Credit deflation and the reflation cycle to come (part 2)

10.1k · August 26, 2021

My partner is nurse ,but works in care for the council.Their service is hugely top heavy.Manager after manager on top money doing very little.A lot are retiring.The responders are mostly 45+,a lot of them 57+,very few young apply,and then hardly any last.They have a constant advert up,but are getting no interest.The younger ones dont want weekend nightshifts,they get no extra allowance for it because it comes off their tax credits etc.

My partner is saving everything down to £12.5k into her SIPP and will be able to retire whenever she wants.I cant see the service lasting.If the government holds out on the Universal Credit £20 uplift being stopped then maybe they understand the structural problems.

9.3k · August 26, 2021

1 hour ago, NogintheNog said:

You'd have thought so wouldn't you, but.....

Wrote to my MP as I think it's the thin end of a wedge, and got this reply;

And there you have it!

By the way I have a parent in a Nursing home with Dementia. There was a 7% increase in fees last year and another 7% this year. My parent will run out of money much quicker than we thought....

Inflation, inflation....

I'd take issue with a few bits of his reply.Must stress I'm not a lawyer but I can afford one.

Overall,writes likes a lawyer public school male type,presumably Tory

In answer to his/her reply posted below.

1) He/she appears to be conveniently ommitting any reference to the Equalities Act,the provisions of which,would overwrite any contract term deemed to conflict with it.

There's clear evidence that this will indirectly discriminate against ethnic minorities who are more likely to not be vaccinated.

2) Sections of the Nuremberg code possibly might apply but you'd need a legal opinion on that as to how they might apply.

3) The reasons those care home residents died was because Matt Hancock and the Tory govt sent covid +ve patients back to care home homes where the staff were untrained and illequipped to deal with them, the returning patients infected lots of other vulnerable people who died.Vaccination of care home staff wouldn't have stopped that.

4) the evidence is relatively clear that vaccines don't reduce viral load and therefore transmission(although I would defer to more knowledgeable minds @dnb24 ?anyone else).For a contract term to be reasonable there has to be some evidence that it is.

5) He/she appears to be making the argument that it's enforceable under a contract term which I'd argue that it isn't.

6) As for section 98(2) Employment Rights Act 1996.He/she is likely referring to this clause which refers to the health of an employee.From my layman's reading of this he/she is claiming the dismissal will be on the grounds that the carer is unhealthy because they're unvaccinated.Yet if someone can't have the vaccine for religious reasons or because they have an allergic reaction,the govt is claiming they'll be kept on ....which blantantly infringes rights under the Equality Act 2010.

The reality is that they're hoping no carers will challenge it whereas they know there's a load of wealthy Doctors who will.

All in all this will end up costing the old folks the most.Less carers and paying more for them.Another expensive Bozza bodge job.

'

In subsection (2)(a)—

(a)“capability”, in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality, and'

https://www.legislation.gov.uk/ukpga/1996/18/section/98

98General.

(1)In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show—

(a)the reason (or, if more than one, the principal reason) for the dismissal, and

(b)that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.

(2)A reason falls within this subsection if it—

(a)relates to the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do,

(b)relates to the conduct of the employee,

[F1(ba)F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(c)is that the employee was redundant, or

(d)is that the employee could not continue to work in the position which he held without contravention (either on his part or on that of his employer) of a duty or restriction imposed by or under an enactment.

[F3(2A)F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(3)In subsection (2)(a)—

(a)“capability”, in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality, and

(b)“qualifications”, in relation to an employee, means any degree, diploma or other academic, technical or professional qualification relevant to the position which he held.

MP's reply

'That is why the Government has taken steps to require care providers to deploy only staff who have been vaccinated within older adult care homes. This measure will protect the people most at risk in our society: around 90 per cent of those who died from COVID-19 were people over 70. The decision follows extensive consultation with care home staff, providers, residents and families. The measures have been approved by the House of Commons and are subject to a 16-week grace period. I can assure you that this was debated thoroughly and many Members, including myself, scrutinised the proposals closely.

Importantly, it is already lawful for a care home to dismiss unvaccinated front line staff, (provided that certain conditions have been complied with) under statute and at common law. Care homes have an overriding duty of care to its vulnerable residents. In the current context, it is entitled to make vaccination a condition of continuing employment. An employee who refuses is either failing to follow a reasonable management instruction or giving rise to some other substantial reason sufficient to justify dismissal - both of which are potentially fair reasons under s98(2) of Employment Rights Act.

It is then incumbent on employers to comply with the procedural requirements under s98(4) including a fair consultation & consideration of alternative roles (if any exist). Something like a remote administrative role might be an example.

Failing all that, any ensuing dismissal is already highly likely to be fair. The new Regulations formalise that but don’t materially alter the existing principle in employment law, despite what some constituents seem to think.'

August 26, 2021

28 minutes ago, sancho panza said:

I'd take issue with a few bits of his reply.Must stress I'm not a lawyer but I can afford one.

Overall,writes likes a lawyer public school male type,presumably Tory

In answer to his/her reply posted below.

1) He/she appears to be conveniently ommitting any reference to the Equalities Act,the provisions of which,would overwrite any contract term deemed to conflict with it.

There's clear evidence that this will indirectly discriminate against ethnic minorities who are more likely to not be vaccinated.

2) Sections of the Nuremberg code possibly might apply but you'd need a legal opinion on that as to how they might apply.

3) The reasons those care home residents died was because Matt Hancock and the Tory govt sent covid +ve patients back to care home homes where the staff were untrained and illequipped to deal with them, the returning patients infected lots of other vulnerable people who died.Vaccination of care home staff wouldn't have stopped that.

4) the evidence is relatively clear that vaccines don't reduce viral load and therefore transmission(although I would defer to more knowledgeable minds @dnb24 ?anyone else).For a contract term to be reasonable there has to be some evidence that it is.

5) He/she appears to be making the argument that it's enforceable under a contract term which I'd argue that it isn't.

6) As for section 98(2) Employment Rights Act 1996.He/she is likely referring to this clause which refers to the health of an employee.From my layman's reading of this he/she is claiming the dismissal will be on the grounds that the carer is unhealthy because they're unvaccinated.Yet if someone can't have the vaccine for religious reasons or because they have an allergic reaction,the govt is claiming they'll be kept on ....which blantantly infringes rights under the Equality Act 2010.

The reality is that they're hoping no carers will challenge it whereas they know there's a load of wealthy Doctors who will.

All in all this will end up costing the old folks the most.Less carers and paying more for them.Another expensive Bozza bodge job.

'

In subsection (2)(a)—

(a)“capability”, in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality, and'

https://www.legislation.gov.uk/ukpga/1996/18/section/98

98General.

(1)In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show—

(a)the reason (or, if more than one, the principal reason) for the dismissal, and

(b)that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.

(2)A reason falls within this subsection if it—

(a)relates to the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do,

(b)relates to the conduct of the employee,

[F1(ba)F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(c)is that the employee was redundant, or

(d)is that the employee could not continue to work in the position which he held without contravention (either on his part or on that of his employer) of a duty or restriction imposed by or under an enactment.

[F3(2A)F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(3)In subsection (2)(a)—

(a)“capability”, in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality, and

(b)“qualifications”, in relation to an employee, means any degree, diploma or other academic, technical or professional qualification relevant to the position which he held.

MP's reply

'That is why the Government has taken steps to require care providers to deploy only staff who have been vaccinated within older adult care homes. This measure will protect the people most at risk in our society: around 90 per cent of those who died from COVID-19 were people over 70. The decision follows extensive consultation with care home staff, providers, residents and families. The measures have been approved by the House of Commons and are subject to a 16-week grace period. I can assure you that this was debated thoroughly and many Members, including myself, scrutinised the proposals closely.

Importantly, it is already lawful for a care home to dismiss unvaccinated front line staff, (provided that certain conditions have been complied with) under statute and at common law. Care homes have an overriding duty of care to its vulnerable residents. In the current context, it is entitled to make vaccination a condition of continuing employment. An employee who refuses is either failing to follow a reasonable management instruction or giving rise to some other substantial reason sufficient to justify dismissal - both of which are potentially fair reasons under s98(2) of Employment Rights Act.

It is then incumbent on employers to comply with the procedural requirements under s98(4) including a fair consultation & consideration of alternative roles (if any exist). Something like a remote administrative role might be an example.

Failing all that, any ensuing dismissal is already highly likely to be fair. The new Regulations formalise that but don’t materially alter the existing principle in employment law, despite what some constituents seem to think.'

https://lawyersforliberty.uk/mandatory-vaccination/#law

English law

It is an established principle in English Law that an individual with the capacity to consent cannot and should not be compelled to have any medical treatment against their wishes.

The Public Health (Control of Disease) Act 1984 (section 45E) provides that Regulations made under certain sections of that Act “may NOT include provision requiring a person to undergo medical treatment… ‘Medical treatment’ includes vaccinations and other prophylactic treatment”.

We would argue that this principle, enshrined in our domestic law, would make it inequitable and potentially unlawful for anyone – employer, service provider or other organisation – to seek to mandate the vaccine.

At present, no one can be coerced into vaccination, and employers cannot require it as a condition of employment.

However on 14 April 2021 the government launched an open (public) consultation on proposals to require staff in care homes for older adults in England to have a Covid-19 vaccine as part of their conditions of employment.

The government is considering amending the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014. This would mean older adult care home providers could only use those staff who have received the COVID-19 vaccination (or those with a legitimate medical exemption).

If the government goes ahead with this, it may pave the way for other employers to demand vaccination as a condition of employment.

August 26, 2021

I would add that any half decent lawyer or even layperson would be able to destroy any argument in court for mandating vaccination utilising the plentiful research about viral loads, inability of vaccines to prevent transmission, inability of vaccines to prevent symptoms and inability of vaccines to protect others etc. However this last 18 months has shown that those arguments don’t matter if the political will doesn’t want it to matter.

2.4k · August 26, 2021

5 minutes ago, dnb24 said:

I would add that any half decent lawyer or even layperson would be able to destroy any argument in court for mandating vaccination utilising the plentiful research about viral loads, inability of vaccines to prevent transmission, inability of vaccines to prevent symptoms and inability of vaccines to protect others etc. However this last 18 months has shown that those arguments don’t matter if the political will doesn’t want it to matter.

That's fine but pandemics Trump virtually anything else so it really wouldn't surprise me if no vaccination meant no work available.

And no work available at most care homes doesn't mean the sack as most workers aren't on that sort of contract nor been there the 2 years required.

20.9k · August 26, 2021

13 minutes ago, dnb24 said:

an individual with the capacity to consent

Remember when they changed the criteria for admission to the looney bin in the COVID Act (Paraphrased)

9.3k · August 26, 2021

2 hours ago, DurhamBorn said:

My partner is nurse ,but works in care for the council.Their service is hugely top heavy.Manager after manager on top money doing very little.A lot are retiring.The responders are mostly 45+,a lot of them 57+,very few young apply,and then hardly any last.They have a constant advert up,but are getting no interest.The younger ones dont want weekend nightshifts,they get no extra allowance for it because it comes off their tax credits etc.

My partner is saving everything down to £12.5k into her SIPP and will be able to retire whenever she wants.I cant see the service lasting.If the government holds out on the Universal Credit £20 uplift being stopped then maybe they understand the structural problems.

I think there are real structural issues looming in the NHS care sector if you're partner's experience is anything to go by ref recruiting.

The reality is that the bulk of the more senior non Doctor staff are genereally in a decent place to retire.

In the NHS a lot will have defined benefit schemes,houses paid off that were bought in the mid 90's,also of a maturity where they just don't want the stress/aggro/night shfits/vaccine.

The structural problem is that these people carry out roles that need experience eg triaging A+E,mentoring.

They can't be replaced in a hurry.

10.1k · August 26, 2021

22 minutes ago, sancho panza said:

I think there are real structural issues looming in the NHS care sector if you're partner's experience is anything to go by ref recruiting.

The reality is that the bulk of the more senior non Doctor staff are genereally in a decent place to retire.

In the NHS a lot will have defined benefit schemes,houses paid off that were bought in the mid 90's,also of a maturity where they just don't want the stress/aggro/night shfits/vaccine.

The structural problem is that these people carry out roles that need experience eg triaging A+E,mentoring.

They can't be replaced in a hurry.

Then government pays twice,pension of those retired and wages of new recruits if they can get them.Iv just been in Tescos to stock up on Mutti pizza sauce and lager while its on offer.I noticed 8 staff around the shelves etc.None were working 6 were on their phones,2 were talking.Ok its late etc,but the work ethic isnt there anymore.I dont blame them.They were all under 25.Probably cant get their own place,see loads of bennie claims with the houses and the boomers with the full trolleys.We are in a very very serious mess.I cant see any way out,but really big wage inflation and even that might not work.

9.3k · August 26, 2021

34 minutes ago, DurhamBorn said:

We are in a very very serious mess.I cant see any way out,but really big wage inflation and even that might not work.

On that note,was jsut reading Dr Tim's latest.He's been dwelling down here.The darkness is strong with him...he really could do with a few pizza recipes spread amongst the misery....

Current inflation isn't transitory he reasons,neither is the current trend of declining disposable income.Lot of other wise things in there too.Anyone who can read this and not look to invest in oil is probably in the worng place.

Underlinings mine

https://surplusenergyeconomics.wordpress.com/2021/08/25/209-a-path-of-reason-part-two/

In the previous article, we sought out a logical and evidential alternative to the continuity assumption that the economy can shrug off resource and environmental limitations in order to grow in perpetuity.

We demonstrated that the economy is an energy system – not a financial one – and that the fossil fuel dynamic on which the vast and complex economy of modern times was built is fading away, with no fully sufficient alternative in sight. The equation which calibrates prosperity in terms of energy use, value and cost has become a constrained equation, the constraints being (a) the relentless rise in the ECoEs of fossil fuels, and (b) the limits of environmental tolerance.

This does not, of itself, vindicate collapse theories, but it does mean that the world is getting poorer. The downturn in prosperity per person was preceded by a long period of deceleration, first identified (though not explained) in the 1990s, when it was labelled “secular stagnation”. Much of our economic experience in the intervening quarter-century has been characterized by failed efforts to use financial policies to ‘fix’ an economic problem which is not financial in nature, and thus cannot be countered using credit or monetary adventurism.

The onset of involuntary “de-growth” has profound implications for the four components of the economy which we can categorize as the household, business, government and financial sectors. Of these, the most important – and the easiest to project into the future using the SEEDS model – is the household sector. Simply stated, the average person will get poorer, on a continuing rather than a temporary basis, and his or her discretionary prosperity will be eroded by relentless rises in the real cost of essentials. At the same time, he or she enters this era with uncomfortably elevated levels of debt and quasi-debt commitments.

Through its effects on households as consumers, producers, savers, borrowers and voters, this process will shape the future development of the financial system, business and government.

The faith mistakenly placed in the ‘perpetual growth’ assumption has been strong enough to ensure that there has, thus far, been little awareness of, and even less planning for, the downtrend in global prosperity. Decision-makers in government, business and finance still seem to think that we can muddle through using denial, wishful thinking and a cocktail of things that Smith and Keynes didn’t actually say.

Financial – the high price of failed fixes

The immediate battleground for the conflict between continuity and reality is the financial system. Efforts to use financial policies to ‘fix’ the process of economic deceleration and decline have driven an enormous wedge between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit. Between 2000 and 2020, each dollar of reported “growth” was accompanied by more than $3 of net new debt creation and an increase of nearly $4 in broader financial commitments – and even these numbers exclude the emergence of enormous “gaps” in the adequacy of pension provision. Buying $1 of largely cosmetic “growth” with upwards of $7 of forward financial promises is not a sustainable way of managing an economy.

This has put the authorities between the Scylla of runaway inflation and the Charybdis of sharp rises in the cost of money. To be clear, finance ministries can run enormous fiscal deficits, and central banks can monetize the ensuing increases in debt, but neither can create the new sources of low-ECoE energy without which the economy must contract.

When we understand money as a claim on the output of the real economy, it becomes clear that the rampant creation of money and credit can only result in the accumulation of excess claims. These cannot, by definition, be met ‘at value’ by a contracting economy. This means that the value supposedly incorporated in these excess claims must be eliminated, either through the soft default of inflation or the hard default of repudiation.

The conundrum facing the authorities is simply stated. If they continue with negative real interest rates, which deter saving and encourage borrowing – and if they carry on believing that ever-larger injections of stimulus can somehow return the real economy to “growth” – they will drive the system into an inevitable process by which inflation destroys the purchasing power of money.

If, on the other hand, they decide to defend the value of money by raising rates into positive real territory, they will trigger slumps in the values of assets, and set a cascade of defaults running through the system.

The current policy is one of ‘hoping for the best’, assuring the public that the current spike in inflation is a “transitory” phenomenon caused by the coronavirus pandemic.

There are two main reasons for knowing that this explanation is false. First, ‘we’ve heard it all before’. The term “transitory” is the 2021 equivalent of the promise that the introduction of QE and ZIRP back in 2008-09 were “temporary” and “emergency” expedients. The more direct analogy is with the 1970s, when inflation was deemed a “temporary” problem, and governments even introduced the concept of “core” inflation, which excluded those very items (energy and food) whose prices were rising most dramatically at that time.

The second factor arguing against the “transitory” description of inflation is that soaring prices take on a momentum of their own. Rises in the cost of living prompt demands for higher wages, which in turn raise producer costs and push prices higher. To a significant extent, inflation is a product of expectation, a form of self-fulfilling prophecy that gives the authorities a rationale for understating what’s really happening in an effort to damp down public expectations. This, though, cannot work when consumers can see the prices of goods and services rising. This time around, the long-standing inflation in the prices of assets reinforces perceptions of inflation at the consumer level.

Where the inflationary issue is concerned, we need to be clear about causation. The chain of events began with a deterioration in the energy equation which determines prosperity. The authorities sought to counter this deterioration in ways which have led, with grim inevitability, to where we are now.

The policy of ‘credit adventurism’ – of making debt more readily available than at any time in the past – started a rise in asset prices, and created a surge in debt. When these trends crystalized in the 2008-09 GFC, the authorities responded with ‘monetary adventurism’, taking the real cost of money into negative territory.

This boosted asset prices still further, and created yet more debt, much of it channelled through the shadow banking system rather than through the more regulated channel of mainstream banking. Now we are in the grip of reckless stimulus, being carried out in the desperate hope that injecting ever more deficit finance, and persuading central banks to monetize most or all of it, will somehow reinvigorate the real economy (which it won’t), without triggering runaway inflation (which it will).

The outcome of the inflationary conundrum is likely to follow the pattern set in the late 1970s and the early 1980s. First, the authorities dismiss inflation as a passing phase, and refuse to raise rates to counter it. Latterly, they take a reluctant and belated decision to act, raising rates in a macho demonstration of resolve.

That’s when asset prices collapse, and a wave of defaults rips through the system.

Back in the 1980s, this process triggered a sharp recession, but this proved temporary, because ECoEs remained low, and the economy remained capable of growth.

Neither condition prevails today. ECoEs have risen from 1.8% in 1980 to 9.2% now. Recovery in the 1980s involved the restoration of positive trends which had driven prosperity steadily upwards between 1945 and the disruptive and inflationary first oil crisis of 1973-74. Today, by contrast, inflation risk comes in the context of a long period of economic deceleration which, in the West, segued into deterioration between 1997 and 2007.

The first set of charts illustrates the magnitude of financial imbalances, comparing debt – and broader financial assets, which include the shadow banking system – with reported GDP and underlying prosperity. Full financial assets data isn’t available for the global economy as a whole, so the left-hand chart illustrates a group of 23 countries for which numbers are available and which, between them, represent four-fifths of the World economy.

Fig. 1

Households – leveraged hardship

In any case, the financial system faces challenges which are far broader than the comparatively straightforward (though daunting) choice between inflation and rises in rates. This is where trends in the critically-important household sector shape the outlook.

The average person in the West has been getting poorer over an extended period, though this reality has been masked by financial manipulation. Trends in prosperity, set against debt per capita, illustrate this situation as it has affected France, Britain and Canada (see fig. 2). Debt, it must be emphasised, has to be considered in the aggregate, including the government and business sectors, not just household indebtedness. Even these debt numbers exclude per capita shares both of broader financial assets and of off-balance-sheet commitments such as the underfunding of pensions.

In France, prosperity per person reached its zenith in 2000, since when the average person has become poorer by 8% (€2,540), whilst his or her share of debt has increased by 91% (€59,500). The inflexion-point in Britain occurred in 2004, since when prosperity has fallen by £4,600 (16%) whilst debt per person has increased by £23,800 (39%). The average Canadian has become 12% poorer, and 60% deeper in debt, since 2007.

Fig. 2

One of the myths of the contemporary economy is that sharp increases in indebtedness are cancelled out by rises in the prices of assets.

The reality, of course, is that increases in the supposed value of property and financial assets cannot be monetized, because the only people to whom a nation’s property or asset stock can be sold are the same people to whom they already belong.

The individual property owner can monetize the gain in property values, but even he or she then needs to obtain alternative accommodation. But homeowners in aggregate cannot do this, and reported aggregate ‘valuations’ are an error rooted in the use of marginal transaction prices to put a ‘value’ on housing stock in its entirety. Essentially, asset prices are functions of the cost of money, and of the quantum of credit in the system. As the economy moves further into de-growth, and as the inflationary spiral has to be countered by raising rates, inflated asset valuations can be expected to melt away like snow on the first warm morning of spring.

The decreases in prosperity cited here may seem pretty modest – the average French person has become 8% poorer over twenty years, the average British person’s prosperity has fallen by 16% over sixteen years, and Canadian prosperity has deteriorated by 12% over thirteen years. People in these countries have, then, been getting poorer at rates at or below about 1% per annum.

In terms of living standards, though, these rates of deterioration have been leveraged by relentless increases in the cost of essentials. In the SEEDS model, the calibration of essentials remains at the development stage, where ‘essentials’ are defined as the sum of household necessities and public services provided by the government. The definition of ‘essential’ varies over time and between countries, such that essentials may defy detailed calibration.

This said, the overall picture seems clear. As prosperity has fallen, the share of prosperity accounted for by essentials has risen. Moreover, the real cost of essentials is being driven upwards, because the energy-intensive character of many necessities creates a linkage between their real costs and rises in ECoEs.

What this leverage means is that, over a twenty-year period in which French top-line prosperity has fallen by 8%, discretionary prosperity – what remains after essentials have been paid for – has slumped by 23%. British discretionary prosperity has fallen by 34% (rather than 16%) since 2004, and the decline of 12% in Canadian prosperity since 2007 has seen discretionary prosperity fall by 24% (fig. 3).

Fig. 3

These sharp falls in discretionary prosperity have not been reflected in actual discretionary consumption – but the gap between the two (which SEEDS can quantify) has been filled by continuous expansions in credit.

In some sectors this effect has been a direct one, and few people now buy a new car, for example, as a one-off purchase. Households may borrow on their own account to pay for, say, a holiday, but the broader effect is that household credit increases are supplemented by government and business borrowing – the former reduces the tax burden on households, whilst, in the absence of business borrowing, employment and wages would be lower, and consumer goods and services would be either more expensive and/or less readily available.

Full circle

There is, of course, a direct connection between an over-inflated financial system and deteriorating household prosperity. As and when a halt has to be called on perpetual credit and broader financial expansion, discretionary consumption will slump.

This of itself will impact the perceived values of discretionary sector businesses, and this trend will be compounded as businesses respond to de-growth tendencies including de-complexification, simplification (of product ranges and processes), adverse utilization effects and the loss of critical mass. At the same time, households will be forced to relinquish many of the outgoings which form streams of income for the corporate sector.

Ultimately, there are adverse feedback loops which connect deteriorating prosperity with a degradation of the financial economy. At the same time, the public is likely to be distressed, not just by the loss of cherished discretionary products and services, but by the widening hardship which occurs as falling prosperity draws ever nearer to the rising cost of necessities. The implications of this dynamic for government and the corporate sector are certain to be profound, but these implications must await another stage in our journey from ‘what we know’ about the present to ‘what we want to know’ about the future.

In the meantime, here’s a reminder – if a reminder were needed – of how rising ECoEs drive prosperity downwards in a way that is frighteningly not understood by decision-makers in government, business and finance.

Fig. 4

38 minutes ago, DurhamBorn said:

Then government pays twice,pension of those retired and wages of new recruits if they can get them.Iv just been in Tescos to stock up on Mutti pizza sauce and lager while its on offer.I noticed 8 staff around the shelves etc.None were working 6 were on their phones,2 were talking.Ok its late etc,but the work ethic isnt there anymore.I dont blame them.They were all under 25.Probably cant get their own place,see loads of bennie claims with the houses and the boomers with the full trolleys.We are in a very very serious mess.I cant see any way out,but really big wage inflation and even that might not work.

They do a 00 flour for 30p, its soft flour, but when the dough is left out for a couple of days its as good as any of the top brands -- called farina del mio sacco

https://www.tesco.com/groceries/en-GB/products/306806466

Im using 180g of dough and making nice thin pizza, i recommend very lightly grating cheddar with the Mozzarella (get it very fine so it cooks better)

10.1k · August 26, 2021

23 minutes ago, Hancock said:

They do a 00 flour for 30p, its soft flour, but when left out for a couple of days is as good as any of the top brands -- called farina del mio sacco

https://www.tesco.com/groceries/en-GB/products/306806466

Thats really cheap,protein 11.2% as well Caputo is 12.5% so really close.Il give it a whirl.Il give it a 24 hour prove.

2.9k · August 27, 2021

1 hour ago, DurhamBorn said:

They were all under 25.Probably cant get their own place,see loads of bennie claims with the houses and the boomers with the full trolleys.We are in a very very serious mess.I cant see any way out,but really big wage inflation and even that might not work.

I feel bad for them and a lot of it is structural.

Think about education. Remember the Bill Clinton "what you earn is a function of what you learn"?

A small proportional will go to uni, great job, high earners. My question is "would you be able to afford the house you were raised in by the time you start a family?" Most wouldnt, especially without "bank of mum and dad". If so, they are high earning.

The rest of the young population is then split.

If we live in a meritocracy, in which university is the gatekeeper to success, and you either didnt get in or dropped out then the societal suggestion is that you failed and your own fault. I dont agree with this, many dont, but its a common trope that young people NEED to go to university - no matter the subject, just go.

If you have went to uni, got a half decent degree and then find you cant do better than minimum wage then theres another trap. If its a meritocracy and you have worked hard, got the degree, then you have done "what was expected". You are living the contradiction of being university educated and thinking (or being told!) your special/better, then going out into the real world. At that point you can either eat the shit sandwich and get on with it, or retreat to something else to fill the void of "being special". Save the whales, extinction rebellion, make up bollocks about gender etc. That way you are special again or winning - playing real life means you are a loser.

Those that can see past it, knuckle down and discard their nonsense ideas still have a chance but its very slim. You need a partner with a good work ethic, stable marriage, not live in an expensive area, avoid excessive booze/drugs, avoid lifestyle creep or keeping up with jones etc etc

Alternatively I might just be typing out a bunch of bollocks

30.8k · August 27, 2021

16 hours ago, janch said:

You don't say it outright but are we to conclude that Apple sales are falling?

Tim Cook just got his 10yr $750m bonus in Apple shares and immediately sold them.. make of that what you wil:

Apple chief executive Tim Cook has received more than five million shares in the technology giant, as he marks ten years in the job.

A company filing with the US Securities and Exchange Commission (SEC) watchdog shows that he sold most of the shares for more than $750m (£550m)

8.3k · August 27, 2021

1 hour ago, Libspero said:

Tim Cook just got his 10yr $750m bonus in Apple shares and immediately sold them.. make of that what you wil:

probably needed the cash to buy some eye shadow or stuff.

9.4k · August 27, 2021

17 hours ago, sancho panza said:

I think they'll run into employment law issues as well as insurmountable operational problems.In Lodnon,I think the situation is severe as a lot more staff are ethnic minorities which are more likely to decline vaccination..If you make someone redundant and they're job still exists then it's unfair dismissal=court case+ legal fees+ pay out.

It never even occured to me to ask! Would be interesting if the majority of the 5 were minorities, would be even more interesting if they were the only minorities they employed!

2.8k · August 27, 2021

9 hours ago, sancho panza said:

On that note,was jsut reading Dr Tim's latest.He's been dwelling down here.The darkness is strong with him...he really could do with a few pizza recipes spread amongst the misery....

Current inflation isn't transitory he reasons,neither is the current trend of declining disposable income.Lot of other wise things in there too.Anyone who can read this and not look to invest in oil is probably in the worng place.

Underlinings mine

https://surplusenergyeconomics.wordpress.com/2021/08/25/209-a-path-of-reason-part-two/

In the previous article, we sought out a logical and evidential alternative to the continuity assumption that the economy can shrug off resource and environmental limitations in order to grow in perpetuity.

We demonstrated that the economy is an energy system – not a financial one – and that the fossil fuel dynamic on which the vast and complex economy of modern times was built is fading away, with no fully sufficient alternative in sight. The equation which calibrates prosperity in terms of energy use, value and cost has become a constrained equation, the constraints being (a) the relentless rise in the ECoEs of fossil fuels, and (b) the limits of environmental tolerance.

This does not, of itself, vindicate collapse theories, but it does mean that the world is getting poorer. The downturn in prosperity per person was preceded by a long period of deceleration, first identified (though not explained) in the 1990s, when it was labelled “secular stagnation”. Much of our economic experience in the intervening quarter-century has been characterized by failed efforts to use financial policies to ‘fix’ an economic problem which is not financial in nature, and thus cannot be countered using credit or monetary adventurism.

The onset of involuntary “de-growth” has profound implications for the four components of the economy which we can categorize as the household, business, government and financial sectors. Of these, the most important – and the easiest to project into the future using the SEEDS model – is the household sector. Simply stated, the average person will get poorer, on a continuing rather than a temporary basis, and his or her discretionary prosperity will be eroded by relentless rises in the real cost of essentials. At the same time, he or she enters this era with uncomfortably elevated levels of debt and quasi-debt commitments.

Through its effects on households as consumers, producers, savers, borrowers and voters, this process will shape the future development of the financial system, business and government.

The faith mistakenly placed in the ‘perpetual growth’ assumption has been strong enough to ensure that there has, thus far, been little awareness of, and even less planning for, the downtrend in global prosperity. Decision-makers in government, business and finance still seem to think that we can muddle through using denial, wishful thinking and a cocktail of things that Smith and Keynes didn’t actually say.

Financial – the high price of failed fixes

The immediate battleground for the conflict between continuity and reality is the financial system. Efforts to use financial policies to ‘fix’ the process of economic deceleration and decline have driven an enormous wedge between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit. Between 2000 and 2020, each dollar of reported “growth” was accompanied by more than $3 of net new debt creation and an increase of nearly $4 in broader financial commitments – and even these numbers exclude the emergence of enormous “gaps” in the adequacy of pension provision. Buying $1 of largely cosmetic “growth” with upwards of $7 of forward financial promises is not a sustainable way of managing an economy.

This has put the authorities between the Scylla of runaway inflation and the Charybdis of sharp rises in the cost of money. To be clear, finance ministries can run enormous fiscal deficits, and central banks can monetize the ensuing increases in debt, but neither can create the new sources of low-ECoE energy without which the economy must contract.

When we understand money as a claim on the output of the real economy, it becomes clear that the rampant creation of money and credit can only result in the accumulation of excess claims. These cannot, by definition, be met ‘at value’ by a contracting economy. This means that the value supposedly incorporated in these excess claims must be eliminated, either through the soft default of inflation or the hard default of repudiation.

The conundrum facing the authorities is simply stated. If they continue with negative real interest rates, which deter saving and encourage borrowing – and if they carry on believing that ever-larger injections of stimulus can somehow return the real economy to “growth” – they will drive the system into an inevitable process by which inflation destroys the purchasing power of money.

If, on the other hand, they decide to defend the value of money by raising rates into positive real territory, they will trigger slumps in the values of assets, and set a cascade of defaults running through the system.

The current policy is one of ‘hoping for the best’, assuring the public that the current spike in inflation is a “transitory” phenomenon caused by the coronavirus pandemic.

There are two main reasons for knowing that this explanation is false. First, ‘we’ve heard it all before’. The term “transitory” is the 2021 equivalent of the promise that the introduction of QE and ZIRP back in 2008-09 were “temporary” and “emergency” expedients. The more direct analogy is with the 1970s, when inflation was deemed a “temporary” problem, and governments even introduced the concept of “core” inflation, which excluded those very items (energy and food) whose prices were rising most dramatically at that time.

The second factor arguing against the “transitory” description of inflation is that soaring prices take on a momentum of their own. Rises in the cost of living prompt demands for higher wages, which in turn raise producer costs and push prices higher. To a significant extent, inflation is a product of expectation, a form of self-fulfilling prophecy that gives the authorities a rationale for understating what’s really happening in an effort to damp down public expectations. This, though, cannot work when consumers can see the prices of goods and services rising. This time around, the long-standing inflation in the prices of assets reinforces perceptions of inflation at the consumer level.

Where the inflationary issue is concerned, we need to be clear about causation. The chain of events began with a deterioration in the energy equation which determines prosperity. The authorities sought to counter this deterioration in ways which have led, with grim inevitability, to where we are now.

The policy of ‘credit adventurism’ – of making debt more readily available than at any time in the past – started a rise in asset prices, and created a surge in debt. When these trends crystalized in the 2008-09 GFC, the authorities responded with ‘monetary adventurism’, taking the real cost of money into negative territory.

This boosted asset prices still further, and created yet more debt, much of it channelled through the shadow banking system rather than through the more regulated channel of mainstream banking. Now we are in the grip of reckless stimulus, being carried out in the desperate hope that injecting ever more deficit finance, and persuading central banks to monetize most or all of it, will somehow reinvigorate the real economy (which it won’t), without triggering runaway inflation (which it will).

The outcome of the inflationary conundrum is likely to follow the pattern set in the late 1970s and the early 1980s. First, the authorities dismiss inflation as a passing phase, and refuse to raise rates to counter it. Latterly, they take a reluctant and belated decision to act, raising rates in a macho demonstration of resolve.

That’s when asset prices collapse, and a wave of defaults rips through the system.

Back in the 1980s, this process triggered a sharp recession, but this proved temporary, because ECoEs remained low, and the economy remained capable of growth.

Neither condition prevails today. ECoEs have risen from 1.8% in 1980 to 9.2% now. Recovery in the 1980s involved the restoration of positive trends which had driven prosperity steadily upwards between 1945 and the disruptive and inflationary first oil crisis of 1973-74. Today, by contrast, inflation risk comes in the context of a long period of economic deceleration which, in the West, segued into deterioration between 1997 and 2007.

The first set of charts illustrates the magnitude of financial imbalances, comparing debt – and broader financial assets, which include the shadow banking system – with reported GDP and underlying prosperity. Full financial assets data isn’t available for the global economy as a whole, so the left-hand chart illustrates a group of 23 countries for which numbers are available and which, between them, represent four-fifths of the World economy.

Fig. 1

Households – leveraged hardship

In any case, the financial system faces challenges which are far broader than the comparatively straightforward (though daunting) choice between inflation and rises in rates. This is where trends in the critically-important household sector shape the outlook.

The average person in the West has been getting poorer over an extended period, though this reality has been masked by financial manipulation. Trends in prosperity, set against debt per capita, illustrate this situation as it has affected France, Britain and Canada (see fig. 2). Debt, it must be emphasised, has to be considered in the aggregate, including the government and business sectors, not just household indebtedness. Even these debt numbers exclude per capita shares both of broader financial assets and of off-balance-sheet commitments such as the underfunding of pensions.

In France, prosperity per person reached its zenith in 2000, since when the average person has become poorer by 8% (€2,540), whilst his or her share of debt has increased by 91% (€59,500). The inflexion-point in Britain occurred in 2004, since when prosperity has fallen by £4,600 (16%) whilst debt per person has increased by £23,800 (39%). The average Canadian has become 12% poorer, and 60% deeper in debt, since 2007.

Fig. 2

One of the myths of the contemporary economy is that sharp increases in indebtedness are cancelled out by rises in the prices of assets.

The reality, of course, is that increases in the supposed value of property and financial assets cannot be monetized, because the only people to whom a nation’s property or asset stock can be sold are the same people to whom they already belong.

The individual property owner can monetize the gain in property values, but even he or she then needs to obtain alternative accommodation. But homeowners in aggregate cannot do this, and reported aggregate ‘valuations’ are an error rooted in the use of marginal transaction prices to put a ‘value’ on housing stock in its entirety. Essentially, asset prices are functions of the cost of money, and of the quantum of credit in the system. As the economy moves further into de-growth, and as the inflationary spiral has to be countered by raising rates, inflated asset valuations can be expected to melt away like snow on the first warm morning of spring.

The decreases in prosperity cited here may seem pretty modest – the average French person has become 8% poorer over twenty years, the average British person’s prosperity has fallen by 16% over sixteen years, and Canadian prosperity has deteriorated by 12% over thirteen years. People in these countries have, then, been getting poorer at rates at or below about 1% per annum.

In terms of living standards, though, these rates of deterioration have been leveraged by relentless increases in the cost of essentials. In the SEEDS model, the calibration of essentials remains at the development stage, where ‘essentials’ are defined as the sum of household necessities and public services provided by the government. The definition of ‘essential’ varies over time and between countries, such that essentials may defy detailed calibration.

This said, the overall picture seems clear. As prosperity has fallen, the share of prosperity accounted for by essentials has risen. Moreover, the real cost of essentials is being driven upwards, because the energy-intensive character of many necessities creates a linkage between their real costs and rises in ECoEs.

What this leverage means is that, over a twenty-year period in which French top-line prosperity has fallen by 8%, discretionary prosperity – what remains after essentials have been paid for – has slumped by 23%. British discretionary prosperity has fallen by 34% (rather than 16%) since 2004, and the decline of 12% in Canadian prosperity since 2007 has seen discretionary prosperity fall by 24% (fig. 3).

Fig. 3

These sharp falls in discretionary prosperity have not been reflected in actual discretionary consumption – but the gap between the two (which SEEDS can quantify) has been filled by continuous expansions in credit.

In some sectors this effect has been a direct one, and few people now buy a new car, for example, as a one-off purchase. Households may borrow on their own account to pay for, say, a holiday, but the broader effect is that household credit increases are supplemented by government and business borrowing – the former reduces the tax burden on households, whilst, in the absence of business borrowing, employment and wages would be lower, and consumer goods and services would be either more expensive and/or less readily available.

Full circle

There is, of course, a direct connection between an over-inflated financial system and deteriorating household prosperity. As and when a halt has to be called on perpetual credit and broader financial expansion, discretionary consumption will slump.

This of itself will impact the perceived values of discretionary sector businesses, and this trend will be compounded as businesses respond to de-growth tendencies including de-complexification, simplification (of product ranges and processes), adverse utilization effects and the loss of critical mass. At the same time, households will be forced to relinquish many of the outgoings which form streams of income for the corporate sector.

Ultimately, there are adverse feedback loops which connect deteriorating prosperity with a degradation of the financial economy. At the same time, the public is likely to be distressed, not just by the loss of cherished discretionary products and services, but by the widening hardship which occurs as falling prosperity draws ever nearer to the rising cost of necessities. The implications of this dynamic for government and the corporate sector are certain to be profound, but these implications must await another stage in our journey from ‘what we know’ about the present to ‘what we want to know’ about the future.

In the meantime, here’s a reminder – if a reminder were needed – of how rising ECoEs drive prosperity downwards in a way that is frighteningly not understood by decision-makers in government, business and finance.

Fig. 4

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That's quite profound.

Something about that article has fostered a change in me. Obviously I understand many things from this thread and other sources, but reading that has made me perform an instant reassessment of my working life.

Within reason, I feel the need to attempt to earn as much as I can as quickly as I can in order to expand my cash pot for investment and ensure my standard of living at least remains stationary.

Anything above that would be a bonus.

1.1k · August 27, 2021

At some point the intangible effects come into play. Working yourself into the ground gives money but also takes away something else.

For the average man on an average wage there must be a certain level of assets, a sweet spot, where it is not worth working any more due to tax.

August 27, 2021

19 hours ago, RickyBacker said:

Another anecdotal albeit straight from the horses (company) mouth. I can't give too much detail, but ... family business supplies a component for an Apple product. Apple have just contacted to say that they need to reduce their purchase order by 70%. This component cannot be supplied by any other manufacturer as they developed it together.

alongside lowest levels of car production in the UK in over 50 years

https://www.theguardian.com/business/2021/aug/26/lowest-levels-of-car-production-for-any-july-since-1956-uk-industry-reports

And a 68% reduction in house sales in the past month.

https://bmmagazine.co.uk/in-business/house-sales-fall-in-july-as-stamp-duty-holiday-ends/

1.7k · August 27, 2021

https://corporate.nordea.com/article/67365/global-7-reasons-why-covid-19-could-lead-to-an-inflationary-regime-shift

"The above conclusions have likely also led markets to reprice the outcome space of inflation over the coming decade. There are fewer deflationary risk scenarios and more inflationary risk scenarios than before the Covid-19 crisis hit. The fiscal side is back in action, meaning that both monetary policy and fiscal policy will be put into use should disinflationary forces re-enter the frame, which is a game changer for the left-hand-side tail (deflation) of the inflation outcome space, while the potential risk of overheating and labour market-fuelled wage spirals have increased the potential amount of outcomes in the right-hand-side tail (inflation) of the outcome space. The AIT regimes of the Fed (and partly the ECB) have also solidified this conclusion."

2.8k · August 27, 2021

34 minutes ago, Boon said:

At some point the intangible effects come into play. Working yourself into the ground gives money but also takes away something else.

For the average man on an average wage there must be a certain level of assets, a sweet spot, where it is not worth working any more due to tax.

Agreed. My job is flexible and not hard but pays well. I'll be going to 28 hours per week up from 20. I'll be able to do all school runs and work from home in school holidays. The uplift of circa 25% in my pay (following a 60% uplift when I changed to this job earlier his year) should see me stay ahead of rising prices, continue to prevent borrowing and build cash into savings and investments.

10.1k · August 27, 2021

18 minutes ago, Barnsey said:

https://corporate.nordea.com/article/67365/global-7-reasons-why-covid-19-could-lead-to-an-inflationary-regime-shift

"The above conclusions have likely also led markets to reprice the outcome space of inflation over the coming decade. There are fewer deflationary risk scenarios and more inflationary risk scenarios than before the Covid-19 crisis hit. The fiscal side is back in action, meaning that both monetary policy and fiscal policy will be put into use should disinflationary forces re-enter the frame, which is a game changer for the left-hand-side tail (deflation) of the inflation outcome space, while the potential risk of overheating and labour market-fuelled wage spirals have increased the potential amount of outcomes in the right-hand-side tail (inflation) of the outcome space. The AIT regimes of the Fed (and partly the ECB) have also solidified this conclusion."

Like we always said the end of the long dis-inflation cycle would see policy move to fiscal.It was certain,a macro certain anyway.Covid was just the trigger at the end of the cycle.It could of been anything,and this is what most miss.It doesnt matter the trigger,it matters how close to a trigger.Dis-inflation had ran out of steam.The financial crash could and should of been fiscal,but they only bailed the banks balance sheets.They printed back a lot of the dis-inflation then,but handed it to the rich by making good the bonds instead of wiping them out.

Inflation always comes when their are less goods and services and the same or more demand.Liquidity means people can buy and bid for these without doing any work,and thats when you get the feedback loops kicking in.

People are about to get poorer because its a distribution cycle.That 15% increase in food price hits people hard,but not us on here because potash could leverage it 10x over and the companies did.

This inflation is not going away,its just starting,and will shake out people who see some short term falls and think thats it.Crucial to hold assets that catch and leverage the inflation.

My inflation rate is actually doing ok,mainly as i cut out most of the complexity by cooking and doing most things myself.

1.8k · August 27, 2021

2 hours ago, DurhamBorn said:

Like we always said the end of the long dis-inflation cycle would see policy move to fiscal.It was certain,a macro certain anyway.Covid was just the trigger at the end of the cycle.It could of been anything,and this is what most miss.It doesnt matter the trigger,it matters how close to a trigger.Dis-inflation had ran out of steam.The financial crash could and should of been fiscal,but they only bailed the banks balance sheets.They printed back a lot of the dis-inflation then,but handed it to the rich by making good the bonds instead of wiping them out.

Inflation always comes when their are less goods and services and the same or more demand.Liquidity means people can buy and bid for these without doing any work,and thats when you get the feedback loops kicking in.

People are about to get poorer because its a distribution cycle.That 15% increase in food price hits people hard,but not us on here because potash could leverage it 10x over and the companies did.

This inflation is not going away,its just starting,and will shake out people who see some short term falls and think thats it.Crucial to hold assets that catch and leverage the inflation.

My inflation rate is actually doing ok,mainly as i cut out most of the complexity by cooking and doing most things myself.

My inflation rate hasn't changed too much either (overall).

I've not noticed much in the way of food price increases.

My electric has increased three times this bloody year! Latest increase is to 20.669p per kwh (Bulb). What are other people paying for their leccy?

1.8k · August 27, 2021

3 hours ago, Noallegiance said:

That's quite profound.

Something about that article has fostered a change in me. Obviously I understand many things from this thread and other sources, but reading that has made me perform an instant reassessment of my working life.

Within reason, I feel the need to attempt to earn as much as I can as quickly as I can in order to expand my cash pot for investment and ensure my standard of living at least remains stationary.

Anything above that would be a bonus.

Agree. The next decade is going to be a lot shitter than the last, it's all about energy.

I'm close to jacking it all in but need to get a minimum of 1% above inflation on my current pot - either that or I work longer which I don't want to do. Would have liked 3% real returns which has been easily achievable the previous decade or so but I'm not sure it will be so easy going forward.

4.4k · August 27, 2021

12 hours ago, sancho panza said:

I think there are real structural issues looming in the NHS care sector if you're partner's experience is anything to go by ref recruiting.

The reality is that the bulk of the more senior non Doctor staff are genereally in a decent place to retire.

In the NHS a lot will have defined benefit schemes,houses paid off that were bought in the mid 90's,also of a maturity where they just don't want the stress/aggro/night shfits/vaccine.

The structural problem is that these people carry out roles that need experience eg triaging A+E,mentoring.

They can't be replaced in a hurry.

SP, yes i agree, but not i think only happening within the NHS (eg haulage, etc). Very much all part of the interesting discussion (i think so anyway) to be had about jobs/employment. i.e I think it is a practical metric by which to predict institutional decay(breakdown?) - i am not being over dramatic, after all the examples within the NHS that you and @DurhamBorn regularly mention show imo the looming employment crises, and that's before any potential funding cuts by government.

Of course all this structural change is a driver for inflation, and also for workers to benefit more relative to capital - all central trends as predicted by this excellent thread.

... But another facet, is that these social (employment) disruptions - which government has caused - yet has neither the skill nor the will to fix, will i think be massive triggers for the creation and uptake of new right(or left?)-leaning political parties.

(Decl: if the SDP got more radical (they are still active!) they'd get my vote. But need i think a charismatic 'Dr David Owen type', capable of speaking without social fluff or political filter, to Red-wall voters and to frustrated Tory voters... i'd much prefer this than an emerging extreme left/right, but fear this may now be wishful thinking/naivety on my part.)

2.8k · August 27, 2021

29 minutes ago, Starsend said:

Agree. The next decade is going to be a lot shitter than the last, it's all about energy.

I'm close to jacking it all in but need to get a minimum of 1% above inflation on my current pot - either that or I work longer which I don't want to do. Would have liked 3% real returns which has been easily achievable the previous decade or so but I'm not sure it will be so easy going forward.

I'm fortunate in that I really like my job and colleagues.

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