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

[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 

 

 

[Democorruptcy]

6 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.

 

Mervyn King warns of an unpleasant period ahead because of the housing bubbles he's played a large part in blowing up. When he was deputy they cut interest rates to a 55 year low in 2003 when annual HPI was 25%. Then he did the Funding for Lending with Osborne in 2011. The result is that all the BoE try to do is not prick their own housing bubbles by increasing rates. Sterling trashed, oil priced in USD results in our inflation, just to try support house prices.

[BadAlchemy]

This is all so depressing isn't it. £400 bn pissed up the wall in the last two years by our clueless 'leaders'. Golden opportunity, with near zero rates, to inject a massive amount of cash into our industrial capability, energy and food production, productive job creation etc.. Instead we get 70bn furlough handed out so lazy fuckers can stay at home, buy a dog etc..  god knows how much more given out in dodgy support loans which have now left the country never to be seen again, a further 22bn on completely pointless and useless track and trace system... and all the rest. It was all just short term appeasement for the plebs. Now they are going to try and loot another 10 bn from energy companies. Then they will try to loot whatever else they can get their hands on. Tax and print is all our polos know. Yes they've got prices raised 30 percent and the tax take is up (for now) but very little productive gain to be seen from so much cash spent, from what I can see.  What a total waste. 

I hope everyone here has enough gold and silver stashed away. You may well be screwed without it.

Look at this chart and weep. What a waste!

[CannonFodder]

I said it earlier but people when they hit trouble do either more of the same thing or less of the same thing to cope, very rarely do they stop and do anything  fundamentally different.

Its how the human brain is wired. Its too difficult for a leader not to use a tried and tested technique that has always worked before in his career. Even if an advisor gets it, the leader will overrule. Its too alien for the human brain to try a new radical techique at a time of crisis rather than the old familiar and comfortable route. 

They have their playbook, it always worked before, they are in trouble so a decision is made.

Only when the old way to save the currency fails and the currency goes will a new alternative be viewed as worthwhile. Of course then we are eating rat swapped for bottle caps.

[HousePriceMania]

Was it always like this or was life once predictable, decent and sane? 

[baffledbyzirp]

2 hours 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. 

Same school as Cameron, BoJo and Mogg, same Oxbridge pedigree. Heaven preserve us from those destined/ born to rule! If the people calling the shots think Hogwarts represents reality we are screwed. Talent without experience and empathy is pointless. We may as well elect a bunch of Trappist monks or intuits.

[JMD]

3 hours 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. 

Yes I agree, and have been saying KK for PM for a long while now, as you say he would be seen as a strong and sensible head. And also a clear departure from current clown politics. Plus fits other modern political diversity agendas, not that I care about that kind of thing, and have been a fan since his early appearances on BBC QT from many years ago, when that program still had heavyweight politicians on as panelists. I don't know if the conservatives will make this happen, but if they did, talk of any labour or liberal resurgence is silly imho... Btw can still get KK/PM for 80/1 at Paddy Power. I'd actually be tempted if I could get 100/1 odds, anyone know if those adds are available anywhere?

[JMD]

5 hours 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.

Perhaps in exchange for any new energy company taxes, the government will offer them new preferential North sea drilling licenses (sold to the voting public as proof of oil company 'long term uk investment'), might even specify that UK should have first dabs on the oil/gas in order to boost our energy security.

[sancho panza]

20 minutes ago, JMD said:

Yes I agree, and have been saying KK for PM for a long while now, as you say he would be seen as a strong and sensible head. And also a clear departure from current clown politics. Plus fits other modern political diversity agendas, not that I care about that kind of thing, and have been a fan since his early appearances on BBC QT from many years ago, when that program still had heavyweight politicians on as panelists. I don't know if the conservatives will make this happen, but if they did, talk of any labour or liberal resurgence is silly imho. Btw can still get KK/PM for 80/1 at Paddy Power.

Another Rishi/Bozo/Mogg/Cameron/Gideon etc etc.Probably explains why he's a decent shot at 80/1.....

I'd honestly(and I say this as Ukip voter 2006-19) rather vote for Corbyn and jsut get the total societal collapse over with.Death by a 1000 Etonian cuts is a crap way to go.

Bold is mine

https://en.wikipedia.org/wiki/Kwasi_Kwarteng

Early life and education

Kwarteng was born in the London Borough of Waltham Forest in 1975,^[1] to parents Alfred K. Kwarteng and Charlotte Boaitey-Kwarteng, who had emigrated from Ghana as students in the 1960s.^[4][5] His mother is a barrister^[6] and his father an economist in the Commonwealth Secretariat.^[5][7]

After starting school at a state primary school, Kwarteng attended Colet Court, an independent preparatory school in London, where he won the Harrow History Prize in 1988.^[8] Kwarteng then went to Eton College,^[1] where he was a King's Scholar and was awarded the prestigious Newcastle Scholarship prize. He read classics and history at Trinity College, Cambridge, achieving a first in both subjects^[9] and twice winning the Browne Medal. He was a member of the team which won University Challenge in 1995 (in the first series after the programme was revived by the BBC in 1994).^[5][10] He attended Harvard University on a Kennedy Scholarship, and then earned a PhD in economic history from the University of Cambridge in 2000.^[11]

Early career

Before becoming a member of parliament, Kwarteng worked as a columnist for The Daily Telegraph and as a financial analyst at JPMorgan Chase and other investment banks.^[12] He wrote a book, Ghosts of Empire, about the legacy of the British Empire, published by Bloomsbury in 2011.^[5] He also co-authored Gridlock Nation with Jonathan Dupont in 2011, about the causes of and solutions to traffic congestion in Britain.^[13]

[sancho panza]

US housing market could be roling over

Sales down,inventory up,median price spikes on lower vol......looks like the boat's taken on some water,can they bail fast enough?

 

https://wolfstreet.com/2022/05/24/housing-bubble-getting-ready-to-pop-unsold-inventory-of-new-houses-spikes-by-most-ever-to-highest-since-2008-sales-collapse-below-400k/

 

 

Unsold inventory of new houses spiked in a historic month-to-month leap of 34,000 houses, and by 127,000 houses from April last year, to 444,000 unsold houses, seasonally adjusted, the highest since May 2008.

[wherebee]

Retail investing accounts interest rates are noticeably creeping up here in Australia.  After years of 0.1-0.5% for 6-12 month TDs, my inbox is suddenly awash with offers of 2-3%, some near instant access.  Limitations seem to apply (new customers only, etc), but it's a good indication of direction of travel.

[belfastchild]

10 hours ago, HousePriceMania said:

Please, let it be so 

 

 

Let youtube run its course yesterday whilst I was doing stuff and it ran through some interesting videos.
Wealthion part 1 interview with Danielle DiMartino Booth about Powell and controlled explosion of the markets.

 

Royal Institution - have boomers prinched their childrens futures, some of the forum themes but interesting to see (hear in my case) it laid out and some explanations why

Oh and I only got a few minutes into this one before I had to go back to the computer and turn it off as I was shouting at it from the other room. Peter Zeihan on with the 'experts' from ARK invest. Now 35 mins in and all I can see is him owning the ARK people but thats my own personal bias. Science, Bro!

Right now 10 sovereigns are 350 quid more than Ive ever paid... tempted with all the doom mongering ;-)
Off to listen to David McWilliams latest two to see if theres any change there in how the wind blows...

[Errol]

Get a tube of 25 ...

[belfastchild]

7 minutes ago, Errol said:

Get a tube of 25 ...

Takes you over the 'report/record' amount. Prefer to buy 10 at a time from different suppliers.

[Errol]

Yes, just remembered that. Completely absurd system. Stick to under £5000 in any single transaction.

[jamtomorrow]

Seems obvious enough now that the disretionary economy is about to get smashed to bits - that's where demand destruction will happen first as households draw in their horns. Maslow's hierachy and all that (good to see that pop up again in recent posts). Short mobile dog-groomers etc

Question is, how does that affect macro aggregates? Do aggregates even matter in situations like this?

Take velocity.

In the discretionary part of the economy, volume is about to be wiped out because stagflation hits discretionary spend twice - households have less disposable income to spare on discretionaries *and* input costs for suppliers of discretionaries are rising. Velocity here will plummet, and fast.

Whereas essentials: harder to trim, so households will trim last here. Volume holds up, prices inflate, velocity up.

The effect on *aggregate* velocity will then be the sum of these kinds of component effects.

Now the trouble with dynamical systems is that maintaining system stability in the presence of large (or worse: ever-larger) competing component effects is difficult, and at some point impossible. A small change in one of the components can produce an extremely large change in aggregate behavior (a form of leverage or amplification or positive feedback). Systems in this state quickly swing out of control or shake themselves to bits. If you've watched the TV series Chernobyl, voiding coefficients are a good example.

What makes the macro situation explosive is that the monetary gauges, dials and policy levers all measure or operate on *aggregates* - it's "que sera sera" for the component effects.

(This is why I think Gromen is on the right track when he refers to monetary policy levers as now operating more like an on/off switch)

In summary: it's not just a question of up or down - it's going to get bumpy. *Very* bumpy.

[CVG]

8 hours ago, JMD said:

tw can still get KK/PM for 80/1 at Paddy Power. I'd actually be tempted if I could get 100/1 odds, anyone know if those adds are available anywhere?

Keep your eye on here. 80's best from the big bookies when I checked.

https://www.oddschecker.com/politics/british-politics/next-prime-minister

[StrugglingMillennial]

I'm sure that the papers will be awash with similar articles today but take a look at the comments on this one 

https://www.dailymail.co.uk/news/article-10855499/Rishi-Sunak-prepares-unveil-10bn-energy-bills-bailout-benefit-UK-household.html#comments-10855499

People are not happy about having to pay for other people's benefits.

[Plan-b]

1 minute ago, StrugglingMillennial said:

I'm sure that the papers will be awash with similar articles today but take a look at the comments on this one 

https://www.dailymail.co.uk/news/article-10855499/Rishi-Sunak-prepares-unveil-10bn-energy-bills-bailout-benefit-UK-household.html#comments-10855499

People are not happy about having to pay for other people's benefits.

All I see from this is yet more inflation

[Plan-b]

1 minute ago, Plan-b said:

All I see from this is yet more inflation