Credit deflation and the reflation cycle to come (part 3)

[sancho panza]

20 minutes ago, M S E Refugee said:

EU considers building new gas pipeline – media https://www.rt.com/business/556051-eu-new-gas-pipeline/

Couldn't read your link that well MSE due to the local Stasi.

But basically sounds like pipeline at some time in the future between two places with declining oil & gas fields is going to repalce the 40% of EU supply that comes from Russia......pullease...

Be even funnier when the Italians start getting paid in Lira again.

Here's another angle

https://english.news.cn/20220513/f584b93f2a144dec91b71006369cc876/c.html

The deal between Snam and Enagas would work around that problem by laying the pipeline under the Mediterranean Sea.

"We are working to take the necessary steps to contribute to security and to support the diversification of Italy's energy supply," Stefano Venier, Snam's chief executive, said in a statement.

For the first quarter of 2022, Snam posted net profit growth of 3.8 percent, reaching 325 million euros (337 million U.S. dollars).

The company did not specify when the project would be launched.

[M S E Refugee]

12 minutes ago, JohnnyB said:

What's the feelings?

Basically they are unhappy about subsidising people who sit on their arse all day.

[Libspero]

Interview with Mervyn King.

30 mins..   more or less says what we have been discussing for a while,  but interesting to hear it from an ex-central banker.

 

[HousePriceMania]

23 minutes ago, Libspero said:

Interview with Mervyn King.

30 mins..   more or less says what we have been discussing for a while,  but interesting to hear it from an ex-central banker.

 

They all speak the truth before they join and after they leave.

 

The police ought to be asking why this is.

[sancho panza]

Shaun Richards posing the question on not many people's lips.

ECB look as f***ed as Italy.I mean who's buying their bonds at 3% yield....???..well,besides the NEST pension fund

Bold is mine for skimmers

https://notayesmanseconomics.wordpress.com/2022/05/25/with-euro-area-real-wages-falling-at-4-what-can-the-ecb-do/

With Euro area real wages falling at 4% what can the ECB do?

Posted on May 25, 2022

Over the weekend we got confirmation of the pressure that the ECB has been feeling on the subject of inflation. It came from a blog written by its President Christine Lagarde who is presumably trying to make people forget her video which by describing inflation as a “hump” only succeeded in giving people the very same. Rather curiously she started by reminding people of her forecasting failures.

 Inflation was forecast to be just 1.6% in 2022.

Actually also of policy failures ( from her perspective anyway)

Headline inflation had averaged 1.1% since 2012 and core inflation just 1%.

Of course now is very different and let me give you her 3 causes for the change.

First, we have faced a series of shocks to input prices and food prices.

Second, we have faced shocks to both the demand for and supply of industrial goods, which has shown up in record-high industrial goods inflation.

Third, we have had the shock from economies reopening after lockdowns, which has triggered a rapid rotation of demand back to services – all while input costs have been rising and companies in the services sector, especially in tourism and hospitality, have struggled to find staff quickly enough to meet rising demand.

What is missing?

There is no mention of the enormous expansion of the money supply on her watch so let me point out that the broad measure was 15.7 trillion Euros as of the end of March. Whereas before all the pandemic pumping up it was 13.2 trillion in February 2020. Thus we have a rise of around 19%.

 

Bond Yields

Perhaps they are trying to shore it up before everything gets more expensive and there is ever more to shore up.

Greek public debt jumps by more than 6 bln in Q1, nearing 395 bln in total ( MacroPolis )

But the real issue is Italy and the largest public debt in the Euro area which now has a benchmark yield just below 3%. This is not like the 2012 Euro area crisis and not only because the yield then was more like 7% at the peak. Also ironically inflation helps government’s pay their debt costs. The issue is the impact on the public as government’s are constrained and they face a cost of living crisis.

 

Comment

I think that there are two main issues with all of this. The first is timing as we remain with promises when inflation is nearly four times its target. As opposed to New Zealand which has moved now by 0.5%. As regular readers will be aware I think that the Kiwis have moved too late, but at least they are trying. This raises the issue that the ECB may be procyclical and let me illustrate with this.

Negotiated wage growth (released this morning) jumped from 1.6% y-o-y in Q4 2021 to 2.8% y-o-y in Q1 2022. ( @nghrbi)

Now if we assume wage growth is picking up and say it is 3%  we have a clear cost of living problem with inflation at 7%. With real wage growth looking to be around -4% then I would not be so sure of this if I was the ECB President.

“For the moment, we are not seeing a recession in the euro area,” says ECB President Christine Lagarde ( Bloomberg)

Both consumption and investment remain below their pre-crisis levels, and even further below their pre-crisis trends. And the outlook is now being clouded by the negative supply shocks hitting the economy. This is evident from the fact that, in the near term, inflation and growth are moving in opposite directions.

[BWW]

Just now, HousePriceMania said:

There isn't an emoji available to put to that !!!!

That's shite luck, they couldn't have timed it any worse.  The mail online would be all over a story like that.

Saying that, was there a lot of noise in the media about financial problems in the country before hand ?

IIRC here in the UK money earmarked for a property purchase is protected even if the banks go tits up.

 

Only for your PPR.

[Sidd]

DXY powering forward once again

[Animal Spirits]

6 hours ago, HousePriceMania said:

Does anyone think US QT day will have any impact ?

 

QT day: 7 days

Not usually supportive for risk assets to add to some already bearish indicators, more volatility would be a minimum expectation but it may take time to feed through it just depends how dispersed it is; some sectors may hold up better than others in relative terms.

[Errol]

 

[Animal Spirits]

21 hours ago, HousePriceMania said:

I thought this was made up till I saw the video
 

 

Preparing for a siege, maybe Jerome received a few letters in the post or Homeland Security picked up on some chatter online and they are pre-empting another Capitol Hill style riot.

[HousePriceMania]

3 hours ago, sancho panza said:

Shaun Richards posing the question on not many people's lips.

ECB look as f***ed as Italy.I mean who's buying their bonds at 3% yield....???..well,besides the NEST pension fund

Bold is mine for skimmers

https://notayesmanseconomics.wordpress.com/2022/05/25/with-euro-area-real-wages-falling-at-4-what-can-the-ecb-do/

With Euro area real wages falling at 4% what can the ECB do?

 

Raise Interest Rates to 20%

They all know the answer, they are all refusing to do it.

End of the currency is coming

[Froggy2000]

3 hours ago, Libspero said:

Interview with Mervyn King.

30 mins..   more or less says what we have been discussing for a while,  but interesting to hear it from an ex-central banker.

 

Thanks for posting. I found it very informative but one thing struck me whilst watching it. I've NEVER heard a central banker, former or current, talk about cycles, disinflation, reflation etc. Is it they don't understand macro cycles or is it that they'd rather keep Schtum? Not sure which I find most concerning!

[HousePriceMania]

27 minutes ago, Animal Spirits said:

Preparing for a siege, maybe Jerome received a few letters in the post or Homeland Security picked up on some chatter online and they are pre-empting another Capitol Hill style riot.

If you watch the video it looks like a fence to keep people out from building works they are doing.

 

I'd loved it to have been something more sinister but it isn't

[Boon]

Here we go:

https://www.bbc.co.uk/news/business-61584546

Not really much detail on how it'll be distributed, or what the windfall taxes are.

[Libspero]

24 minutes ago, Froggy2000 said:

I've NEVER heard a central banker, former or current, talk about cycles, disinflation, reflation etc. Is it they don't understand macro cycles or is it that they'd rather keep Schtum?

I think they know..    it was interesting to hear him comment that he thought CBs were “willing away inflation” ie, talking it down, and that it probably wouldn’t work saying they really need to raise rates quickly to get the pain out of the way rather than a long protracted recession being constantly behind the curve.  Merv was always a bit of a bear.

[Libspero]

29 minutes ago, Boon said:

Here we go:

https://www.bbc.co.uk/news/business-61584546

Not really much detail on how it'll be distributed, or what the windfall taxes are.

Predictable,  but subsidising people to use more of something during a shortage seems a fundamentally bad idea.  Like printing money during covid to solve a problem that was essentially another supply side issue.

[HousePriceMania]

3 minutes ago, Libspero said:

Predictable,  but subsidising people to use more of something during a shortage seems a fundamentally bad idea.  Like printing money during covid to solve a problem that was essentially another supply side issue.

It's totally inflationary. Is Sunak trying to collapse the country ?

[Pip321]

20 minutes ago, HousePriceMania said:

It's totally inflationary. Is Sunak trying to collapse the country ?

Of course not….the UK is like a second, well maybe third, hmm..maybe fourth, home to him 😉

[Libspero]

8 minutes ago, HousePriceMania said:

It's totally inflationary. Is Sunak trying to collapse the country ?

Perhaps it’s a clever deal with the energy companies..   “you give us money,  then put your prices up,  then we give it back again?” 

[Calcutta]

See Kwasi Kwarteng gets a head nod as the one dissemting voice in government. He's our next long term PM if this country is going to be saved. I know some sensible Africans, the crazy ones are real crazy but the smart ones are real smart. Had him at 150/1 but Bojo won and here we are. 

[sancho panza]

1 hour ago, Errol said:

 

It's hard to see them changing their playbook given how well it's worked in the last twenty years,I mean solving a debt crisis with an even bigger one......what a fucking wheeze.

I think we all know they'll take the 'stoopid is a stoopid does' option,windfall tax the oilies for £1bn -£3bn(becuse that's allt they'll get),then print the mising £7bn and a few more for good measure,then sit back and watch as the oilies stop investing in the north sea,gas prices gnues.o even higher,inflation moves higher and joblessness moves up.

Like the tweet says,death sprial conti

1 hour ago, Froggy2000 said:

Thanks for posting. I found it very informative but one thing struck me whilst watching it. I've NEVER heard a central banker, former or current, talk about cycles, disinflation, reflation etc. Is it they don't understand macro cycles or is it that they'd rather keep Schtum? Not sure which I find most concerning!

Without getting too long winded, a lot of it is to do with the way economics is taught and funded in higher education/universities.

iirc something like 95% of academic economsits are neo classical....want to do a PHd?want funding for a PHd? etc etc.So the bulk of CB overlords,bank economists and academics are neo clasical.

The reason that's a problem is that neo classical economsits ignore the role of private debt in driving aggregate demand.

Below is a piece by Steve Keen,a post keynesian,which explains the situation.Also worth noting the role of the psot keynesians in trying to bring the work of Irving Fisher psot 1930 into mainstream economics-Fisher authored debt deflation theory after making a howling and public misjudgement in the run tup to GD1.

my bold for skimmers,more at the link

https://blogs.lse.ac.uk/politicsandpolicy/ignoring-the-role-of-private-debt-in-an-economy-is-like-driving-without-accounting-for-your-blind-spot/

Fortunately most of us learn that we have a blind spot, and so we check carefully to avoid being fooled by it again—and causing an avoidable accident.

If only economists could learn the same way, we might not now be in the accident of this never-ending economic crisis. “Neoclassical” economists (who dominate both academic economics and policy advice to governments) have a blind-spot about the role of private debt in macroeconomics, yet despite the economy crashing once before because of it during the Great Depression, they continue to argue that it’s irrelevant now—during this latest crash.

First, let’s establish that there was indeed a “car in the rear view mirror” in the 1930s and today. Data on long-term private debt levels is difficult to find, but I’ve located it for both the USA from 1920 till today, and for Australia from 1880 (see Figure 1). Clearly, there was a debt bubble before the Great Depression, and a plunge in debt levels during and after it (and Australian data also shows the same phenomenon during an earlier bubble and crash in the Depression of the 1890s; see Fisher and Kent 1999). The same process is clearly afoot again now.

Figure 1

Now for the blind-spot. Anyone not blessed—or rather cursed—by an economics education might think there was something in that coincidence of debt and depressions. But it’s nothing to worry about, leading neoclassical economists assure us—thus confirming that either they know something profound that proves that the coincidence is irrelevant, or that they have a blind-spot which means that their judgment can’t be trusted.

The profound insight they believe they have is that the level of debt doesn’t matter, and that only the distribution of debt can be important. Ben Bernanke rejected Irving Fisher’s “Debt Deflation” explanation for the Great Depression on this basis; after noting that Fisher did influence Roosevelt’s policies, Bernanke added that:

[sancho panza]

12 minutes ago, Calcutta said:

See Kwasi Kwarteng gets a head nod as the one dissemting voice in government. He's our next long term PM if this country is going to be saved. I know some sensible Africans, the crazy ones are real crazy but the smart ones are real smart. Had him at 150/1 but Bojo won and here we are. 

Much as I won't be voting for him,it would be funny as f*** if the Tories elected the first Black leader ahead of a labour party hellbent on positive discrimination.

[HousePriceMania]

1 hour ago, Libspero said:

Perhaps it’s a clever deal with the energy companies..   “you give us money,  then put your prices up,  then we give it back again?” 

Hidden income tax 

[Noallegiance]

[HousePriceMania]

Please, let it be so