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

[wherebee]

9 hours ago, Starsend said:

He eats £200 of food a week! He must be one fat fucker.

family.

free meat, veg, tins.  very nice.

[humdrum]

7 hours ago, Starsend said:

I wish I lived in more sane times when adults were in charge, hard work was rewarded and the girlies were slim. Nobody enjoys trying to navigate this mess surely.

Well yes, but not too slim I hope. I am a man who likes to get both hands full.

7 hours ago, Starsend said:

I wish I lived in more sane times when adults were in charge, hard work was rewarded and the girlies were slim. Nobody enjoys trying to navigate this mess surely.

Well yes, but not too slim I hope. I am a man who likes to get both hands full.

[Uncle Buck Rogers]

2 hours ago, HousePriceMania said:

The TUC just forced up the price of beans

 

https://www.unitetheunion.org/news-events/news/2022/august/unite-secures-heinz-workers-pay-rise-worth-11/#:~:text=The deal is worth 11,for the local Unite reps.

 

Unite secures Heinz workers pay rise worth 11%

Fuck Heinz. Lidl do 4 tins of rather nice Beans for £1.09

[Phil]

Just now, Uncle Buck Rogers said:

Fuck Heinz. Lidl do 4 tins of rather nice Beans for £1.09

Correct. Just bought 4 sovereigns. Fuck you paper bullshit so called promise bollocks. Rant over. 

[Yadda yadda yadda]

4 hours ago, Stuey said:

The new energy "price cap" is published tomorrow...followed by letters arriving from suppliers Tuesday after people have spunked £500 over the Bank Hols on kebabs, fruit machines and brasses...

Will the letters be posted immediately? There will be a load of blathering tomorrow about what subsidies the new prime minister will implement. If they do post the letters ASAP there will be a lot of whinging about the huge new predicted bills.

[Noallegiance]

13 minutes ago, Phil said:

Correct. Just bought 4 sovereigns. Fuck you paper bullshit so called promise bollocks. Rant over. 

Epic

[Phil]

1 minute ago, Noallegiance said:

Epic

Cheers. I’ve had a tot, but, fuck em. 
Angry is an energy.

[DurhamBorn]

4 hours ago, HousePriceMania said:

The TUC just forced up the price of beans

 

https://www.unitetheunion.org/news-events/news/2022/august/unite-secures-heinz-workers-pay-rise-worth-11/#:~:text=The deal is worth 11,for the local Unite reps.

 

Unite secures Heinz workers pay rise worth 11%

5.5% the rest is one off payments,so compouding they should say Unite has managed to get Heinz workers the biggest pay cut in its history.

The real story of course is big company pay up 5.5%,retired council workers pensions up 13%,bennies up 13%,coppers up 13% etc etc.

The government froze tax allowances of course that means they are sucking all pay increases into tax.Likely there will be a gilt crisis at some point as the BOE wont monetise from here.

 

[DurhamBorn]

2 hours ago, Uncle Buck Rogers said:

Fuck Heinz. Lidl do 4 tins of rather nice Beans for £1.09

Id say Lidl beans are easily the best,Heinz are garbage now anyway,like water,horrid.Im a bit miffed they havent gone up yet given how many i have.Unlike the bint on Mumsnet though my partner joins in with the stock piling,she came in with 48 tins of corned beef from Asda and even got 10% off with her blue light card.Iv purchased a rice cooker as well,fantastic thing,rice is perfect every time and quick.Makes amazing fried rice after a night in the fridge,i can make chicken fried rice for two for around £1.70 and its almost exactly the same as a takeaway,i use MSG of course.

[M S E Refugee]

 

[Ash4781b]

Oh it’s energy prices cap day. Do I tune in on the radio?

edit:seems to be 7am bst announcement 

Edit: Post-announcement they’ll be a wave of pre-prepared articles on likes of so-called. I wonder what Sunak will say - need to raise employee and employer taxes?

 

[TNS]

46 minutes ago, Ash4781b said:

Oh it’s energy prices cap day. Do I tune in on the radio?

edit:seems to be 7am bst announcement 

Edit: Post-announcement they’ll be a wave of pre-prepared articles on likes of so-called. I wonder what Sunak will say - need to raise employee and employer taxes?

 

+80% to £3549 #assinvasion

[CannonFodder]

1 minute ago, TNS said:

+80% to £3549 #assinvasion

If +80% puts you off horse cropping your man servant with gusto - one shouldnt be owning property in the first place.

#serfsknowyourplace

[Ash4781b]

6 minutes ago, TNS said:

+80% to £3549 #assinvasion

I see they knocked £1 off.

[JimmyTheBruce]

1 hour ago, Ash4781b said:

Oh it’s energy prices cap day. Do I tune in on the radio?

edit:seems to be 7am bst announcement 

Edit: Post-announcement they’ll be a wave of pre-prepared articles on likes of so-called. I wonder what Sunak will say - need to raise employee and employer taxes?

 

https://www.bbc.co.uk/news/uk-england-suffolk-62631659

Pretty much ticks all the boxes this one.  On PIP, long covid, can't afford essentials like having hair done, eats salad but 18 stone etc, etc

[marceau]

7 hours ago, DurhamBorn said:

5.5% the rest is one off payments,so compouding they should say Unite has managed to get Heinz workers the biggest pay cut in its history.

The real story of course is big company pay up 5.5%,retired council workers pensions up 13%,bennies up 13%,coppers up 13% etc etc.

The government froze tax allowances of course that means they are sucking all pay increases into tax.Likely there will be a gilt crisis at some point as the BOE wont monetise from here.

 

On the bennies front it seems like a no-brainer for them to go further down the one-off targeted payments route and avoid the indexation hit. Time is running out for this year though.

Pensions in payment is much harder. Just using the tax bands won't really cut it given the amounts involved, and for every public sector fat cat with £40k+ pension, there's hundreds of poor fuckers with less than £10k. Reduce indexation across the board and you'll destroy the second group. Perhaps an indexation taper above certain levels of pension income would work?

[Yadda yadda yadda]

27 minutes ago, marceau said:

On the bennies front it seems like a no-brainer for them to go further down the one-off targeted payments route and avoid the indexation hit. Time is running out for this year though.

Pensions in payment is much harder. Just using the tax bands won't really cut it given the amounts involved, and for every public sector fat cat with £40k+ pension, there's hundreds of poor fuckers with less than £10k. Reduce indexation across the board and you'll destroy the second group. Perhaps an indexation taper above certain levels of pension income would work?

The trouble with the one off payments is that they've been in addition to benefits increases rather than in partial substitution. Benefits payments are going up by inflation and they're getting an energy bung of £650, so far.

If September's inflation figure is 11% they won't have the balls to give a 5.5% benefits increase and a 5.5% bonus.

Benefits are running away from earnings in a death spiral.

Rich pensioners are going to get soaked by tax. Merge NI with Income Tax. Increase the tax free allowance to £15k (it should be uprated to about £14k to keep up with inflation anyway) and make pensioners pay.

[AlfredTheLittle]

34 minutes ago, marceau said:

On the bennies front it seems like a no-brainer for them to go further down the one-off targeted payments route and avoid the indexation hit. Time is running out for this year though.

Pensions in payment is much harder. Just using the tax bands won't really cut it given the amounts involved, and for every public sector fat cat with £40k+ pension, there's hundreds of poor fuckers with less than £10k. Reduce indexation across the board and you'll destroy the second group. Perhaps an indexation taper above certain levels of pension income would work?

Would be easy to put in a special tax band for pension income. You could tax it at different rates, so the fat cats on huge public sector pensions basically get the excess taken away through tax, while small pensions are left alone. That way all commitments are honoured, it's just the tax rate that's changed.

[M S E Refugee]

6 minutes ago, Yadda yadda yadda said:

Rich pensioners are going to get soaked by tax. Merge NI with Income Tax. Increase the tax free allowance to £15k (it should be uprated to about £14k to keep up with inflation anyway) and make pensioners pay

Our Bus service has had a reprieve for a year after protests against it being axed, apart from the tourist season the only people that use it don't pay for it, i.e pensioners.

[marceau]

33 minutes ago, Yadda yadda yadda said:

The trouble with the one off payments is that they've been in addition to benefits increases rather than in partial substitution. Benefits payments are going up by inflation and they're getting an energy bung of £650, so far.

If September's inflation figure is 11% they won't have the balls to give a 5.5% benefits increase and a 5.5% bonus.

Benefits are running away from earnings in a death spiral.

And they'll continue to run away unless the govt runs them below inflation. There is no guarantee of CPI indexation attached to benefits, and there is precedent for freezes (from the coalition era) which means they don't need a big parliamentary vote to do it. What they do need is an excuse, which more one-off payments could provide. Something along the lines of the suspension of the triple lock from last year, with a few sweeteners added in, could work. 'Unprecedented events' etc etc.

33 minutes ago, Yadda yadda yadda said:

Rich pensioners are going to get soaked by tax. Merge NI with Income Tax. Increase the tax free allowance to £15k (it should be uprated to about £14k to keep up with inflation anyway) and make pensioners pay.

The last thing those in work want is to have pension indexation tied to their tax bands. You need to seperate the two out entirely or the downward pressure on the bands will never go away. The state pension isn't a massive problem, as due to precedent the govt can do anything it likes to indexation without much difficulty from parliament. Public sector pensions are completely different - anything that has involved contributions deducted at source is a legal nightmare and the govt would have to introduce a complex bill get it through. The question they'll be asking themselves is - what can we actually push through parliament?

Edit: - Just to clarify, they have to 'win' a vote on everything they do. But some 'wins' are matters of procedure, while others end up as major political battles. Public sector pensions is going to be one of the worst.

[moneyscam]

As I've posted before on this thread, I'm a big fan of Zoltan Pozsar and his missives. Yesterday he released his latest one and as ever is worth the read. Underlined emphasis is mine. @sancho panzafor the Minsky references

https://plus2.credit-suisse.com/shorturlpdf.html?v=5amR-YP34-V&t=-1e4y7st99l5d0a0be21hgr5ht

Some highlights :

…and that’s why forecast s of a rapid deceleration of inflation are naively optimistic: if Pax Americana enabled globalization and globalization underwrote lowflation, the TRICKs trying to poke holes in the Pax means that inflation is a big risk. To understand the path of inflation from here, we will have to read more history and think about trust, trade, and Dale Copeland’s theory of trade expectations: if trust drove globalization, and globalization drove “The Great Moderation”, distrust will drive de -globalization, and de -globalization “The Great Reflation ” …

And:

More broadly, the three “moments” of reckoning we discussed above mean that global supply chains, whether they produce military or civilian goods, are facing a Minsky Moment – a Real Minsky Moment. Paul McCulley’s term referred to the implosion of the long -intermediation chains of the shadow banking system that marked the onset of the Great Financial Crisis. Today, we are witnessing the implosion of the long -intermediation chains of the globalized world order: masks, baby formula, chips, missiles, and artillery shells, for now. The triggers aren’t a lack of liquidity and capital in the banking and shadow banking systems, but a lack of inventory and protection in the globalized production system, in which we design at home and manage from home, but source, produce, and ship everything from abroad, where commodities, factories, and fleets of ships are dominated by states – Russia and China – that are in conflict with the West. Inventory for supply chains is what liquidity is for banks. In 2007 -08, big banks ran on “just -in -time” liquidity: the dominant form of liquidity was market liquidity, for which you could always sell assets into a deep market without moving prices, so you did not have to have liquidity reserves at the central bank. Similarly, big corporations today run “just -in -time” supply chains for which they assume that they can always source what they need without moving the price. But not really: the U.S. military has to wait a little bit as Raytheon “will take a little while”; Taiwan and Saudi Arabia have to wait as well until the conflict in Ukraine is over; and if your washing machine broke recently, you’ll have to wait a bit too until defense contractors are done buying them up to rip chips out to make missiles. We’re borrowing from “here” to make things “there”. Do you remember the three units of Minsky? Hedge units can cover their payments from their incomes. Speculative units have to borrow to be able to make payments. And Ponzi units can make their payments only if they sell some of their assets and are thus the most exposed to rising interest rates. As our chip examples demonstrate, Minsky would classify our military supply chain s as “speculative” units at best, which are exposed to a further escalation of geopolitical tensions that could easily turn them into Ponzi supply chains. We can also apply Minsky’s framework in Europe, where German y can’t cover its payments without Russian gas and the government is asking citizens to conserve energy to leave more fo r industry. Minsky moments are triggered by excessive financial leverage, and in the context of supply chains, leverage means excessive operating leverage: in Germany, $2 trillion of value added depends on $20 billion of gas from Russia …that’s 100 -times leverage (see the last chart here ) – more than Lehman’s.

And:

Today, the assumption among investors is that globalization is Too Big to Fail… …but globalization is not a bank in need of a bailout. It’s in need of a hegemon to maintain order. The systemic event is someone challenging the hegemon, and today, Russia and China are challenging the U.S. hegemon. For the current world order and its trade arrangements and network of global supply chains to survive the challenge, the challenge must be squashed quickly and decisively, in the spirit of the Powell Doctrine. But Ukraine and Taiwan aren’t Kuwait, Russia and China aren’t Iraq, and Top Gun 2 isn’t the same movie as Top Gun …

And:

These are the scary times when the “euthanasia of the rentier” is a risk. To ensure that the West wins the economic war – to overcome the risks posed by “ our commodities, your problem”; “chips from our backyard, your problem”; and “our straits, your problem” – the West will have to pour trillions into four types of projects starting “yesterday ”: (1) re -arm (to defend the world order) (2) re -shore (to get around blockades) (3) re -stock and invest (commodities) (4) re -wire the grid (energy transition) Similar to how Basel III was the “tab ” associated with the Great Financial Crisis, the above list is the tab for the currently unfolding “Great Crisis of Globalization”. The four items on the list are self -explanatory. We read about them every day:

And:

Commodity intensity means that inflation will be a nagging problem as the West executes on the above list. Re -arming, re -shoring, re -stocking, and re -wiring need a lot of commodities – it’s a demand shock. It’s a demand shock in a macro environment in which the commodities sector is woefully underinvested – a legacy of a decade of ESG policies. Underinvestment means supply constraints, and geopolitics means even more supply constraints: resource nationalism – see Russia’s stance or Mexico’s recent decision to nationalize lithium mines – means that the supply you think is there to meet the surge in demand isn’t there: prices can thus surge. Executing on the to -do -list can easily drive another commodity super cycle, like the one we had after China joined the WTO in 2000. But that super cycle happened in the context of a peaceful, unipolar world order in which great powers had positive expectations of the future trade environment (see the “theory of trade expectations” above). But that’s not the case anymore. Capital intensity means that governments and also the private sector will have to borrow long - term to execute the to -do s. Re -arming and re -stocking are the domains of the government, and re -shoring and re -wiring the grid will involve public -private partnership s. Private firms will have to issue debt and raise equity to build things: ships, F -35s, factories, commoditywarehouses, andwind turbines. Insensitivity to interest rates means that the to -do -list will have to be executed regardless of whether the Fed hikes rates to 3.5% or 7%. Hell or high water, executing on the to -do -list is imperative. Industrial sovereignty depends on it.

And in conclusion:

Finally, uninvestability means that for certain large countries in the global East, it makes absolutely and categorically no logical sense to roll their investments in G7 debt claims. Not just because of what happened to Russia’s FX reserves, but also because rolling a $1 trillion portfolio of U.S. Treasury securities means that you will fund the West’s effort to re-arm, re-shore, re-stock, and re-wire… …against the East. And we are back to where we started on the cover page: Dale Copeland’s theory of trade expectations is the right frame to think about world from here, and sadly things make no sense to continue like they used to, be either from a real (trade/production) perspective or a financial (FX reserves) perspective… …which is why Bretton Woods III is destined to happen. It’s already happening, and we will explore the Bretton Woods III topic in detail in our upcoming dispatch: War and Currency Statecraft.

 

[Yadda yadda yadda]

2 minutes ago, marceau said:

And they'll continue to run away unless the govt runs them below inflation. There is no guarantee of CPI indexation attached to benefits, and there is precedent for freezes (from the coalition era) which means they don't need a parliamentary vote to do it. What they do need is an excuse, which more one-off payments could provide. Something along the lines of the suspension of the triple lock from last year, with a few sweeteners added in, could work. 'Unprecedented events' etc etc.

The last thing those in work want is to have pension indexation tied to their tax bands. You need to seperate the two out entirely or the downward pressure on the bands will never go away. The state pension isn't a massive problem, as again the govt can do anything it likes to indexation without a parliamentary vote. Public sector pensions are completely different - anything that has involved contributions deducted at source is a legal nightmare and the govt would have to win a vote to get it through. The question they'll be asking themselves is - what can we actually push through parliament?

Removing indexation of benefits for a time, for all or some benefits, would be a good strategy. I would support it as the burden must be shared. Times have changed since the coalition government. It is something they will only do if they absolutely have to. Perhaps they will realise that they now have to? I think they froze JSA well beyond the coalition ending. The one benefit I would exempt from freezing.

I don't see pension increases being tied to tax bands. Just that pensions would be taxed following an initial increase in the tax free allowance. Something that also helps out the low paid.

[DurhamBorn]

1 hour ago, JimmyTheBruce said:

https://www.bbc.co.uk/news/uk-england-suffolk-62631659

Pretty much ticks all the boxes this one.  On PIP, long covid, can't afford essentials like having hair done, eats salad but 18 stone etc, etc

Notice it said ex carer.Obvious she will of had kids and doing 16 hours on tax credits.Then kids over 18 loses them so suddenly develops invisible illness.Getting PIP already but nothing else says she is burning through the money her dad left her,then it will be Universal Credit.The fact she has scammed PIP already says she will get around £200 a week once she gets the rest.Its incredible how the left ie the BBC turn around the people helping cause the problems as the victims.She is consuming what another low paid worker and one in China produces.The one in China is stopping,so she loses,or collapse,choose Mz Truss.

[DurhamBorn]

1 hour ago, marceau said:

On the bennies front it seems like a no-brainer for them to go further down the one-off targeted payments route and avoid the indexation hit. Time is running out for this year though.

Pensions in payment is much harder. Just using the tax bands won't really cut it given the amounts involved, and for every public sector fat cat with £40k+ pension, there's hundreds of poor fuckers with less than £10k. Reduce indexation across the board and you'll destroy the second group. Perhaps an indexation taper above certain levels of pension income would work?

My partner works for the council,this years pay increase is £2k for everyone so 10% for lowest paid,5 to 7% for most,but managers down to 3%.Managers wont leave they are unemployable in the private sector,could be the start of what you say.

[Formerly]

31 minutes ago, AlfredTheLittle said:

Would be easy to put in a special tax band for pension income. You could tax it at different rates, so the fat cats on huge public sector pensions basically get the excess taken away through tax, while small pensions are left alone. That way all commitments are honoured, it's just the tax rate that's changed.

We already do. Anyone thinking NI is an insurance policy is nuts. It is a general tax on working.

I'd support the suggestion to merge it with income tax (and raising thresholds), thereby removing the special tax band on hard working families.