One of the most common arguments I keep seeing regarding inflation - "Raising rates isn't working, so stop raising, and cut"

[A.steve]

1 hour ago, dances with sheeple said:

What is also happening is QT, rates going to keep going up and volumes/approvals crashing, as someone said recently you can`t replace a 15 year cheap debt experiment with massive money printing on top with a few miserly wage rises for train drivers and nurses, i think it has already popped.

Hmm... I know QT => Quantitative Tightening... but I'm less convinced by the narrative that connects those words to reality.

If QT implies a net reduction in the (very difficult to measure) money supply - then we will see the bubble burst.

If QT, in reality, is just a balance sheet shuffle (which I think it probably is) then it has scant relevance in the absence of other information that isn't widely known.

[Flat Bear]

On 31/05/2023 at 11:42, cdd said:

You'd better inform the Bank of England then, as well as the Fed and every other financial authority, that their understanding on how to stop inflation is wrong. You're saying that by raising rates, they're encouraging people to spend their money, thus causing inflation.

You really are a dope, it seems.

 

On 31/05/2023 at 11:54, cdd said:

It wasn't their concern because they didn't believe inflation would become a serious problem again. And this combines with the fact that it was politically convenient to think this.

It's becoming ever more obvious that they made a huge error. It may not have been a concern to them before, but that has been slowly changing.

Hello cdd

You make good points (obvious to many of us) There are some posters that you may not be able to get through to even with the best logic.

1 hour ago, A.steve said:

Hmm... I know QT => Quantitative Tightening... but I'm less convinced by the narrative that connects those words to reality.

If QT implies a net reduction in the (very difficult to measure) money supply - then we will see the bubble burst.

If QT, in reality, is just a balance sheet shuffle (which I think it probably is) then it has scant relevance in the absence of other information that isn't widely known.

There are many who just do not understand what QE actually was and thus QT.

Very simply QE was pumping money into the system, recapitalizing if you will, to simulate economic activety, was its stated objective although it was clear it became a method of funding governments with cheap plentiful money that seemed to have no real world consequences. QT is simply the opposite.

What is the difference in QE and say "helicopter money". Nothing at all in principle and both will have the same problems long term but because the way QE enters the financial system it did not initially cause up front inflation, in fact quite the opposite sending economies into deflation as finance became extremely cheap which is the most expensive criteria for producing goods and services. Speculation goes into overdrive and all asset classes see all the inflation.

Where are we now? We are still in the expansionary phase as there is still so much excess money in the system. It may take several years for this to reverse, if they are able to do so at all, and the ONLY way out is a period of extremely high inflation where the debt/money gets eroded away over time. So we have had extremely high inflation over the last 15 years in all asset classes and extremely low inflation in general goods and services this is and will continue to go into reverse for the next severn to twenty five years.

Remember, Money is the most expensive commodity of all, it has to be for the financial system to work.

 

[Mikhail Liebenstein]

On 29/05/2023 at 19:44, Several said:

7) Bank Of Boomer getting higher returns on savings, and going out spending them. 

That why rates need lowering and state pensions should be cut.

[winkie]

On 29/05/2023 at 19:44, Several said:

7) Bank Of Boomer getting higher returns on savings, and going out spending them. 

Two things they are doing with it, either helping younger family members out with money or childcare......or spending it going on cruises and extended holidays overseas...

...or both.

 

[zugzwang]

17 hours ago, A.steve said:

Either that was a very confused response, or I'm more dopey than usual today.  It's hard to see the connection.

If the US is overspending (in US$, relative to US taxation) then the sensible interpretation is that this will lead to US$ devaluation and inflation in US$ prices - offset for everyone who is not US$ denominated by foreign exchange movements.

You seem to have completely ignored that I also see increased (and increasing) interest rates; decreased genuine economic demand and banks under pressure.  The only difference is that I recognised that... rather than allow the credit bubble to burst.. it seems entirely plausible that bankers will simply adopt more aggressive and risky measures perpetuate their leveraged positions.  I even gave a high-level sketch of one way in which they might try to do this.

As for El Niño... 🤦‍♂️

The credit bubble is bursting! The US banking system is hopelessly underwater - stuffed with ZIRP paper that's 40% under par. It needs to be de-leveraged before large parts of it become insolvent. Deposit flight isn't stopping. Inflation hasn't come down in a meaningful way. Also, the amount of Treasury debt that now needs to be produced on a monthly basis to keep the US economy upright and semi-functioning is simply off the chart. The primary dealing banks have to make a market for all that debt and get it away even at their own expense i.e. by liquidating or refinancing their own lending operations. Sure, the Fed can help by drawing down its RRP slush fund but that means that money won't be available to inflate assets and stocks.

In conclusion: the regional lenders are constrained, the primary dealers are constrained and the Fed has to keep hiking against the sticky inflation in consumer prices. This is why I believe the US will be in a hard recession before the end of the year.

[A.steve]

On 03/06/2023 at 13:23, zugzwang said:

... The US banking system is hopelessly underwater - stuffed with ZIRP paper that's 40% under par. It needs to be de-leveraged before large parts of it become insolvent.

...

In conclusion: the regional lenders are constrained, the primary dealers are constrained and the Fed has to keep hiking against the sticky inflation in consumer prices. This is why I believe the US will be in a hard recession before the end of the year.

As a position you choose to take - what you say is a coherent prediction... but coherent does not necessarily imply accurate.

I have no strong opinion about whether the US will record being in a recession by the year end, or not.  I recognise your prediction but I am not confident that it will play out as you expect.

The point at which I see a flaw in your reasoning is that you assume a banking system "stuffed with ZIRP paper that's 40% under par" implies that de-leverage is the only (or even most effective) solution.  We can agree that the Banking system is filled with debts paying extremely low rates of interest... and that this represents a substantial problem.  My analysis is that resolution requires a different distribution of debts among debtors... and for debtors to pay a different distribution of rates of interest.  I recognise that one option would be for debtors to pay down debt and agree new credit terms requiring interest be paid at higher rates.   Another option is that new debts are created - at scale - and these new debts shift the mean rate of interest paid by debtors... without requiring existing debts be charged a similarly high rate of interest.  As long as as asset price growth exceeds the rate of interest, leveraged speculators can pay an arbitrarily high rate of interest using credit they will secure (at similarly high rates of interest) secured against those very same assets' increased values... which depends only upon the increased availability of credit to fund their purchase.

For this reason, I am convinced that the availability of credit, and the opaque assessment of various types of risks, are far more significant that the rate of interest. 

 

 

 

[The Angry Capitalist]

12 minutes ago, A.steve said:

For this reason, I am convinced that the availability of credit, and the opaque assessment of various types of risks, are far more significant that the rate of interest. 

They both kind of go hand in hand.

Low interest rates fuel careless/reckless behavior and increase demand for credit. 

[A.steve]

1 minute ago, The Angry Capitalist said:

They both kind of go hand in hand.

Low interest rates fuel careless/reckless behavior and increase demand for credit. 

You say both - but there were three concepts:  (1) credit availability; (2) assessment of opaque risks; (3) interest rates.

We agree that low interest rates leads to poor assessment of financial risks by borrowers.  A question that remains asks what choices are promoted among lenders by raising interest rates.

[The Angry Capitalist]

20 minutes ago, A.steve said:

You say both - but there were three concepts:  (1) credit availability; (2) assessment of opaque risks; (3) interest rates.

We agree that low interest rates leads to poor assessment of financial risks by borrowers.  A question that remains asks what choices are promoted among lenders by raising interest rates.

When rates rise banks minimize risk. Credit is harder to get.

[A.steve]

Just now, The Angry Capitalist said:

When rates rise banks minimize risk. Credit is harder to get.

We agree that banks need to minimise risk.  What is uncertain is whether restricting access to credit minimises the relevant risks to the banks.

[dances with sheeple]

On 02/06/2023 at 21:29, A.steve said:

Hmm... I know QT => Quantitative Tightening... but I'm less convinced by the narrative that connects those words to reality.

If QT implies a net reduction in the (very difficult to measure) money supply - then we will see the bubble burst.

If QT, in reality, is just a balance sheet shuffle (which I think it probably is) then it has scant relevance in the absence of other information that isn't widely known.

True, maybe, but In reality what has happened is that rates have gone up a bit, still below historical averages, and mortgage approvals and sales volumes have spat their dummy well away from the pram, I believe that in a world of heavily indebted sheeple any rate rise has a more or less immediate effect, whether it is measurable or not, but I agree that how QT is happening or it`s effects are hidden from general view.

[A.steve]

6 hours ago, dances with sheeple said:

True, maybe, but In reality what has happened is that rates have gone up a bit, still below historical averages, and mortgage approvals and sales volumes have spat their dummy well away from the pram, I believe that in a world of heavily indebted sheeple any rate rise has a more or less immediate effect, whether it is measurable or not, but I agree that how QT is happening or it`s effects are hidden from general view.

The idea that increased interest rates will reduce retail demand for high-priced assets is a very mainstream assessment of likely consequences.  It is offset by rising wages; by expectations of rising wage in future and by high expectations of inflation relative to interest rates. It is in this context that I am prepared to consider the possibility that some 'financial innovation' may result in different outcomes for prices than the one you expect.

[zugzwang]

10 hours ago, A.steve said:

As a position you choose to take - what you say is a coherent prediction... but coherent does not necessarily imply accurate.

I have no strong opinion about whether the US will record being in a recession by the year end, or not.  I recognise your prediction but I am not confident that it will play out as you expect.

The point at which I see a flaw in your reasoning is that you assume a banking system "stuffed with ZIRP paper that's 40% under par" implies that de-leverage is the only (or even most effective) solution.

For this reason, I am convinced that the availability of credit, and the opaque assessment of various types of risks, are far more significant that the rate of interest. 

 

 

 

 

Germany is in recession. The US is in recession. The UK is in recession.

Italian debt is about to be downgraded to junk status. The French are still buying enriched uranium from Russia. The Saudis have just announced another 1 million barrel/day cut in production.

The lights are going out all over the world West.

[A.steve]

10 hours ago, zugzwang said:

Germany is in recession. The US is in recession. The UK is in recession.

Italian debt is about to be downgraded to junk status. The French are still buying enriched uranium from Russia. The Saudis have just announced another 1 million barrel/day cut in production.

The lights are going out all over the world West.

How dramatic.

By the commonly accepted definition of 'recession' (i.e. 2 quarters with decreasing official GDP statistics) then Germany is in recession - but the US is not - and neither is the UK.

I had wondered what caused the reversal of the falling price of energy commodities today... an announcement about a cut in production would do it.

[zugzwang]

21 hours ago, A.steve said:

How dramatic.

By the commonly accepted definition of 'recession' (i.e. 2 quarters with decreasing official GDP statistics) then Germany is in recession - but the US is not - and neither is the UK.

I had wondered what caused the reversal of the falling price of energy commodities today... an announcement about a cut in production would do it.

My take is that the US and the UK are in recession already. Even though Biden and Sunak are spending like there's no tomorrow most of that cash isn't going into the economy. It's paying interest on our respective national debts. It's repairing the budget deficits incurred during the debt ceiling stand off. It's financing the Ukrainian civil war and subsidising the cost of domestic energy imports.

With bank lending constrained and house prices falling, if hindsight proves me wrong then it won't be by much.

 

[zugzwang]

World Bank offers dim outlook for the global economy in face of higher interest rates

WASHINGTON (AP) — The global economy is likely slowing sharply this year, hobbled by high interest rates, the repercussions of Russia's invasion of Ukraine and the lingering effects of the coronavirus pandemic.

That's the latest outlook of the World Bank, a 189-country anti-poverty agency, which estimates that the international economy will expand just 2.1% in 2023 after growing 3.1% in 2022.

Speaking to reporters Tuesday, Indermit Gill, the World Bank’s chief economist, called the latest findings “another gloomy report." The bank, he said, expects “last year’s sharp and synchronized slowdown to continue to this year into a sharp slowdown.”

“By the end of next year, a third of the developing world will not meet the per-capita income level that they had at the end of 2019,” he said.

 

[A.steve]

14 minutes ago, zugzwang said:

My take is that the US and the UK are in recession already.

Not by the common definition of recession.  I suspect you're talking about something distinct from a recession.

[zugzwang]

13 hours ago, A.steve said:

Not by the common definition of recession.  I suspect you're talking about something distinct from a recession.

Two consecutive quarters of negative growth (April-June and July-Sept) and an almighty stock-market crash is what I'm predicting, with $100bbl crude this winter and lots more consumer price inflation to come.

What the French call 'Tirer la chaine'.

Obviously, you're free to disagree. 👍

[scottbeard]

14 hours ago, A.steve said:

Not by the common definition of recession.  I suspect you're talking about something distinct from a recession.

Don't forget that we might indeed already be in the middle of two consecutive quarters of negative growth.  You only find out in retrospect when a recession started and we might discover this October that actually a recession started on 1 April 2023.

[zugzwang]

8 hours ago, scottbeard said:

Don't forget that we might indeed already be in the middle of two consecutive quarters of negative growth.  You only find out in retrospect when a recession started and we might discover this October that actually a recession started on 1 April 2023.

Exactly this.

And as if on cue. 👇

 

 

FTSE and Wall Street fall as US mortgage approvals hit lowest since 1995

FTSE 100 and Wall Street

Wall Street stock took their lead from Europe after opening, mainly slipping into the red on news that mortgage approvals for US home purchases fell to their lowest level in nearly 30 years in May.

The Mortgage Bankers Association index of applications for home purchases dropped 1.7% to 151.7 in the week to 2 June, the second-lowest level since 1995.

Sam Hall, property economist at Capital Economics, said: "This points to further near-term weakness for home sales, which we think will stay close to their current lows for the remainder of the year.

"Refinancing activity also edged lower by 2.9% month on month. This was driven by a rise in mortgage rates from an average of 6.5pc in April to 6.7pc in May.

"As a result, affordability still looks badly stretched by past standards, which will continue to weigh on mortgage demand in the coming months."

...

 

[A.steve]

11 hours ago, zugzwang said:

Two consecutive quarters of negative growth (April-June and July-Sept) and an almighty stock-market crash is what I'm predicting, with $100bbl crude this winter and lots more consumer price inflation to come.

What the French call 'Tirer la chaine'.

Obviously, you're free to disagree. 👍

The thing I disagree with is your assumption that both April-June and July-Sept 2023 have already happened.  If your prediction proves accurate, Britain (and/or the US) might be in recession in October 2023.

September/October are popular months for the prediction of stock market crashes.  I'm not ruling one out - but I'm not sure we'll see what you expect either.

 

[A.steve]

10 hours ago, scottbeard said:

Don't forget that we might indeed already be in the middle of two consecutive quarters of negative growth.  You only find out in retrospect when a recession started and we might discover this October that actually a recession started on 1 April 2023.

Oooh... pedantic.  I like pedantry.

Are you sure that the recession starts at the beginning of the first quarter for which contracting GDP statistics are eventually recorded?  I believed that a recession starts from the first moment one can legitimately be declared... and there's no re-writing of history.  I'm ready to be proved wrong... if you've a credible source for your interpretation.

[Stewy]

So much for inflation - definitely something of the past now. 500g coffee for £5 in morning shop at Morrison's.

This tumbling inflation (approaching deflation) will start to be reflected in the indices and policy response v soon. 

[zugzwang]

10 hours ago, A.steve said:

The thing I disagree with is your assumption that both April-June and July-Sept 2023 have already happened.  If your prediction proves accurate, Britain (and/or the US) might be in recession in October 2023.

September/October are popular months for the prediction of stock market crashes.  I'm not ruling one out - but I'm not sure we'll see what you expect either.

 

My assumption is that both US and the UK are experiencing negative growth right now, as is most of Europe. My prediction is that a stock-market crash (>20%) will happen before the end of the year. US markets in particular, dominated as they are by a literal handful of overbought tech companies, look primed to rat out uncontrollably.

A technical recession (two consecutive quarters of negative growth) will be declared either in October 2023 or January 2024, the timing isn't important.

[regprentice]

11 hours ago, A.steve said:

Oooh... pedantic.  I like pedantry.

Are you sure that the recession starts at the beginning of the first quarter for which contracting GDP statistics are eventually recorded?  I believed that a recession starts from the first moment one can legitimately be declared... and there's no re-writing of history.  I'm ready to be proved wrong... if you've a credible source for your interpretation.

you learn something new evey day - its only the UK that uses the 2 quarter rule, so the semantics of defining a quarter are probably irrelevant 

I wonder what happens when international investors think the UK is in recession by their own definition but UK politicians and investors say "its not been two full quarters yet". does the limited uk definition really matter? 

from Wikipedia - In the United States, a recession is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."^[3] The European Union has adopted a similar definition.^[4][5] In the United Kingdom, a recession is defined as negative economic growth for two consecutive quarters.^[6][7]

Edited June 8, 2023 by regprentice