Is the current inflation temporary or persistent.

[staintunerider]

On 20/08/2023 at 22:01, Flat Bear said:

Inflation will be high and it will be recognised for the real danger it is. People and Governments will take it very seriously, or start to.

Its the first time i recall since the 90's eg Black Wednesday...I have actually seen a UK government scared and not scared on its own account on account of something that will have exactly the same effect on any government from the other side of the house..

You can smell the fear now since the Truss Kwarteng budget...finally someone said NO !

[staintunerider]

On 21/08/2023 at 19:10, Flat Bear said:

AND NOT PAID BACK.

If it has not been paid back the it is a debt. At some point debts need to be paid back or defaulted on, there is no other solution. Clever accounting can keep the debt/credit on the balance sheets as such but once this debt can no longer be serviced or the value of the asset it is set against is lower than the debt it is no longer an option. The UK housing market could be looked at as a giant ponzi scheme when you see it this way. Moral Hazzard.

I've really gone through this thread and i will again thanks Flat Bear for your input.

I've learned some things here I think but what I'm trying to really work out and I have taken into account the interesting stuff around QE , QT etc is this...

1) We are going to have persistent inflation YES/NO.    I felt YES before and more so now

2) I'm confused on IR's ...are they going up or going down Yes/NO ...i feel UP or at least where they are now but am confused as to the comments on they can't really do QT as its inflationary.

3) Dependent on  2 very much I think, is the UK property market going to a)linger on from here, b) correct or c) inflate

 

I read that Harrisson article and I am not putting to much stead in what he says as he seems focused on empirical data and cycles over very long periods which i do not think are relevant to the market today. The distortions of the last 20 years are exceptional and don;t belong in his cycles I believe...i think hes got lost in his own model

Many other saw 08 coming not just him...and it didnt take a complex model to predict that...

What he was saying for those who havent read it  is....they will juice the property market and it will go into a further boom from 2024 into the election before crashing in 2026/27

I can only see that with a return to low rates and the credit spigot turned full on and some kind of certainty the Market won't throw a hissy fit...and i can only see that with some kind of back room deal...and i don't know if thats even possible....

 

 

[scottbeard]

3 hours ago, staintunerider said:

Blimey do they really ? I don;t think anyone else does except big mortgage holders and they are just hoping..

I'm not disagreeing with you just shocked if thats what the BoE think....and Bailey imo isnt even worth mimimum wage...just a poser in an expensive suit....

That post is from August 2022.  In August 2022 the BoE thought inflation by Q1 2024 would be 2%.

That should tell you everything you need to know about the value of their current forecasts.

[Flat Bear]

16 hours ago, staintunerider said:

Blimey do they really ? I don;t think anyone else does except big mortgage holders and they are just hoping..

I'm not disagreeing with you just shocked if thats what the BoE think....and Bailey imo isnt even worth mimimum wage...just a poser in an expensive suit....

Yes. This was exactly what the BOE thought and was the concensus back just 12 short months ago when I raised that post. This thread is a year old.

[staintunerider]

So what are we looking at here ? persistent inflation with increasing rates and devaluation in asset bubbles especially the biggest asset bubble housing....?

would it be the case  all that newly created money cannot be unwound because the debt holders do not have the money to pay off their loans and destroy the created money ?

But no more money creation and high servicing costs of existing debt would cause  the asset bubbles/ponzi schemes to contract...??

OR NOT ?

Hyperinflation, hyper asset price inflation ? Weimar, Zimabwe ?

For hyperinflation I'm guessing you need more money creation on steroids but leads to destruction of the economy and currency....

I am just putting these out there ...in order to see if there is a consensus on where we are headed

Seems to me it is clear they do not want Hyperinflation and thats why they are now taking inflation so seriously because finally they have to because one leads to the other if it is not dealt with.

I really can't get my head around QT being inflationary not because i think its wrong i just cant get my head around it...hence I can;t see where we are going with interest rates...surely they are going higher regardless as if we have perssitent inflation this is going to a long fight ...

Even at current rates the pressure will break many with big debt over time...higher rates will do them quicker and start to bring others to breaking point and so on....

So what does this all mean for the UK housing market ? Biggest CRASH we have ever seen ?

How does that work for UK Banks when technically they would be insolvent if you price their assets to market(collapsed market)  and not priced to book ?

Banking consolidation as the smaller banks fail like SVB ?

Cash injections/bailouts  for the big banks from the taxpayers ?

 

Speaking of SVB, is there a very real Systemic Danger  with all those UK govt  bonds with low yields as a legacy of the low rates/ZIRP years sloshing around in the system ?

From my understanding thats what caught SVB out when they were forced to sell and price to market and not to book once the outflows surged...

 

 

 

 

 

Edited August 26, 2023 by staintunerider

[staintunerider]

So watched this....

 

1) When the wheels come off again just more of the same ? (Which is number one pick for the CB's and Govts)

2) Or does the inflationary nature of this now on top of the current inflation mean the Bond Market won;t let them ?

3) Or  do they hope to combat inflation so they have the option to do number 1 for when the wheels come off again....

 

Market dictated interest rates for me everytime will that ever happen again I wonder ?

[Timm]

46 minutes ago, staintunerider said:

1) When the wheels come off again just more of the same ? (Which is number one pick for the CB's and Govts)

2) Or does the inflationary nature of this now on top of the current inflation mean the Bond Market won;t let them ?

 

46 minutes ago, staintunerider said:

3) Or  do they hope to combat inflation so they have the option to do number 1 for when the wheels come off again....

Market dictated interest rates for me everytime will that ever happen again I wonder ?

This one. 

They have more or less said so themselves (my bolding):

https://www.bankofengland.co.uk/monetary-policy-report/2023/august-2023

Quote

Reducing the size of the APF [Asset Purchase Fund - QE] has the important benefit of reducing the risk of a ratchet upwards in the size of the central bank balance sheet over time if successive policy cycles encounter the effective lower bound on interest rates (for further discussion, see Bailey et al (2020)). That in turn should increase the headroom and flexibility for the central bank to be able to use its balance sheet in the future should that be needed.

 

[staintunerider]

2 hours ago, Timm said:

 

This one. 

They have more or less said so themselves (my bolding):

https://www.bankofengland.co.uk/monetary-policy-report/2023/august-2023

 

So just more of the same as discussed here.....

But in the meantime if you get persistent inflation and they have to raise rates thats going to crush the asset bubbles meanwhile Yes ? No ?

So Harrisson must be wrong they cannot juice it now...it has to go in a downturn now and every rate rise pushes to further back down where it came from..

If Flat Bear is correct...persistent inflation this is going to be a long fight.....so property has to fall

What if there is a Global system shock before the inflation fight is done ?

Will the Bond market let them get away with the same old tired bodge fix....maybe if inflation is contained but what if its not ?

 

[PeanutButter]

If you think the UK’s high-inflation cycle has run its course, think again

https://www.theguardian.com/business/2023/aug/26/if-you-think-the-uks-high-inflation-cycle-has-run-its-course-think-again

[Flat Bear]

On 26/08/2023 at 12:15, staintunerider said:

So watched this....

 

1) When the wheels come off again just more of the same ? (Which is number one pick for the CB's and Govts)

2) Or does the inflationary nature of this now on top of the current inflation mean the Bond Market won;t let them ?

3) Or  do they hope to combat inflation so they have the option to do number 1 for when the wheels come off again....

 

Market dictated interest rates for me everytime will that ever happen again I wonder ?

Thank you @staintunerider for this YouTube video. It is very appreciated by me at least.

It tells in a very simplistic way the short history of current Fiat money and the recent experiment with QE. It is very good, excellently put together.

I would like to know if their is anyone that did not realize this was the situation or disagrees with any of it?

I have "assumed" that everyone commenting on this and similar threads understood everything that was on the video in economic terms, although there were a couple of historic facts I admit to not knowing. So when I get replies to my posts on QE, Fiat money, how money is created, inflationary and deflationary forces these posters understand all the information on the video inside out. But is this the case?

To try and answer your quite difficult and very important questions on your next post

If Flat Bear is correct...persistent inflation this is going to be a long fight.....so property has to fall

What if there is a Global system shock before the inflation fight is done ?

Will the Bond market let them get away with the same old tired bodge fix....maybe if inflation is contained but what if its not ?

We have already seen some Global system shocks. I think we still have a lot more to come primarily from China when we eventually see the fallout from the Chinese economic implosion.

The Bond market(s) is a difficult one but I would suggest when we see tightening up of that money supply and capital becoming more expensive then Bonds must fall or do I mean rise? (I get mixed up with this) What I mean is people/institutions will want more for investing in these Bonds.

You are correct in that I do see this as a long fight. Also a very painful one.

There are quite a number of posters who call themselves "Bears" BUT they say they believe inflation will be very short lived and interest rates will pivot and reverse very soon. There are a number who thought prices would fall quite dramatically by 5% to 10% from mid 2022 to mid 2023 and they were going to buy come what may in June/July/August 2023.

There are a very few that do see it as I do and believe we are at the start of a long Bear market in the Property market. 

I was of the opposite opinion when I left posting on the forum in October 2014 as I believed we would continue to see HPI until something changed. With increasing QE and ZIRP getting to the stage of going negative I could see no hope for any correction. I started to see the early signs of changes in late 2000 early 2021 and realized we were at the end of the era it was just no one seemed to have noticed. Started posting back in June 2021 when I read a couple of very insightful threads from such posters as sausages (changed his name a few times now) who could also see the looming inflation threats ahead. I was predicting then that we would see a correction in house prices amongst other things starting in 2022/23 but I always seem to get the timing wrong.

One thing I must not forget. "Bubbles get much bigger and they last for much longer than Flat Bear predicts"

Is this the "everything" bubble?

[staintunerider]

All Bubbles eventually  go POP !.. and best not to get caught on the wrong side of that Pop......unfortunately many now will..and prices will track back many years to a natural level that correlates to the corresponding cost to borrow....property alway goes up until it doesn't ..that time is likey now,  Debt is cheap until it isn't and it is no longer cheap , but historically it's still not overly expensive, the problem is the unnatural levels of debt debtors hold in relation to the cost of the debt they hold.

Those who hold large debt that was previously cheap are now struggling under the raised rates, those who wanted to buy into all this for the first time are restricted in what they can borrow and pay. What gives ? The Asset cost has to give because the new levels(lower now) will always be set by whatever activity happens on the margins...it's an irresitible force.

Way back before I really understood a lot more about the fundamentals ,i winced at the amounts of debt involved it just didn't seem right, the sums were just too huge once low rates really jacked the prices up.....I recall the prices back in 2007(before really low rates) and they seemed way out of sync and then 08 happened and prices settled to not cheap but took some of the madness out...then the low rates came and the prices have reached levels way beyond 07...all built on astronomic debt that ordinary Joe's would never have contemplated taking on just 10/15/20 years ago....it was like the size of the debt didnt matter...it simply was not acknowledged...aided and abetted by the Lenders and industry participants talking about affordability...really was like the Emperors new clothes...

TPTB got so full of themselves that inflation hadn't returned and they were geniuses...ha really...it really was here long ago but when you keep rent and house prices out of the inflation figures you're fooling yourself...because we had massive inflation in housing....but of course the repayments were muted because of the low rates...

Then the Covid happened...what was Sunaks first move in all that...in a national crisis....he removed SDLT on housing to prop up the ponzi housing market because blimey they must have been scared property would correct and cause an economic reckoning at the same time...but it blew the bubble bigger....the lemmings started rushing to overpay just to save on the SDLT...utter madnes...just like HTB added on 20% removal of SDLT added on much more than was saved on SDLT by the asset inflation.

At the same time they started paying people to sit at home(Furlough) by really printing money the old fashioned way (not lent into existence via housing). They massively increased the money supply on top of the massive increase in the money supply over the last 10/15/20 years.

And suddenly the inflation that was already in housing came into everything else as well. So now we have proper good old fashioned inflation across the spectrum including in services.  The Supply chain woes from covid..really turned up the dial as well with fewer goods being chased by too much money well isn't that the definition of inflation

In order to fight the inflation because Mr Market says you blooming well better or your currency is toast chum, they have to raise rates and ironically the inflation in the asset/vehicle they previously used to increase the money supply(lent into existence money) will now see Deflation. Ironic..But it's not really deflation in its truest sense its wont even be a crash in the truest sense....its a correction....its the system naturally clearing itself....and adjusting to the fundamentals..something central banks have fought against for a very long time and its unnatural in a true market...

The bigger the Bubble the bigger the POP ! Same as it always was

I do think one day low interest rates will be seen historically as the craziest monetary experiment  since John Law's Mississipi Bubble....

Edited August 28, 2023 by staintunerider

[Timm]

15 hours ago, Flat Bear said:

(...) I was of the opposite opinion when I left posting on the forum in October 2014 as I believed we would continue to see HPI until something changed. With increasing QE and ZIRP getting to the stage of going negative I could see no hope for any correction. I started to see the early signs of changes in late 2000 early 2021 and realized we were at the end of the era it was just no one seemed to have noticed. Started posting back in June 2021 when I read a couple of very insightful threads from such posters as sausages (changed his name a few times now) who could also see the looming inflation threats ahead. I was predicting then that we would see a correction in house prices amongst other things starting in 2022/23 but I always seem to get the timing wrong.

One thing I must not forget. "Bubbles get much bigger and they last for much longer than Flat Bear predicts"

Is this the "everything" bubble?

I also became too bullish and had to take a holiday from HPC in about 2011. I came back in about 2020 when my bearish outlook returned. Generally (over time), my view is a little too bearish and I have to make an effort to correct for that bias. It is for that reason that for meaningful nominal falls, we still need sentiment to turn, otherwise we are in for a long period of grinding real falls - which I think is what you are expecting?

I see the next month as being key in whether sentiment turns.

But I'm probably too early!!!

[staintunerider]

44 minutes ago, Timm said:

I also became too bullish and had to take a holiday from HPC in about 2011. I came back in about 2020 when my bearish outlook returned. Generally (over time), my view is a little too bearish and I have to make an effort to correct for that bias. It is for that reason that for meaningful nominal falls, we still need sentiment to turn, otherwise we are in for a long period of grinding real falls - which I think is what you are expecting?

I see the next month as being key in whether sentiment turns.

But I'm probably too early!!!

From other threads on asking prices....it seems clear we are in the denial phase which precedes the sentiment turning.

You can kind of sense the sentiment turning negative out there, definitely more fear of overpaying than FOMO

Also a lot of people do not get into things in the detail folk on this website do, they are probalbly waiting for things to turn in their favour like reduced rates or govt props or some such....The big debtors have only just recently seen their payments sky rocket, the new reality has not had the time to come to bear on them yet....it's like compound interest and we are only a the beginning the effects come later...

 

[14stFlyer]

3 minutes ago, staintunerider said:

You can kind of sense the sentiment turning negative out there, definitely more fear of overpaying than FOMO

This is the path to the correction.  When we see the conversation turn from the estate agent asking “How much of a mortgage can you secure and so what is your price ceiling?” To the buyer asking “How much is your cheapest 3 bed, and are they likely to accept offers significantly below asking?”

[staintunerider]

It has begun to occur to me that The Tories know they are going to lose the next election and being out of tricks anyway will let the cards fall where they may and let housing correct as they can;t stop it anymore...

The elite are probably deleveraging so they can profit from a correction

[staintunerider]

On 20/08/2023 at 22:41, Flat Bear said:

Asset price increases are a symptom of inflation, not an alternative to it.

This is exactly what many of us have been saying on this forum for ove 20 years. The CPI RPI inflation figures are a complete joke and do not represent inflation at all. How can you exclude the biggest and most important item that just about everyone will buy and expect a figure to be accurate.

We had HPI at 20% but the CPI inflation figure was 0.1% and the BOE droped rates to 0.1%. Why, how could they do that with inflation (real inflation) running at 20%? What they did was divorce "assets" from day to day living expenses simply because it suited them politically.

ALL the QE money was lent out through the banking system and all this ZIRP money was used by the bank to buy the very safest assets they could which meant government debt and very safe assets. A sizeable proportion of this QE money was used to purchase UK property which sent prices higher and in turn created a self fulfilling market for this plentiful cheap QE money. The banks made more money during this period than ever before in their history and the Government was happy because they had someone who would lend them back the money they had created to buy their bonds and debt. (you couldn't make this bit up could you)

We are still in the tail end of this period and I am still getting daily offers of loans albeit at much higher interest rates. The banks relied solely on QE it distorted everything. The banks no longer needed customer deposites as they had all the capital they needed at rates so low they were touching the floor. We are likely to see a period of 6 months or more where banks will offer fixed rate mortgages at or just above BOE base rates because there is still so much QE money still in the system.

If you buy a house for £1,000,000 with a mortgage of 0.1% or if you buy the same house for £100,000 with a mortgage of 11.5% Which one should show as the higher in the inflation figures?

Credit doesn't "find its way" into assets and then stop.  If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc.  That money circulates and drives more demand.

Unfortunately it does. Credit is created and once it is paid back it disappears.

If you buy a house from someone the money is given to the vendor and you get one house it is as simple as that. The money/credit created in the whole property system stays in the property system. Occasionally people trade down and get "equity release" from a property and where the money generated goes to purchase day to day items then this would have an inflationary effect. But in general there is more money going into this property system than coming out so it is deflationary as there is less descretionary spending.

Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards. 

I do not focus on inflation as measured by CPI, you should know that by now. Real inflation is running at around 15% excluding house prices which have stagnated or have already dropped a couple of percent.

Just a thought what if they chucked house prices into the cpi in a crash...they suddenly have something deflationary...i havent thought this through...it doesnt seem fair as the previous house price asset inflation wasnt measured on the way up...but what do they care about fair ?

Not sure the Market would buy the ploy anyway they would want to see broad spectrum inflation brought down....they are looking at the countrys finances under a microscope and the value of the pound is at stake....and whether this country tips over into 3rd world banana republic status.....hangs on finally doing the right things....amazed the market a) believes the current inflation numbes at all and b) ever believed any of the inflation numbers going back quite some time....i can only guess they looked the other way....but now the covid money printing in the UK in real Weimar fashion has tipped over the whole apple cart.....thye should have known the printing from 2020 and pumping the hosuing bubble would blow up on them......so they must be dumb as......they probably had Whitehall mandarins and some at the BoE warn them and they were ignored....

[scottbeard]

3 hours ago, staintunerider said:

Just a thought what if they chucked house prices into the cpi in a crash...they suddenly have something deflationary...i havent thought this through...it doesnt seem fair as the previous house price asset inflation wasnt measured on the way up...but what do they care about fair ?

Not sure the Market would buy the ploy anyway they would want to see broad spectrum inflation brought down....they are looking at the countrys finances under a microscope and the value of the pound is at stake....and whether this country tips over into 3rd world banana republic status.....hangs on finally doing the right things....amazed the market a) believes the current inflation numbes at all and b) ever believed any of the inflation numbers going back quite some time....i can only guess they looked the other way....but now the covid money printing in the UK in real Weimar fashion has tipped over the whole apple cart.....thye should have known the printing from 2020 and pumping the hosuing bubble would blow up on them......so they must be dumb as......they probably had Whitehall mandarins and some at the BoE warn them and they were ignored....

CPI stands for CONSUMER price inflation.  Houses, or rather land whichnis most ofnthe price, aren't consumed and so they will never go in there directly. 

They could invent another index and switch to that though.

[scottbeard]

On 26/08/2023 at 12:15, staintunerider said:

So watched this....

Thanks for posting this - as @Flat Bear said it's a good video.

Interestingly, I think there were almost no individual nuggets of information I didn't know in it...but they joined dots that I hadn't joined.

In particular, joining today all the way back to the closure of the gold window.  I hadn't really seen that in the way they described it.

Interestingly though, they seem to suggest that the policy response to the bubble popping will be rate cuts and QE.  But in reality the central banks and governments aren't, so far, that stupid.  A bit like they realised in 2008 they couldn't let RBS go bust as it would take down too much with it, so they realise that they cannot keep ZIRP + QE with no comeuppance.  

It reminded me very much of this famous quote, quoted a lot on HPC in 2007-2009.  It seems, for now, as if "voluntary abandonment of further credit expansion" is being chosen.  Let's hope so.

Quote

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. LUDWIG VON MISES 

 

 

[Stewy]

On 25/08/2023 at 14:41, scottbeard said:

That post is from August 2022.  In August 2022 the BoE thought inflation by Q1 2024 would be 2%.

That should tell you everything you need to know about the value of their current forecasts.

They were likely right.

Inflation is going to plummet over the next six months. 

[staintunerider]

2 hours ago, scottbeard said:

Thanks for posting this - as @Flat Bear said it's a good video.

Interestingly, I think there were almost no individual nuggets of information I didn't know in it...but they joined dots that I hadn't joined.

In particular, joining today all the way back to the closure of the gold window.  I hadn't really seen that in the way they described it.

Interestingly though, they seem to suggest that the policy response to the bubble popping will be rate cuts and QE.  But in reality the central banks and governments aren't, so far, that stupid.  A bit like they realised in 2008 they couldn't let RBS go bust as it would take down too much with it, so they realise that they cannot keep ZIRP + QE with no comeuppance.  

It reminded me very much of this famous quote, quoted a lot on HPC in 2007-2009.  It seems, for now, as if "voluntary abandonment of further credit expansion" is being chosen.  Let's hope so.

 

 

 

Seems to me the market is finally saying no to ZIRP & QE, what took it so long ?

Guests like Alistair Macleod, Wolf Richter, Prof Steve Keane on the  Keiser Report mentioned several times where were the Bond Vigilantes...?

The inflation numbers are and were utter rubbish always , whatever they say you can add a good chunk on...

So real BoE rates vs current inflation measured or real are really negative rates.....

I'm really try to get my head around why they blew the housing bubble if most of the lent into existence stayed in the housing market....was it for the builders and banks their chums ?

Also in a major correction what happens to the newly created money ?

Surely it cannot be destroyed because only repayment of the debt destroys the money, a correction is a whole different thing....but from my understanding back in the 90's debtors either soldiered on or capitulated and most were unpursuable for any loss by the lender but i think it did affect them financially via credit rating...

Am i right in presuming if the lender wrote off the losses that would destroy the lent into existence money ? Seems logical...

[Flat Bear]

56 minutes ago, staintunerider said:

Seems to me the market is finally saying no to ZIRP & QE, what took it so long ?

Guests like Alistair Macleod, Wolf Richter, Prof Steve Keane on the  Keiser Report mentioned several times where were the Bond Vigilantes...?

The inflation numbers are and were utter rubbish always , whatever they say you can add a good chunk on...

So real BoE rates vs current inflation measured or real are really negative rates.....

I'm really try to get my head around why they blew the housing bubble if most of the lent into existence stayed in the housing market....was it for the builders and banks their chums ?

Also in a major correction what happens to the newly created money ?

Surely it cannot be destroyed because only repayment of the debt destroys the money, a correction is a whole different thing....but from my understanding back in the 90's debtors either soldiered on or capitulated and most were unpursuable for any loss by the lender but i think it did affect them financially via credit rating...

Am i right in presuming if the lender wrote off the losses that would destroy the lent into existence money ? Seems logical...

where were the Bond Vigilantes...?

They were not needed because there was so much QE and there was an unwritten agreement that the banks would purchase the bonds on very good terms. When they did not, last year, the BOE bought the bonds directly. Different matter entirely when Bonds are introduced to the real market again.

Am i right in presuming if the lender wrote off the losses that would destroy the lent into existence money ? Seems logical...

This is where there are real world consequences of QE. The bad debt still needs to be balanced against the credit entry. The banks will be liable for the loss and this is where we could see bank collapses. The only question is how much debt will any particular bank have? They have been more strenuously stress tested this time I believe?