Impending Global Recession, buckle up yee-haw!

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GlasgowJock
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Impending Global Recession, buckle up yee-haw!

#1

Post by GlasgowJock » Fri Jun 17, 2022 10:46 am

So last Wednesday the US Federal Reserve raised interest rates by 0.75% (the most since 1994) to stem the tsunami of US inflation. The following day the Bank of England raised interest rates by 0.25% to 1.25% with the impact on mortgage standard variable rates starting to be felt by UK home 'owners'.

Rising costs in petrol and diesel, rising costs in electricity and natural gas, inflation hitting 10% and beyond, the public sector running riot with proposed strike action against a weak government etc etc.

A lot of folk in the UK are saying we are returning to the 1970s and will be in a deep recession come the start of the winter.

Thoughts from my learned American friends?

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Re: Impending Global Recession, buckle up yee-haw!

#2

Post by BostonRugger » Fri Jun 17, 2022 11:13 am

GlasgowJock wrote: Fri Jun 17, 2022 10:46 am
Thoughts from my learned American friends?
lmao @ .75. Paul Volcker is not coming to save us and even if he were, we're so much more leveraged as an economy that setting interest rates to a level that would actually control this inflation would throw us into a deep, deep depression.

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Re: Impending Global Recession, buckle up yee-haw!

#3

Post by aurelius » Fri Jun 17, 2022 12:05 pm

Volcker gave zero fucks. When Reagan entered office, he offered to meet Volcker at his office to discuss the economy. Volcker declined the meeting.

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Re: Impending Global Recession, buckle up yee-haw!

#4

Post by Hardartery » Fri Jun 17, 2022 12:56 pm

GlasgowJock wrote: Fri Jun 17, 2022 10:46 am So last Wednesday the US Federal Reserve raised interest rates by 0.75% (the most since 1994) to stem the tsunami of US inflation. The following day the Bank of England raised interest rates by 0.25% to 1.25% with the impact on mortgage standard variable rates starting to be felt by UK home 'owners'.

Rising costs in petrol and diesel, rising costs in electricity and natural gas, inflation hitting 10% and beyond, the public sector running riot with proposed strike action against a weak government etc etc.

A lot of folk in the UK are saying we are returning to the 1970s and will be in a deep recession come the start of the winter.

Thoughts from my learned American friends?
I expect most Americans with a mortgage have a fixed rate loan. In the US, that means for the life of the mortgage so interest rae changes are irrelevant regarding your mortgage payment. Where it hits is the gamblers that got variale rate loans, and the short term lending such as that done by institutions and businesses. The inflation will bite in, paychecks will go less far so all of the age gains of the last two years and the "Great Resignation" will evaporate. That was pretty obviously going to happen, so anyone that can see past the end of their feet should have seen it coming. Just ebb and flow. he current government will catch the blame, it is usually the fault of the previous admin or even the one before that. You can't eat your cake and have it too, so th notion that people could soehow effect wage hikes and not end up paying for it, as well as the strong patriotic sentiments of wanting stuff produced in your own country (This is not particular to the US, it is common to nationalist sentiments in most countries) is going to have a ripple effect. It gets made other places and shipped because that's cheaper for the end user as well as more profitable for the vendor. Being entirely dependent on that means that shipping oe production disruptions cause an economic squeeze not easily remedied. Producing it at home increases the price, sometime more than supply restrictions and greed. Obvioulsy coming, and no one was doing anything to avoid it while the economy was cranking or when the pandemic hit. Just keep propping up an unsustainable thing so that when it finally crumbles the fall is further and the damage greater. It will happen again, I am sure. No one earns anything from the cycle of burst and bust.

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Re: Impending Global Recession, buckle up yee-haw!

#5

Post by quikky » Fri Jun 17, 2022 2:04 pm

I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.

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Re: Impending Global Recession, buckle up yee-haw!

#6

Post by Hiphopapotamus » Fri Jun 17, 2022 3:52 pm

quikky wrote: Fri Jun 17, 2022 2:04 pm I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.
In other words... buy Bitcoin!

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Re: Impending Global Recession, buckle up yee-haw!

#7

Post by quikky » Fri Jun 17, 2022 4:03 pm

Hiphopapotamus wrote: Fri Jun 17, 2022 3:52 pm
quikky wrote: Fri Jun 17, 2022 2:04 pm I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.
In other words... buy Bitcoin!
...If you want a personal economic depression ;)

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Re: Impending Global Recession, buckle up yee-haw!

#8

Post by Hiphopapotamus » Fri Jun 17, 2022 4:16 pm

quikky wrote: Fri Jun 17, 2022 4:03 pm
Hiphopapotamus wrote: Fri Jun 17, 2022 3:52 pm
quikky wrote: Fri Jun 17, 2022 2:04 pm I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.
In other words... buy Bitcoin!
...If you want a personal economic depression ;)
The most important thing that you want to have in a currency is extreme volatility.

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Re: Impending Global Recession, buckle up yee-haw!

#9

Post by BenM » Fri Jun 17, 2022 9:53 pm

Sounds very similar to Australia. We had 0.25% increase last month and then 0.5% this month and there's talk of inflation hitting 7% before the end of the year. Meanwhile this little black duck decided to take his life savings (such as they are) out of a low interest savings account and move them into an ETF and managed fund a few months back, so it's fun watching your net worth go backwards. But I expect in the long term it'll be fine, just a bumpy ride for the next little while.

Most of us here in Aus are on variable rate mortgages, I think. We're already seeing the complaints from the overcommitted about how difficult it's going to be to make ends meet. I dunno... it feels to me like I've seen it all before, we were only relatively new to the housing market when the GFC hit and we got through a whole bunch of rate rises ok because we didn't buy the big flashy house first up, we bought a small weatherboard place which we could comfortably afford, and then traded up later on.

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Re: Impending Global Recession, buckle up yee-haw!

#10

Post by aurelius » Fri Jun 17, 2022 10:03 pm

quikky wrote: Fri Jun 17, 2022 2:04 pm I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.
IMO, this is a long overdue correction. Too much free money for too long. It was necessary during the Great Recession but the Fed should have started ratcheting up interest rates once it was clear the economy was in recovery. Think a 'cooling' of the economy to a nice warm campfire. Instead the Fed caved to political pressure, under both Obama and Trump, and kept the party going. Then fiscal policy (Trump tax cuts, COVID relief) just turned a bonfire into a full fledged forest fire. Not to mention this all hastened the concentration of wealth to the few.

This same pattern of facts is true during the 70's (less so the concentration of wealth). Nixon pressured Burns not to act on inflation early but instead goose the economy during the election. That is how we got stagflation.

I think high inflation will last 6-12 months*. Volcker demonstrated what needs to be done. The Fed understands what it has to do and won't fuck around like it did in the 70's.

*there are still real supply chain issues that are increasing costs of inputs versus classic inflation. Those may take years to work out.

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Re: Impending Global Recession, buckle up yee-haw!

#11

Post by Hardartery » Sat Jun 18, 2022 8:07 am

BenM wrote: Fri Jun 17, 2022 9:53 pm Sounds very similar to Australia. We had 0.25% increase last month and then 0.5% this month and there's talk of inflation hitting 7% before the end of the year. Meanwhile this little black duck decided to take his life savings (such as they are) out of a low interest savings account and move them into an ETF and managed fund a few months back, so it's fun watching your net worth go backwards. But I expect in the long term it'll be fine, just a bumpy ride for the next little while.

Most of us here in Aus are on variable rate mortgages, I think. We're already seeing the complaints from the overcommitted about how difficult it's going to be to make ends meet. I dunno... it feels to me like I've seen it all before, we were only relatively new to the housing market when the GFC hit and we got through a whole bunch of rate rises ok because we didn't buy the big flashy house first up, we bought a small weatherboard place which we could comfortably afford, and then traded up later on.
In Canada the mrtgages are either open or closed, which means that you can make extra payments against principal or not, and the interest is better on the closed loans. They also are fixed rate, but renew every 5 or 10 years (It's one or the other, I can't remember which). This is going to be a problem 4-5 years from now if inflation isn't under control way before then, the housing is positively stupid up there right now. In the US, there is actually a bit of a housing bubble that no one is talking about for some reason. The rise in prices in the US is partly the pandemic driving people to realize maybe smaller isn't better in housing, especially if you have to spend time at home and don't have the same ability o simply go out somewhere, but also the rise in people buying places specifically to use as AirBnb's. There are a lot of those out there. People are buying a place and going heavily into debt to use it as an AirBnB with the idea that the income from it pays the monthly as well as adds to the household income. I can see multiple ways that that could become a domino issue with continued inflationary pressure. There is not a real housing shortage right now, just like there wasn't leading up to 2008, just for different reasons.

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Re: Impending Global Recession, buckle up yee-haw!

#12

Post by quikky » Sat Jun 18, 2022 9:08 am

aurelius wrote: Fri Jun 17, 2022 10:03 pm
quikky wrote: Fri Jun 17, 2022 2:04 pm I view this as the correction to Covid. In the US, lockdowns at various government levels, and colossally massive spending by current and previous administrations was a huge artificial shock to the economy. These actions artificially restricted supply, reduced the labor pool, and decreased the value of money, as it was literally just given out in massive quantities, often regardless of actual need. Now, it is time to pay up.

My crystal ball says 1-2 years of high inflation that is gradually declining, along with a gradually normalizing labor market, a good stock market correction (that has already been under way for months), and then a gradual return to normal supply, labor, and monetary conditions. These 1-2 years will look like a stagflationary (that a word?) type of environment.
IMO, this is a long overdue correction. Too much free money for too long. It was necessary during the Great Recession but the Fed should have started ratcheting up interest rates once it was clear the economy was in recovery. Think a 'cooling' of the economy to a nice warm campfire. Instead the Fed caved to political pressure, under both Obama and Trump, and kept the party going. Then fiscal policy (Trump tax cuts, COVID relief) just turned a bonfire into a full fledged forest fire. Not to mention this all hastened the concentration of wealth to the few.
I think this is very true. The government has been in a dreamer bulk for a decade, thinking we're just putting on slabs of muscle, and in 2020-2021 decided to add GOMAD on top. Now, we got some serious insulin sensitivity issues and need to go on a serious cut.

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Re: Impending Global Recession, buckle up yee-haw!

#13

Post by chrisd » Sat Jun 18, 2022 2:02 pm

It's almost as if giving buckets of cash away to people for doing nothing devalues the currency.

Yes Rishi Sunak I am looking at you.

We have a perfectly fine benefits system (according to your government). So why keep a bunch of muddle class gits on free money "underpinned" by writing bonds that you somehow hope to pay off from an economy that is not producing anything ?

Oh, well the plan is clear. Just crash the currency like Harold Wilson did and blame the foreigners.

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Re: Impending Global Recession, buckle up yee-haw!

#14

Post by hector » Sat Jun 18, 2022 5:50 pm

chrisd wrote: Sat Jun 18, 2022 2:02 pm It's almost as if giving buckets of cash away to people for doing nothing devalues the currency.

Yes Rishi Sunak I am looking at you.

We have a perfectly fine benefits system (according to your government). So why keep a bunch of muddle class gits on free money "underpinned" by writing bonds that you somehow hope to pay off from an economy that is not producing anything ?

Oh, well the plan is clear. Just crash the currency like Harold Wilson did and blame the foreigners.
I've never seen the soul of our government captured so concisely before.

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Re: Impending Global Recession, buckle up yee-haw!

#15

Post by GlasgowJock » Sun Jun 19, 2022 1:42 am

BostonRugger wrote: Fri Jun 17, 2022 11:13 am lmao @ .75. Paul Volcker is not coming to save us and even if he were, we're so much more leveraged as an economy that setting interest rates to a level that would actually control this inflation would throw us into a deep, deep depression.
Googled Volcker. That was informative, cheers!
chrisd wrote: Sat Jun 18, 2022 2:02 pm It's almost as if giving buckets of cash away to people for doing nothing devalues the currency.

Oh, well the plan is clear. Just crash the currency like Harold Wilson did and blame the foreigners.
Easier to blame 'brown people' landing on the coasts of Kent in rubber dinghies rather than ~10 years of QE, unchecked socialism (more so Scotland) and £500 billion of free covid money pixels.

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Re: Impending Global Recession, buckle up yee-haw!

#16

Post by mgil » Sun Jun 19, 2022 5:13 am

One good thing is that I’m not getting spammed about refinancing my mortgage.

It seems like when the government turns on the free money pipe, they expect people to be rational in their spending. This is rarely the case.

A large portion of the people in financial dire straits, at least here in the USA, seem to be poor decision makers. This isn’t saying they aren’t nice people, but rather that they don’t prioritize spending and allocation with long term goals in mind. When Trump and Biden were handing out free money, stuff like TVs and new cars were selling like hotcakes. People were expanding their streaming services. Savings and retirement accounts weren’t getting much money during this spendathon.

It’s naive to think that people will do what’s in their best interest when they are already on the government teat or close to it when you simply give them free money. Then, as a result, the people who truly benefit are the ones selling consumer goods. So the net result is people like Bezos and Musk becoming even wealthier during the pandemic.

I also agree with the above sentiment about the Fed keeping rates too low when the economy had clearly recovered. Personally, I benefited because I refinanced again, buying time and having a ridiculously low APR (sub 2%). I also started maxing out my retirement deductions well before I had planned. I learned a great deal in 2008-2010 that I wouldn’t let happen again. Some people didn’t pay attention.

What this recent economic blunder, enhanced by social distancing applied to public education, has spotlighted is that we have been doing a really poor job educating people on how to manage their personal lives and be productive citizens. That and what the end result of consumerism looks like. But the consumerism isn’t all due to the companies and their marketing departments. If people had some intellectual skills to navigate the nonsense and ignore sources of constant consumerism, e.g. social media, maybe less people would be at risk as the economy retracts?

We continue to learn lessons the hard way.

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Re: Impending Global Recession, buckle up yee-haw!

#17

Post by cgeorg » Sun Jun 19, 2022 9:28 am

mgil wrote: Sun Jun 19, 2022 5:13 am One good thing is that I’m not getting spammed about refinancing my mortgage.

It seems like when the government turns on the free money pipe, they expect people to be rational in their spending. This is rarely the case.

A large portion of the people in financial dire straits, at least here in the USA, seem to be poor decision makers. This isn’t saying they aren’t nice people, but rather that they don’t prioritize spending and allocation with long term goals in mind. When Trump and Biden were handing out free money, stuff like TVs and new cars were selling like hotcakes. People were expanding their streaming services. Savings and retirement accounts weren’t getting much money during this spendathon.
Everything I have read says that the bolded isn't true. COVID relief checks and enhanced unemployment benefits led to the highest level of savings the US has seen in a very long time.

https://www.brookings.edu/research/bols ... ince-2019/
In part as a result of relatively strong overall income growth, we estimate that households accumulated $2.5 trillion in excess savings (inflation-adjusted to 2020 dollars) between March 2020 and January 2022, much of which appears to have been deposited in checking and savings accounts.
https://www.kansascityfed.org/ten/2021- ... -pandemic/
Smith documented a sharp increase in savings as a percentage of disposable personal income, from 7.2% in December 2019 to a record high of 33.7% in April 2020. From March to April of 2020 alone, the savings rate nearly quadrupled.

“That means that for every $100 of disposable income, consumers saved $7 in December,” Smith said, “and by April consumers were saving almost $34 of every $100 of disposable income.”

Since reaching its historic high in April the savings rate has slipped a bit but remains elevated at about 14% or nearly twice as high as it was prior to the pandemic and higher than its peak in any recent recession.

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Re: Impending Global Recession, buckle up yee-haw!

#18

Post by quikky » Sun Jun 19, 2022 11:45 am

@cgeorg, @mgil, I think the issue goes deeper than people spending free money on TVs vs people saving it, as I don't think either are quite true. Less than 10% of the stimulus money was spent on consumer goods like TVs, and only about 15% of those receiving it used it for savings (and skewed heavily to the upper limit of stimulus eligibility, i.e. $75-99k of income). This is according to US Census surveys on stimulus spending.

Fundamentally, I think the big issue was a massive artificial decrease in production due to Covid lockdowns and restrictions, while at the same time an increase in the money supply. Essentially, you maintain people's purchasing power, or even increase it in many cases, while decreasing the available supply of goods. What happens when you have less supply and same, or more demand?

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#19

Post by mgil » Sun Jun 19, 2022 12:39 pm

So, glad to see people are saving more on the whole, but are these things broken out by demographics?

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Re: Impending Global Recession, buckle up yee-haw!

#20

Post by mbasic » Wed Jun 22, 2022 11:34 am

This guy's synopsis of the charts from the 1:00 mark to around ~5:00 is hilarious....

bad news on top of more bad news on top of more bad news and so on


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