Credit deflation and the reflation cycle to come (part 9)

[Axeman123]

I mentioned last week that the Shaghai metals exchange was closed from wed-sun inclusive.

As I suspected the western bankers played their paper games while the cat was away but that has now ended, gold and silver nicely up today. Pricing power is undeniably in Chinky hands.

[ThoughtCriminal]

Someone help me get my head around this.

The Norwegian oil fund, presumably priced in dollars, is worth 18% more in NOK due to the weakness in the currency. But how does this translate to "great, we can now spend 94 billion NOK extra a year"? 

If you repatriate those dollars in terms of state spending then isn't that just hugely inflationary?

I've had a fever for two days so it's possible I'm just being a spaz, but it doesn't seem to compute as the great stroke of luck it's being presented as.

 

[Axeman123]

1 minute ago, ThoughtCriminal said:

If you repatriate those dollars in terms of state spending then isn't that just hugely inflationary?

Maybe rather than just spending from the fund they are reducing contributions from taxation to it and redirecting that money to spending? If they spend it on imports (high speed trains or MRI machines say, assuming they don't make them there) then that would even push the currency down further AIUI.

The whole sovereign wealth fund seems like a nice idea, but when the rubber meets the road I expect it to get spent down for short term gain. I suspect (using my example of big ticket capital expenditure imports) it also introduces its own perverse incentives for government too.

[feed]

8 hours ago, wherebee said:

Yes, I thought there might be a general crash in aussie property, but I now think that we'll just see devaluation of fiat to the point where houses have crashed badly in gold but remain flat or up in aussie dollars.

UK house prices have done nothing but slowly ground down since covid.  I lost my longer term data, but quick look at recent figures and 10 years of nowhere, RPI adjusted. 

Without a credit event, they're not going to do much else.  2007 will be our real term peak, for a very long time.  

[Virgil Caine]

20 minutes ago, Axeman123 said:

For all the coercion of the fuedal system, there was also a great deal of obligation on the Lords etc or at least the widespread beleif in that among the peasants etc. It was also a system that rested on the total absence of change. It will never be possible to recreate that in the modern world while retaining the influx of Abduls and selling off our assets etc.

It was simple to understand. There were those who fought, those who prayed and those who worked. It needs to be remembered though that the system only really developed once the Roman Empire collapsed and that it was a reversion to a threefold division of warriors, holy men and farmers that existed in many ancient tribal societies.

[DurhamBorn]

16 minutes ago, feed said:

UK house prices have done nothing but slowly ground down since covid.  I lost my longer term data, but quick look at recent figures and 10 years of nowhere, RPI adjusted. 

Without a credit event, they're not going to do much else.  2007 will be our real term peak, for a very long time.  

https://www.telegraph.co.uk/business/2024/05/05/britain-better-off-fewer-buy-to-let-landlords/

We said on here years ago the big insurance companies etc would end up controlling the rental sector and its starting to gain traction.Government will keep tightening rules so that only big landlords can cope and the smaller throw in the towel.It will take a long time,but middle class BTL is now on a long decline.BTL has protected capital from welfare induced inflation because of housing bennies and the government cannot be having that.These big institutions already have the capital so will likely have very low LTV on their estates.Its a bit like all the companies being bought out,slowly income producing assets are being removed from ordinary people.

[Chewing Grass]

7 minutes ago, DurhamBorn said:

https://www.telegraph.co.uk/business/2024/05/05/britain-better-off-fewer-buy-to-let-landlords/

We said on here years ago the big insurance companies etc would end up controlling the rental sector and its starting to gain traction.Government will keep tightening rules so that only big landlords can cope and the smaller throw in the towel.It will take a long time,but middle class BTL is now on a long decline.BTL has protected capital from welfare induced inflation because of housing bennies and the government cannot be having that.These big institutions already have the capital so will likely have very low LTV on their estates.Its a bit like all the companies being bought out,slowly income producing assets are being removed from ordinary people.

Will tie in with pension companies having less to invest in, always said both here and on the other side that they will keep the balls in the air until they have stolen most peoples retirement (pension).

Bottom of the barrel scraping time.

[feed]

10 minutes ago, DurhamBorn said:

https://www.telegraph.co.uk/business/2024/05/05/britain-better-off-fewer-buy-to-let-landlords/

We said on here years ago the big insurance companies etc would end up controlling the rental sector and its starting to gain traction.Government will keep tightening rules so that only big landlords can cope and the smaller throw in the towel.It will take a long time,but middle class BTL is now on a long decline.BTL has protected capital from welfare induced inflation because of housing bennies and the government cannot be having that.These big institutions already have the capital so will likely have very low LTV on their estates.Its a bit like all the companies being bought out,slowly income producing assets are being removed from ordinary people.

Small time BTL is done, no doubt.  
And high taxation and high inflation to erode the middle class.  Both savings and assets.  

Financial repression as direction of travel, but financial repression is stealing from old people slowly.  
Slowly can take decades.

i think it'll take some generational die off and the house inheritance not bringing in any real wealth for people to start to pay attention.     
 

[Mandalorian]

1 hour ago, feed said:

UK house prices have done nothing but slowly ground down since covid.  I lost my longer term data, but quick look at recent figures and 10 years of nowhere, RPI adjusted. 

Without a credit event, they're not going to do much else.  2007 will be our real term peak, for a very long time.  

I sometimes think about moving to a better area but I wonder if I'd be overpaying.  Last thing I want is to hand over my hard earned capital and then be able to get the same place cheaper 2 years later.  I'd rather sit tight for 2 years.

Is this the consensus now?  I.e.  There isn't going to be a HPC and it's just going to stagnate indefinitely?

The rational side of me says just buy somewhere.  The emotional side of me (second most expensive thing I will ever buy*) says wait.

Annoying buying a house isn't like buying shares.  You can't drip feed in and average up or down.

 

*  Most expensive is the price you pay for the State and all the hangers on.

Edited May 6 by Mandalorian

[JoeDavola]

1 hour ago, Castlevania said:

I don’t really understand the hate either. However, whilst I agree with a lot of what he says, his solutions are all wrong. He wants higher taxes and a bigger state whilst ignoring that a lot of the issues of wealth inequality are due to the state being too big and that government spending on non productive stuff almost always flows upwards thus making things worse.

With regards to the last point (to highlight what I mean by unproductive government spending almost always flowing upwards) quite a few US junk food manufacturers (Mondelez for one) have cited a cut to food stamps as being a driving force in poorer results of late. 

So what is the solution?

Do we agree that Sunak earning £1 million a week for doing nothing on his estimates wealth of £700 million is pretty disgusting? Or is some sort of limit on wealth not 'capitalist'.

I don't see how capitalism is seen as so faultless here, but perhaps there is a difference between what capitalism was 50 years ago and the globalist flavour of it.

[Yadda yadda yadda]

5 hours ago, JoeDavola said:

For those who don't like the Gary's economics videos, please tell me:

1. Who else has a decent platform who is talking about things like falling real wages in such open and quite simple terms i.e. talks about it in a better way than he does.

2. Why the dislike of him in general? I havent watched all his videos so I dont actually recall him providing a solution yet but what he says is mostly spot on regarding the incredible accumulation/transfer of wealth and the end game in this just being a drop into greater and greater poverty for most people in each subsequent generation.

 

I first saw a link to Gary's videos on this thread. I quite like him but don't think he is telling the whole story. You can't talk about inflation without addressing the supply side of the equation. House prices are high because demand is much higher than supply. Yes a lot of that demand is from the rich both directly and from lending money. They still need people to rent to and an increasing population due to immigration feeds that. It is also a large reason why houses are split into flats.

He is also weak on why inequality has been increasing. Yesterday he blamed low wages on increased inequality but is it not low wages that are causing greater inequality?

Inflation is largely the fault of government policy. He does not address this at all. He doesn't mention how he is going to tax the rich either. They will simply leave. Unless you have a global government and that would mean massive corruption, the permanent eradication of meaningful democracy and the wealthy controlling everything.

[Yadda yadda yadda]

37 minutes ago, JoeDavola said:

So what is the solution?

Do we agree that Sunak earning £1 million a week for doing nothing on his estimates wealth of £700 million is pretty disgusting? Or is some sort of limit on wealth not 'capitalist'.

I don't see how capitalism is seen as so faultless here, but perhaps there is a difference between what capitalism was 50 years ago and the globalist flavour of it.

Globalisation is the impoverishment of "the West". We need foreign resources and we can't get them cheaply any longer and thus we are poorer. The rich have made sure they retain their slice by outsourcing to cheaper countries, importing cheaper workers, destroying unions in most sectors and devaluing cash. This means the average person has a shrinking share of a shrinking pie.

We don't have capitalism since we bailed out banks. Pure capitalism isn't the answer anyway. We should have retained a larger steel industry through import tariffs or subsidies. Our Government is not run for the benefit of the British people. It is run for the benefit of billionaires most of whom are foreign.

Edited May 6 by Yadda yadda yadda

[Long time lurking]

2 hours ago, Axeman123 said:

I mentioned last week that the Shaghai metals exchange was closed from wed-sun inclusive.

As I suspected the western bankers played their paper games while the cat was away but that has now ended, gold and silver nicely up today. Pricing power is undeniably in Chinky hands.

If you were buying would you like to pay more or less for what you are buying ?

[Harley]

2 hours ago, ThoughtCriminal said:

Someone help me get my head around this.

The Norwegian oil fund, presumably priced in dollars, is worth 18% more in NOK due to the weakness in the currency. But how does this translate to "great, we can now spend 94 billion NOK extra a year"? 

If you repatriate those dollars in terms of state spending then isn't that just hugely inflationary?

I've had a fever for two days so it's possible I'm just being a spaz, but it doesn't seem to compute as the great stroke of luck it's being presented as.

 

The Norwegians do seem to have gone a bit weird lately.

[Castlevania]

 

37 minutes ago, JoeDavola said:

So what is the solution?

Do we agree that Sunak earning £1 million a week for doing nothing on his estimates wealth of £700 million is pretty disgusting? Or is some sort of limit on wealth not 'capitalist'.

I don't see how capitalism is seen as so faultless here, but perhaps there is a difference between what capitalism was 50 years ago and the globalist flavour of it.

He’s not worth that much though is he. His wife is worth a lot and there is a huge conflict of interest in the government handing contracts to Infosys. Again, the government is too big, rubbish at spending money well and invariably hand money to large companies (such as Infosys) so the wealth trickles up to them.

[Harley]

1 hour ago, DurhamBorn said:

https://www.telegraph.co.uk/business/2024/05/05/britain-better-off-fewer-buy-to-let-landlords/

We said on here years ago the big insurance companies etc would end up controlling the rental sector and its starting to gain traction.Government will keep tightening rules so that only big landlords can cope and the smaller throw in the towel.It will take a long time,but middle class BTL is now on a long decline.BTL has protected capital from welfare induced inflation because of housing bennies and the government cannot be having that.These big institutions already have the capital so will likely have very low LTV on their estates.Its a bit like all the companies being bought out,slowly income producing assets are being removed from ordinary people.

A very continental European thing.  In Germany as an example.  Most blocks owned by insurance, etc companies.

[Long time lurking]

13 minutes ago, Yadda yadda yadda said:

House prices are high because demand is much higher than supply

That`s not right house price are high because money was cheap for a very long time ,yes there is a supply issue but it has very little to do with prices 

Prices were pretty stable for a very very long time when it was only building societies and local councils that could issue mortgages outside of the commercial property market ,they only took off with Thatchers big bang which enabled Banks to offer mortgages for the residential sector  

[Harley]

1 hour ago, feed said:

Small time BTL is done, no doubt.  
And high taxation and high inflation to erode the middle class.  Both savings and assets.  

Financial repression as direction of travel, but financial repression is stealing from old people slowly.  
Slowly can take decades.

i think it'll take some generational die off and the house inheritance not bringing in any real wealth for people to start to pay attention.     
 

Yes, although the early, maybe even mid, boomers are well into the die off stage now.  Suvivor bias very much in play.  My MIL at 87 is the only one left in her family.  Many friends went and still go much younger.  Her friends are now typically much younger than her.

Edited May 6 by Harley

[Harley]

22 minutes ago, Yadda yadda yadda said:

This means the average person has a shrinking share of a shrinking pie.

Ah, another Sage moment!  

Pie And Slice Talk ©Harley 2020. 

Edited May 6 by Harley

[Long time lurking]

Then couple the above with, they are seeing deflation as well ,in energy ,food and housing !

A lesson on how to grow your economy ,and you have people saying Chinas savings rates are a bad sign,did they ever ask how they managed to save so much   

[JMD]

6 hours ago, M S E Refugee said:

Rather than wasting all that money on HS2 they could have reopened loads of defunct Railway lines in the North of England.

It would have kept our Steel making industry going a bit longer producing hundreds of miles of railway tracks.

The most obvious one near me would be Penrith to Keswick, Keswick has horrendous parking problems during the tourist season.

 

I agree.

An effective (i know!) government industrial policy would have achieved that. I note labour are dropping that policy phrase into many of their interview answers/statements etc. 

[spygirl]

1 hour ago, JoeDavola said:

So what is the solution?

Do we agree that Sunak earning £1 million a week for doing nothing on his estimates wealth of £700 million is pretty disgusting? Or is some sort of limit on wealth not 'capitalist'.

I don't see how capitalism is seen as so faultless here, but perhaps there is a difference between what capitalism was 50 years ago and the globalist flavour of it.

I'd treat that with a large trailer if salt.

https://www.theguardian.com/politics/2023/may/19/rishi-sunak-akshata-murty-family-fortune-falls-by-200m-in-rich-list#:~:text=Sunak%2C a former hedge fund,from £730m in 2022.

Rishi Sunak has seen his personal family fortune fall by more than £200m over the last year.

Sunak, a former hedge fund manager and reputedly the UK’s wealthiest ever prime minister, and his heiress wife, Akshata Murty, have an estimated worth of about £529m in the latest Sunday Times rich list, a fall from £730m in 2022.

Murty owns a small stake in Infosys, a $64bn (£52bn) Indian IT firm co-founded by her billionaire father. The value of that stake has fallen, driving the drop in the couple’s fortunes.

The wealth is all wife's, and its equity in infosys.

 

[Mandalorian]

47 minutes ago, Yadda yadda yadda said:

I first saw a link to Gary's videos on this thread. I quite like him but don't think he is telling the whole story. You can't talk about inflation without addressing the supply side of the equation. House prices are high because demand is much higher than supply. Yes a lot of that demand is from the rich both directly and from lending money. They still need people to rent to and an increasing population due to immigration feeds that. It is also a large reason why houses are split into flats.

 

"Demand" in this case is not "I want a house" though.

Demand is "I want a house and credit is loose and cheap enough that I can get sufficient debt to pay for it".

This is why part of me thinks house prices aren't going anywhere but perhaps down.

33 minutes ago, Castlevania said:

 

He’s not worth that much though is he. His wife is worth a lot and there is a huge conflict of interest in the government handing contracts to Infosys. Again, the government is too big, rubbish at spending money well and invariably hand money to large companies (such as Infosys) so the wealth trickles up to them.

He's worth whatever somebody is willing to pay him.

What we think is irrelevant.

[Noallegiance]

28 minutes ago, Long time lurking said:

That`s not right house price are high because money was cheap for a very long time ,yes there is a supply issue but it has very little to do with prices 

Prices were pretty stable for a very very long time when it was only building societies and local councils that could issue mortgages outside of the commercial property market ,they only took off with Thatchers big bang which enabled Banks to offer mortgages for the residential sector  

Werner deals with this.

It wasn't any one political leader. It was central banks instructing commercial banks to lend into property.

[feed]

1 hour ago, Mandalorian said:

I sometimes think about moving to a better area but I wonder if I'd be overpaying.  Last thing I want is to hand over my hard earned capital and then be able to get the same place cheaper 2 years later.  I'd rather sit tight for 2 years.

Is this the consensus now?  I.e.  There isn't going to be a HPC and it's just going to stagnate indefinitely?

The rational side of me says just buy somewhere.  The emotional side of me (second most expensive thing I will ever buy*) says wait.

Annoying buying a house isn't like buying shares.  You can't drip feed in and average up or down.

 

*  Most expensive is the price you pay for the State and all the hangers on.

Depends if you think there will be a credit event or not.  Without a substantial increase or decrease in available credit, average house price is just going to drift downwards for years, with almost of the action being inflationary. 

But averages hide a multitude of sins and on an individual level they're not that helpful.  The UK market is really a bunch of small markets driven by proximity to places of employment and education.  YMMV.