in the low 62s again in 1996/1997.  Then it goes back up over 65% in 2000/2001.  Then it goes into a free fall, going below 57% by 2013.  it's now rattling around in the high 50s/low 60s range.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on February 16, 2023, 10:17:24 PM
Joan, is government expenditure left out of these value added calculations?

Value added is not something I've seen a lot in the denominator.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on February 16, 2023, 11:09:47 PM
Quote from: Admiral Yi on February 16, 2023, 10:17:24 PMJoan, is government expenditure left out of these value added calculations?

Yes it's let out.  The table is from the BEA data set
Table 1.15. Price, Costs, and Profit Per Unit of Real Gross Value Added of Nonfinancial Domestic Corporate Business
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 17, 2023, 04:05:34 AM
Brits are returning to spending same way Americans are. I guess the question is whether this will remain moderated enough to keep inflation slowing down. My guess that it won't.

QuoteRetail sales across Great Britain were stronger than expected in January, as consumers kept spending despite the cost of living crisis.

But, people kept cutting back on buying food, due to the surge in costs.

The Office for National Statistics has reported this morning that retail sales volumes rose by 0.5% in January 2023, as shopping picked up after a 1.2% drop the previous month.

But on an annual basis, retail sales volumes were down by 5.7% in the three months to January 2023, as the cost of living crisis meant people could afford to buy less.

conomists had expected a 0.3% drop in retail sales volumes in January, as shoppers were hit by higher prices and surging bills, as well as concerns over the economy.

The ONS, though, reports that sales volumes at non-store retailers such as online shops jumped by 2% in January 2023, with "some feedback that January sales promotions supported the rise".

Sales of petrol and diesel also rose in January, by 1.7%, as the recent drop on the forecourts encouraged motorists to drive more.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Valmy on February 17, 2023, 02:07:01 PM
Economics makes no sense intuitively. One would think people going out there and spending money would be good for the economy but no, inflation threatens all.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 17, 2023, 02:09:10 PM
Quote from: Valmy on February 17, 2023, 02:07:01 PMEconomics makes no sense intuitively. One would think people going out there and spending money would be good for the economy but no, inflation threatens all.

Well when the jinni is out of the bottle it makes sense to me that it can become a self-reinforcing cycle of ever higher inflation, that needs demand destruction to reverse.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Valmy on February 17, 2023, 02:11:06 PM
Quote from: Tamas on February 17, 2023, 02:09:10 PM
Quote from: Valmy on February 17, 2023, 02:07:01 PMEconomics makes no sense intuitively. One would think people going out there and spending money would be good for the economy but no, inflation threatens all.

Well when the jinni is out of the bottle it makes sense to me that it can become a self-reinforcing cycle of ever higher inflation, that needs demand destruction to reverse.

Exactly. The economy needs people to not want goods and services. What the hell? Very strange.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Gups on February 18, 2023, 01:00:27 PM
Quote from: Tamas on February 17, 2023, 02:09:10 PM
Quote from: Valmy on February 17, 2023, 02:07:01 PMEconomics makes no sense intuitively. One would think people going out there and spending money would be good for the economy but no, inflation threatens all.

Well when the jinni is out of the bottle it makes sense to me that it can become a self-reinforcing cycle of ever higher inflation, that needs demand destruction to reverse.

Or more supply.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on February 21, 2023, 10:10:48 PM
Quote from: Gups on February 18, 2023, 01:00:27 PM
Quote from: Tamas on February 17, 2023, 02:09:10 PM
Quote from: Valmy on February 17, 2023, 02:07:01 PMEconomics makes no sense intuitively. One would think people going out there and spending money would be good for the economy but no, inflation threatens all.

Well when the jinni is out of the bottle it makes sense to me that it can become a self-reinforcing cycle of ever higher inflation, that needs demand destruction to reverse.

Or more supply.

Dunno why people seem to always forget this.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on February 22, 2023, 10:15:02 AM
In the last year container shipping rates fell from about $9500 to $1900.  In part because changing demand composition; in part because more ship deliveries have been coming on line.  That's an extreme example from a volatile market but it illustrates a general point about variability and response lags in supply and demand conditions.

Since early 2020 there have been two enormously impactful and unanticipated events that played havoc with supply and demand across all economic sectors - COVID and the post COVID "re-opening".  These events occurred in the context of what had become a highly integrated economy where "just-in-time" manufacturing and logistics left little margin for error.  In macro-speak, these are events that knock economies off an equilibrium path.

We are still coping with the aftershocks of these events.  It is going to take some more time for the world economy to reach a new equilibrium and with government policies also evolving, the new path is likely going to look somewhat different from the old path.

In thinking about this evolution, it is important to keep in mind that the low inflation environment of the early 21st century was not historically typical.  Moderate inflation was the norm throughout the postwar 20th century.  Long periods of low inflation and interest rates have been historically associated with periods of continuously increasing trade liberalization and global integration.  As policy moves in a different direction, we probably should not expect a return to early 21st century norms.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on February 22, 2023, 10:55:07 AM
I wonder if there is an argument for a policy that deliberately makes things less brittle, even at the expense of some economic efficiency.  Free market forces seem ill-equipped to properly manage extreme tail risks or contagion risks.  If all your competitors get their stuff made in China, it would be hard to stay in business if you don't follow suit, but then the entire sector's fortunes hang on the trade routes functioning as intended.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 22, 2023, 11:38:25 AM
I agree with all of that.

And what I'd add is that in my view we are entering a period that is structurally likely to have risks of that type. We know about the pandemic - there will be another. We are back to great power competition globally and obviously in Europe and Asia there are expansionist powers making moves. Also I think the situation with the climate is that we have already baked in more regular and more severe climate events that will impact supply chains - we see it with fruit and veg right now, we saw it with floods in Shanxi's wider impact on the Chinese and global economy. In addition to that the way we're hoping to get out of that through energy transition which I think in itself is going to be bumpy and susceptible to shocks.

The other factor of periods of low inflation and interest rates, trade liberalisation, global integration etc is that they tend to have a relatively stable global order. I think that's going if not gone - and climate change is the massive other external factor that I think needs to be at the heart of talking about what the economy looks like/is going to look like.

So I agree we need to make things less brittle even if they are more inefficient. I think my other query would be whether the old ways of dealing with inflation as a wage-price issue work when inflation is a function of supply chain shocks? Or whether that in itself is wrong and (possibly) could contribute more to the other risks?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 22, 2023, 11:42:18 AM
Well, one problem a few people have been mentioning is that with all the QE etc since 2008, economic growth have been.. kind of meagre? I think the UK has managed what 1% or so? If that's true, how are things will look if we end the era of free money?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on February 22, 2023, 12:08:31 PM
It is interesting all this reporting on veg shortages (definitely seeing it in local shops) talks about bad weather in southern Europe...Zero mention of the B word though I'm told the continent isn't facing such issues and its not like this is the first time we've had bad weather in Spain
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 22, 2023, 12:14:14 PM
Quote from: Josquius on February 22, 2023, 12:08:31 PMIt is interesting all this reporting on veg shortages (definitely seeing it in local shops) talks about bad weather in southern Europe...Zero mention of the B word though I'm told the continent isn't facing such issues and its not like this is the first time we've had bad weather in Spain
We should move it to the other thread - but the reason is because it's not to do with Brexit.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 22, 2023, 12:22:38 PM
Quote from: Sheilbh on February 22, 2023, 12:14:14 PM
Quote from: Josquius on February 22, 2023, 12:08:31 PMIt is interesting all this reporting on veg shortages (definitely seeing it in local shops) talks about bad weather in southern Europe...Zero mention of the B word though I'm told the continent isn't facing such issues and its not like this is the first time we've had bad weather in Spain
We should move it to the other thread - but the reason is because it's not to do with Brexit.

 :lol: Nothing ever does. Most inconsequential decision in history.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 22, 2023, 12:25:30 PM
It's difficult to talk about the actual consequences or get people to take them seriously, when many people blame it for literally everything (I think the Brexit cause Putin's invasion of Ukraine was possibly my favourite) and think if you don't blame everything on it there's a conspiracy/omerta :lol:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on February 22, 2023, 12:27:58 PM
Quote from: Sheilbh on February 22, 2023, 12:25:30 PMIt's difficult to talk about the actual consequences or get people to take them seriously, when many people blame it for literally everything (I think the Brexit cause Putin's invasion of Ukraine was possibly my favourite) and think if you don't blame everything on it there's a conspiracy/omerta :lol:

Nothing has a single cause.
Brexit definitely was a factor in increasingly Putins likely hood of invading Ukraine along with the trump election and many other things. It helped him to believe the west was a disunited mess that would just let him do what he wants.

Likewise with the current shortages. Very weird they aren't happening in France and this isn't the first time Spain has had crops ruined.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Zanza on February 22, 2023, 12:52:45 PM
There is a vegetable and fruit shortage?  :huh:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 22, 2023, 01:23:32 PM
Quote from: Josquius on February 22, 2023, 12:27:58 PMNothing has a single cause.
Brexit definitely was a factor in increasingly Putins likely hood of invading Ukraine along with the trump election and many other things. It helped him to believe the west was a disunited mess that would just let him do what he wants.
We just aren't that important :P

QuoteLikewise with the current shortages. Very weird they aren't happening in France and this isn't the first time Spain has had crops ruined.
It's an energy, supply chain and climate story. I think, unlike Brexit, energy and climate are key in every economics/business story in the UK and Europe at the minute.

Here's a thread by Ed Conway from July about this:
https://twitter.com/EdConwaySky/status/1527926798104809473

Basically tomatoes - and other salad produce - are fossil fuel products. We produce about 20% of what we consume (largely in the summer and autumn) and the Netherlands does another big chunk. But we don't naturally have the climate for it. We're able to produce it in massive greenhouses with huge natural gas heating, fertiliser (produced by gas) and CO2 pumps into the greenhouse (which are obviously also powered). They are very resource intensive when produced locally (one of the reasons I'm really dubious about "food miles").

Because of the price of gas, energy and fertiliser following Russia's invasion, UK greenhouses stopped producing because the loss they would make on just paying for empty greenhouses was lower than the loss they'd make actually producing produce. They stopped producing last year - and according to the FT in autumn they're not planning to plant for this year either. There are similar factors in the Netherlands which is impacting their production. You can see this in the way EU supply chains have pivoted to importing tomatoes since the war:
(https://pbs.twimg.com/media/FpflxxKWIAINviA?format=jpg&name=small)

The other bit is British supermarkets. They are the masters of "just-in-time" supply chains, as well as really aggressive contracts with their suppliers. The UK has some of the cheapest food in Europe because the supermarkets are always massively competing with each other on price and all, generally, absolutely rinse their producers (but consumers win) - the balance in other bits of Europe is different. They pay more for their food - producers earn more and are more protected.

The other reason supermarkets are so good at getting the cheapest deal for consumers and supply chains is that they're fairly consolidated in suppliers. So of the 80% of tomatoes etc that we import, 90% comes from the Netherlands (facing similar issues), Spain and Morocco which are having those issues. The problem with that is it's difficult to suddenly pivot to new suppliers especially when cost is a big issue and everyone else is also looking to import more. So again you can see there's a slow trend to more imports that swings upwards since 2020 when energy costs start climbing (also the seasonality) and the UK relying more on imports - but the supermarket supply chains are fully based on producers in three countries:
(https://pbs.twimg.com/media/FpfskfEXEAAbZAj?format=jpg&name=small)

EU countries differ by country but in general the EU has a vastly more fragmented/diverse supply chain - Turkey, other bits of North Africa, the Balkans and even West Africa etc all chip in for about one third to half of the EU's tomato imports, Turkey in particular has become a key supplier.

The core of the story is one of (to nick DG's phrase) brittle supply chains that in benign times successfully delivered very low costs for consumers, now breaking down in the face of external factors (particularly energy and fertiliser) and climate events. I think on its own right, it's an interesting story because it is indicative, I think, of the economic world we're now operating in. Brexit is probably having an additional impact on top of that but I think, as is normally the case, Brexit mainly just aggravates/mitigates an issuue rather than being a cause.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on February 22, 2023, 01:57:31 PM
Quote from: Zanza on February 22, 2023, 12:52:45 PMThere is a vegetable and fruit shortage?  :huh:

Yes. It is everywhere, because Brexit isn't its cause. :P
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on February 22, 2023, 06:44:46 PM
This veg shortage in the UK is clearly the result of Brexit going into effect last month.  There have been no changes in the UK other than Brexit.

I reckon it will take two years after implementation before people stop blaming all of their problems on Brexit.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on February 23, 2023, 04:59:48 AM
Quote from: Sheilbh on February 22, 2023, 01:23:32 PMWe just aren't that important :P

I wouldn't undersell the UK.
We are seen as fairly important to Russia. We were also one of the leading members of the EU, one that often aligned itself with eastern members.

QuoteIt's an energy, supply chain and climate story. I think, unlike Brexit, energy and climate are key in every economics/business story in the UK and Europe at the minute.

Here's a thread by Ed Conway from July about this:
https://twitter.com/EdConwaySky/status/1527926798104809473

Basically tomatoes - and other salad produce - are fossil fuel products. We produce about 20% of what we consume (largely in the summer and autumn) and the Netherlands does another big chunk. But we don't naturally have the climate for it. We're able to produce it in massive greenhouses with huge natural gas heating, fertiliser (produced by gas) and CO2 pumps into the greenhouse (which are obviously also powered). They are very resource intensive when produced locally (one of the reasons I'm really dubious about "food miles").

Because of the price of gas, energy and fertiliser following Russia's invasion, UK greenhouses stopped producing because the loss they would make on just paying for empty greenhouses was lower than the loss they'd make actually producing produce. They stopped producing last year - and according to the FT in autumn they're not planning to plant for this year either. There are similar factors in the Netherlands which is impacting their production. You can see this in the way EU supply chains have pivoted to importing tomatoes since the war:
(https://pbs.twimg.com/media/FpflxxKWIAINviA?format=jpg&name=small)

The other bit is British supermarkets. They are the masters of "just-in-time" supply chains, as well as really aggressive contracts with their suppliers. The UK has some of the cheapest food in Europe because the supermarkets are always massively competing with each other on price and all, generally, absolutely rinse their producers (but consumers win) - the balance in other bits of Europe is different. They pay more for their food - producers earn more and are more protected.

The other reason supermarkets are so good at getting the cheapest deal for consumers and supply chains is that they're fairly consolidated in suppliers. So of the 80% of tomatoes etc that we import, 90% comes from the Netherlands (facing similar issues), Spain and Morocco which are having those issues. The problem with that is it's difficult to suddenly pivot to new suppliers especially when cost is a big issue and everyone else is also looking to import more. So again you can see there's a slow trend to more imports that swings upwards since 2020 when energy costs start climbing (also the seasonality) and the UK relying more on imports - but the supermarket supply chains are fully based on producers in three countries:
(https://pbs.twimg.com/media/FpfskfEXEAAbZAj?format=jpg&name=small)

EU countries differ by country but in general the EU has a vastly more fragmented/diverse supply chain - Turkey, other bits of North Africa, the Balkans and even West Africa etc all chip in for about one third to half of the EU's tomato imports, Turkey in particular has become a key supplier.

The core of the story is one of (to nick DG's phrase) brittle supply chains that in benign times successfully delivered very low costs for consumers, now breaking down in the face of external factors (particularly energy and fertiliser) and climate events. I think on its own right, it's an interesting story because it is indicative, I think, of the economic world we're now operating in. Brexit is probably having an additional impact on top of that but I think, as is normally the case, Brexit mainly just aggravates/mitigates an issuue rather than being a cause.


Energy is one issue where the brexit impact is fairly minimal, with it instead being other British government mistakes to blame. But this issue feeds into another which is heavily reliant on brexit- British farming is a mess, the government has not replaced EU funding and domestic farmers are producing record lows.
Supply chains are brittle? - this is a huge brexit related issue.

Most things have multiple causes. Everything is interlinked. And the key puncture in the UK economy which is fucking up everything and leading to further damage down the line is brexit. Issues which previously would have caused a bit of stress at supermarket HQs but weren't really seen by the public are thanks to brexit being pushed over the top to where they're impacting peoples lives.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 23, 2023, 07:10:14 AM
Quote from: Josquius on February 23, 2023, 04:59:48 AMEnergy is one issue where the brexit impact is fairly minimal, with it instead being other British government mistakes to blame. But this issue feeds into another which is heavily reliant on brexit- British farming is a mess, the government has not replaced EU funding and domestic farmers are producing record lows.
The government has announced the new subsidy regime which is "Environmental Land Management Subsidies" rather than linked to production - and it looks pretty good to me.

Domestic farmers aren't producing record lows. Agriculture is one of the only areas where I think there is genuine British exceptionalism because of empire (and informal empire - particularly Latin America). We now produce about 50% of our food and it's bounced around 50-60% since we joined the EU, because the EU is good at protecting domestic farmers. But for about 150 years before joining the EU we were importing 70%+ of food. So historically we're still producing and consuming more of our own food since the early 19th/late 18th century.

I go back and forth on this all the time. I'm not sure if the right approach is what Truss wanted which is more like the EU and focusing subsidies on production, or the Johnson/Sunak approach which is more about subsidising environmental and carbon use of land. Regardless though I really don't think we should be subsidising the massive, resource intensive, fossil fuel produced veg like tomatoes or cucumbers in the UK (or Netherlands).

QuoteSupply chains are brittle? - this is a huge brexit related issue.
How? The issue here isn't customs or border related issues. It's that UK supermarkets got the vast majority of produce from four countries - two (UK and Netherlands) aren't economical any more and the other two (Spain and Morocco) are having climate related issues in their production. I don't see how Brexit relates to that or to their ability to pivot quickly to another supplier.

I think it's another example where the UK went further than most countries in that purely market driven system that really delivered for consumers in benign times because it resulted in lower prices through efficiency and consolidation - often at the cost of producers and labour. I think that model is actually part of what drove the Brexit vote, but also leaves us particularly exposed to any shocks - and as I say I think we're entering a period when there are going to be shocks.

QuoteMost things have multiple causes. Everything is interlinked. And the key puncture in the UK economy which is fucking up everything and leading to further damage down the line is brexit. Issues which previously would have caused a bit of stress at supermarket HQs but weren't really seen by the public are thanks to brexit being pushed over the top to where they're impacting peoples lives.
There are sectors where things have gone wrong and the cause is Brexit - for example car manufacturing which has been wiped out by Brexit.

But I didn't think economics correspondents and the BofE etc were engaged in a conspiracy to downplay the benefits of Brexit in 2016 - when they were saying it would have a negative impact on the economy. I don't think there's now a conspiracy of silence or omerta by economics correspondents and the BofE to downplay the impact of Brexit.

So when they say a story isn't because of Brexit, I think they're probably right and not lying/covering it up. The BofE said before Brexit that they think over the 15 years, it'll cause growth to be about 4% lower than it would otherwise have been - with the hit being bigger in the near term. They recently updated and said they have no reason to change that assessment and the evidence from the economy is that's what's happening. But it is a really diffuse problem across many sectors - there's some that are really badly hit (like car manufacturing) but otherwise it's just an extra bit of drag. It's not a car crash but a puncture.

I think the bigger issue from a UK perspective is not that Brexit is going to reduce growth by about 0.25% a year - but why 0.25% growth a year matters so much. Basically why is our growth so chronically low otherwise. I think part of that is, as I bang on about (:blush:), productivity and investment. But it's also because I think the UK's model for the last 40 years was a relatively open, relatively liberal service based economy - which I think is still right - that had a particular niche in financial services and oil and gas where, for both, it was the European hub.

The financial crisis killed that model and Brexit dumped it in the sea. I think this is a risk for the re-join side is that even if we had a time machine and could undo Brexit, or re-join tomorrow, I don't think it would solve the issues in our economy. We've incredibly low productivity which hasn't really grown since 2008, we have decades of under-investment and our economic model for the last forty years doesn't work anymore. And I think the British model of being relatively open and relatively liberal as well as market-driven is particularly exposed as I think globally the conditions that created that model aren't there any more.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on February 23, 2023, 07:54:42 AM
QuoteThe government has announced the new subsidy regime which is "Environmental Land Management Subsidies" rather than linked to production - and it looks pretty good to me.

Domestic farmers aren't producing record lows. Agriculture is one of the only areas where I think there is genuine British exceptionalism because of empire (and informal empire - particularly Latin America). We now produce about 50% of our food and it's bounced around 50-60% since we joined the EU, because the EU is good at protecting domestic farmers. But for about 150 years before joining the EU we were importing 70%+ of food. So historically we're still producing and consuming more of our own food since the early 19th/late 18th century.

I go back and forth on this all the time. I'm not sure if the right approach is what Truss wanted which is more like the EU and focusing subsidies on production, or the Johnson/Sunak approach which is more about subsidising environmental and carbon use of land.
I'm not a farmer, but all I have heard from that sector is pretty annoyed at the dropping support (one easy pop-source of this, Jeremy Clarkson in series 2 of his farm series).
The government has talked a lot about new support but a big issue is that farming involves a lot of pre-planning for seasons ahead. There was (still is I think?) a huge gap between brexit and anything been done.

And OK. On the grand historic scale we're still doing OK nationally in terms of output. I mean we're at lows looking at recent comparable years. Things are still a bit distorted by covid it could be argued so it is a bit too early to try and try a definite quantitive conclusions. There are signs of notable drops across most agricultural products from the years leading up to 2019.

What the right long term approach is I really have no idea. But what I do know for sure is the cliff edge approach that was followed was absolutely wrong. Any fundamental change in subsidies needs to be a gradual process.

QuoteRegardless though I really don't think we should be subsidising the massive, resource intensive, fossil fuel produced veg like tomatoes or cucumbers in the UK (or Netherlands).
CO2 is bad of course. But put this against this food security and the CO2 of transport and I've no idea where the balance lies.

QuoteHow? The issue here isn't customs or border related issues. It's that UK supermarkets got the vast majority of produce from four countries - two (UK and Netherlands) aren't economical any more and the other two (Spain and Morocco) are having climate related issues in their production. I don't see how Brexit relates to that or to their ability to pivot quickly to another supplier.
Anything coming from abroad is a customs/border related issue. Its simply taking far longer and becoming far more unreliable to get lorries back and forth across the border.
Additionally, though its slackening off compared to last year, the removal of the UK from the EU lorry driver pool has caused a massive shortage in the industry. This hasn't been completely fixed.
A lack of ability to be flexible is a key factor brexit has introduced to the UK economy.

Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on February 23, 2023, 10:34:52 AM
Quote from: Tamas on February 22, 2023, 11:42:18 AMWell, one problem a few people have been mentioning is that with all the QE etc since 2008, economic growth have been.. kind of meagre? I think the UK has managed what 1% or so? If that's true, how are things will look if we end the era of free money?

Growth in the US has been quite strong even as the Fed has brought up rates.  Central bank actions are usually reactionary so you have to look at the causal arrow from both ends.  QE is a response to poor demand conditions so it shouldn't be surprising if monetary easing and weak GDP numbers appear correlated.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on February 23, 2023, 10:45:28 AM
Quote from: DGuller on February 22, 2023, 10:55:07 AMI wonder if there is an argument for a policy that deliberately makes things less brittle, even at the expense of some economic efficiency.  Free market forces seem ill-equipped to properly manage extreme tail risks or contagion risks.  If all your competitors get their stuff made in China, it would be hard to stay in business if you don't follow suit, but then the entire sector's fortunes hang on the trade routes functioning as intended.

This is true to an extent, but even without the "tight" supply chains of the pre-COVID era, I think the economic effects of COVID would play out pretty close to what happened because the disruption was so significant and pervasive.  The argument could be made that the world economy operated quite well and responded flexibly under the very difficult circumstances posed.

I do think that policy is reorienting around building in buffers and redundancy, but more driven by national security concerns than economic policy. 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on February 23, 2023, 11:10:45 AM
Quote from: Josquius on February 23, 2023, 07:54:42 AMI'm not a farmer, but all I have heard from that sector is pretty annoyed at the dropping support (one easy pop-source of this, Jeremy Clarkson in series 2 of his farm series).
I haven't watched that - but I'm definitely going to since I've heard that NIMBYs are the antagonist :lol: :blush:

I never thought I'd end up cheering Jeremy Clarkson on - but here we are :blush:

QuoteThe government has talked a lot about new support but a big issue is that farming involves a lot of pre-planning for seasons ahead. There was (still is I think?) a huge gap between brexit and anything been done.
Yeah the scheme's been in consultation for four years and has now been formally announced and will be introduced over the next year or so - I thin it's actually a good example of what Britain can do in areas post-Brexit. But it's boring, slow, long, technical work and in the meantime they just rolled over existing subsidies. It doesn't give Brexiters the libidinal thrill of overthrowing Brussels - but is the right approach.

QuoteAnd OK. On the grand historic scale we're still doing OK nationally in terms of output. I mean we're at lows looking at recent comparable years. Things are still a bit distorted by covid it could be argued so it is a bit too early to try and try a definite quantitive conclusions. There are signs of notable drops across most agricultural products from the years leading up to 2019.
I don't really think there's an okay or an optimal level of national agricultural output. I find the switch for die-hard Thatcherites like John Redwood into Bennite autarkists wanting us to be self-sustainable in agriculture a bit weird to be honest. And vice versa.

My view is you probably need some form of subsidy for land management and you set a framework of how to do that (whether by carbon/environmental standards or production) - but aside from that you let the market operate. I don't see any reason to protect or otherwise boost local producers. (Although, it must be said, I am instinctively anti-rural :lol: :ph34r:)

QuoteWhat the right long term approach is I really have no idea. But what I do know for sure is the cliff edge approach that was followed was absolutely wrong. Any fundamental change in subsidies needs to be a gradual process.
But there wasn't. There was a long consultation period - with various iterations over several years, the new scheme has been broadly welcomed by the NFU and environmental groups with some quibbles (basically, like CAP, it will still primarily benefit large arable farmers over small pastoral farmers; and it could be more environmentally focused) and it will now be phased in over several years. There isn't a cliff edge.

QuoteAnything coming from abroad is a customs/border related issue. Its simply taking far longer and becoming far more unreliable to get lorries back and forth across the border.
Additionally, though its slackening off compared to last year, the removal of the UK from the EU lorry driver pool has caused a massive shortage in the industry. This hasn't been completely fixed.
A lack of ability to be flexible is a key factor brexit has introduced to the UK economy.
But literally none of those are being reported or even mentioned by industry figures as part of the problem. The closest I can see to Brexit from industry is this from the Guardian. As I say it could be a conspiracy theory for every economics correspondent in every news outlet regardless of their politics to downplay Brexit - or it could be that it's not always the cause:
QuoteWhat is behind the shortages?

Certain fresh vegetables and fruits are hard to come by in the UK as a result of an unfortunate combination of poor weather reducing the harvest in Europe and north Africa, as well lower supplies from UK and Dutch producers hit by the jump in energy bills to heat glasshouses.

At this time of year, Britain relies on Spain, Morocco, Tunisia and Egypt for the bulk of salad imports. However, these crops have been affected by unusually cold weather last month, including intense night frosts, while tomato plants have also been damaged or killed by disease – in particular the tomato brown rugose virus.

Meanwhile, Britain and other northern European countries – particularly the Netherlands which is a big vegetable producer – have reduced how many crops they have planted over the winter, after the Ukraine war sent bills soaring for the energy required to light and heat greenhouses and the cost of the fertiliser used on plants.

Faced with higher costs for glasshouse crops, some retailers chose to rely more heavily this year on sourcing from Spain and north Africa, leaving them more vulnerable to the weather-triggered shortages.

Are things worse in the UK than the rest of Europe?

It seems so. There are no reports of shortages in France and Germany and European shoppers have shared photos on social media of full supermarket shelves, in stark contrast to British supermarkets.

One issue is reduced output from British farms. The president of the National Farmers' Union (NFU), Minette Batters, told the union's annual conference on Tuesday that "domestic production of salad, including cucumbers and tomatoes, has fallen to its lowest level since records began in 1985".

In the UK, a cold snap and frost before Christmas also damaged field crops including cauliflower, cabbage and carrots.

Batters has warned there might be further rationing of salad items to come, especially if growers' energy bills remain high.

With many British tomato and salad growers having chosen to delaying planting in recent months because of economic uncertainty, UK production will not be able to pick up the slack for several weeks, and will probably begin later than in a normal year.

As a result, demand for Spanish and Moroccan produce to fill the gap has outstripped supply, and retailers cannot access as much food as they need, or face paying significantly higher prices for what is available.

So is Brexit to blame?

Most farmers and suppliers have said they do not believe the UK's exit from the EU is the main reason for the UK's empty supermarket shelves. However, many acknowledge that Brexit – as well as the pandemic – have increased costs for growers, mostly as a result of having to pay higher wages to workers amid labour shortages.

Some importers argue the additional costs and bureaucracy created by Brexit have put the UK at the back of queue for supplies from European producers when crops are in short supply across the continent. It has also led to higher costs and paperwork, which can cause delays at the border – a particular issue with perishable produce.

I'm not sure I really buy the "back of the queue" line, or I think that's really an issue of cost - and they're saying it "can" cause border issues but that's not the problem.

My view is that supermarkets are 95% of food retail in this country. They have huge leverage and power in dealing with their suppliers, and this is an industry that has been very aggressive and, I'd argue, predatory towards its suppliers in creating efficiencies and squeezing their supply chain (which benefited consumers). They are now reaping the consequences of those practices when their suppliers have issues and no-one else wants to do business on their terms. If you need to move to a Turkish supplier - where they'll already have contracts with existing customers, you probably need to pay a premium as well as a Brexit premium.

I saw Sainsibury's CEO this morning arguing that the UK needed to provide more money for energy intensive farmers in the UK as well as throwing in  line about Brexit. I think it's special pleading for the state to pay the costs of their suppliers so they don't have to move on price. There may be an argument for providing support to those farmers (personally I'm dubious) but it should be justified on its own terms not because Sainsbury's doesn't like the power in their relationship shifting to producers.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on February 23, 2023, 11:39:27 AM
I've watched first 3 episodes Clarkson's Farm season 2 and like the 1st one, it encapsulate so very well all the issues you Brits have talked about over the years.

NIMBY, excessive red tape, no plan, no ultimate authority, poor roads, excessive love for small towns, etc.


Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 01, 2023, 07:10:52 AM
UK consumer credit stat is WAY over estimates. I assume if this was a seasonal thing then the forecast (which is not included here but was at 0.5B) would have accounted for it, so probably an indication of inflation not cooling off:

QuoteThe latest Bank of England figures show sharp declines in mortgage approvals and lending in January, as the housing market continues to slow.

There was also a hefty rise in consumer credit, as people borrowed more on credit cards, loans etc as they struggled with soaring food and energy bills.

Net mortgage lending to individuals decreased from £3.1bn to £2.5bn in January.
Net mortgage approvals for house purchases decreased to 39,600 in January from 40,500 in December, marked the fifth consecutive monthly decrease in mortgage approvals. If the onset of the Covid-19 pandemic and period immediately thereafter is excluded (when the housing market ground to a halt), this was the lowest approvals since January 2009 (32,400).
The 'effective' interest rate – the actual interest rate paid – on newly drawn mortgages increased by 21 basis points, to 3.88% in January.
Consumers borrowed an additional £1.6bn in consumer credit, compared with £800m borrowed in December. This was split between £1.1bn of borrowing on credit cards and £500m of borrowing through other forms of consumer credit.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 01, 2023, 07:24:17 AM
Yeah, you can see the seasonally adjusted versions on the BofE site (useful charts):
https://www.bankofengland.co.uk/statistics/money-and-credit/2022/december-2022
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Larch on March 01, 2023, 07:55:02 AM
Hey Sheilbh, here you have a representative of the Spanish farming industry blaming Brexit for your veggie shortages, in case it helps you change your mind.  :P

QuoteAlfonso Gálvez, who serves as general secretary of the Murcia branch of Asaja, Spain's biggest farming association, said he was puzzled by the media talk of weather-induced shortages.

"I've seen these articles but I don't understand why they're talking about shortages here," he said. "Things are normal so far this season so I don't know if it's more a problem of UK logistics since the Brexit regulations came into effect. There's enough produce to supply the market and the vegetable season is happening pretty normally."

While he acknowledged that rising costs had seen a drop in production for some growers, and that frosts had affected some artichoke and lettuce crops, Gálvez said those issues were not serious or widespread enough to have significantly reduced market supplies.

The current UK shortages, he suggested, may have more to do with bureaucracy and logistics than the weather.

"The sector adapted to the new [post-Brexit] export protocols set by the UK in coordination with the different ministries that are responsible," he said. "But there have been logistics and transport problems when it comes to export, such as a shortage of lorry drivers to service the UK market, and the problems we've seen with the queues to get into the country through Eurotunnel."

That, Gálvez added, may have led some export companies or co-operatives to focus more on the continental market than the UK market.

"On top of that, you've got the costs of all this bureaucracy and all these waits, which mean that perhaps the UK market isn't so attractive," he said. "But in any case, there are enough raw materials and produce to keep supplying the market."

A spokesperson for the Spanish Federation of Exporting Fruit, Vegetable and Live Plant Producers (Fepex), said that while production had dropped over recent weeks because of the weather, the situation had improved in recent days and vegetable production was "back to its normal rhythm". She added: "The effect of that supply normalisation will be seen over the coming weeks."
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 01, 2023, 08:00:29 AM
There's been a fair bit of subsequent reporting pointing it out too.
One big stand out fact for instance- Morocco. We didn't used to be so reliant on Morocco for imports. This is a Brexit innovation.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 01, 2023, 08:06:31 AM
Quote from: The Larch on March 01, 2023, 07:55:02 AMHey Sheilbh, here you have a representative of the Spanish farming industry blaming Brexit for your veggie shortages, in case it helps you change your mind.  :P

QuoteAlfonso Gálvez, who serves as general secretary of the Murcia branch of Asaja, Spain's biggest farming association, said he was puzzled by the media talk of weather-induced shortages.

"I've seen these articles but I don't understand why they're talking about shortages here," he said. "Things are normal so far this season so I don't know if it's more a problem of UK logistics since the Brexit regulations came into effect. There's enough produce to supply the market and the vegetable season is happening pretty normally."

While he acknowledged that rising costs had seen a drop in production for some growers, and that frosts had affected some artichoke and lettuce crops, Gálvez said those issues were not serious or widespread enough to have significantly reduced market supplies.

The current UK shortages, he suggested, may have more to do with bureaucracy and logistics than the weather.

"The sector adapted to the new [post-Brexit] export protocols set by the UK in coordination with the different ministries that are responsible," he said. "But there have been logistics and transport problems when it comes to export, such as a shortage of lorry drivers to service the UK market, and the problems we've seen with the queues to get into the country through Eurotunnel."

That, Gálvez added, may have led some export companies or co-operatives to focus more on the continental market than the UK market.

"On top of that, you've got the costs of all this bureaucracy and all these waits, which mean that perhaps the UK market isn't so attractive," he said. "But in any case, there are enough raw materials and produce to keep supplying the market."

A spokesperson for the Spanish Federation of Exporting Fruit, Vegetable and Live Plant Producers (Fepex), said that while production had dropped over recent weeks because of the weather, the situation had improved in recent days and vegetable production was "back to its normal rhythm". She added: "The effect of that supply normalisation will be seen over the coming weeks."

(https://i.imgflip.com/7cvb0n.jpg)

Wrong thread anyhow.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 01, 2023, 09:27:37 AM
Quote from: The Larch on March 01, 2023, 07:55:02 AMHey Sheilbh, here you have a representative of the Spanish farming industry blaming Brexit for your veggie shortages, in case it helps you change your mind.  :P
No.

Here's Irish supermarkets (very similar business model to the UK - and one of the big three is Tesco) facing the same issue:
https://www.irishtimes.com/food/2023/02/21/supply-of-vegetables-to-ireland-disrupted-by-poor-weather-and-energy-costs/
https://www.dublinlive.ie/whats-on/food-drink-news/supervalu-tesco-lidl-among-irish-26296459

And some supermarkets introducing rationing:
https://www.irishexaminer.com/food/arid-41079614.html

Obviously the countries haven't both left the EU. So looking at common factors they both have similar supermarket sectors and consolidated their suppliers for those products in Spain, Morocco and the Netherlands. Perhaps as all the of the industry figures and journalists are saying that's the issue - and they're not all participating in a (now international) "conspiracy of silence" about Brexit? :P

Also that guy literally says "I don't know if it's more of a problem of UK logistics since the Brexit regulations came into effect" - but, understandably, explains why it could be from a distance. I feel like in journalism after someone's said "I don't know" the rest of what they say probably belongs more on the opinion pages :lol:

Edit:
Quote from: Josquius on March 01, 2023, 08:00:29 AMThere's been a fair bit of subsequent reporting pointing it out too.
One big stand out fact for instance- Morocco. We didn't used to be so reliant on Morocco for imports. This is a Brexit innovation.
But again I'm not sure that's true either. Our imports from Morocco are slightly lower now than they were before Brexit (but they bounce about a fair bit).

Our top three import partners for tomatoes are the Netherlands, Spain and Morocco in that order. The world's largest tomato exporters are Mexico, the Netherlands, Spain and Morocco in that order. I'm not really sure Brexit has much to do with it.

As I say this reminds me of the way Leavers talked about reporters not speaking about Brexit opportunities/upsides. It's wishcasting. There are lots of effects that it possibly has along the way in relation to farming in general or supply chains in general. But as economics reporters and industry figures are saying - it's mainly a story about energy and climate (which, despite Brexit, continue to be fairly important issues).

When economics reporters and industry say something's because of Brexit, I believe them; and I do the same when they say it's not really Brexit but  x, y or z issues.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 05, 2023, 08:07:56 PM
The rail ticket I use most has gone up an inflation busting 10.1% today, instead of the 5.9% for general ticket prices that are controlled by government. <_<
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 05, 2023, 08:41:04 PM
Quote from: mongers on March 05, 2023, 08:07:56 PMThe rail ticket I use most has gone up an inflation busting 10.1% today, instead of the 5.9% for general ticket prices that are controlled by government. <_<

Maybe you should consider driving :ph34r: :P
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 06, 2023, 04:47:09 AM
Quote from: HVC on March 05, 2023, 08:41:04 PM
Quote from: mongers on March 05, 2023, 08:07:56 PMThe rail ticket I use most has gone up an inflation busting 10.1% today, instead of the 5.9% for general ticket prices that are controlled by government. <_<

Maybe you should consider driving :ph34r: :P
That is what they're incentivising....
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 09, 2023, 03:25:28 PM
I wonder why financial/bank stocks are collapsing today. Sure there was some news about a crypto "bank" going bust but that was a day ago and it's what, the 6th crypto ponzi scheme going down? Something is up.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 09, 2023, 04:00:39 PM
All I've heard is 21,000 more jobless claims.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 09, 2023, 04:05:39 PM
It looks like SVB had a very bad day (possible fears about solvency too) and that has impacted other banks.

I think there is something interesting in generally very positive employment numbers, strong wage growth etc while also tech companies having huge issues as well as venture firms - and perhaps a slight issue that in the last decade we've mistaken VCs spanking billions on companies that don't make money for the economy? :ph34r:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 09, 2023, 05:02:18 PM
This thread attempts to explain it (Macro Alf is a great macro-focused guy on Twitter and Youtube BTW): https://twitter.com/MacroAlf/status/1633944102826909703

My understanding of it is: the combination of rate hikes, QT, and regulations pushing significant bank investments into bonds (corporate included) is starting to bite.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 09, 2023, 06:10:30 PM
Quote from: Tamas on March 09, 2023, 03:25:28 PMI wonder why financial/bank stocks are collapsing today.

Many sellers, few buyers.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 04:45:28 AM
I am seeing retweets showing that people are trying and somewhat succeeding in spreading the panic around the Silicon Valley Bank collapse. In particular they are at it with First Republic and seemingly managing to make people queue up at done branches yesterday.

One incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.

Needless to say the UK government is moving far quicker on this than nurses and teachers' pay and allegedly already heavily considering stepping in to bail out UK tech companies affected.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 12, 2023, 08:22:48 AM
Surely you'd expect the response to a bank collapsing to be quicker than pay negotiations with unions? :P

SVB UK is a separate subsidiary with its own banking licences, balance sheets and regulatory approvals. Latest reports are the government's trying to engineer a takeover - FT are reporting there's a Middle Eastern buyer "with deep pockets" who's expressed interest. That would seem like a good solution.

QuoteOne incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.
And yet if any sector is capable of getting into a Twitter doom loop that accidentally starts a bank run it's surely tech, given that most of the last decade they've been getting in Twitter hype loops etc :lol:

It's not such a big thing here because there's no "Silicon Valley" ideology and it shouldn't be a surprise, but it is still a bit mad seeing people who are normally evangelical about individual innovation as the solution to all society's woes (plus crowing over industries that "can't survive"), suddenly pivot to demanding an immediate Federal bailout for this key sector that employs so many. You'd need a heart of stone not to laugh.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 08:38:13 AM
Yeah an investor guy was panicking on the same Youtube channel I am going to link in a moment about how it is the Fed's fault. Right, because the Fed forced SVB to be reckless and don't insure against interest rates possibly coming up higher from zero.

These two guys run a great weekly macro-themed podcast, and in today's they managed to keep the finance-babble to a minimum in explaining what and why happened:
https://www.youtube.com/watch?v=45BXWBuQGUs
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 12, 2023, 08:46:54 AM
Yeah - although I think there is a story about the Fed or regulators here.

I've seen this doing the rounds a lot about quite how unhedged their position was:
(https://pbs.twimg.com/media/Fq8xJdxWAAErE3Z?format=jpg&name=small)

Obviously it's not that the Fed forced them to do anything. But when you've got an outlier like that and a bank with lots of uninsured deposits, that wasn't hedging its position - that feels like the sort of thing regulators should be noticing and getting ahead of. No idea if that's the Fed or another federal level regulator but I'm not fully sure how they let that happen.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 12, 2023, 08:58:43 AM
Quote from: Tamas on March 12, 2023, 04:45:28 AMI am seeing retweets showing that people are trying and somewhat succeeding in spreading the panic around the Silicon Valley Bank collapse. In particular they are at it with First Republic and seemingly managing to make people queue up at done branches yesterday.

One incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.

Needless to say the UK government is moving far quicker on this than nurses and teachers' pay and allegedly already heavily considering stepping in to bail out UK tech companies affected.

People are trying to spread panic?
Who?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 09:27:21 AM
Quote from: Josquius on March 12, 2023, 08:58:43 AM
Quote from: Tamas on March 12, 2023, 04:45:28 AMI am seeing retweets showing that people are trying and somewhat succeeding in spreading the panic around the Silicon Valley Bank collapse. In particular they are at it with First Republic and seemingly managing to make people queue up at done branches yesterday.

One incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.

Needless to say the UK government is moving far quicker on this than nurses and teachers' pay and allegedly already heavily considering stepping in to bail out UK tech companies affected.

People are trying to spread panic?
Who?

Not in the UK. Here nothing is more important than Match of the Day.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 09:30:12 AM
Quote from: Sheilbh on March 12, 2023, 08:46:54 AMYeah - although I think there is a story about the Fed or regulators here.

I've seen this doing the rounds a lot about quite how unhedged their position was:
(https://pbs.twimg.com/media/Fq8xJdxWAAErE3Z?format=jpg&name=small)

Obviously it's not that the Fed forced them to do anything. But when you've got an outlier like that and a bank with lots of uninsured deposits, that wasn't hedging its position - that feels like the sort of thing regulators should be noticing and getting ahead of. No idea if that's the Fed or another federal level regulator but I'm not fully sure how they let that happen.

I mean, there are lots of areas where people are allowed to make stupid bets. If anyone other than SVB, I'd blame rating agencies, I think maybe it was in the podcast I linked where they claimed some of them were recommending SVB for investment just a week ago on some sort of A rating.

EDIT: actually if you listen to the podcast I linked, they explain how SVB -probably very deliberately- kept themselves under the regulatory limit, so they would not have to go through stress tests.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on March 12, 2023, 12:55:23 PM
It just occurred to me that now would be a really good time for Russia to deploy their Twitter bots to sow panic and encourage bank runs.  :ph34r:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 12, 2023, 04:25:11 PM
Quote from: DGuller on March 12, 2023, 12:55:23 PMIt just occurred to me that now would be a really good time for Russia to deploy their Twitter bots to sow panic and encourage bank runs.  :ph34r:

So DG, have you had the order yet?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 05:33:47 PM
Sounds like the Fed is creating a separate fund to bail out depositors of banks who have and will fail.

(https://media.tenor.com/SodieCmOhMIAAAAM/jerome-powell-powell.gif)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on March 12, 2023, 06:11:29 PM
To be fair, it doesn't sound like a taxpayer-funded or printing-funded bailout, it sounds like an assessment-funded guarantee.  These kinds of scheme are standard in insurance guarantee funds.  It seems like a sensible action if the biggest problem is panic.  If the problem is industry-wide solvency crisis, then of course it doesn't fix anything.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 12, 2023, 06:34:51 PM
Also if I understand correctly the Fed will effectively exchange the crappy old bonds of sturggling banks to shiny new ones for a fee of 4-5%.

QuoteThis is how the Fed intends to backstop other liquidity issues: a new facility called Bank Funding Term Program

The idea is to provide banks with an alternative to liquidate their bond holdings when in need of raising liquidity to meet deposit outflows

Two important points:

(https://pbs.twimg.com/media/FrDZQ6-WwAIJ1O6?format=png&name=small)

QuoteBasically all HQLA bonds and not only Treasuries are eligible - banks can post them to the Fed to raise money.

And bonds will be valued at par (!), so all the negative mark-to-market from unhedged bonds is not considered with this facility.

What are the terms?

Excellent, in my opinion.

Funding is at 1-year OIS (basically 1-year market-implied Fed Funds) plus a meagre 10 bps spread on top.

1 year guaranteed liquidity at Fed Funds plus 10 bps posting collateral deep in the mud but valued at par.

Quite the deal.

(https://pbs.twimg.com/media/FrDaPi8WAAAnKz8?format=jpg&name=small)

Just some quick thoughts.

I was right on the package: no bailout for equity owners, uninsured depositors compensated as much as possible.

The new facility basically provides very reasonably priced funding to banks under stress if deposits go away.

Of course...
...these banks were paying basically nothing for these deposits and if they must access the BFTP they will end up paying 4-5% for their funding now.

But that is still a much better proposition than going belly up in a regional bank run.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 12, 2023, 06:56:43 PM
America has too many banks. Canada is majorly uncompetitive from a consumers perspective,  but at least the banks are safe. How do euro countries handle banks?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Richard Hakluyt on March 13, 2023, 02:33:52 AM
There are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them  :lol:  ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Silicon valley bank had a UK unit, which is going to be taken over by HSBC apparently https://www.bbc.co.uk/news/business-64937251

A few weeks ago I concluded the banking sector had calmed down and bought some shares in HSBC...anyone want to subscribe to my share-tipping service  :P  ?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 13, 2023, 08:51:26 AM
Thing I find striking about the SVB thing is that it's reminiscent of British pension funds' LDIs which interacted with Kwarteng's budget so disastrously.

The worry I have from a regulatory/system perspective is that there are these areas of the financial system that require bonds etc - many of which were purchased at a time of far lower interest rates (and expectations). It's not surprising that rising rates has an impact on those bits of the system. Both were dealt with relatively easily and relatively simply.

But I'm a little disconcerted by the fact that regulators seem to be a bit suprised/caught on the hop when this happens. It feels like with rates rising for the first time in about 15 years that should be a risk that regulators are very interested in and monitoring really tightly. I'm not sure about the Fed rate - but for the BofE I think it's been 10 rises in a row with clear expectation setting. I think the markets have been adjusting to that - I'm a little concerned that maybe the regulators (here that means another bit of the BofE) haven't? :hmm:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on March 13, 2023, 10:45:40 AM
Quote from: Richard Hakluyt on March 13, 2023, 02:33:52 AMThere are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them  :lol:  ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Like Canada but the inverse. We have a Big 5 but really there are 3.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on March 13, 2023, 12:00:33 PM
Obviously one of the big'uns moved from Canada to the UK.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 13, 2023, 12:59:52 PM
Quote from: Grey Fox on March 13, 2023, 10:45:40 AM
Quote from: Richard Hakluyt on March 13, 2023, 02:33:52 AMThere are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them  :lol:  ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Like Canada but the inverse. We have a Big 5 but really there are 3.

Royal Bank, TD, Scotia, BMO and CIBC are the big 5. 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 13, 2023, 01:01:16 PM
Quote from: Jacob on March 13, 2023, 12:00:33 PMObviously one of the big'uns moved from Canada to the UK.

You are referencing HSBC I assume?  Not really a major player in Canada nationally - more of a regional player here.

And fyi, the Canadian operations are up for sale.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on March 13, 2023, 01:04:59 PM
Quote from: crazy canuck on March 13, 2023, 01:01:16 PM
Quote from: Jacob on March 13, 2023, 12:00:33 PMObviously one of the big'uns moved from Canada to the UK.

You are referencing HSBC I assume?  Not really a major player in Canada nationally - more of a regional player here.

And fyi, the Canadian operations are up for sale.

It was purely a math based observation - we're allegedly short one and the UK is allegedly up one. So obviously.... :)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 13, 2023, 01:06:12 PM
HSBC are, incidentally, the bank that ended up buying the UK subsidiary of SVB. No bailout or government money at all - but a waiver (not sure how temporary) on allowing complex corporate depositors to sit within the ring-fenced bank.

Looking at the Canadian ones - did not have Nova Scotia down as a big financial hub :huh:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 13, 2023, 01:10:03 PM
Headquartered in Toronto, they all are :D

Gf exaggerated but the top two are double the bottom two in assets, but they're still close to trillion dollar banks so not tiny.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 13, 2023, 01:22:01 PM
Quote from: Jacob on March 13, 2023, 01:04:59 PM
Quote from: crazy canuck on March 13, 2023, 01:01:16 PM
Quote from: Jacob on March 13, 2023, 12:00:33 PMObviously one of the big'uns moved from Canada to the UK.

You are referencing HSBC I assume?  Not really a major player in Canada nationally - more of a regional player here.

And fyi, the Canadian operations are up for sale.

It was purely a math based observation - we're allegedly short one and the UK is allegedly up one. So obviously.... :)

Ah, ok - but GF was wrong, we definitely have a big 5 - and some would say a big 6 (the National Bank of Canada, who are likely to be the successful bidder on the HSBC Canadian operations).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 13, 2023, 01:23:31 PM
Quote from: Sheilbh on March 13, 2023, 01:06:12 PMHSBC are, incidentally, the bank that ended up buying the UK subsidiary of SVB. No bailout or government money at all - but a waiver (not sure how temporary) on allowing complex corporate depositors to sit within the ring-fenced bank.

Looking at the Canadian ones - did not have Nova Scotia down as a big financial hub :huh:

Yeah, its a confusing name, but the name is just an historical oddity related to the original bank charter.  They are not operated out of Nova Scotia.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on March 13, 2023, 05:23:46 PM
I am not wrong. I am making a dig at the CIBC and BMO.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 14, 2023, 12:46:04 AM
Quote from: Sheilbh on March 13, 2023, 08:51:26 AMBut I'm a little disconcerted by the fact that regulators seem to be a bit suprised/caught on the hop when this happens. It feels like with rates rising for the first time in about 15 years that should be a risk that regulators are very interested in and monitoring really tightly. I'm not sure about the Fed rate - but for the BofE I think it's been 10 rises in a row with clear expectation setting. I think the markets have been adjusting to that - I'm a little concerned that maybe the regulators (here that means another bit of the BofE) haven't? :hmm:

The regulators probably figured the rate movements wouldn't be an issue for institutions - like SVB - that hold the bulk of their long-term investments as hold to maturity (HTM) and thus were not required to mark them to market values. What they missed is the human dynamic of "viral" panic when you have a bank whose deposit base consists almost entirely of deposit amounts far above the FDIC insured limit.

To my mind, the bigger question is not how to make these kinds of institutions safer but why they exist at all in the 21st century.  But that is a different story.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 14, 2023, 03:34:08 AM
Yeah my impression is something fishy was going on with SVB, although it could be just utter incompetence.

I don't like how strongly wall street types lean on it though to overdramatise the situation. I think they smell blood, expecting the Fed to get scared and start dropping rates.

Which may happen of course. I fear the popping of the asset bubble is about to be delayed a few years.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 14, 2023, 08:56:49 AM
Making depositors who had balances above the FDIC insured limit whole is the kind of bail out I object to.

Joan, what can you tell me about these large deposit holders? 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 14, 2023, 09:25:14 AM
also, is the limit per person or per bank? Could I have my money in 10 banks and have 10 times the insurance?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 14, 2023, 09:31:11 AM
Quote from: HVC on March 14, 2023, 09:25:14 AMalso, is the limit per person or per bank? Could I have my money in 10 banks and have 10 times the insurance?
In the UK deposit insurance is per pereson - same with tax relief on savings or pension contributions.

Although this is slightly different because it's corporate depositors (often using relatively complex products).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 14, 2023, 09:38:39 AM
Thanks sheilbh, I guess that makes sense.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on March 14, 2023, 09:41:52 AM
Quote from: Sheilbh on March 14, 2023, 09:31:11 AM
Quote from: HVC on March 14, 2023, 09:25:14 AMalso, is the limit per person or per bank? Could I have my money in 10 banks and have 10 times the insurance?
In the UK deposit insurance is per pereson - same with tax relief on savings or pension contributions.

Although this is slightly different because it's corporate depositors (often using relatively complex products).

Isn't it per person per financial bank?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 14, 2023, 09:51:33 AM
Quote from: garbon on March 14, 2023, 09:41:52 AMIsn't it per person per financial bank?
I don't think so - but I'm just going off what I remeber being told when I was opening a savings account. I wasn't paying much attention because it's very much not a problem for me :ph34r: :weep:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 14, 2023, 09:57:53 AM
Quote from: Sheilbh on March 13, 2023, 08:51:26 AMThing I find striking about the SVB thing is that it's reminiscent of British pension funds' LDIs which interacted with Kwarteng's budget so disastrously.

The worry I have from a regulatory/system perspective is that there are these areas of the financial system that require bonds etc - many of which were purchased at a time of far lower interest rates (and expectations). It's not surprising that rising rates has an impact on those bits of the system. Both were dealt with relatively easily and relatively simply.

But I'm a little disconcerted by the fact that regulators seem to be a bit suprised/caught on the hop when this happens. It feels like with rates rising for the first time in about 15 years that should be a risk that regulators are very interested in and monitoring really tightly. I'm not sure about the Fed rate - but for the BofE I think it's been 10 rises in a row with clear expectation setting. I think the markets have been adjusting to that - I'm a little concerned that maybe the regulators (here that means another bit of the BofE) haven't? :hmm:

Why would regulators care much about a bank that was not regulated? 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on March 14, 2023, 10:07:50 AM
Quote from: Sheilbh on March 14, 2023, 09:51:33 AM
Quote from: garbon on March 14, 2023, 09:41:52 AMIsn't it per person per financial bank?
I don't think so - but I'm just going off what I remeber being told when I was opening a savings account. I wasn't paying much attention because it's very much not a problem for me :ph34r: :weep:

Yeah so it is per institution. I recall what the banker said when my husband and I got a joint account at bank where I had my own account.

Bank of England says this on their site:

QuotePeople with eligible deposits that add up to more than the deposit protection limit may wish to take steps to keep their deposits fully protected (eg by splitting their deposits across different PRA-authorised firms).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on March 14, 2023, 10:08:57 AM
Quote from: HVC on March 14, 2023, 09:25:14 AMalso, is the limit per person or per bank? Could I have my money in 10 banks and have 10 times the insurance?

Yes. You don't have to have your money exposed simply because of limit for accounts at one bank. Works that way in US.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 14, 2023, 10:12:19 AM
Quote from: garbon on March 14, 2023, 10:07:50 AMYeah so it is per institution. I recall what the banker said when my husband and I got a joint account at bank where I had my own account.
Thanks - sorry :ph34r:

Still think I'm right on the tax relief - but again, very much not an issue for me...
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 14, 2023, 10:12:23 AM
Quote from: garbon on March 14, 2023, 10:07:50 AM
Quote from: Sheilbh on March 14, 2023, 09:51:33 AM
Quote from: garbon on March 14, 2023, 09:41:52 AMIsn't it per person per financial bank?
I don't think so - but I'm just going off what I remeber being told when I was opening a savings account. I wasn't paying much attention because it's very much not a problem for me :ph34r: :weep:

Yeah so it is per institution. I recall what the banker said when my husband and I got a joint account at bank where I had my own account.

Bank of England says this on their site:

QuotePeople with eligible deposits that add up to more than the deposit protection limit may wish to take steps to keep their deposits fully protected (eg by splitting their deposits across different PRA-authorised firms).

Sheilbh you've failed me for the last time!  :ultra: :D

So now thank you garbon
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 14, 2023, 10:25:22 AM
 :Embarrass: :P
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Larch on March 14, 2023, 11:23:50 AM
Forbes, maybe not to be trusted in the future.  :P

(https://pbs.twimg.com/media/FrGfJOHWAAAb1Kb?format=jpg&name=medium)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Larch on March 14, 2023, 11:25:27 AM
Tweet from a former SVB customer wondering how could a bank run have happened while simultaneously emptying all his accounts at the bank.

https://twitter.com/torrenegra/status/1634573234187407369 (https://twitter.com/torrenegra/status/1634573234187407369)

QuoteAlexander Torrenegra
@torrenegra

Silicon Valley Bank was the main bank for two of our companies, my personal savings, and my mortgage. This is how things unfolded for us:

Between 2013 and 2023, all good.

Thursday, 9 AM: in one chat with 200+ tech founders  (most in the Bay Area), questions about SVB start to show up.

10 AM: some suggest getting the money out of SVB for safety. Only upside. No downside.

10:50 AM: I read the messages in a bathroom break. Immediately cancel the meeting I had. Ask my wife, Tania, to wire all of our personal money out to other banks. Call my teams. Ask them to do the same. One of them, at the dentist, has to stop the procedure and run home.

11:10 AM: We can't get the money out of any of the accounts. For our personal savings, we don't have other bank accounts readily available. For one of the companies, the permissions are not set up to allow such a significant exit of money. We can only get half of the money out. We wire it to Ameritrade, as we don't have any other bank account set up. For the 2nd company, the banking credentials had been changed. I cannot log in.

11:15 AM: Tania gets a hold of another bank we were already talking to, UBS. Ask them to open a bank account pronto.

11:20 AM: I change the permissions for the 1st company. We request another wire out to Ameritrade for the remaining money from that company. We have to wait for the wires to get out.

11:25 AM: After a long wait, I get a hold of an SVB agent. They reset my credentials for the 2nd company.

~12:00 PM: All of my chats with tech founders in the US light on fire with what's happening. Obviously, we have a bank runoff. Surreal.

12:30 AM: We request two wires for all the money from the 2nd company to Mercury.

12:38 PM: Wires to Ameritrade clear. The 1st company is safe.

12:45 PM: We sign dozens of documents -without reading them- and complete the opening of a personal bank account with UBS.

12:50 PM: Tania requests SVB, via their website, to wire all of our personal savings to UBS. Given the permission settings in place, they tell us that they have to call us.

1:30 PM: SVB is a solid bank. I know their CEO, Greg Becker. Great guy. I figure this is a temporary issue caused mainly by people panicking. They'll recover. I buy shares of SVB at what I consider significantly low prices.

2:09 PM: One of the wires for the other company clears.

~3:00 PM: My chats with tech founders from Latin America start to catch up.

4:05 PM: SVB calls us. Tells us that our savings will be wired the same day, as requested.

4:10 PM: We jump on a plane to fly back to San Francisco.

11:50 PM: We land. We learn that the 2nd wire for the 2nd company hasn't cleared yet. Worst, the wire to get our personal savings out of SVB is still in the queue.

2 AM: Go to bed.

Friday 7 AM: Wake up. Nothing. SVB stock is 60% down overnight.

7:30 AM: Cancel all morning meetings to focus on the problem.

~8:00 AM: Learn that SVB is now controlled by the government. The shares I bought the day before are now likely worthless. I made a mistake.

9:00 AM: Host a town hall with my team. Explain what's happening. Answer questions.

All day long: Wait and cope with the anxiety. Help other entrepreneurs. Share what we know. Answer questions from investors.

~4:00 PM: Figure that the money for the company with the pending wire is safe. It will be available as of Monday. Unfortunately, for our personal savings, only a portion is safe. We may recover most of the money. The percentage, however, remains unclear. It may take years.

5:00 PM: Play with the kids. They help me forget about the material world.

At night: Reflect. "What did I do wrong?". "Am I good enough to do what I do?" Hug Tania.

Saturday: Figure there is nothing of value by focusing on the topic. It's an externality. We shouldn't invest too much time thinking about them. Or trying to predict the markets. Time to go back to what we can control: the execution of our companies.

Continue pushing forward. Persist. Persist. Persist.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on March 14, 2023, 11:45:15 AM
Ugh at that man. Ugh.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Larch on March 14, 2023, 12:13:16 PM
This part would crack me up if it wasn't such a serious thing.

QuoteThursday, 9 AM: in one chat with 200+ tech founders  (most in the Bay Area), questions about SVB start to show up.

10 AM: some suggest getting the money out of SVB for safety. Only upside. No downside.

10:50 AM: I read the messages in a bathroom break. Immediately cancel the meeting I had. Ask my wife, Tania, to wire all of our personal money out to other banks. Call my teams. Ask them to do the same. One of them, at the dentist, has to stop the procedure and run home.

(...)

~12:00 PM: All of my chats with tech founders in the US light on fire with what's happening. Obviously, we have a bank runoff. Surreal.


No, of course there's no downside whatsoever if plenty of company owners start withdrawing all their money from a bank. No, of course this wouldn't cause a bank run. Who would have thought it?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 14, 2023, 12:18:00 PM
Quote from: Admiral Yi on March 14, 2023, 08:56:49 AMJoan, what can you tell me about these large deposit holders? 

I saw reports that 93% of deposits at SVB were over the 250K limit.
Signature Bank in NY - with which I am more familiar is probably similar.  Because their main clientele is/was smaller and mid cap businesses that are going to keep seven or eight figures on deposit.

QuoteMaking depositors who had balances above the FDIC insured limit whole is the kind of bail out I object to

Sure as a matter of principle.

But the problem is what is a substantial business supposed to do?  They need to keep millions of working capital in a bank to process regular transactions, like making payroll, buying supplies and equipment, collecting A/R etc. It's not feasible to handle this by e.g. opening 100 separate accounts of 250K at 100 banks. 

OK so caveat emptor.  The business depositor should exercise care and pick a safe bank, and pay the price if they don't.

But what does a "safe" bank look like?  Decent levels of capital and safe asset base.  And what are the safest assets?  Government securities and agency bonds.

Huh - that kind of looks a lot like SVB, no?  See the problem?  Caveat emptor doesn't always work.  Because the very nature of the banking business involves taking on maturity mismatches and thus assuming liquidity risk.  All banks, even the "safest", are exposed to this risk.

In the old days, traditional commercial banks - let's call them TradCom bank - would take business deposits and make business loans.  I.e. the classic bank functions of maturity transformation, capital allocation, and transaction facilitation.  Arguably TradCom is a riskier model than SVB, because business loans involve a lot more credit risk and are a lot less liquid than government securities.  But there is an important but subtle offset to that risk: the same business community that forms the deposit base for TradCom also uses and relies on TradCom for capital.  So there is a strong collective interest to hang together and discourage runs.

But TradCom while it still exists is a dying model and in places like Silicon Valley they can't exist.  Because Valley companies wouldn't be caught dead with a bank loan.  Early stage companies do equity rounds with VCs or maybe sell notes in a private placement.  More developed Valley companies finance investment from ample profits or also go to the capital markets if they need more.

But even the fanciest cutting edge techco needs to make payroll and pay for paper reams.  They still need a fuddy duddy bank to do basic money transactions. Ergo, SVB.  But how does SVB make enough money to support that transactional infrastructure, pay their own employees, and have something extra left over for their own shareholders?  Not business loans to the local companies - no market for that.  So they have to plow their deposits into yield generating assets.  And if they are minimally responsible, they will presumably pick "safe" assets like government securities.  Which they did.  And . . . we are back at square one.

Now to my mind this raises a bigger point, which is what economic function an institution like SVB serves and whether it would make more sense for business to keep accounts directly with the Fed. But that's a whole separate line of discussion.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 14, 2023, 12:22:46 PM
Quote from: The Larch on March 14, 2023, 12:13:16 PMThis part would crack me up if it wasn't such a serious thing.

Seems to me nothing can top this one

Quote1:30 PM: SVB is a solid bank. I know their CEO, Greg Becker. Great guy. I figure this is a temporary issue caused mainly by people panicking. They'll recover. I buy shares of SVB at what I consider significantly low prices.

As the same guy is pulling his money out of the bank. 

Just wow.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 14, 2023, 12:29:46 PM
Thanks.

I am aware of the moral hazard.  I guess I'm still steamed about Rolling Stone et al bitching about a bailout in 08 when this is much purer bailout.  Maybe the solution is to increase premiums and lift the insurance limit.

One thing I don't get though, maybe you can explain.  If all their assets were Treasuries and agencies, why the sudden crash in asset value?  I understand the inverse relationship between bond price and market yield, but if they were in fact holding to maturity, par is par, right?  I mean their balance sheet only looks bad if they mark to market, right?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Richard Hakluyt on March 14, 2023, 12:33:34 PM
Rumours led to withdrawals and they had to sell bonds at a loss to cover this apparently.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Richard Hakluyt on March 14, 2023, 12:35:09 PM
Explainer from Reuters :

https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 14, 2023, 12:37:10 PM
Quote from: Admiral Yi on April 27, 1975, 09:44:58 PMOne thing I don't get though, maybe you can explain.  If all their assets were Treasuries and agencies, why the sudden crash in asset value?  I understand the inverse relationship between bond price and market yield, but if they were in fact holding to maturity, par is par, right?  I mean their balance sheet only looks bad if they mark to market, right?

Correct and initially there wasn't a crash in asset value because under the banking regs they didn't have to MTM the hold to maturity portfolio for accounting purposes.  But the current market values were still disclosed in regulatory filings.  And once those values started circulating word-to-mouth, deposits starting streaming out, forcing the bank to liquidate assets, kicking off a malign feedback loop.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 14, 2023, 12:42:15 PM
Ironically, the same characteristics of government securities that make them seem like safe investments also make it more transparent when there is a decline in value.  Safe doesn't necessarily make for safety.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 14, 2023, 12:42:39 PM
gotcha
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 14, 2023, 12:46:32 PM
and Tricky
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Legbiter on March 14, 2023, 03:56:56 PM
Quote from: The Larch on March 14, 2023, 11:23:50 AMForbes, maybe not to be trusted in the future.  :P

(https://pbs.twimg.com/media/FrGfJOHWAAAb1Kb?format=jpg&name=medium)

Like local restaurants here who win awards and get rave professional reviews and then close down 2 weeks later...
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Oexmelin on March 14, 2023, 04:36:36 PM
Quote from: Sheilbh on March 13, 2023, 01:06:12 PMLooking at the Canadian ones - did not have Nova Scotia down as a big financial hub :huh:

From the time of merchant capital loans for shipping operations out of Nova Scotia. Think Cunard and Co., though the Cunards actually created what became the Royal Bank of Canada.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 14, 2023, 05:04:08 PM
(https://cdn.discordapp.com/attachments/890876664970641418/1085320746580062269/RDT_20230314_135710782936492197247425.jpg)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 15, 2023, 10:04:29 AM
Credit suisse is slipping too. They were recruiting quite heavily just before Xmas.
Broader banking bust or just the shit going under?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Valmy on March 15, 2023, 10:25:11 AM
Quote from: Josquius on March 15, 2023, 10:04:29 AMCredit suisse is slipping too. They were recruiting quite heavily just before Xmas.
Broader banking bust or just the shit going under?

Banks failing to adjust to highet interest rates I think.

I worry about it creating a general bank panic.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on March 15, 2023, 10:27:26 AM
They could just raise checking/regular account interest.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 15, 2023, 12:09:26 PM
Quote from: Valmy on March 15, 2023, 10:25:11 AM
Quote from: Josquius on March 15, 2023, 10:04:29 AMCredit suisse is slipping too. They were recruiting quite heavily just before Xmas.
Broader banking bust or just the shit going under?

Banks failing to adjust to highet interest rates I think.

I worry about it creating a general bank panic.

That's odd, the increase has generally helped Canadian banks as the interest rate spread they make their profits on has increased.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on March 15, 2023, 12:41:49 PM
The investment folks at my wife's work were discussing the Silicon Valley Bank troubles and they said that it was basically a textbook case of poor and insufficient hedging at SVB.

Now, this is second hand and all but my impression is that those folks know what they're talking about.

... and that would also line up with your observation. Banks who managed their risk competently (or even made bets in the right direction) could very well  prosper in this environment, while those who relied on erroneous assumptions do not.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Razgovory on March 15, 2023, 12:43:25 PM
I thought they went bankrupt because they were "woke".
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 15, 2023, 12:47:20 PM
Been reading stuff like only one board member had a finance background and the chief risk officer was on a nine month uncovered leave. You'd think banks would be a lot more regulated in the states after all the "hiccups", but I guess money and lobbying talks.

I guess svb fell out of normal regulation regardless? How does a bank that big get to act as a "shadow bank" in the first place?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 15, 2023, 12:50:27 PM
Quote from: Jacob on March 15, 2023, 12:41:49 PMThe investment folks at my wife's work were discussing the Silicon Valley Bank troubles and they said that it was basically a textbook case of poor and insufficient hedging at SVB.

Now, this is second hand and all but my impression is that those folks know what they're talking about.

... and that would also line up with your observation. Banks who managed their risk competently (or even made bets in the right direction) could very well  prosper in this environment, while those who relied on erroneous assumptions do not.

I have read and heard that from several people in the finance sector - SVB was extremely mismanaged. I guess we'll learn in a year or two if it was incompetence or something shady.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 15, 2023, 01:43:24 PM
Swedens largest pension fund lost 1 billion investment in SVB and signature bank.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 15, 2023, 01:51:15 PM
Quote from: Tamas on March 15, 2023, 12:50:27 PM
Quote from: Jacob on March 15, 2023, 12:41:49 PMThe investment folks at my wife's work were discussing the Silicon Valley Bank troubles and they said that it was basically a textbook case of poor and insufficient hedging at SVB.

Now, this is second hand and all but my impression is that those folks know what they're talking about.

... and that would also line up with your observation. Banks who managed their risk competently (or even made bets in the right direction) could very well  prosper in this environment, while those who relied on erroneous assumptions do not.

I have read and heard that from several people in the finance sector - SVB was extremely mismanaged. I guess we'll learn in a year or two if it was incompetence or something shady.

My guess is the former much more than the latter - it was bro bank that structured itself in a way that it could avoid most of the regulations that would normally apply to a bank.  That lack of regulation appealed to the tech bros.  But of course, you need to have a lack of financial sophistication to think putting money into such a bank is a good idea.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 15, 2023, 01:58:08 PM
I would take explanations from "people in finance" about this with some degree of skepticism.  People of finance have a vested interest in a narrative that seeks to explain these bank runs as an anomaly caused by special incompetence or fraud and not as a broader risk or vulnerability in the system.

Is it possible to hedge against interest rate rises?  Sure but it costs money to put those positions on and where does that money come from?  Ultimately from taking on risk somewhere else to generate the return to fund the hedge.  Can you ameliorate duration risk by purchasing shorter duration assets?  Yes but if you if you tried to do that with government securities in the last 10 years or so, you would get virtually zero yield.  So either lose money or take on credit risk or suck it up and eat duration risk.

No financial institution can hedge all risks.  You have to select some risk or risks to be exposed to and then manage it best you can.

I'm not saying SVB were masters of risk management; they may not have been.  But I doubt they are singularly unique in that category as against peers.

It seems to me the focus on SVB's asset book is misplaced.  SVB may have had its problems but it seems pretty glaring that there was a big problem on the liability side, namely high concentration of uninsured deposits among very similar kinds of depositors.  Once the whispers trigger a run, all the risk management and hedges in the world can't save the bank.  To my mind talking about the hedges on the asset book in that context is like debating the merits of different kinds of body armor after the target has been vaporized by a direct artillery hit.

Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 15, 2023, 02:03:03 PM
Quote from: The Minsky Moment on March 15, 2023, 01:58:08 PMI would take explanations from "people in finance" about this with some degree of skepticism.  People of finance have a vested interest in a narrative that seeks to explain these bank runs as an anomaly caused by special incompetence or fraud and not as a broader risk or vulnerability in the system.

Is it possible to hedge against interest rate rises?  Sure but it costs money to put those positions on and where does that money come from?  Ultimately from taking on risk somewhere else to generate the return to fund the hedge.  Can you ameliorate duration risk by purchasing shorter duration assets?  Yes but if you if you tried to do that with government securities in the last 10 years or so, you would get virtually zero yield.  So either lose money or take on credit risk or suck it up and eat duration risk.

No financial institution can hedge all risks.  You have to select some risk or risks to be exposed to and then manage it best you can.

I'm not saying SVB were masters of risk management; they may not have been.  But I doubt they are singularly unique in that category as against peers.

It seems to me the focus on SVB's asset book is misplaced.  SVB may have had its problems but it seems pretty glaring that there was a big problem on the liability side, namely high concentration of uninsured deposits among very similar kinds of depositors.  Once the whispers trigger a run, all the risk management and hedges in the world can't save the bank.  To my mind talking about the hedges on the asset book in that context is like debating the merits of different kinds of body armor after the target has been vaporized by a direct artillery hit.



And yet in Canada the financial sector seems to be able to figure it out pretty well.  From the Royal Bank first quarter earners report:

QuotePre-provision, pre-tax earnings of $5.9 billion were up $385 million or 7% from a year ago, mainly reflecting higher net interest income driven by higher interest rates and strong loan growth in Canadian Banking and Wealth Management. Higher Global Markets revenue in Capital Markets, reflecting strong client activity, also contributed to the increase. These factors were partially offset by higher expenses, largely due to higher salaries and variable and stock-based compensation, as well as ongoing technology investments and higher discretionary costs to support strong client-driven growth.


I just don't buy the excuses inherent in your post.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on March 15, 2023, 02:19:56 PM
For sure, there'll be risk somewhere and you have to make some trade offs and so on. But if many other institutions and funds were not exposed in the same way (and it seems like they weren't?) then perhaps the problem is local to SVB rather than being systemic?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 15, 2023, 02:32:56 PM
The problem is not entirely local to SVB because signature went down in NYC as well.  Very different in key respects but similar in at least one - high and concentrated uninsured deposits.  Yes there are special circumstances here but the problem is more on the liability side.

RBC really has nothing to do with it.  I'm sure there are plenty of banks around the world with nice quarterly reports
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Barrister on March 15, 2023, 02:37:47 PM
Canadian Big 5 Banks are a friggin cartel - they virtually have a license to print money.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 15, 2023, 02:41:21 PM
Quote from: The Minsky Moment on March 15, 2023, 01:58:08 PMIt seems to me the focus on SVB's asset book is misplaced.  SVB may have had its problems but it seems pretty glaring that there was a big problem on the liability side, namely high concentration of uninsured deposits among very similar kinds of depositors.  Once the whispers trigger a run, all the risk management and hedges in the world can't save the bank.  To my mind talking about the hedges on the asset book in that context is like debating the merits of different kinds of body armor after the target has been vaporized by a direct artillery hit.
Although is there more of a market problem there?

From my understanding the big thing that distinguished SVB was offering basically full corporate banking on the basis of capital raised for companies that were in other respects (like turnover, staffing etc) often basically SMEs.

Obviously there's huge opportunity in that customer base but they're probably too demanding and too small to be of interest to the major banks - obviously SVB UK is very small fish but its £5.5 billion loan book and about £7 billion of deposits is less than 1% of HSBC, its new parent. I imagine the scale and ratio would be similar for the big US banks.

Maybe I'm wrong but it feels like you'll either end up with a concentration of risk like SVB, or reliance on smaller, regional banks who may not really be able to serve those customers particularly well. Or am I miles off?

Edit: And, inveitably, I'm now wondering if the solution is a state backed corporate bank for companies with high growth potential :lol: :menace:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 15, 2023, 02:55:38 PM
Quote from: Barrister on March 15, 2023, 02:37:47 PMCanadian Big 5 Banks are a friggin cartel - they virtually have a license to print money.

But they're safe. And canada likes its cartels. Booze (might only be ontario) phones, tv, internet, I guess milk. It's in our DNA  :D
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 15, 2023, 03:04:45 PM
Quote from: Sheilbh on March 15, 2023, 02:41:21 PMFrom my understanding the big thing that distinguished SVB was offering basically full corporate banking on the basis of capital raised for companies that were in other respects (like turnover, staffing etc) often basically SMEs.

It's true that the loan book included a lot of VC subscription backed lines of credit, but while it's easy to see how that could go wrong, that's not what seems to have caused the problem.  Rather it was the "safe" part of the asset base - the agency bonds, that caused the problem.  LOC usually don't lock in rates long term so they don't have the duration risk.

Again what seems to have tripped up the bank is that what one would assume to be the primary risk on the asset side - credit exposure to early stage valley cos - but the steps the bank took to offset that risk by loading up on low credit risk government securities.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 15, 2023, 03:04:51 PM
Quote from: HVC on March 15, 2023, 02:55:38 PM
Quote from: Barrister on March 15, 2023, 02:37:47 PMCanadian Big 5 Banks are a friggin cartel - they virtually have a license to print money.

But they're safe. And canada likes its cartels. Booze (might only be ontario) phones, tv, internet, I guess milk. It's in our DNA  :D

I have no idea why BB is calling them a cartel. One of the big differences between Canadian Banks and others, particularly in the US, is that when the US was busy deregulating the banking sector (because government is bad) Prime Minister Martin said no.  He was heavily criticized for his decision at the time.  But it was the correct call.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Barrister on March 15, 2023, 03:37:13 PM
Quote from: crazy canuck on March 15, 2023, 03:04:51 PM
Quote from: HVC on March 15, 2023, 02:55:38 PM
Quote from: Barrister on March 15, 2023, 02:37:47 PMCanadian Big 5 Banks are a friggin cartel - they virtually have a license to print money.

But they're safe. And canada likes its cartels. Booze (might only be ontario) phones, tv, internet, I guess milk. It's in our DNA  :D

I have no idea why BB is calling them a cartel. One of the big differences between Canadian Banks and others, particularly in the US, is that when the US was busy deregulating the banking sector (because government is bad) Prime Minister Martin said no.  He was heavily criticized for his decision at the time.  But it was the correct call.

As HVC pointed out, our heavily regulated banking sector, with very high barriers to entry, does produce very safe banks.

They also produce banks that are extremely expensive for their customers, and extremely profitable for shareholders.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 15, 2023, 03:43:15 PM
What is the high barrier to entry, other than having proper capitilazation?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Iormlund on March 15, 2023, 04:45:17 PM
Quote from: HVC on March 15, 2023, 12:47:20 PMBeen reading stuff like only one board member had a finance background and the chief risk officer was on a nine month uncovered leave. You'd think banks would be a lot more regulated in the states after all the "hiccups", but I guess money and lobbying talks.

I guess svb fell out of normal regulation regardless? How does a bank that big get to act as a "shadow bank" in the first place?

Apparently they successfully lobbied to defang the Dodd-Frank Act, which made them fall outside the scope of many controls.

Citizens United paying off again.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 15, 2023, 04:48:24 PM
Quote from: Iormlund on March 15, 2023, 04:45:17 PMApparently they successfully lobbied to defang the Dodd-Frank Act, which made them fall outside the scope of many controls.

Citizens United paying off again.
Well Barney Frank also backed that lobbying effort which made Signature Bank out of scope too. He has been on the board of Signature Bank since 2015.

Not sure Citizens United even comes into it, it's just old fashioned jobs for connected politicians post-retirement. I believe Frank has defended taking the role saying "I needed to make some money".
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 15, 2023, 05:08:07 PM
Since I have been recommending channels, this guy's summary on SVB also worth watching: https://www.youtube.com/watch?v=GdfYnqyu7v8

He is "a hedge fund manager, a university professor and a former investment banker". Despite the deadpan humour he is pretty good and makes what seem well-researched and interesting videos.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: viper37 on March 15, 2023, 05:08:13 PM
Quote from: The Minsky Moment on March 15, 2023, 01:58:08 PMIt seems to me the focus on SVB's asset book is misplaced.  SVB may have had its problems but it seems pretty glaring that there was a big problem on the liability side, namely high concentration of uninsured deposits among very similar kinds of depositors.  Once the whispers trigger a run, all the risk management and hedges in the world can't save the bank.  To my mind talking about the hedges on the asset book in that context is like debating the merits of different kinds of body armor after the target has been vaporized by a direct artillery hit.

I haven't read much about this bank, but what I've read so far is as you said plus that they were extremely concentrated in treasury bonds, i.e. lack of diversification of their assets, somewhere above 60%, while other banks average 25-30%.

But since I have not read much about it, it could be that this was a very recent development.  Historically, they may have been more balanced.

Ultimately, no matter the bank, when everyone all at once wants their money back, there's not much a bank can't do.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tonitrus on March 15, 2023, 06:57:15 PM
They need to make a good George Bailey speech.  :sleep:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 15, 2023, 07:01:57 PM
Quote from: Iormlund on March 15, 2023, 04:45:17 PMApparently they successfully lobbied to defang the Dodd-Frank Act, which made them fall outside the scope of many controls.

Citizens United paying off again.

Is there any indication this defanging played any part whatsoever in their collapse?

If anything, if Joan's version is to be believed, the problem was caused by a regulatory reporting requirement, not the lack of one.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on March 15, 2023, 09:44:37 PM
The problem with SVB was, as I understand it, a decision to meet the letter of the law in such a way as to maximize profits but minimize stability.  By measuring their reserves in future US treasury bond values rather than current market values, they were able to technically meet the reserve requirements but had no hedge against a need to sell the bonds at market value rather than at maturity.

So, there was a clear failure of the regulations to account for institutions that didn't understand what their actual reserve needs were and at the same time were willing to constrain their size to avoid external auditors checking on their actual reserve needs (e.g. via stress tests).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 16, 2023, 04:18:28 AM
Credit Suisse is also being bailed out by its central bank.

At which point should we acknowledge that pretentions of a free market are no longer sustainable? I am not saying that standing idle while these banks collapse are the better decisions, I don't know nearly enough to judge that, but such a system where central banks prop up everything, making profit individual but risk collectivised, is at best, state capitalism.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 16, 2023, 04:19:47 AM
Privatise the profits, nationalise the losses, this is the law of the world.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: viper37 on March 16, 2023, 08:17:12 AM
Quote from: Tamas on March 16, 2023, 04:18:28 AMCredit Suisse is also being bailed out by its central bank.

At which point should we acknowledge that pretentions of a free market are no longer sustainable? I am not saying that standing idle while these banks collapse are the better decisions, I don't know nearly enough to judge that, but such a system where central banks prop up everything, making profit individual but risk collectivised, is at best, state capitalism.
So far, we do not know that risk is collectivised in this situation.  Afaik, it was a liquidity crisis, i.e. not meeting short term needs.  The bank had long term assets. We'll see if they were still worth something for the government.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on March 16, 2023, 08:17:41 AM
There's never been a "free market" in modern banking.  It's simply not possible for potential investors to have full information about a bank's assets and liabilities sans a regulatory regime that forces banks to meet certain operating criteria and disclose a lot of information.  Regulation mean that the market is no longer "free."

This is true about a lot of elements of the overall economic market.  We are not moving away from a free market that never existed, we are adjusting the regulation of the market that exists.  SC being able to borrow money from the SNB doesn't mean that the debt of CS is being collectivized.  The SNB just becomes another creditor, and the net value of CS to its shareholders goes down by the amount borrowed.  If this eases a liquidity crisis, rather than just propping up a leaning corpse, it's a good move for the public at large.  If CS is fundamentally unsound, it isn't.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on March 16, 2023, 09:43:02 AM
Quote from: Josquius on March 16, 2023, 04:19:47 AMPrivatise the profits, nationalise the losses, this is the law of the world.

SVB shareholders just got wiped out, erased.  That doesn't fit your Occupy slogan.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 16, 2023, 09:58:32 AM
Quote from: Admiral Yi on March 16, 2023, 09:43:02 AM
Quote from: Josquius on March 16, 2023, 04:19:47 AMPrivatise the profits, nationalise the losses, this is the law of the world.

SVB shareholders just got wiped out, erased.  That doesn't fit your Occupy slogan.

The board and upper management seemed to have done ok.  That's what I understand privatize the profits means.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on March 16, 2023, 10:07:13 AM
Quote from: HVC on March 16, 2023, 09:58:32 AMThe board and upper management seemed to have done ok.  That's what I understand privatize the profits means.

I'm not sure what you mean.  How did they do "all right" in the takeover, given that their jobs disappeared?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 16, 2023, 10:18:11 AM
Quote from: Admiral Yi on March 15, 2023, 07:01:57 PMIf anything, if Joan's version is to be believed, the problem was caused by a regulatory reporting requirement, not the lack of one.

That wasn't exactly the point I was trying to make.  It's true that disclosure requirements can cause problems for companies if there are losses or other issues.  But the alternative is a lot worse.

My reaction is mostly to the narrative that chalks the whole problem up to simple mismanagement at a single banks or small set of banks.  Not necessarily because it is wrong but because it misses the more important point.

the financial industry is not Lake Wobegon, not all bankers are above average. In thinking about the design and regulation of a financial system, one has to assume and take into account that there will be non-trivial numbers of incompetently run banks.  A system that depends for global solvency and stability on high levels of competence across the board is doomed to fail.

The flip side is that even well run banks can have losses from time-to-time.  And ANY BANK - no matter how well operated - is vulnerable to a depositor run.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 16, 2023, 10:18:17 AM
Quote from: grumbler on March 16, 2023, 10:07:13 AM
Quote from: HVC on March 16, 2023, 09:58:32 AMThe board and upper management seemed to have done ok.  That's what I understand privatize the profits means.

I'm not sure what you mean.  How did they do "all right" in the takeover, given that their jobs disappeared?

They did all right in their salaries and bonuses before the shit hit the fan. The phrase, again as I understand it, is upper management reaps the reward of higher risk knowing that any fallout will be covered by the public at large.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 16, 2023, 10:23:57 AM
Quote from: grumbler on March 16, 2023, 08:17:41 AMThis is true about a lot of elements of the overall economic market.  We are not moving away from a free market that never existed, we are adjusting the regulation of the market that exists.  SC being able to borrow money from the SNB doesn't mean that the debt of CS is being collectivized.  The SNB just becomes another creditor, and the net value of CS to its shareholders goes down by the amount borrowed.  If this eases a liquidity crisis, rather than just propping up a leaning corpse, it's a good move for the public at large.  If CS is fundamentally unsound, it isn't.

Acting as lender of last resort has been a core central banking function since the age of Walter Bagehot.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 16, 2023, 11:09:34 AM
Obviously not the same as 2008 - but can't help but have slight flashbacks with the ECB simultaneously warning some European banks are in a similar position as Credit Suisse and hiking rates :lol: :bleeding:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 16, 2023, 11:12:25 AM
Quote from: Sheilbh on March 16, 2023, 11:09:34 AMObviously not the same as 2008 - but can't help but have slight flashbacks with the ECB simultaneously warning some European banks are in a similar position as Credit Suisse and hiking rates :lol: :bleeding:

Well what is the option? Let inflation rise to avoid the more reckless/incompetent banks to get into trouble? Why, they will be just bailed out anyhow.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 16, 2023, 11:20:15 AM
Quote from: Tamas on March 16, 2023, 11:12:25 AMWell what is the option? Let inflation rise to avoid the more reckless/incompetent banks to get into trouble? Why, they will be just bailed out anyhow.
Eurozone inflation - like inflation in the UK and US - is (slowly) falling. It peaked at 10.1% in November and is now down to about 8.5% (although still very different country to country - so I think it's still peaking in France primarily through food costs because France was far less exposed on energy cost inflation).

Edit: So get it's still rising - but going in the right direction and I'm not sure risk slightly vague risk understanding of the risk in the Eurozone financial sector outweighs another rate rise.

I think the next rate decision is early May so I'd just pause and just spend a bit of time in the weeds with Eurozone banks given that there's a relatively big European (but non-EU) bank in trouble and you've said Eurozone banks could be vulnerable too.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on March 16, 2023, 01:49:17 PM
Quote from: HVC on March 16, 2023, 10:18:17 AMThey did all right in their salaries and bonuses before the shit hit the fan. The phrase, again as I understand it, is upper management reaps the reward of higher risk knowing that any fallout will be covered by the public at large.

Higher management works for the shareholders, who in this case were pretty much wiped out.  The shareholders are actually the ones reaping the rewards of higher risk knowing that they will take a haircut or get wiped out by the fallout.

Is there an incentive for the execs to pursue short-term gain over long-term prosperity?  Yes, the same as any other company.  The public takeover of a bank doesn't represent the execs "doing pretty well," given that one of the things that evaporates is their job.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on March 16, 2023, 02:11:57 PM
Quote from: grumbler on March 16, 2023, 01:49:17 PMHigher management works for the shareholders, who in this case were pretty much wiped out.  The shareholders are actually the ones reaping the rewards of higher risk knowing that they will take a haircut or get wiped out by the fallout.

Is there an incentive for the execs to pursue short-term gain over long-term prosperity?  Yes, the same as any other company.  The public takeover of a bank doesn't represent the execs "doing pretty well," given that one of the things that evaporates is their job.

It's a quaint and outdated thought that the management suite and board work for shareholders.  It has never been accurate to say that shareholders make decisions regarding risks the company should take, or not.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 16, 2023, 02:49:32 PM
This year sees the 100th anniversary of the 1923 hyperinflation. 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 16, 2023, 03:02:25 PM
On regulation, seems like US regulation is far lax on this topic than European:

Quote from: Alfonso PeccatellioThe US banking regulation and accounting frameworks have some pretty big flaws.
Yep, you read that right.

1.      Banks with a balance sheet below $250 bn can act a lot like cowboys...
No need to adhere to NSFR (Net Stable Funding Ratio), a rule that forces large banks to have a good proportion of their liabilities in sticky, long-term funding which limits liquidity risks.
No need to adhere to LCR (Liquidity Coverage Ratio): ''small'' banks can buy a disproportionate amount of less liquid securities like corporate bonds or mortgage-backed securities instead of Treasuries.

The problem is that a $249 bn balance sheet bank is not small.
For reference, a top 3 German bank has a balance sheet of less than $200 bn – seriously, top 3 in Germany.


This lax regulatory treatment for ''small, but not so small'' banks is very dangerous.

2.      Even large banks booking bonds in HTM are disincentivized (!) to hedge interest rate risks
HTM = friendly accounting: book bonds there, forget about them as they are valued at amortized cost.

Prudent risk management still suggests you should hedge interest rate risk.
Yet, US accounting rules disincentivize interest rate hedging for HTM bonds – nuts.

But the cherry on the cake...

3.      No proper interest rate risk stress testing (!!!)
Guys, this is out of this world.

As we will discuss, Europe has a quite extensive framework to stress test the interest rate risk that European banks take on their aggregate balance sheets (the net exposure deriving from loans, mortgages, bond investments, bond issuance, long-term liabilities and swaps).

It's called IRRBB (Interest Rate Risk in Banking Books) stress-testing.

The US equivalent? It doesn't exist!
Here is the IMF calling US regulators out on the topic:

(https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F6591e601-9827-49e6-b474-3dfddc03ce5e_1269x654.png)

Please take a second to reflect on how bad this is.

''Small'' US banks are subject to much laxer regulatory requirements.

But even large US banks are disincentivized from hedging rate risk on HTM bonds and even worse they are not subject to extensive stress testing on the overall interest rate risk they run on their balance sheets.

Europe has much tighter regulatory standards and accounting framework, and yet the panic seems to be spreading there too.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 16, 2023, 03:08:54 PM
All else aside, German banks must be tiny or heavily skewed to the top 2.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Zanza on March 16, 2023, 03:45:03 PM
There are nine banks with a balance sheet of more than 200 bn USD in Germany, five private, four public.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on March 16, 2023, 03:47:44 PM
So now I don't know if this guy is trustworthy.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Zanza on March 16, 2023, 03:51:20 PM
Quote from: HVC on March 16, 2023, 03:47:44 PMSo now I don't know if this guy is trustworthy.
I feel that information that can be googled in a minute should be correct if you want to convince people.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 16, 2023, 04:43:20 PM
Quote from: HVC on March 16, 2023, 03:47:44 PMSo now I don't know if this guy is trustworthy.

I like him. He used to be Head of Investments for a $20 billion portfolio for ING Germany, funnily enough.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 18, 2023, 11:31:52 PM
Panic in Switzerland, UBS planning to take over Credit Suisse by the start of trading on Monday morning.

The Swiss government has just held an emergency meeting tonight. :swiss:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: celedhring on March 19, 2023, 03:05:46 AM
Quote from: Zanza on March 16, 2023, 03:45:03 PMThere are nine banks with a balance sheet of more than 200 bn USD in Germany, five private, four public.

Spain has 4 banks above that figure too. Of course if any of them were to fail it would wreak havoc in our financial sector.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 19, 2023, 03:50:50 AM
Curiously the chf is holding steady
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 19, 2023, 04:12:02 AM
Allegedly thousands of London banking jobs will be at risk if the merger goes ahead.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 19, 2023, 07:07:42 AM
According to the Financial Times, Swiss authorities are looking to change laws so that the merger can go ahead without UBS shareholder voting.

Now, I was fairly firmly in the camp of these bank failures which have happened so far are ok and should be let to play out, after all the whole point of QT was to remove excess money/liquidity from the system which will make crappy zombie companies and such fail.

However with all this bruhaha, something more serious must be happening in the background. If nothing else, then the fact that investment firms and such are desperate for the Fed to turn on the liquidity taps again and that's why they are creating all this noise around just how bad it is with the banks.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 19, 2023, 12:17:36 PM
Seems like some frantic deal-making in Switzerland today. UBS has apparently made a 2 billion dollars bid for Credit Suisse and according to the WSJ, rumour is the Swiss national bank is going to give a a $100 billion (!!!? meowtf) liquidity line to UBS to sweeten the pot.

QuoteThe Swiss National Bank has offered UBS UBS -5.50%decrease; red down pointing triangle Group AG around $100 billion in liquidity to help it take on the operations of Credit Suisse CS -6.94%decrease; red down pointing triangle Group AG, according to the people familiar with the matter. Details of the liquidity offer couldn't be learned but are part of the talks to engineer a takeover of Credit Suisse.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 19, 2023, 12:33:46 PM
On rates in small and regional banks in the US that will have its own impact on money supply. They will be turning off their own taps which will have a similar effect as rates rises unless the big banks decide to expand their loan books which seems unlikely. I imagine the same will be happening across Europe so there will be a large chunk of monetary tightening without any rate rises - part of why I think the central banks would be better pausing, having a detailed look at the sector and assessing again when they can stabilise things.

It seems particularly weird given that I've heard of loads of central bankers writing papers and presenting on the challenges of unwinding QE, its impact on liquidity, the risks etc - which seems to be exactly what's playing out. One thought I have that slightly worries me - what if the post-global financial crisis system of regulation that we built only really works in and addresses the risks of a low-interest rate environment? :ph34r:

There's two other things that slightly worry me with Credit Suisse - one is that the SNB standing behind them wasn't enough, which seems significant. It's now creating a bank that is, from the perspective of the Swiss state, absolutely too big to fail if the merger goes ahead (striking that Blackrock are playing a role in brokering that given that one the vice-chairs there is a former SNB central banker). UBS will be an absolute monster for the Swiss state.

The other which goes to my ECB replaying the Trichet playbook is a nagging worry that while this kicked off in the US but Europe might again be the most exposed/least prepared (though globally our banks are far less significant than they were in 2008). And on top of massive energy costs in Europe v the rest of the world, really feel like the last thing we need is a banking crisis.

Struck by Helen Thompson's line that since 2008 interest rates are too low for central banks or too high for banks. And that oil prices too high for consumers or too low for producers. And that the two are linked and coming at us with shortening interluds.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 19, 2023, 08:17:20 PM
Six of the worlds major central banks act on dollar availability:

QuoteCentral banks have moved globally to keep credit flowing after an unsettled period in the US banking sector and the Credit Suisse merger.

Six central banks, including the Bank of England, announced they would boost the flow of US dollars through the global financial system.

On Sunday the struggling Credit Suisse was taken over by UBS in a Swiss government-backed deal.

The US dollar liquidity "swap line" arrangement will run from Monday.

In a statement the Bank of England, Bank of Japan, Bank of Canada, the European Central Bank, US Federal Reserve and Swiss National Bank launched the co-ordinated action to "enhance the provision of liquidity".


Full article here:
BBC News Report (https://www.bbc.co.uk/news/business-65010255)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Larch on March 21, 2023, 06:03:19 AM
A couple of "fun" banking pieces.

QuoteIt Turns Out That JPMorgan Bought the Nickel That Turned Out to Be Stones

JPMorgan Chase owned bags of material kept in a Dutch warehouse that were supposed to contain nickel but turned out to be full of stones, people familiar with the matter said.

The London Metal Exchange said last week that sacks thought to hold 54 metric tons of nickel in an unnamed warehouse had failed to comply with its standards. The bags were in a shed in the Dutch port city of Rotterdam, The Wall Street Journal and other outlets reported. The problem: They contained stones instead of a silvery metal used in steel and electric-vehicle batteries.

The LME didn't disclose the name of the company that believed itself to be the owner of nickel briquettes valued at $1.3 million at current prices. The firm was JPMorgan, according to the people, some of whom said the bank first bought the material several years ago.

The company that controls the warehouse, sprawling logistics firm Access World Group, was owned by miner and trader Glencore PLC at the time. In a statement, Access World said it is inspecting "warranted bags of nickel briquettes at all locations" and that it believes the issue to be "an isolated case and specific to one warehouse in Rotterdam."

Access World, rather than JPMorgan, is likely to face pressure to foot the bill because it is responsible for checking metal on entry and keeping it safe while it is in the shed. The LME has said it is working with the operator to find out what went wrong.

Wall Street banks aren't as active in physical commodity markets as they were a decade ago, when companies such as Morgan Stanley and Goldman Sachs Group shipped oil on tankers, stuffed metal into warehouses and shuttled sugar between continents. New regulations brought in after the 2008 financial crisis and a stretch of calm markets encouraged banks to pull back from trading commodities.

Still, JPMorgan remains a big player in metals, trading copper, aluminum, zinc and others on the LME as well as precious metals like gold.

JPMorgan was a major trading partner of China's Tsingshan Holding Group, and led discussions with other banks after a blowup in the metal giant's nickel trades spawned a crisis on the LME last year.

And not to forget Credit Suisse...

(https://pbs.twimg.com/media/Frm2L7aXwAAmJUz?format=jpg&name=medium)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 21, 2023, 06:08:27 AM
Apt:

(https://images-ext-1.discordapp.net/external/0SMWkDBoANzL7TqcZVJG_gi3wewOLn4ttTErTeo1LMQ/https/img-9gag-fun.9cache.com/photo/aeQ1YAB_700bwp.webp?width=683&height=604)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on March 21, 2023, 09:30:55 AM
Quote from: Sheilbh on March 19, 2023, 12:33:46 PMIt seems particularly weird given that I've heard of loads of central bankers writing papers and presenting on the challenges of unwinding QE, its impact on liquidity, the risks etc - which seems to be exactly what's playing out.

Not really - the concern was that when the Fed stopped making markets in treasury securities, market liquidity would dry up.  That hasn't happened except for a few discrete episodes where the Fed intervened to keep the markets running smoothly.  SVB's issue wasn't that it couldn't trade the securities in its asset book, it was that the value of those securities declined.  And even that wouldn't have been fatal had it not been for the deadly combination of high uninsured deposits + viral social media fueled panic withdreawals.

Increases in interest rates generally speaking is typically considered to be a plus for the banking business because it usually allows them to increase the spread between the deposit rates and loan rates; deposits are sticky and banks can usually get away with lagging behind on paying market interest on them for quite a while.  On the flip side, rates on lines of credit or short term commercial loans can be hiked up more quickly.  SVB was a special cases because of its unusual combination of liabilities and assets.  And while the SVB collapse has caused people to focus on rates, the other big failures like Signature and CS appear to have other causes.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 22, 2023, 04:01:27 AM
UK CPI (which omits rise in inconsequential things like mortgage payments and such) came in somewhat higher than last month at 10.4%

So what gives? Blip on the road down or a sign that 4% base rates will not stop 10%+ inflation?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HisMajestyBOB on March 22, 2023, 05:43:03 AM
Well if everyone is on an adjustable rate mortgage, then the CPI needs to exclude mortgages otherwise every rate hike will result in higher CPI via higher mortgages, leading to higher interest rates, etc.
So maybe everyone should refinance to a 30 year fixed.  :P
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 22, 2023, 05:46:57 AM
Quote from: HisMajestyBOB on March 22, 2023, 05:43:03 AMWell if everyone is on an adjustable rate mortgage, then the CPI needs to exclude mortgages otherwise every rate hike will result in higher CPI via higher mortgages, leading to higher interest rates, etc.
So maybe everyone should refinance to a 30 year fixed.  :P

We have a whole industry of mortgage advisors who would be hit by that.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on March 22, 2023, 06:42:26 AM
Quote from: Tamas on March 22, 2023, 04:01:27 AMUK CPI (which omits rise in inconsequential things like mortgage payments and such) came in somewhat higher than last month at 10.4%

So what gives? Blip on the road down or a sign that 4% base rates will not stop 10%+ inflation?
CPIH which includes housing costs is also up but a little lower:
(https://pbs.twimg.com/media/Frzj1IDWAAM2Pm9?format=jpg&name=small)

Useful thread on it:
https://twitter.com/JamesSmithRF/status/1638438081614290947

Some of it looks blip-y. Services inflation fell by more than expeted in January but has now bounced back to where it was expected to be in February. Some, less so - food inflation particularly.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on March 22, 2023, 08:01:18 AM
Quote from: Sheilbh on March 22, 2023, 06:42:26 AMSome of it looks blip-y. Services inflation fell by more than expeted in January but has now bounced back to where it was expected to be in February. Some, less so - food inflation particularly.

Some supermarkets are making a killing, perhaps even literally (via malnutrition and poor diet, due to prices).

I expect this theme of supermarket price gouging to become a redtop headline generator over the next few months?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on March 22, 2023, 10:02:55 AM
EVERYTHING IS FINE

(about:invalid)

https://www.therationalinvestor.com/blog/how-the-benner-cycle-predicts-100-years-of-market-movement

I'm not well versed enough in this stuff to comment whether theres any validity beyond rolling the mystic dice. But I did like the chart.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on March 24, 2023, 08:11:00 AM
Deutsche Bank is getting hammered, but I have no idea if it is just generic panic and "OMG give us back QE already" pressures or something genuinely crappy at the bank.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on May 03, 2023, 04:24:23 PM
PacWest appears to be the 3rd regional US bank to fold, considering sale. Probably going to be gobbled up come the weekend.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: mongers on May 03, 2023, 07:09:28 PM
Quote from: Tamas on May 03, 2023, 04:24:23 PMPacWest 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??
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on May 24, 2023, 07:52:02 AM
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:

(https://pbs.twimg.com/media/Fw4v4QXX0AEsEle?format=png&name=small)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2023, 05:08:46 PM
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 <_< :bleeding:

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.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2023, 07:06:28 PM
An apples to apples comparison would be wages to prices of goods and services, not profit.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2023, 07:17:37 PM
Quote from: Admiral Yi on May 25, 2023, 07:06:28 PMAn apples to apples comparison would be wages to prices of goods and services, not profit.
What do you mean?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2023, 08:03:55 PM
Quote from: Sheilbh on May 25, 2023, 07:17:37 PMWhat do you mean?

Profits don't create inflation.  There are other sources of profits other than raising prices.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2023, 08:15:34 PM
You will still need to break that down for me - it's still a little to catechistical for me :P
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on May 25, 2023, 08:18:28 PM
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?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2023, 08:22:48 PM
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.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on May 25, 2023, 08:27:32 PM
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
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2023, 08:33:56 PM
Yeah, I think we have.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on May 25, 2023, 08:35:10 PM
Quote from: HVC on May 25, 2023, 08:27:32 PMProfits 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."
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on May 25, 2023, 08:36:56 PM
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.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Valmy on May 25, 2023, 08:38:16 PM
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.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on May 25, 2023, 08:57:47 PM
Quote from: HVC on May 25, 2023, 08:36:56 PMIt 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.
It's not a short hand, I'm not trying to be pedantic.  I just have no idea what even the logic is, with or without terms. 

In a free market, companies do not truly have the power to dictate how much profit they're going to make.  Yes, they make a lot of decisions, but competitive pressures pretty much guide them to what those decisions are.  When you're driving to work, technically every turn you make is your decision, but in reality your decisions are railroaded by the necessity to get to work in a reasonable amount of time.  You may feel like you're in control, but in reality it's the geography of the roads and the traffic conditions that dictate what turns you take.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2023, 09:12:05 PM
Quote from: Admiral Yi on May 25, 2023, 08:22:48 PMInflation 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.
Sure.

In a context where there has been real economic flux, real demand and supply shocks - if you were an opportunistic company, then you could increase prices by more than just covers the increase in input costs. The ECB has noted that half of domestic price pressures in the Eurozone appear to be coming from unit profits (the other half, roughly is labour costs).

If the market your company in is generally doing that then you either have the choice of increasing margins and sticking with the pack, or making a play for market share (and explaining to investors why your competitors have record margins). There are big variances by sector but they include sectors like agriculture and there are some sectors where it looks like, market-wide, prices were increased that more than covered covered their costs. That then flows further down the chain. From the ECB on changes from 2019 to 2022:
(https://www.ecb.europa.eu/press/key/date/2023/html/sp230322_2/ecb.sp230322_2.en_img8.png?97cc7b4e58413d1adbeffb584f033d0c)

It has been suggested that there are companies exploiting uncertainty and a crisis moment with high and volatile inflation, to increase prices beyond what would absorb costs and in effect creating a "price-price spiral" that could make core inflation "stickier". As wage increases seem to have peaked (and have not matched inflation) but profit margins have increased in certain sectors that also raises the question of the role opportunistic price rises to improve your margin is playing.

QuoteIt 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.
You've had vice-chairs and Presidents/Govenors of the Fed, ECB and BofE raise the issue of profits over the last few months and talking about the risk of a "price-price spiral". The point is wage increases, or the share going to labour, can increase without raising inflation simply by seeing a - to quote an ECB exec - "normalisation of profits".

I'd also think in a way it's easier to deal - you can have windfall taxes on sectors or companies that are opportunistically increasing their margins in a moment of crisis. As I say I think in certain sectors it's borderline profiteering (and all governments have taken measures against profiteering in times of war) - taking advantage of a pandemic and war with all their economic impact to raise prices far beyond what would cover their costs, and instead have recorded profit margins (in certain sectors).

From what I understand these are generally in upstream and fairly concentrated sectors - agriculture, energy, utilities, shipping - and that has economy wide impacts especially if markets downstream have similar-ish factors because they could then be increasing that effect.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on May 25, 2023, 09:19:28 PM
Do you have a link to that report?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 25, 2023, 09:35:07 PM
NYT article on it:
https://www.nytimes.com/2023/03/31/business/company-profit-inflation-europe.html
QuoteAre Big Profits Keeping Prices High? Some Central Bankers Are Concerned.
Companies' rising profit margins could be contributing to persistent inflation, a European Central Bank policymaker says.
By Eshe Nelson
March 31, 2023

After months of fretting about whether workers' rising pay would keep inflation uncomfortably high, central bankers in Europe have another concern: large company profits.

Companies that push up their prices above and beyond what is necessary to absorb higher costs could be fueling inflation that central bankers need to combat with higher interest rates, a policymaker at the European Central Bank warned, suggesting that governments might need to intervene in some situations.

Policymakers, long preoccupied with higher pay's tendency to prompt companies to raise their prices, generating a wage-price spiral, should also be alert to the risks of a so-called profit-price spiral, said Fabio Panetta, an executive board member at the E.C.B. At a conference in Frankfurt last week, he pointed out that in the fourth quarter of last year half of domestic price pressures in the eurozone came from profits, while the other half stemmed from wages.


His concerns have been echoed in recent remarks by the E.C.B.'s president, Christine Lagarde, and the Bank of England governor, Andrew Bailey. Although inflation in Europe has begun to ease from last year's double-digit peaks, the rates remain far above 2 percent, the target of most central banks.

"There's a lot of discussion on wage growth," Mr. Panetta said in an interview this week. "But we are probably paying insufficient attention to the other component of income — that is, profits."

Profit margins at public companies in the eurozone — measured by net income as a percentage of revenue — averaged 8.5 percent in the year through March, according to Refinitiv, a step down from a recent peak of 8.7 percent in mid-February. Before the pandemic, at the end of 2019, the average margin was 7.2 percent.

There has been a similar phenomenon in the United States, where companies reported wide profit margins last year despite the highest inflation in four decades.

Companies could be increasing prices because of higher input costs (the expenses of producing their goods or services), or because they expect future cost increases, or because they have market power that allows them to raise prices without suffering a loss of demand, Mr. Panetta said. Some producers could be exploiting supply bottlenecks or taking advantage of this period of high inflation, which makes it more challenging for customers to be sure of the cause of price increases.

"Given the situation which prevails in the economy, there could be ideal conditions for firms to increase their prices and profits," he added.

"I'm not here to pass a judgment on how fair or unfair" price-setting is, Mr. Panetta insisted, but rather to explore all of the causes of inflation. He is a member of the E.C.B.'s six-person executive board that sets policy alongside the governors of the 20 central banks in the eurozone.

There are sectors where "input costs are falling while retail prices are increasing and profits are also increasing," Mr. Panetta said. "So this is enough to be worried as a central banker that there could be an increase in inflation due to increasing profits."

The average rate of inflation for the 20 countries that use the euro has been falling for five months — to 6.9 percent over the year through March — but core inflation, which excludes volatile energy and food prices, a measure used by policymakers to assess how deeply inflation is embedding in the economy, has continued to rise.

Central bankers tend to focus on the risk that jumps in pay will lead to persistently high inflation, especially in Europe where wages tend to change more slowly than in the United States. The E.C.B. is even developing new tools to measure changes in wages more quickly.

But this intense focus on wages has provoked some criticism. Mr. Bailey of the Bank of England was called out last year for suggesting workers should show restraint in asking for higher wages.

As inflation persists, attention has turned to corporate profits. There is uncertainty about what will happen as prices for energy and other commodities keep falling: Will companies restrain themselves from raising prices further?

Last week, Ms. Lagarde raised the issue of profits, saying there needed to be fair burden sharing between companies and workers to absorb the hit to the economy and income from higher energy prices.

In Britain, Mr. Bailey told companies to bear in mind when setting prices that inflation was expected to fall. Across the Atlantic, last year Lael Brainard, who was then the vice-chair of the U.S. Federal Reserve, suggested that amid high profit margins in some industries, a reduction in markups could bring down inflation.

In Europe, companies were able to protect their profit margins last year from high inflation more than expected, Marcus Morris-Eyton, a European equities analyst at Allianz Global Investor, said.

"Corporates had more pricing power, at an average level, than most investors expected," he said.

This year, he expects there will be more variety in profit margins. "The average European company will face far greater margin pressure this year than they did last year," Mr. Morris-Eyton said. That's because of higher wage costs but "partly because as input costs have fallen, there is greater pressure from your customers to lower prices."


Last year, record-breaking profits by energy producers angered consumers who faced high energy bills, while governments spent billions to protect households from some of those costs. But as energy prices have fallen, consumers are still experiencing rising food prices. In the eurozone, the annual rate of food inflation rose to 15.4 percent in March.

"To a certain extent there's been also an opportunistic move by some big manufacturers to actually increase their prices, sometimes above their own cost increases," said Christel Delberghe, the director general of EuroCommerce, a Brussels-based organization representing wholesale and retail companies. "It's kind of a free-riding on a high price environment."

It's a factor squeezing retail profits, alongside the rising costs of products they buy and resell and higher cost of operations.

There is a notable disparity in profit margins between food producers and retailers, a traditionally low-margin business. Unilever and Nestlé each reported profit margins in the high teens for 2022, while the French supermarket company Carrefour reported a margin of about 3 percent. Unilever raised prices for its products more than 11 percent last year and Nestlé more than 8 percent, but in both cases the companies said they had not passed on all the effects of higher costs to consumers.

Ms. Delberghe said she feared the blame for higher prices was unfairly going to land on retailers. "We're extremely worried because indeed there is this perception that prices are going up and that it's very unfair," she said. Retail businesses are getting a lot of pushback, including from governments trying to take action to stop price increases in stores.

Mr. Panetta said governments should step in where necessary, in part because their fiscal support programs have helped keep profits high. "If there is a sector in particular where market power is abused or there is insufficient competition, then there should be competition policies that should intervene," he said.

But it was also a message to companies.

"It should be clear to producers that strategies based on high prices that increase profits and inflation may turn out to be costly for them," he said.

The cost? Higher interest rates.

As I say I don't think it's necessarily across companies. But I think there is evidence of this in key sectors as in that chart - particularly ones that have an impact on the rest of the economy. From what I've seen there's similar data in the UK and US (less sure) with retailers not increasing their profit margins because they're wanting to keep market share, but other sectors that look very different (my assumption is because of concentrated power, or as the article says supply chain shocks giving them incredible market power).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Oexmelin on May 25, 2023, 11:19:57 PM
Isabella Weber: Sellers' Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?

https://scholarworks.umass.edu/econ_workingpaper/343/

Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on May 26, 2023, 12:24:11 AM
Quote from: Admiral Yi on May 25, 2023, 08:03:55 PMProfits don't create inflation.  There are other sources of profits other than raising prices.

Broadly speaking: Price = Cost of Inputs + Profit margin

Sure, if the cost of inputs (from labour or materials or other sources) increase that can drive inflation, but surely so can increases in profit margin? I mean, if the price of a good is doubled and 10% of the increase goes to cover increased labour cost, and 90% of the increase goes to the corporate bottom line surely it's the profit margin that's the main driver of any inflationary pressure?

... and (locally at least) we have clear reports of grocery stores increasing prices by amounts greater than the rise in the cost of inputs.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on May 26, 2023, 12:46:38 AM
Quote from: DGuller on May 25, 2023, 08:57:47 PMIt's not a short hand, I'm not trying to be pedantic.  I just have no idea what even the logic is, with or without terms. 

In a free market, companies do not truly have the power to dictate how much profit they're going to make.  Yes, they make a lot of decisions, but competitive pressures pretty much guide them to what those decisions are.  When you're driving to work, technically every turn you make is your decision, but in reality your decisions are railroaded by the necessity to get to work in a reasonable amount of time.  You may feel like you're in control, but in reality it's the geography of the roads and the traffic conditions that dictate what turns you take.

In an idealized free market that is true, but some fields are dominated by a price setter, other fields are dominated by a few large corporations who may collude (or merely coincidentally make similar strategic decisions). In those situations, (some) corporations do have the ability to dictate the profit they make (within some limits).

And if those corporations (in say groceries) decide that a period of inflation is a good time to increase prices significantly above the rise in the cost of their inputs then they are deciding to increase their profit and thus accelerating inflation. That is not illogical at all. It is perhaps an indication that the market is less free than thought - or alternately, that the speed of any market correction is too slow to avoid the inflation pressure that results.

I mean sure, if the grocery stores where 90% of people shop decide to increase the prices of their products significantly to pad their bottom line then they do open themselves up to competition on price. But that competition isn't going to appear overnight - and to really cut into the market share you'll need significant capital investments.... and at that point, the established stores have the option to lower their prices again.

All it really requires is a little informal collusion (or market capture).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 26, 2023, 05:28:51 AM
Quote from: Oexmelin on May 25, 2023, 11:19:57 PMIsabella Weber: Sellers' Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?

https://scholarworks.umass.edu/econ_workingpaper/343/
Yeah - exactly her. I really need to read her book on China, because it sounds fascinating.

QuoteAnd if those corporations (in say groceries) decide that a period of inflation is a good time to increase prices significantly above to rise in the cost of their inputs then they are deciding to increase their profit and thus accelerating inflation. That is not illogical at all. It is perhaps an indication that the market is less free than thought - or alternately, that the speed of any market correction is too slow to avoid the inflation pressure that results.
I also think it is an expression of inflation expectations/economic shock. My suspicion is that corporates wouldnt be able to do this in a perfectly functioning market, as you say, but also I'm not sure it could happen in "normal" inflation. A key side of price-setting is what your customers will accept and I think if there are shocks with obvious real world causes (pandemics, wars etc) then I think there may be a bit more give from customers, whether consumers or other companies.

I know I always bang on about it but I think it's really important to understand how inflation's been working for the last 3 years because I think the big causes have been shocks to supply and demand from things like disease and war. My view is that we're going into a period when I think there will be more of those types of shocks, particularly from climate events, that will impact prices and markets and I'm not sure the analysis of inflation that is framed around wage-price spiral and the 1970s (oil shock excepted) is the right framework to understand or respond to inflation driven by disease, war, natural disaster - or inflation driven when labour power is still at a historic low.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Oexmelin on May 26, 2023, 08:13:36 AM
Yes, that's more or less Weber's suspicions, hence her decision to revisit how prices are set, and the  earlier thinkers of inflation - those who lived through the world wars.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on May 26, 2023, 08:40:53 AM
Quote from: Oexmelin on May 26, 2023, 08:13:36 AMYes, that's more or less Weber's suspicions, hence her decision to revisit how prices are set, and the  earlier thinkers of inflation - those who lived through the world wars.
Which is interesting because there's also the (unfortunately named) book on neo-liberalism by Quinn Slobodian. In that he looks at the many key thinkers who shape our world right now were from the Austro-Hungarian empire and inter-war Europe. They experienced dangers of politics, including democratic politics, and national sovereignty so wanted to look for ways to protect capitalism and economic life from that through regulatory frameworks but also international institutions and frameworks.

It's interesting to see someone else looking at, I believe, particularly the German post-war experience and more of a general interest in that post-war moment when arguably, in Europe and the US, policymakers were trying to protect democracy and our societies from capitalism and economics (Edit: And, they would argue, against the neo-liberal side that in doing so making them safe for capitalism).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on May 26, 2023, 09:39:05 AM
DG & YI seem to live in a totally different world. Share holder value rules everything and increasing profits is a must. Profits have risen(in both relative and total) and somehow that doesn't contribute to the raising of prices?

That's great! Cut your profit in half. Let's see what happens to prices.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on May 26, 2023, 10:33:17 AM
There isn't any correlation between periods of high profits and high inflation (and vis-a-versa). Profits/GDP in the US are high now, but they were also high in 2005-07 when inflation was low and 2012-20 when inflation was very low.

To the extent there is any connection at all, the causal arrow almost certainly goes the other way.  That is, in an inflationary environment, especially a new one where expectations have not yet fully reset, companies may be able profit, cutting labor costs in real terms by agreeing to wage hikes lower than the inflation rate. The profit margin is widening not because companies are driving artificially high prices increases but because they are suppressing labor costs measured in real terms.

Inflation is a general rise in the price level of an economy and viewing the issue from the micro level of firm pricing can be misleading way to think about it.  Individual firms or industries have pricing power only if they have monopoly or oligopoly power. However, it does not necessarily follow that periods where monopoly power is dominant - like the late 19th century in the US - are inflationary periods.  Quite the contrary- where monopoly power is highly prevalent, demand can be impacted, and historically depressionary conditions were common. 
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Oexmelin on May 26, 2023, 01:25:27 PM
I would recommend reading the paper, if you haven't.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on May 26, 2023, 03:51:12 PM
Quote from: Oexmelin on May 26, 2023, 01:25:27 PMI would recommend reading the paper, if you haven't.

Well now you are putting me in a tough spot.  The paper cites Piero Sraffa, Joan Robinson AND Abba Lerner so I would feel very bad criticizing it. :)  That sort of thing needs more encouragement.

The analysis of the dynamics of imperfect competition in the front half of the paper is solid; no issues there.

The paper outlines a narrative framework about how monopolistic price increases in individual industries could propagate into a general inflation. But there is no historical argument to show that past inflations have been caused by such a dynamic and the argument to tie it to the current inflation is not overwhelming.  The problem is that there have been many points in history in many countries where monopolistic industry structures have pushed prices up without any impact on general inflation.  As a concrete example, Figure 2 shows profits driving price increases in 2010-11 but without any general resulting inflation and without unleashing the propagation effects.

I didn't find the industry analysis that convincing. Taking the first one - oil is often linked to inflation because the experience in the 70s but there have been other, recent periods of oil and commodity price increases in low inflation environments.  The paper correctly points to the fact that oil companies have been milking price rises for cash and cutting investment.  However, there are reasons for this not mentioned - the majors may be wary about sinking billions into long-term exploration projects given global efforts to transition away from fossil fuels.  Shale players are wary because they overinvested the last boom and got burned.  And it is not clear to me why underinvesting would drive inflation.  The  opposite argument could be made the big scale capital investments in rigs and refinery capacity might drive inflationary pressures given skilled labor shortages and tightness in commodity markets.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on May 26, 2023, 03:55:56 PM
To be clear, I think that income and wealth inequalities in the OECD and the US in particular are serious problems.  I think increasing shares of income going to capital from already historical high shares is very concerning.  These are concerns that exist in themselves and regardless of any linkage they have to inflation.  It's tempting to give extra credence to an account that names a culprit someone we already think is guilty of another crime.  But that temptation should be resisted; the argument must be evaluated strictly on the merits.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Oexmelin on May 26, 2023, 04:08:28 PM
Quote from: The Minsky Moment on May 26, 2023, 03:51:12 PMWell now you are putting me in a tough spot.  The paper cites Piero Sraffa, Joan Robinson AND Abba Lerner so I would feel very bad criticizing it. :)  That sort of thing needs more encouragement.

Hence my recommendation.  ;)

Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on June 15, 2023, 06:04:50 AM
https://www.bbc.com/news/business-65908054

QuoteBeyoncé blamed for inflation surprise in Sweden

Thought the war in Ukraine or supply chain snarls were to blame for rising prices? You must not know 'bout Beyoncé.

The start of the singer's world tour in Sweden last month sparked such a frenzy of demand for hotels and restaurant meals that it has shown up in the country's economic statistics.

Sweden reported higher-than-expected inflation of 9.7% in May.

Rising prices for hotels and restaurants were behind the surprise.

Michael Grahn, economist at Danske Bank, said he thought Beyoncé helped drive the jump in hotel rates. She may also have been the force behind the unexpectedly strong uptick in recreation and culture prices, he said.

"I wouldn't ... blame Beyoncé for [the] high inflation print, but her performance and global demand to see her perform in Sweden apparently added a little to it," he wrote in an email to the BBC.

There is little doubt that the singer's first solo tour in seven years marks a big economic moment. At least one estimate suggests the run could gross almost £2bn by the time it ends in September.


Searches for accommodations in cities on the tour shot up after it was announced, Airbnb reported. Tickets for many concerts sold out within days and prices soared on the resale market.

In the UK, 60,000 people descended on Cardiff, including fans from Lebanon, the US and Australia. Demand for hotel rooms tied to her concert in London was so strong that in one case, some homeless families being housed in a hotel by the local council were reportedly booted to make way for her fans.

The Stockholm concerts, where Beyoncé played to a crowd of 46,000 for two nights, reportedly drew fans from around the world - especially the US, where a strong dollar against the krona helped to make tickets in the Nordic country seem a relative steal.

In an email to the Washington Post last month, Visit Stockholm described the boom in tourism to the city as the "Beyoncé effect" .

Inflation in Sweden peaked at 12.3% in December. The 9.7% rate last month was down from 10.5% in April, official figures show. Financial markets had expected around 9.4%.

For one star to have such an impact is "very rare", Mr Grahn told the BBC, adding that big soccer tournaments can have a similar effect.

He wrote on social media that he expected trends to return to normal in June.

Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on June 15, 2023, 06:42:21 PM
So, an economic forecast doesn't match reality, so the forecasters blame reality for being wrong?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Zanza on August 01, 2023, 07:13:18 AM
QuoteGermany: Once again the 'sick man' of Europe?
Henrik Böhme

The German economy has been treading water, with no improvement in sight. The multiple crises of recent years have revealed the weaknesses in the country's business model.

It was just before the turn of the millennium that the British business magazine The Economist passed a verdict on the German economy, referring to the country as the sick man of Europe. Such an assessment served as a wake-up call for German politics, which, still intoxicated by the economically strong years after reunification, had been dragging its feet on reforms. The government of Chancellor Gerhard Schröder then reformed the labor market, which finally paid off: In 2014, a group of economists from Berlin and London wrote that Germany had developed"From sick man of Europe to an economic superstar."

The German economy is again struggling. For two quarters in a row, its economic output has declined — something economists label a "technical recession." In the most recent quarter, Germany's gross domestic product (GDP) has stagnated at the level of the previous quarter, and all the important economic indicators show a decline.

"Germany's economic situation is darkening," was the conclusion of the president of the ifo Institute, the Leibniz Institute for Economic Research at the University of Munich, Clemens Fuest. The ifo Institute surveys 9,000 executives each month about the current state of their businesses and their expectations for the next six months. The resulting ifo Business Climate Index (July 2023) has fallen for the third month in a row. The ifo researchers expect Germany's GDP to decline again during the current quarter.

The situation is also clear to Commerzbank chief economist Jörg Krämer: "Unfortunately, there is no improvement in sight," Krämer told the Reuters news agency. "The worldwide interest rate increases are taking their toll, especially since German businesses are already unsettled due to the eroding quality of their location."

Industry is no longer the showpiece
Compared with other industrialized nations, Germany is performing exceptionally poorly — and according to an estimate by the International Monetary Fund (IMF) will be the only large country to have a shrinking economic output. The country's industrial sector, the showpiece of its economy, is causing the most concern. It accounts for a relatively large portion of Germany's gross value added (GVA), about 24%, and hasbeen suffering through a global economic slump. The engineering and automotive sectors, which are heavily reliant on exports, are particularly feeling the effects of foreign customers holding back.

Companies in the manufacturing industries are still saving themselves thanks to the large backlog of orders that accumulated during the COVID-19 pandemic because of signifcant supply chain problems. But these orders will soon be fulfilled — and new ones are coming in more sparsely: From March until May, the number of orders received was just over 6% down on the three months prior.

Germany's economic decline has many causes. One of them is the monetary policy of central banks. The Federal Reserve, European Central Bank and others want to curb inflation via significant interest rate increases. That makes credit more expensive for companies and consumers, which has a slowing effect on another important economic sector in Germany — construction — as well as dampening companies' willingness to invest.

This "stalling" of economic dynamism is the whole point of increasing interest rates. But other Eurozone countries, such as France or Spain, have coped with this much better. "All of our European neighbors have higher economic momentum," stated Moritz Schularick, the new President of the Kiel Institute for the World Economy (IfW).

So, structural problems are holding Germany back. The country's economic model used to be based on importing cheap — primarily Russian — energy and cheap raw materials and semi-finished goods, processing them and exporting them as high-value, expensive goods. But that is not working anymore. The multiple crises of recent years have ruthlessly laid bare Germany's weaknesses. Energy-intensive enterprises are suffering under the high energy costs, and those who have relocated their production are not coming back. But Germany's problems do not end there.

How to turn things around?
A current study by DZ Bank, the second-largest bank in Germany, has concluded that small and medium-sized enterprises, commonly described as the "backbone of the German economy," are in danger.

The authors note a veritable cocktail of locational disadvantages: Aside from the energy prices, they listed the latent skills shortage, but also excessive bureaucracy, high taxes, and ailing infrastructure, including struggles in implementing digitalization. In addition, Germany has an aging population. "Large parts of our economy are lacking confidence that investments in Germany as a business location, in light of the high costs and in some parts contradictory regulations, will pay off," Peter Adrian, president of the Association of German Chambers of Commerce and Industry recently told German news agency dpa.

Kiel Institute (ifW) President Moritz Schularick outlined a possible way out of this dilemma in a piece on the website of his Institute: "If Germany does not want to become the 'sick man of Europe' once again, it must now courageously turn its attention to the growth sectors of tomorrow instead of fearfully spending billions to preserve yesterday's energy-intensive industries."

Germany must, Schularick continued, quickly address the shortcomings and missed opportunities of the past decade: "The sometimes bizarre backwardness in all things digital, the sharp decline in state capacity and public infrastructure, as well as the lack of a meaningful strategy to improve the shortage of housing and increase immigration to deal with the effects of an aging workforce."
https://www.dw.com/en/germany-once-again-the-sick-man-of-europe/a-66403943

Lots of doom and gloom articles on Germany in the last weeks and months.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on August 01, 2023, 07:24:32 AM
Interesting, all the while it seems the US might actually be having their soft landing, with the much-predicted recession failing so far to materialise.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on September 20, 2023, 03:52:17 AM
Finally someone with constructive suggestions. :)

https://www.washingtonpost.com/world/2023/09/13/tim-gurner-unemployment/

QuoteCEO calls for more unemployment to give companies upper hand over workers

An Australian millionaire property developer is drawing backlash for calling for more unemployment to give companies more leverage over employees, whom he said had become "arrogant" since the covid pandemic.

"We need to see pain in the economy," Tim Gurner, CEO of the Gurner Group, told the Australian Financial Review's property summit Tuesday. "We need to see unemployment rise — unemployment has to jump 40 to 50 percent, in my view."

"I think the problem that we've had is that people decided they didn't really want to work so much any more through covid, and that has had a massive issue on productivity," he said. Tradespeople, he said, "have been paid a lot to do not too much in the last few years, and we need to see that change."

"We need to remind people that they work for the employer, not the other way around," he continued. "There's been a systematic change where employees feel the employer is extremely lucky to have them, as opposed to the other way around. So it's a dynamic that has to change."

Those changes had already begun, Gurner said, with "massive layoffs" leading to what he described as "less arrogance in the employment market."

His remarks drew a scathing response, with one Australian official, Labor MP Jerome Laxale, describing them on X, the platform formally known as Twitter, as "comments you'd associate with a cartoon supervillain, not the ceo of a company in 2023."

Job losses "mean people on the streets and dependent upon food banks," Liberal Australian lawmaker Keith Wolahan told Australian media.

Rep. Alexandria Ocasio-Cortez (D-N.Y.) also tweeted, in response to a video of Gurner's comments that circulated online: "Reminder that major CEOs have skyrocketed their own pay so much that the ratio of CEO-to-worker pay is now at some of the highest levels *ever* recorded."

Around the world, including in the United States, the pandemic and its lockdowns reshaped the labor force, upending dynamics between employers and workers.

Most of the country's missing workers are back, propelling the economy

Companies sought to offer incentives during much of the pandemic to lure people back into the job market from early retirements, family obligations due to lack of child care and other personal decisions.

But most Americans who left the workforce in what was dubbed the "Great Resignation" have since returned, easing labor shortages and reflecting the strain of higher prices. According to a Washington Post analysis, the labor market as a whole regained 75 percent of the 4 million workers who had dropped out of the workforce due to a range of reasons including health concerns, covid illness and death.

Employers also reclaimed more leverage as the pace of job creation largely tempered.

Major companies, including Lyft, Deloitte, Meta and Whole Foods recently announced mass layoffs, with many of them linked to industries that boomed during the pandemic, including tech and financial services.

Despite the return of many workers, some employers are still struggling to hire as jobseekers switch industries. Workplaces that offer remote opportunities have more workers than before the pandemic, while other sectors, such as leisure and hospitality, continue to report shortfalls, The Post has reported.

And while companies experimented with digital perks for workers during the pandemic, tech companies that once supported those who wanted to work from home are now telling them to return to the office.

Government data put Australia's unemployment rate at 3.7 percent in July, and the Reserve Bank of Australia has said the rate of unemployment would have to rise to 4.5 percent to curb inflation.

Gurner's suggested increase in Australian unemployment could bring the number of people in the country out of work to over 800,000 people, the Australian Financial Review reported, and it could mean a return to unemployment rates of around 5.5 percent. The last time the country saw that figure or higher was during the throes of the pandemic
.

Gurner is no stranger to controversy: He was once lampooned for suggesting that millennials' difficulties in getting onto the property ladder could be attributed to their love of avocado toast and coffees, telling "60 Minutes Australia" in 2017 that many young people were unlikely to ever own their own homes: "When you're spending $40 a day on smashed avocado and coffees and not working — of course not, absolutely!"
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on September 20, 2023, 03:53:52 AM
Here's the full quote in video form: https://www.independent.co.uk/news/world/americas/tim-gurner-property-developer-australia-b2411998.html
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on September 20, 2023, 04:06:15 AM
Wealthy people are great.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on September 20, 2023, 04:15:50 AM
He's worth only half a billion from what I gather, he's hardly super rich! ;)

This article is ont entirely sympathetic:

https://www.afr.com/rear-window/gurner-got-his-start-with-loans-from-his-boss-grandfather-20230913-p5e48z

Quote[...]

This year, Timbo spruiked his $150 million luxury anti-ageing brand, Saint Haven. It turns out Timbo is not just obsessed with staying young – a red flag in itself – but he's building "cult-like" man caves, where he can rope in the rich to steam themselves and drink tequila.

Timbo, with all this chilling out in oxygen chambers and fiddling around with your oura ring, it's no wonder Australia's productivity is so low!

Fellow Rich Lister Harry Triguboff once called Timbo "the future", while Morry Schwarz has been fingered as a mentor.

A few years ago, Timbo revealed that he first bought a St Kilda apartment for "180k" and then had "my boss at the time approach me to renovate it while he fronted the money".

He fronted the money. The boss did. Golly it must be nice to have an employer who doesn't think you're a lazy arsehole, but rather reaches into their pocket to help out a young fella.

Timbo went on to say that he later "took out a $150,000 loan using the $34,000 from his grandfather".

Of course! Because it's a tale stitched into the fabric of the Australian dream. The lump sum inheritance, or the familial guarantor. The financial backstop that's always there in every story, though never in the headline. They are the foundational facts that are glazed over in the origin stories of Australia's over-levered property wunderkinds.

The reason Timbo's comments have resonated globally is not so much that he's a capitalist edgelord who is willing to publicly say the thing that other bosses are secretly thinking. Although there are surely readers of this newspaper who are quietly agreeing with him.

It's because Tim Gurner encapsulates all the fears that regular people have of the property industry. That when landlords and property developers go into functions and hotel ballrooms, they all privately gripe about the ungrateful serfs. But the mask didn't slip here. Timbo ripped it off.

The next time Timbo chunters on about any aspect of economic policy, or about the current predicament of employer-employee relationships, he should be forced to staple to his forehead how he really "made it". Lord knows there's enough room.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: grumbler on September 20, 2023, 10:45:27 AM
Australia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: DGuller on September 20, 2023, 10:54:41 AM
Quote from: grumbler on September 20, 2023, 10:45:27 AMAustralia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.
I've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on September 20, 2023, 11:26:57 AM
Quote from: DGuller on September 20, 2023, 10:54:41 AMI've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.

Obviously what you want is for everyone ELSE to pay their workers well so they can consume your products, while you pay your workers as little as possible to increase your margins.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on September 20, 2023, 11:27:54 AM
Quote from: grumbler on September 20, 2023, 10:45:27 AMAustralia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.

I think he's in high price properties, so I don't think the riff-raff are his prime clientele.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: HVC on September 20, 2023, 11:35:11 AM
Quote from: Jacob on September 20, 2023, 11:26:57 AM
Quote from: DGuller on September 20, 2023, 10:54:41 AMI've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.

Obviously what you want is for everyone ELSE to pay their workers well so they can consume your products, while you pay your workers as little as possible to increase your margins.

The Patton method to economics.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on September 20, 2023, 01:23:00 PM
Also less than 1% of their rental units are available which is obviously causing huge pressure on cost of living - or ability of those workers to have much for consumption.

As I say, there's other places where it's a problem, but housing seems a particular issue in the Anglo world.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Syt on December 14, 2023, 02:09:25 AM
(https://i.postimg.cc/g0WdPX9r/image.png)

:cheers:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Brain on December 14, 2023, 02:14:30 AM
Why wouldn't I get a big raise? I'm wonderful.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Jacob on December 14, 2023, 02:56:56 AM
Quote from: The Brain on December 14, 2023, 02:14:30 AMWhy wouldn't I get a big raise? I'm wonderful.

Then obviously it's your fault if the economy falters  :(
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on December 14, 2023, 03:42:31 AM
Who gets a big raise?
Is this something that actually happens?
If you need more money you switch jobs. This is a fundamental law of reality.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: garbon on December 14, 2023, 04:02:14 AM
Quote from: Josquius on December 14, 2023, 03:42:31 AMWho gets a big raise?
Is this something that actually happens?
If you need more money you switch jobs. This is a fundamental law of reality.

Since the pandemic both places I've been at have been worried about junior staff retention and gave them significant across the board increases. Doesn't seem to have stopped staff from leaving...
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: celedhring on December 14, 2023, 04:12:59 AM
Why is the thread title implying it is over :D
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on December 14, 2023, 04:19:14 AM
Lol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: celedhring on December 14, 2023, 04:21:52 AM
Regarding wages, I'm a freelancer so I don't really have "salary" but I've agreed higher rates with my main customer twice since the inflation crisis began. Overall, accouting for inflation, I'm getting paid more. But I'm really hard to replace for them. Most people I know their salaries have risen below inflation.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Iormlund on December 14, 2023, 04:44:55 AM
I lost a lot of purchasing power, as our salaries were not indexed to CPI and a freeze was decreed in EMEA.

Still making quite a bit more than other local alternatives, but I would not have come back from Germany for market rates ...
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on December 14, 2023, 04:54:11 AM
Quote from: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.

Yeah but the only reason markets are going up is that they think cuts are just around the corner.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on December 14, 2023, 04:54:49 AM
Quote from: garbon on December 14, 2023, 04:02:14 AMSince the pandemic both places I've been at have been worried about junior staff retention and gave them significant across the board increases. Doesn't seem to have stopped staff from leaving...
Yeah - where I've been there's been one off payments/bonuses but also sliding scale rises depending on how much you earn. The most junior/lowest paid got almost 10% and the highest paid got just under 5%, I think. Nationally according to the ONS the average pay rise for the public sector last year was 6.5% while in the private sector it was 8% - my guess is both of those tilt at the more junior/lower paid end.

The BofE has been regularly surprised at the strength of wage growth. I think we're the only country in Europe where there has been a real risk of a wage-price spiral (on this we've been a bit more like the US).
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on December 14, 2023, 05:18:45 AM
Quote from: Sheilbh on December 14, 2023, 04:54:49 AMThe BofE has been regularly surprised at the strength of wage growth. I think we're the only country in Europe where there has been a real risk of a wage-price spiral (on this we've been a bit more like the US).

Almost as if there is a recent but key difference in (job) market access between the UK and the rest of Europe. But it's hard to think of anything of consequence that has happened.  ;)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on December 14, 2023, 05:36:46 AM
Quote from: Tamas on December 14, 2023, 05:18:45 AMAlmost as if there is a recent but key difference in (job) market access between the UK and the rest of Europe. But it's hard to think of anything of consequence that has happened.  ;)
:P And is that good or bad in this case? :lol:

Not sure that works though. We've had record high net migration running at 3 times what it was in the early 2010s and over 50% of jobs advertised would be open to people outside the UK.

I think it's lack of unionisation (and industrial relations culture in the UK, which I'm experiencing for the first time in a heavily unionised sector) and that we have had a strong labour market. It's softening now but basically we've got full employment (unemployment was under 4%) with growing employment. So people can move - and I think since covid they have been (including me), which will drive wages.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Admiral Yi on December 14, 2023, 07:50:05 AM
Quote from: Tamas on December 14, 2023, 04:54:11 AMYeah but the only reason markets are going up is that they think cuts are just around the corner.

That's the financial system functioning.  When the yield on fixed income falls the yield on equities falls too and prices rise.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Gups on December 14, 2023, 08:46:44 AM
There's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on December 14, 2023, 09:09:36 AM
Yeah. Even as someone who sort of benefited from that I have thought the NQ and associate salary arms race must be unsustainable - and I assume largely just because of the impact of the US firms then everyone trying to keep pace.

(Having said that I've just realised that an NQ at the firm I trained at now earns more than I do several years in - admittedly having moved in-house... :blink: :huh:)
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Josquius on December 14, 2023, 09:12:46 AM
My income has literally doubled since lockdown. Even taking into account I've switched jobs to a generally higher paying industry in a higher paying part of the country I do suspect my job has gotten that big boost too.
Fingers crossed if the increase ends it just ends and doesn't pop.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on December 14, 2023, 09:39:17 AM
Quote from: Gups on December 14, 2023, 08:46:44 AMThere's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God

The market for legal services at that level is weird; there isn't a lot of cost discipline.

On the deal side, the legal bill is usually an afterthought. If a company is taking in a billion in capital and paying the bankers 25+ million, they aren't going to quibble over a legal bill in the (single) millions.  Same for M&A fees, the legal bill barely registers.

On the litigation side, if it is a significant case, no GC ever got fired because they paid their successful lawyers 5 million instead of 3 million.  But if the case is botched . . . so firms establish competence and build good relationships and then they can get away of having armies of associates billing the snot out of cases, reviewing millions of pages of obviously low relevance docs and writing up redundant memos.

What all these means for big firm finances is that they have been able to increase rates annually well above inflation and keep ratcheting up "leverage" (associate to equity partner ratio).  That yields huge profit increases, even after leaving plenty of financial room to bid up associate salaries.

Is it sustainable?  Automating tools have already decimated the legal secretaries.  It's hard to justify objectively the large associate heavy teams the big firms throw on all their matters to maintain their leverage.  The question is how long companies will continue to tolerate the situation.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Habbaku on December 14, 2023, 09:40:26 AM
Quote from: Tamas on December 14, 2023, 04:54:11 AM
Quote from: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.

Yeah but the only reason markets are going up is that they think cuts are just around the corner.

Markets have been going up all year with zero sign until yesterday that rate cuts were coming.  :huh:
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Gups on December 14, 2023, 09:59:31 AM
Quote from: The Minsky Moment on December 14, 2023, 09:39:17 AM
Quote from: Gups on December 14, 2023, 08:46:44 AMThere's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God

The market for legal services at that level is weird; there isn't a lot of cost discipline.

On the deal side, the legal bill is usually an afterthought. If a company is taking in a billion in capital and paying the bankers 25+ million, they aren't going to quibble over a legal bill in the (single) millions.  Same for M&A fees, the legal bill barely registers.

On the litigation side, if it is a significant case, no GC ever got fired because they paid their successful lawyers 5 million instead of 3 million.  But if the case is botched . . . so firms establish competence and build good relationships and then they can get away of having armies of associates billing the snot out of cases, reviewing millions of pages of obviously low relevance docs and writing up redundant memos.

What all these means for big firm finances is that they have been able to increase rates annually well above inflation and keep ratcheting up "leverage" (associate to equity partner ratio).  That yields huge profit increases, even after leaving plenty of financial room to bid up associate salaries.

Is it sustainable?  Automating tools have already decimated the legal secretaries.  It's hard to justify objectively the large associate heavy teams the big firms throw on all their matters to maintain their leverage.  The question is how long companies will continue to tolerate the situation.

Sure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I agree with you generally. I think any due diligence exercise is absolutely vulnerable to AI. To a large extent comapnies are paying for names (so the GC can cover himself) and for insurance.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on December 14, 2023, 10:11:02 AM
Quote from: Habbaku on December 14, 2023, 09:40:26 AM
Quote from: Tamas on December 14, 2023, 04:54:11 AM
Quote from: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.

Yeah but the only reason markets are going up is that they think cuts are just around the corner.

Markets have been going up all year with zero sign until yesterday that rate cuts were coming.  :huh:

Uhm, no? Bond market has been pricing in cuts at X month ahead since like mid-2022, it just kept being pushed out or pulled back in based on what's been going on.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Sheilbh on December 14, 2023, 10:16:59 AM
Isn't that how markets are supposed to work? That seems like it is functioning to me, no?
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Tamas on December 14, 2023, 10:31:34 AM
Sure. By financial markets I was referring to the stock market and what I meant was that what this resulted in for most of the last couple of years was stock prices rising when news indicating recession came out, which to me seems quite dysfunctional.

But to be fair lately good news has been good news, in addition to bad news being good news.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: Grey Fox on December 14, 2023, 10:41:18 AM
Between January 2020 & now, I gained about 20%. I did not switch job or even any of my tasks.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on December 14, 2023, 10:46:30 AM
Quote from: Josquius on December 14, 2023, 03:42:31 AMWho gets a big raise?
Is this something that actually happens?
If you need more money you switch jobs. This is a fundamental law of reality.

It is indeed something that happens
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: The Minsky Moment on December 21, 2023, 08:42:11 PM
Quote from: Gups on December 14, 2023, 09:59:31 AMSure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I think the effect is mixed for small firms.  The huge rate increases prices out a lot a solid companies and wealthy individuals and give room for small firm lawyers to raise their own rates.  But it makes it hard if you need to rely on junior lawyers.

These days, in my own practice, it is mostly working to my benefit. . When COVID caused us to shift over to virtual office space, gross margins went over 90%; that gives us a lot of room to discount rates while still keeping profits respectable. 

On the cost side, we don't keep any associates on staff.  It's a pure litigation practice.  The doc analysis tools are sophisticated enough we can much of that work ourselves and hire contract attorneys selectively as needed. Other cases are multi-defendant where there is a larger firm representing a co-defendant and I can lean on them for that support.

The technology has done a lot to make boutique-style micro-practices possible - there is no way this kind of practice could have worked in the 80s or 90s - and the rate environment has helped the business case. If AI improves I think that trend could accelerate with a possible hollowing out of the middle.
Title: Re: The 2022-23 Economic Crisis Megathread
Post by: crazy canuck on December 21, 2023, 09:15:21 PM
Quote from: The Minsky Moment on December 21, 2023, 08:42:11 PM
Quote from: Gups on December 14, 2023, 09:59:31 AMSure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I think the effect is mixed for small firms.  The huge rate increases prices out a lot a solid companies and wealthy individuals and give room for small firm lawyers to raise their own rates.  But it makes it hard if you need to rely on junior lawyers.

These days, in my own practice, it is mostly working to my benefit. . When COVID caused us to shift over to virtual office space, gross margins went over 90%; that gives us a lot of room to discount rates while still keeping profits respectable. 

On the cost side, we don't keep any associates on staff.  It's a pure litigation practice.  The doc analysis tools are sophisticated enough we can much of that work ourselves and hire contract attorneys selectively as needed. Other cases are multi-defendant where there is a larger firm representing a co-defendant and I can lean on them for that support.

The technology has done a lot to make boutique-style micro-practices possible - there is no way this kind of practice could have worked in the 80s or 90s - and the rate environment has helped the business case. If AI improves I think that trend could accelerate with a possible hollowing out of the middle.

On the contrary, boutique litigation firms became the norm here in 90s