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

Title: The 2022 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.