We have lived in a world of near-zero interest rates for 14 years now

Ultra cheap money created a bitter generational divide as soaring house prices made it impossible for younger people to get on the property ladder; it created legions of zombie companies that were kept barely alive on easy credit; it encouraged feckless spending by governments that thought the bills would never fall due; it created an explosion of debt and fuelled asset-price bubbles; and it destroyed the incentive to save.

True, free money might have helped rescue the economy in the wake of the financial crisis of 2008 and 2009. 

But one day interest rates will have to get back to normal – and now is the moment.   

Matthew Lynn Telegraph 30 July 2022

https://www.telegraph.co.uk/business/2022/07/30/how-rock-bottom-interest-rates-harm-good/

Bill Gross 2021: “One of these days, one of these years, or one of these decades, the system will collapse, because capitalism depends on savers saving and investing.” 

https://englundmacro.blogspot.com/2021/11/2005-alan-greenspan-complained-of.html

60 per cent of actively-managed equity funds have fallen further than the market

 Active performance has been particularly miserable in the UK, where only 12 per cent of active funds managed to outperform a passive alternative.

Active managers have had a better start to the year across the pond, where 40 per cent of US equity funds outperformed their passive equivalent — a big improvement on the 19 per cent that did so a year ago.

FT 27 July 2022

https://www.ft.com/content/c2e9abd0-0edd-4805-b1ab-d55b661c24de

NOBODY KNOWS ANYTHING

They don’t want to be what investor Mark Kritzman calls “wrong and alone.” 

https://englundmacro.blogspot.com/2021/09/nobody-knows-anything.html

Cracks in office property could cause structural damage

One apocalyptic prediction by an academic study forecast a decline of 28 per cent in New York City’s office property over the next decade — the latter representing $500bn in potential value destruction.

FT editorial 31 July 2022

766c3441-4213-4751-92ea-ccf459d36381

Pandemic exposes stress in commercial property

FT Big Read 30 August 2020

https://englundmacro.blogspot.com/2020/08/concerns-mount-over-reckless-2008-style.html

Rising interest rates, remote working and the push for greener buildings suggest a bleak outlook for the commercial property market

FT 1 August 2022

https://www.ft.com/content/11ce3ca3-f71e-472c-ba50-6b4a6a59c0ea

Varningsklockor för Brf vid runt 10.000 per kvm

Enligt SEB:s privatekonom Américo Fernández ”bör det ringa varningsklockor” om en förening har en skuld på runt 10 000 kronor per kvadratmeter.

Nordnets sparekonom Frida Bratt säger i samma artikel att bostadssäljare gör klokt i att inte ha för höga förhoppningar:

”Som säljare är det svårt att ligga kvar och tro att man ska få lika mycket som grannen fick för sex månader sedan. Då kanske man får sänka sina förväntningar och vara medveten om att det är en annan prisbild nu”, säger Frida Bratt till Di.

DI 23 juli 2022

https://www.di.se/nyheter/experterna-sa-navigerar-du-den-skakiga-bostadsmarknaden/

RE: Vår förening har cirka 3.000 kr/kvm i lån.

 

Schadenfreude as Germany faces the collapse of its economic model

But with a democratic Europe in the balance, this is no time to gloat.

It is never easy to wake up to the news that your country’s business model is busted. It is difficult to acknowledge the obvious: that your political leaders had either been deluded or lying to you when they assured you for decades that your hard-earned living standards were safe. 

Greeks know this feeling. We experienced it in our bones in early 2010. Today, it is the Germans who are facing a wall of condescension, antipathy, and even mockery. 

The claim that the German model was compatible with Europe’s monetary union is also being exposed as false. Lacking a fiscal and a political union, the EU was always going to saddle Club Med governments, banks, and corporations with unpayable debts, which eventually would force the European Central Bank to choose between letting the euro die and embarking upon a permanent bankruptcy-concealment project.

Once upon a time, those of us who criticized the notion that every eurozone country should become like Germany objected that the German model worked only because no one else had adopted it. 

If you do not want to go back to the Deutsche Mark, you need a model embedded within a full-fledged, democratic European federation. 

Anything else will continue the Big Lie with which you are now painfully coming to terms.

Yanis Varoufakis Project Syndicate 26 July 2022

https://www.project-syndicate.org/commentary/germany-needs-new-economic-model-by-yanis-varoufakis-2022-07

För att få en skymt av inblick i "det djupa EU" rekommenderar jag en krävande bok: "Adults in the Room" av Yanis Varoufakis. 

Dess knappt 500 sidor borde vara obligatorisk läsning, icke minst för alla oss som gillar EU-tanken.

Rolf Gustavsson

https://englundmacro.blogspot.com/2019/08/adults-in-room-my-battle-with-europes.html

Man la fram ett argument som man verkligen hade jobbat på och säkerställt att det är logiskt konsekvent, och du möts av ansikten med tomt stirrande blick. Som om du aldrig sagt något. Man hade lika gärna kunnat sjunga den svenska nationalsången – och fått samma svar.

Eurogruppen bestod av några otrevliga typer med mycket makt som stirrade på honom och sa: "Du har rätt i vad du säger, men vi kommer krossa dig ändå".

https://englundmacro.blogspot.com/2021/07/yanis-varoufakis-de-vagrade-agna-sig-at.html

Less news, less online drama, less junk reading

 Have we become skimmers — readers who absorb an enormous amount of content from myriad sources, often missing out on comprehension and contemplation — or are we still capable of deep reading?

I have made a conscious decision to consume less — less news, less online drama, less junk reading — and to create a device-free space in each day. 

And slowly, I have found my ability to concentrate and be fully immersed in a book has returned. I’ve also noticed that it’s easier to follow complex arguments, and to retain a strong visual sense of fictional worlds in contrast to the watery impressions of a book formed by skim-reading.

Nilanjana Roy FT 29 July 2022

https://www.ft.com/content/a727c2f1-a9df-4ab4-a88d-d8830111c65a

Evergrande misses deadline for $300bn debt restructuring plan

 It did not provide concrete details of how it would restructure its more than $300bn in liabilities, around $20bn of which are held by international investors who have seen their holdings plunge to a fraction of their original value.

FT 30 July 2022

https://www.ft.com/content/01f8a2c7-4ed1-487b-aada-ac5e2b5a9932

Kontinenter värms snabbare än hav

 Sverige värms upp dubbelt så snabbt som övriga jordklotet

I östra Sverige påverkas temperaturen av närheten till Baltikum och Ryssland och hela den eurasiska kontinenten, medan Västsverige påverkas av närheten till Atlanten som värms långsammare.

– Temperaturen kommer att öka ännu mer. Vi kommer se allt kortare vintrar, säger Erik Kjellstörm.

SvT 14 april 2020

https://www.svt.se/nyheter/inrikes/unik-berakning-sverige-varms-upp-dubbelt-sa-snabbt-som-ovriga-jordklotet

 Mattias Lundbäck: Den intressanta förklaringen till nyheten är att länder i allmänhet består av land, medan merparten av jorden består av hav.

Sverige värms alltså dubbelt så snabbt som jorden i snitt - helt enkelt för att vårt land består av en landmassa.

Slovakia in the grip of heat and drought

https://spectator.sme.sk/c/22971646/news-digest-slovakia-in-the-grip-of-heat-and-drought.html

Byn i Slovakien utan vatten – reservoaren har torkat ut i hettan

Mirosław Miętus förklarar att torkan till stor del beror på vintrarna blir allt varmare, vilket leder till mindre snö, så att mindre vatten ackumuleras från den smältande snön än tidigare.

SvT 30 juli 2022

https://www.svt.se/nyheter/utrikes/byn-i-slovakien-utan-vatten-reservoaren-har-torkat-ut-i-hettan

Farmers across Hungary have reported "historic" drought 

damage affecting some 550,000 hectares of land, the ministry of agriculture said this month.

https://widerimage.reuters.com/story/i-want-to-breed-horses-not-camels-hungarian-farmers-battle-historic-drought

The worst will be those most exposed to higher interest rates. Yes, that means housing

I was in the hard landing camp early on, as a Fed raising rates enough to fight 9% inflation is the stuff hard landings are made 

Things can be true in the aggregate but painfully different in specific cases. Yes, household savings are up, but not for everyone. Half the country has less than $400 in savings. 

One-bedroom apartment rents are near $1,500 in many places.

Ditto for businesses. The average company has a better balance sheet, but many aren’t average.

The worst-hit businesses will be those most exposed to higher interest rates on top of all the other rising prices. Yes, that means housing. 

That boom may not turn into a crash, but it has room to soften quite a bit, and seems to be in the early stages of doing so. It’s starting to show in both existing and new home sales.

John Mauldin 30 July 2022

https://www.mauldineconomics.com/frontlinethoughts/a-weird-recession

Skräcken sprider sig och den oron rör sig mest kring den en miljard eller så egna hem 

som ligger i världens städer och som här får utgöra typfall för inflationens avigsidor. 

Sjunkande bopriser utgör inte i sig något hot mot vårt väl och ve. Det som skrämmer är den ofantliga skuldsättning som numera vidlåder boendet, ett skuldberg som på senare år synes ha lämnat det jordiska.

Bo Franzén Understreckare SvD 29 juli 2022

https://www.svd.se/a/PoKJze/det-kan-karl-xii-s-fuskmynt-lara-oss-om-inflation

Ding ding ding! That was all the market wanted to hear

 “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” the Fed chair’s statement said.

Other comments in the same statement from Powell make clear that “another unusually large increase” in interest rates could still be needed at the next meeting.

Katie Martin FT 29 July 2022

https://www.ft.com/content/2a952f27-acdd-49f3-bd42-572487f781e3

The Fed chief said Wednesday that policy makers will be monitoring whether financial conditions -- a cross-asset measure of market stress -- are “appropriately tight.” 

But in the days since the central bank’s second straight 75 basis point hike, the measure is now at a level looser than before the first rate hike in March. 

“They don’t want easier financial conditions, because they want lower demand,” Bespoke Investment Group global macro strategist George Pearkes said. “Basically, markets are assuming we’ve hit peak hawkishness and we’ll be easing sooner than expected. I’m skeptical the Fed is going to endorse that.”

Treasury yields dropped across the curve as well, with 10-year Treasury yields dropping to 2.65% after reaching 3.5% in June.

Swaps show that traders expect the fed funds rate to peak around 3.3% before the end of 2022, less than a percentage point above its current level. At one point in recent months, that level was approaching 4%.

Bloomberg 29 July 2022

https://www.bloomberg.com/news/articles/2022-07-29/shock-july-stock-rally-was-a-monster-the-fed-may-regret-seeing

“The Fed is trying to get Goldilocks,” 

Rebecca Patterson, chief investment strategist at Bridgewater Associates.

 “I think it’s going to be almost impossible for the Fed to get everything it wants. The porridge is going to be too hot or too cold.”

Bloomberg 30 July 2022

https://www.bloomberg.com/news/articles/2022-07-29/markets-face-downside-after-july-jump-bridgewater-s-patterson

Börsen 29 juli 2022

 

Equity bulls continued to focus on better-than-expected corporate earnings

and hopes that the Fed may become less aggressive raising interest rates as the economy slows. 

PCE Inflation 6.8% from 6.3% in the prior month — the highest rate since January 1982

 The core rate of inflation edged up to 4.8% from 4.7% in the 12 months ended in June. It had touched a 40-year high of 5.3% in February.

The Federal Reserve views the PCE index as the best barometer of inflation trends.

MarketWatch 29 July 2022 

https://www.marketwatch.com/story/coming-up-pce-inflation-and-consumer-spending-11659096833

Paris Faces an Even Colder, Darker Winter Than Berlin

 Electricite de France SA, the state-owned utility, is running only 26 of its 57 reactors, with more than half of its chain undergoing emergency maintenance after the discovery of cracked pipes.

 The slump in nuclear availability is forcing France to rely more than ever on gas-fired plants, intermittent wind and hydro as well as imports. 

That’s pushing up the cost of electricity in the wholesale market for the whole of Europe, with French forward prices surging to almost 1,000% more than their decade-long average through 2020.

Javier Blas Bloomberg 29 juli 2022 

https://www.bloomberg.com/opinion/articles/2022-07-29/european-energy-crisis-paris-may-be-first-to-suffer-blackouts-this-winter

Börsen 28 juli 2022

 

Yesterday I scolded the market for being too enthusiastic about the Fed chair’s comments. 

Today stocks went up more.

 It’s almost as if people aren’t listening to me. This is hard on my ego

 Robert Armstrong FT  July 29, 2022

Om Wall Street hoppas att recessionshotet ska få centralbanken att svänga är det sannolikt önsketänkande

Det är rimligt att tro att höjningstempot kommer sänkas framöver men det betyder inte att Fed svänger helt.

Felicia Åkerman DI 28 juli 2022

https://www.di.se/nyheter/det-luktar-onsketankande-fran-investerarnas-sida/

More hikes ahead — all the way to a fed funds rate of 3.75%!

And yet, the stock market has staged a humongous rally

‘‘We are now at levels broadly in line with our estimates of neutral interest rates, and after front-loading our hiking cycle until now we will be much more data-dependent going forward.’’

But that also means any further increases are going to put the Fed in an actively restrictive territory.

And the bond market knows that every time the Fed became restrictive in the past, they ended up breaking something.

MarketWatch 28 July 2022

https://www.marketwatch.com/story/the-fed-vowed-to-crush-inflation-with-higher-rates-then-the-stock-market-rallied-heres-why-its-not-good-news-11659037159

Are Interest Rates at Neutral? Markets Certainly Hope So

I have no precise estimate for neutral...  I have a hunch, but am far from certain, that we are still below it.

Mohamed A. El-Erian Bloomberg 28 juli 2022 

https://englundmacro.blogspot.com/2022/07/are-interest-rates-at-neutral-markets.html

Powell said that the path toward a soft landing has narrowed

The question is whether there is any such path.

The central bank’s choices boil down to this: Does it try to curb demand gradually (which risks letting high inflation get entrenched) or abruptly (which risks a severe recession and much higher unemployment)?

You’d think that lower demand could trim the number of vacancies and reduce that pressure without causing more people to lose their jobs. The problem is that it never seems to work that way. 

Before the pandemic, the study says, this so-called natural rate of unemployment was probably about 3.6% — equal to the current rate. Now it’s 4.9%, conservatively estimated. If this is correct, the Fed can’t expect unemployment to stay put as it brings down inflation.

As it continues to restrain demand, the Fed should expect — and shouldn’t be deflected by — higher unemployment.

Clive Crook Bloomberg 29 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-29/higher-unemployment-is-coming-and-the-fed-should-get-ready

The problem is that the Fed can’t declare victory merely because inflation has fallen from 9%. 

If again it turns out that we haven’t yet reached peak inflation or that inflation stabilizes far above the Fed’s 2% target, bond yields could easily shoot back up. 

Recession fears would rise, earnings estimates fall and stocks would be hit

James Mackintosh WSJ 27 July 2022 

https://www.wsj.com/articles/the-hail-mary-for-investors-11658909167

Inte konstigt att realräntepapper går bra nu.

 

Hayek visar vägen till spontan ordning

PODD | 27 juli. Vad är spontan ordning, och vad spelar den för roll i ett fritt samhälle?

https://www.svd.se/a/z7vybr/fa-hayek-visar-vagen-till-spontan-ordning

Bernanke insists, the Fed has been successful in preventing another Great Depression and returning the US economy to growth. I agree with him.

Chancellor emphatically does not. His guru is Friedrich Hayek

Chancellor condemns the low interest rates adopted by central banks as the root of almost all economic evils. Does this charge sheet make sense? Not much.

Martin Wolf 27 July 2022

https://englundmacro.blogspot.com/2022/07/bernanke-and-edward-chancellor-offer.html

Tropical Heat Returns to Pacific Northwest

The dynamics of the heat are similar to last year, with a high-pressure ridge forcing the jet stream north.

https://www.bloomberg.com/news/articles/2022-07-28/heat-wave-in-oregon-washington-impossible-without-global-warming

Bit of jet stream ‘pumping hot air northwards’

BBC 17th July 2022

https://englundmacro.blogspot.com/2022/07/bit-of-jet-stream-pumping-hot-air.html

Interest-Rate Pain From Higher Inflation Has Barely Begun

This is the first tightening cycle since the early 1990s when inflation started out well above the Fed’s objective. 

To push it back down would, in theory, require substantially positive real rates.

Popular rules of thumb inspired by the economist John Taylor prescribe a nominal rate target of 7%, according to a June Fed report, about double current expectations.

That would be a rude awakening for markets.

Greg Ip WSJ 20 July 2022 

https://www.wsj.com/articles/interest-rate-pain-from-higher-inflation-has-barely-begun-11658327626

Should central banks’ inflation targets be raised?

Is a target of 2% actually superior to one of 3% or 4%, for instance, or does it merely owe its exalted status to tradition? 

The relative damage done by extremely high or accelerating price growth may be easily visible, but economists have struggled to identify differences in the costs to an economy from different stable, low-single-digit inflation rates. 

If the costs of a slightly higher inflation target are small, the benefits are potentially sizeable. Chiefly, it could help central bankers avoid the so-called zero lower bound on nominal interest rates

The Economist 21 July 2022

https://www.economist.com/finance-and-economics/2022/07/21/should-central-banks-inflation-targets-be-raised

People’s inflation expectations are rising—and will be hard to bring down

The Economist 19 June 2022

https://www.economist.com/finance-and-economics/2022/06/19/peoples-inflation-expectations-are-rising-and-will-be-hard-to-bring-down

Amid a wide range of options, inflation targeting remains the simplest and least bad

Inflation targeting has been successful because it managed to anchor expectations — until it did not.

Did inflation targeting fail?  

https://englundmacro.blogspot.com/2021/03/amid-wide-range-of-options-inflation.html

The Housing Slowdown Could Become a Global Meltdown

Stephanie Flanders and Michael Sasso Bloomberg 28 juli 2022

https://www.bloomberg.com/news/articles/2022-07-28/podcast-the-housing-slowdown-could-become-a-real-estate-meltdown

Rising rents mean no shelter for Americans from inflation storm

Double-digit cost boosts for housing are hampering the Fed’s efforts to contain consumer price increases

https://www.ft.com/content/afdc756d-a6da-4482-8d9b-d9c22fdc8968

Are Interest Rates at Neutral? Markets Certainly Hope So

Fed Chair Jerome Powell dangled the idea that the central bank has already done the bulk of what is needed to combat inflation. Let’s hope he’s right. 

Powell’s unscripted remarks at his press conference on Wednesday — that interest rates have reached a “neutral level” after the just-announced 75-basis-point interest-rate increase

Neutral is shorthand for the crucially important notion that the level of interest rates is consistent with monetary policy being neither contractionary nor expansionary

I have no precise estimate for neutral...  I have a hunch, but am far from certain, that we are still below it.

Mohamed A. El-Erian Bloomberg 28 juli 2022 

https://www.bloomberg.com/opinion/articles/2022-07-27/fed-meeting-are-interest-rates-at-neutral-markets-certainly-hope-so

After more than 20 years of low, stable inflation, it's come roaring back — at more than 9% — and it may never return to pre-pandemic levels. 

Economists had figured it out in the 1990s. If we just picked a target, say, a 2% inflation rate, it would become a self-fulfilling prophesy. People could rely on that level of inflation because the Federal Reserve could make it happen, and wages and prices would rise, accordingly.

When I was in graduate school, I was taught that best practice in monetary policy is to target a certain level of inflation, say 2%. But one of my professors from those days, Jean Boivin, now Head of the BlackRock Investment Institute and former Deputy Governor at the Bank of Canada, recently argued that economists may have not have actually solved the inflation problem after all; We may have just been very lucky.

https://englundmacro.blogspot.com/2022/07/the-great-moderation-is-dead.html

Even before the pandemic, there were flaws in the idea that the Fed could choose the rate of inflation. Inflation was below-target for years no matter how low the Fed kept rates. 

Now many economists are speculating that once the Fed gets inflation down to 4% or so, it may give up on tightening further, especially if we are in a recession by then. 

Allison Schrager Bloomberg 18 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-18/inflation-is-a-beast-the-fed-will-never-be-able-to-tame

Neutral at my blogg

https://englundmacro.blogspot.com/search?q=neutral

 

Börsen 27 juli 2022

 

0.75-percentage-point rise, federal-funds rate 

to a range between 2.25% and 2.5%. 

14 juli US consumer price inflation over the last 12 months topped 9%.

Wall Streets optimism kring tanken att Fed ska dämpa räntehöjningarna 

snabbare än väntat är för tidig och problematisk. Morgan Stanley 

https://www.di.se/live/morgan-stanley-varnar-efter-rallyt-lagg-inte-era-pengar-pa-aktier/

Bernanke and Edward Chancellor offer conflicting perspectives on the crisis in central banking

 Two new books set out sharply conflicting perspectives on underlying issues.

Arguably, Bernanke is the most influential thinker and practitioner on central banking of our era. His book, 21st Century Monetary Policy

Edward Chancellor, historian, asset manager, journalist and author. The Price of Time offers a history of interest back to the Babylonians

Behind each of them stands a different guru. For Bernanke, it is John Maynard Keynes

Bernanke insists, the Fed has been successful in preventing another Great Depression and returning the US economy to growth. I agree with him.

Chancellor emphatically does not. His guru is Friedrich Hayek

Chancellor condemns the low interest rates adopted by central banks as the root of almost all economic evils. Does this charge sheet make sense? Not much.

 Chancellor also has many complaints about the effect of low interest rates on financial instability and fragility. Yet it is unlikely that the modestly higher interest rates he recommends would have saved the world from financial crises.

The fundamental problem is that we have two objectives for policy: stabilising the real economy in the short to medium term and containing financial risks. One cannot hit two goals with one instrument. 

Today, the inflation targeting supported by Bernanke looks the least bad approach. But the question also remains how best to contain the financial risks emphasised by Chancellor. 

The most important structural source of excessive leverage is the tax deductibility of interest. We should eliminate that now.

Martin Wolf 27 July 2022

https://www.ft.com/content/e7cc3c01-08e3-47fc-9442-d45378b34bb8

 

Edward Chancellor, The Price of Time: The Real Story of Interest

https://englundmacro.blogspot.com/2022/07/edward-chancellor-price-of-time-real.html

One of America’s most prominent dismal scientists, former Federal Reserve chairman Ben Bernanke, returns with “21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19.” 

https://englundmacro.blogspot.com/2022/07/one-of-americas-most-prominent-dismal.html

Räntemarknadens huvudspår är att Fed har höjt klart redan i december

vid omkring 3,25 procents styrränta, och till våren börjar sänka räntan igen för att stötta en svag men långt ifrån becksvart konjunktur. Då skulle det inte förvåna om även europeiska ECB och svenska Riksbankens räntor toppar kring årsskiftet.

För varje pusselbit som kan stärka den bilden borde botten för börsen närma sig i stora kliv.

Nils Åkesson DI 26 juli 2022

https://www.di.se/analys/hojningscykeln-kan-bli-brant-men-kort/

Markets are largely trading on the view that an impending U.S. recession will help bring inflation down eventually and may even curtail the Federal Reserve’s aggressive rate-hike campaign.

 The so-called peak inflation trade, or idea that inflation has run its course and is poised to taper off, is what is largely driving markets of late

https://www.marketwatch.com/story/heres-the-threat-to-markets-if-investors-ignore-nontrivial-stagflation-risk-11658866948?mod=home-page

Elisabet Kopelman, USA-ekonom på SEB, tror att räntan toppar på 3,5–3,75 procent vid årsskiftet

https://englundmacro.blogspot.com/2022/07/usa-rantan-toppar-pa-35375-procent.html

Markets underestimating how far the Fed must go to tame inflation?

After the Fed Funds rate reaches its current market-expected peak of 3.39% in February 2023, investors expect the central bank will start cutting interest rates again

Right now, markets expect that in “real” terms — that is, when adjusted for inflation — the Fed Funds rate won’t reach positive territory at any point during this tightening cycle.

MarketWatch 5 July 2022 

https://englundmacro.blogspot.com/2022/07/markets-underestimating-how-far-fed.html

USA-räntan toppar på 3,5–3,75 procent

Elisabet Kopelman, USA-ekonom på SEB, tror att räntan toppar på 3,5–3,75 procent vid årsskiftet, att jämföra med 0-0,25 procent när innevarande år inleddes.

SvD 26 juli 2022

https://www.svd.se/a/dn6a3J/fed-vantas-trippelhoja-rantan-i-kamp-mot-inflationen

 

Frida Bratt tror att det kommer bli svårt för Riksbanken att höja styrräntan med mer än två procent”, säger hon  

 – Vi bedömer att den rörliga räntan kommer att fortsätta uppåt till i snitt nära 4 procent om något halvår, säger Robert Boije, chefsekonom vid SBAB

https://englundmacro.blogspot.com/2022/07/tiden-da-bostaden-enkelt-kunde-varderas.html

Börsen 26 juli 2022

 

The Fed chairman still has cheerleaders Chief among them is Larry Summers

 “We need five years of unemployment above 5% to contain inflation—in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,” the former Treasury secretary recently told the London School of Economics. 

You read that correctly: 10% unemployment. 

This is the comment of someone who has never worried about where his next paycheck will come from.

Elizabeth Warren WSJ 24 July 2022

https://www.wsj.com/articles/jerome-powells-fed-pursues-a-painful-and-ineffective-inflation-cure-unemployment-recession-pandemic-paycheck-putin-supply-chain-corporations-larry-summers-interest-rates-11658657627

Ms. Warren, a Democrat, is a U.S. senator from Massachusetts.

"Marit Paulsen har en förmåga att låta absolut trovärdig oavsett vad hon säger"

https://www.internetional.se/maritlenin90.htm

Why ECB hikes rates

 There is scarcely a flicker of internal, “demand-push” inflation in the eurozone, unlike the Anglo-Saxon economies where the labour market is tight. 

ECB raised rates twice in 2011 just as the post-Lehman rebound was petering out, and just as southern Europe was being subjected to austerity overkill. It was this ill-timed monetary tightening that triggered the eurozone debt crisis.

One can understand why the governing council felt it had to act. Eurozone headline inflation is 8.6pc. Bild Zeitung in Germany is near apoplexy (hjärnblödning).

 Negative rates and QE may have helped the Latin bloc but they have been poisonous for Germany, where they have wrecked the local cooperative and savings banks that underpin the Mittelstand family firms. 

The working class keep their savings in deposit accounts. Almost half the population rents rather than owning property, and few of them have any financial assets.

Nowhere more than Germany has the Lumpenproletariat been left behind by the inequalities of QE asset enrichment.

The anti-fragmentation tool gives the ECB sweeping powers to decide when to rescue a country and stave off default, and when to leave it defenceless.

By this mechanism, it can dictate budget policies, or enforce pension reforms, or order changes to labour law, without a democratic mandate. It can keep obedient pro-EU governments in power, and topple those with a different ideology à la Grecque.

This is not new. The ECB brought down Italy’s Silvio Berlusconi in 2011 by manipulating yields and installed a Eurocrat more to their liking, as was once explained to me in vivid detail by a disgusted ex-member of the governing council.

Eurosceptics said it was reckless anthropology to foist monetary union on states with starkly different societies and histories, different commercial practices and housing markets, different debt burdens and sensitivities to interest rates, and different trade exposure. 

They warned that this one-size-fits-all regime would lead to chronic intra-EMU friction, punctuated by crises at cyclical turning points. 

And so it has proved.

Ambrose Evans-Pritchard Telegraph 26 July 2022

https://www.telegraph.co.uk/business/2022/07/26/ecb-has-guaranteed-economic-slump-acquired-dystopian-political/

Notably less hyperventilating commentary this time round about the currency breaking up.

Let’s be clear: a great deal more work needs to be done in giving the euro a stable governance structure, including improving eurozone-wide banking and capital markets and expanding the pool of safe euro-denominated assets.

Ten years on from Draghi’s speech, the financial markets know that the central bank will do whatever it takes to hold the eurozone together without having to make it explicit.

Alan Beattie FT 27 July 2022

https://www.ft.com/content/725f3ac4-77ea-4d7c-a8ff-5947b9d04231

TPI: ”Transmission Protection Instrument”, ett finare ord för att centralbanken kan köpa en massa obligationer

i länder som fått se sina räntor stiga mer än vad som anses påkallat. 

Var denna nivå ligger vet ingen, utom någon på ECB

Valutamarknaden har sänkt värdet på euron.

Om den svenska Riksbanken åtminstone i detta läge kunde acceptera att vi inte är Grekland och bejaka en starkare krona som ger oss både köpkraft och sänker den svenska inflationstakten, i stället för att bara sänka värdet på kronan och ge oss ännu högre inflation och därmed högre räntor.

Henrik Mitelman DI 25 juli 2022

https://www.di.se/analys/historien-gar-i-repris-planekonomi-ska-dampa-ranterisken/

Even before Putin launched his war, the battle against climate change was being lost

It has been hard to generate any sense of urgency about a problem widely viewed as real (denial of climate science is fading) but seen mostly as something that can be dealt with in the future. 

Record-high temperatures in Europe and elsewhere, droughts, wildfires, more severe storms, and increased migration may change this perception, but so far, they have not.

Richard Haass Project Syndicate 25 July 2022

https://www.project-syndicate.org/commentary/climate-change-international-diplomacy-ineffective-by-richard-haass-2022-07

Richard Haass, President of the Council on Foreign Relations, previously served as Director of Policy Planning for the US State Department (2001-2003), and was President George W. Bush's special envoy to Northern Ireland and Coordinator for the Future of Afghanistan. He is the author, most recently, of The World: A Brief Introduction (Penguin Press, 2020).

Nouriel Roubini said the US is facing a deep recession

 as interest rates rise and the economy is burdened by high debt loads, calling those expecting a shallow downturn “delusional.”

Historically high debt ratios

That differs from the 1970s, he said, when the debt ratio was low despite the combination of stagnant growth and high inflation known as stagflation.

“This time around, we have a confluence of stagflation and of a severe debt crisis,” Roubini said. “So it could be worse than ‘70s and post-GFC.”

Bloomberg 25 July 2022

https://www.bloomberg.com/news/articles/2022-07-25/shallow-recession-calls-are-totally-delusional-roubini-warns

On Friday I was in Davos in a panel on the "Ups and Downs of EMU" where ECB head Trichet, Italian Economy Minister Tremonti, a few other EU officials and myself were supposed to discuss the following questions:

Will EMU collapse in the future? Which country will exit first? What will be the consequences of a break-up of EMU? How to avoid that? And what are the prospects for the Growth and Stability Pact?

My remarks caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted - to the consternation of all participants - to me: "Go Back to Turkey!!".

Nouriel Roubini, 28/1 2006

Bland oraklen på World Economic Forum i Davos i januari var det en fråga som dominerade: Skulle bostadsbubblan i USA ta kål på högkonjunkturen?

En enda deltagare i världens mest kvalificerade panel, professor Nouriel Roubini, talade om en krasch. De övriga förutspådde ett nästan lika soligt 2007 som 2006.

Niklas Ekdal, DN signerat 18/8 2007

https://www.internetional.se/roubinimeltdown0711.htm

Biden Doesn't Expect US to Go Into Recession

https://www.youtube.com/watch?v=73SJksNA81k

The financial crisis of 2008, or Global Financial Crisis (GFC), 

was a severe worldwide economic crisis that occurred in the early 21st century.

https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008

As Night Follows Day, Stagflation Follows the 2020-21 Stimulus

It’ll be dark, with interest hikes and sluggish GDP figures aligning as if to produce a solar eclipse.

 We are only in the early stages of a monetary tightening whose effects haven’t even begun to be felt yet—the results will start to appear in the second half of this year

Gerard Baker WSJ 25 July 2022 

https://www.wsj.com/articles/as-night-follows-day-stagflation-day-follows-the-2020-21-stimulus-recession-fed-fomc-interest-rates-gdp-output-inflation-11658773238

In typical plain-vanilla recessions, US and global equities tend to fall by about 35%. 

But, because the next recession will be both stagflationary and accompanied by a financial crisis, the crash in equity markets could be closer to 50%.

Nouriel Roubini Project Syndicate 29 June 2022

https://englundmacro.blogspot.com/2022/06/the-next-recession-will-be-marked-by.html

Mistakes made by the BOE, (FSA), and the Treasury 2008 

In your new book, The Chancellors: Steering the British Economy in Crisis Times, you highlight mistakes made by the BOE, the Financial Services Authority (FSA), and the Treasury during the 2008 global financial crisis. Which mistakes hold the most salient lessons for the challenges the UK is facing today?

In retrospect, I think the scale of quantitative easing will be remembered as a policy error, the long-term consequences of which are only now emerging. 

The Volcker Rule – which bars banks from engaging in proprietary trading or investing in hedge funds or private equity funds – is a far more sensible solution to the “too-big-to-fail” problem.

Howard Davies, Chairman of NatWest Group and former Deputy Governor of the Bank of England.

Project-Syndicate 9 August 2022

https://www.project-syndicate.org/say-more/an-interview-with-howard-davies-2022-08

Börsen 25 Juli 2022

 

One of America’s most prominent dismal scientists, former Federal Reserve chairman Ben Bernanke,

returns with “21st Century Monetary Policy: The Federal Reserve From the Great Inflation to Covid-19.” 

The message: What we at the Fed have done in recent decades has worked, and our only problem is figuring out how to do more of it.

According to him, it deftly managed the 2007-08 panic with a suite of emergency policies that staved off another 1930s-style depression. It then rolled out a range of new tools to adapt to an economy that had evolved beyond what the old theories could explain.

Observers have noted, for instance, a shift in Mr. Bernanke’s interpretation of the legal limits on the Fed’s activities during the global financial crisis. He no longer insists that the law would have prohibited a bailout of Lehman Brothers, but instead suggests that it was a bad idea on the policy merits.

Joseph C. Sternberg Bloomberg 22 July 2022

https://www.wsj.com/articles/21st-century-monetary-policy-review-rosy-memories-of-the-fed-11658499462

Lehman Brothers at IntCom

https://internetional.se/lehman911.htm

Europe’s on the way to being run by the officials of the European Central Bank

 It’s a strange mix of bureaucracy, oligarchy and plutocracy, that likes to think of itself as noocracy—rule by the wise. What we need now is a new word for rule by central bankers, because .

The ECB has repeatedly been forced to step into political roles since the euro crisis began in 2010, and seems to have become accustomed to the idea.

To be fair to the ECB, it doesn’t have a lot of choice. It is increasingly stepping into a political role because the eurozone is badly designed, with no central authority powerful enough to enforce common economic policies across member countries. 

When highly indebted big countries—Italy—run into trouble, the ECB doesn’t have the option of looking the other way and letting them default, because the survival of the common currency would be threatened. 

James Mackintosh Wall Street Journal 23 July 23 2022 

https://www.wsj.com/articles/the-central-bank-that-holds-the-fate-of-nations-in-its-hands-11658584702

Investors Bet Fed Will Need to Cut Interest Rates Next Year to Bolster the Economy

In rare wager, investors expect a quick U-turn on rates: more increases this year, then cuts next year as economy weakens

Investors themselves have marveled at the sharpness of the anticipated policy turn.

The Fed has cut rates within a year of raising them several times in the past, most recently in 2019 when officials cut rates by a quarter percentage point in late July after raising them the previous December.

In their latest economic projections, Fed officials estimated that rates could rise to around 3.8% next year but ultimately settle around 2.5%.

Sam Goldfarb WSJ 25 July 2022

https://www.wsj.com/articles/investors-bet-fed-will-need-to-cut-interest-rates-next-year-to-bolster-the-economy-11658694486

RE: Hur kan dom tro att det efter mer än tio års nollränta skall gå så lätt att få ner inflationen utan konvulsioner för aktie- och fastighetsmarknaden?

Strict inflation targets for central banks have caused economic harm

A great experiment in monetary policy is drawing to a close.

Never before, over the course of some 5,000 years of lending, have interest rates sunk so low.

The trouble is that whenever an institution is guided by a specific target, critical judgment tends to be suspended. 

Now, inflation is back and central banks are scrambling to regain control without crashing the economy or inducing yet another financial crisis.

Elected politicians cannot continue to shirk responsibility. They need to reconsider central banks’ mandates, taking into account the impact of monetary policy not just on near-term inflation, but on asset valuations (especially real estate), leverage, financial stability and investment.

Edward Chancellor FT 25 July 2022

https://www.ft.com/content/7dfed876-f73e-42b0-acb8-088f20a4e550

Edward Chancellor, The Price of Time: The Real Story of Interest

John Mauldin 2 July 2022

https://englundmacro.blogspot.com/2022/07/edward-chancellor-price-of-time-real.html

Fed has unwisely paid little attention to the huge volume of money its accommodative polices have created

While Volcker fought inflation by restraining growth in money supply, Powell’s favoured approach is aggressive interest rate hikes. 

He also seems ready to lower rates if we enter recession.

Fed did not try out the scenario that most concerns many experts: the economy plunges into a deep recession, but consumer prices and interest rates remain high. This was exactly the real-life “stagflation” scenario confronted by Volcker

Fed increasing the rate of interest it pays large financial institutions to keep their money with the central bank instead of lending it out. For banks, this means higher rates on their Fed reserve accounts. 

Sheila Bair FT 22 July 2022

https://www.ft.com/content/b82082c9-d26a-47a5-8b1a-34121f572645

The writer is a former chair of the US Federal Deposit Insurance Corporation and a senior fellow at the Center for Financial Stability

https://centerforfinancialstability.org/

Volcker was less austere and more pragmatic than his reputation

https://englundmacro.blogspot.com/2022/01/volcker-was-less-austere-and-more.html

Di:s experter: Börsoptimismen tillbaka

”Vinsterna är fantastiska”, säger Ulf Petersson i Analyspodden  

DI 22 juli 2022 

https://www.di.se/analys/di-s-experter-borsoptimismen-tillbaka-vinsterna-ar-fantastiska/

Hopes the bear market in U.S. stocks has seen its lows

But a meeting of Federal Reserve policy makers this coming week might test the nerves of would-be bulls.

“I expect we will continue to see market volatility until investors have seen more convincing evidence that this period of Fed hawkishness is behind us, and I do not expect that to be the message” when central bankers conclude a two-day meeting on July 27, said Lauren Goodwin

MarketWatch 24 July 2022

https://www.marketwatch.com/story/will-the-federal-reserve-kill-the-stock-market-bounce-11658577957?mod=home-page

The nightmare scenario – stagflation

Here is a handy guide for investors interested in how the economy could evolve over the next 17 months.

A grand success if we have a soft landing

The Fed overdoes it – a bad recession

MarketWatch 23 July 2022

https://www.marketwatch.com/story/the-fed-could-get-lucky-or-things-might-go-wrong-a-guide-to-where-the-economy-might-go-from-here-11658407041?mod=greg-robb

Truss leads Sunak

 Rishi Sunak, who wanted to leave the EU before that cause was popular, is trailing with the Conservative grassroots. Liz Truss, who campaigned with some vigour to remain, polls better among them.

“Nothing exemplifies the purely vibes-based nature of British politics than Brexiteer MPs rallying around Liz Truss.”

Most people’s ideological commitments are extraordinarily soft. What they think of as a belief is often a post-hoc rationalisation of a group loyalty. 

Why do I side with Sunak over Truss? Or with Emmanuel Macron

At a base, atavistic level, these are my people. They dress and act like the average of my 10 best friends.

Janan Ganesh FT 22 July 2022 

https://www.ft.com/content/0ca72be9-18c8-4b9f-9dbe-27d97b9e63e6

- Det finns en myt om att att ekonomer alltid är oense. Men så är det inte. Tvärtom är ekonomkåren ett snarast övertydligt exempel på att människan är ett flockdjur.

När den tidigare enigheten bland ekonomerna - fast växelkurs till varje pris - ledde fram ett spektakulärt misslyckande trädde en ny Riksbanksledning till, efter det att Bengt Dennis avtackats med blommor och blivit konsult hos SEB.

https://englundmacro.blogspot.com/2008/08/riksbankschefernas-krig.html

Människan är ett flockdjur. I synnerhet journalister och ekonomer.

Först var nästan alla ekonomer för en fast växelkurs.

Sedan var nästan alla ekonomer för flytande växelkurs med inflationsmål.

Och nästan alla ekonomer sade i samma andetag hur viktigt det var att Riksbanken, liksom andra centralbanker skulle vara förutsägbara.

Det var nog nästan lika korkat som att avskaffa fastighetsskatten.

https://englundmacro.blogspot.com/2014/02/centralbanker-skall-inte-vara.html

Lagarde: "We will raise interest rates for as long as it takes to bring inflation back to our target,"

 FRANKFURT, July 22 (Reuters) - The European Central bank will raise its interest rates until inflation falls back to its 2% target, the ECB's President Christine Lagarde said in an interview with Germany's Funke Mediengruppe published on Friday.

It was Lagarde's strongest commitment to date to fighting inflation, which hit 8.6% in the euro zone last month, despite growing fears of a recession in the bloc as a result of Russia's invasion of Ukraine.

"We will raise interest rates for as long as it takes to bring inflation back to our target," she told the German network of newspapers.

https://www.reuters.com/markets/rates-bonds/ecb-will-raise-rates-until-inflation-falls-back-2-lagarde-says-2022-07-22/

RE:  Det är klart att det inte kommer att bli så. Men vad skall hon säga?

US Builders have too many homes and not enough people to sell them to

In the long term, the United States has the opposite problem: Not enough houses for all the people who want them.

NYT 23 July 2022

https://www.nytimes.com/2022/07/23/business/housing-market-crisis-supply.html

 

Markets will test the ECB’s resolve

 With inflation high, Lagarde does not have the same leeway as Draghi

Mario Draghi. On a trip to London, he uttered a now famous phrase, saying that he and the ECB would do “whatever it takes” to save the euro.

The moment became the stuff of monetary policy legend.

To tackle fragmentation she announced the creation of the Transmission Protection Instrument, or TPI, a scheme to help any euro member state (for which, read: Italy) to fend off unwarranted market instability. 

The market’s reaction: a swift thumbs-down.

 Draghi was able effectively to say ‘trust me, I will throw money and monetary easing at this problem, ask for details later’. Lagarde does not have the same leeway.

Annual inflation was running barely above 0 per cent when Draghi cast his spell a decade ago. Now it is at 8.6 per cent. 

Lagarde’s job is to get it back down to 2 per cent.

Katie Martin FT 22 July 2022

https://www.ft.com/content/a9851c45-f2bb-4e00-9a8a-000038308f0e

Draghi’s government had negotiated to receive around €200bn

from the EU’s post-pandemic recovery fund — and, in return, to make Italy more competitive and business-friendlier. 

In order to receive the next tranche of cash — worth €19bn — Italy had 55 separate targets to hit by the end of the year. 

FT Editorial 22 July 2022

https://www.ft.com/content/aed7b9f8-87d3-4da4-83af-a476a8c2b850

We have the vision, we have the plan, and we have agreed to invest together €806.9 billion

https://ec.europa.eu/info/strategy/recovery-plan-europe_en

Krugman: What’s the Matter With Italy?

As president of the European Central Bank, Mario Draghi saved the euro. In my estimation, this makes him history’s greatest central banker

Italy does have a problem with economic stagnation. Even before the pandemic struck, Italy was noteworthy in having experienced two decades without growth in real gross domestic product per capita

That stagnation is important, and also a major economic puzzle.

ECB has introduced a new bond purchase scheme that is supposed to prevent the kind of market fragmentation that almost killed the euro a decade ago. 

But while Christine Lagarde, the current E.C.B. president, is smart and impressive, it’s unclear whether one can pull a Draghi without Draghi himself.

Paul Krugman NYT 22 July 2022

https://www.nytimes.com/2022/07/22/opinion/italy-draghi-ecb.html

Rome’s problems go even deeper than this: GDP per capita is today, when adjusted for inflation, less than in 2000.

The data highlight the country’s mediocre economic performance since the introduction of the euro in 1999-2002.

FT 13 november 2018

https://www.ft.com/content/b3c85b34-e10a-11e8-a6e5-792428919cee

Italian economic miracle Wikipedia

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

Totally Protecting Italy

Markets still aren’t convinced the bank will do what’s needed to keep Italy in the eurozone.

The critical problem for the euro is that its viability is once again in doubt. 

This time, the problem is more focused, but unfortunately it’s focused on Italy,

Purchases of private sector securities “could be considered, if appropriate.” 

There is one critical difference with the first eurozone sovereign debt crisis. That one was truly existential and revolved around a group of countries on the area’s periphery known as the PIIGS (Portugal, Italy, Ireland, Greece and Spain), sometimes joined by Cyprus. 

I’ve never met Truss, but viewed from afar it’s difficult to take her seriously.

John Authers Bloomberg 22 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-22/lagarde-fails-to-convey-draghi-level-ecb-resolve-over-italy-drama-rate-hikes

US social-media companies saw more than $130 billion wiped off their stock-market values Friday,

 after disappointing revenue from Snap Inc. and a lackluster report from Twitter Inc. raised new concerns about the outlook for online advertising.

Bloomberg 21 July 2022

‘Awful’ Snap Sales Wipe $80 Billion From Social-Media Stocks - Bloomberg

A rising share of people are exposed to dangerously high temperatures

 Climate change and population distribution are the cause

The Economist July 21st 2022

https://www.economist.com/graphic-detail/2022/07/21/a-rising-share-of-people-are-exposed-to-dangerously-high-temperatures

Today’s heatwaves are a warning of worse to come

Adaptation will be disruptive, costly and essential

The Economist July 21st 2022

Today’s heatwaves are a warning of worse to come | The Economist