Recession predictions

Zenify

I'm looking for a figure as lots of people think diffently about inflation. Do you mean 1.5% or 2% or 5% or 10%?

Pussyhands

Zenify wrote: »

I'm looking for a figure as lots of people think diffently about inflation. Do you mean 1.5% or 2% or 5% or 10%?

Inflation figures depends on what you're measuring.

CPI is a waste of time, it doesn't measure what it needs to.

4% rise in a box of rice isn't the same as a 4% rise in house prices or cars.

Inflation technically has been very low the last number of years yet in reality, houses, cars, etc have all gotten massively more expensive.

When I talk inflation, I'm talking about the things you feel every day. Electricity prices, fuel, cars, rent/housing, restaurants/pubs/hotels.

Zenify

The reason why I ask for a specific percentage is because no realistic percent of inflation will make our debt dissappear.

Our debt is growing faster than inflation (over last 20years), our interest payments are billions each year. If we do get high inflation we will also get higher interst rates and further borrowing will be far more expensive.

I just can't see any scenario where debt will just magically vanish.

Our interest payment last year was around 4 billion, this year will be less due to lower borrowing costs.

Timing belt

Zenify wrote: »

The reason why I ask for a specific percentage is because no realistic percent of inflation will make our debt dissappear.

Our debt is growing faster than inflation (over last 20years), our interest payments are billions each year. If we do get high inflation we will also get higher interst rates and further borrowing will be far more expensive.

I just can't see any scenario where debt will just magically vanish.

Our interest payment last year was around 4 billion, this year will be less due to lower borrowing costs.

If we do have inflation then we will be crippled when it comes to rolling over the debt as the cost of servicing the debt will increase.

KyussB

How are people not making the harmonious link between: Economic Slowdown (GDP drop) > Lower Inflation and Interest Rates > Increased Public Spending with floating Public Debt (restored GDP) > Economic Recovery > Restored Inflation and Interest Rates > Reduced Public Spending with less Public Debt.

Public Debt is eroded primarily by GDP growth (substitute with GNI or GNI* if preferred, still holds true) - so you concentrate on keeping GDP growth maximized, and let Public Debt levels, Inflation levels, and Interest Rate levels, adjust depending on the different stages of the slowdown/recovery cycle.

That harmonious cycle, combined with maximizing GDP growth, eliminates any potential threat from debt/interest levels - those things occur at different parts of the cycle.

Arthur Daley

Debt is eroded by paying the blasted thing back

Wanderer78

Arthur Daley wrote:

Debt is eroded by paying the blasted thing back

We need to stop with this nonsense, it's bloody dangerous, debt is in fact a critical function of a modern economy, in order to have a growing and expanding economy, you must also have a growing and expanding money supply. In a modern economy, such as ours, this is done by increasing debt, as debt is the money supply, hence the term 'monetization of debt', but this has been traditional done by ultimately relying on the private sector to do so, which creates this debt in the form of credit, which generally ends up inflating asset prices such as property, leading to asset bubbles and subsequent busts. It's also important to remember, paying off debt, either public or private, is in fact the destruction of money itself. therefore debt should in fact always be increasing, in an expanding and growing economy, the critical element being, that economy must always be capable of servicing these debts. This is exactly what happened in 08, we were unable to service the debts created during the boom, and unable to maintain the rate of expansion of these debts, always remembering, the majority of these debts were created by the private sector, I.e private debts.

Arthur Daley

Stop with this nonsense?

I wish they'd bloody start. Start paying down the debt and behave responsibly.

Your philosophy has been the establishment view and got us to where we are today. Not mine.

Wanderer78

Arthur Daley wrote:

I wish they'd bloody start. Start paying down the debt and behave responsibly.

Arthur Daley wrote:

Your philosophy has been the establishment view and got us to where we are today. Not mine.

Again, see above, this is where fiscal conservatism becomes extremely dangerous, most don't understand how our modern monetary systems work, they don't understand the fundamentals of it. they still don't understand that by not expanding the public money supply, forces us to expand it via the private sector money supply, I.e. via credit creation, which results in the same old problem of raising asset prices, in particular property. By continuing this cycle, we in fact are behaving recklessly and are endangering us all

Pussyhands

KyussB wrote: »

How are people not making the harmonious link between: Economic Slowdown (GDP drop) > Lower Inflation and Interest Rates > Increased Public Spending with floating Public Debt (restored GDP) > Economic Recovery > Restored Inflation and Interest Rates > Reduced Public Spending with less Public Debt.

Public Debt is eroded primarily by GDP growth (substitute with GNI or GNI* if preferred, still holds true) - so you concentrate on keeping GDP growth maximized, and let Public Debt levels, Inflation levels, and Interest Rate levels, adjust depending on the different stages of the slowdown/recovery cycle.

That harmonious cycle, combined with maximizing GDP growth, eliminates any potential threat from debt/interest levels - those things occur at different parts of the cycle.

Rates haven't increased for a decade...they've stayed at historically low levels that everyone now needs them to survive.

Just look at people talking about housing. "rent is more expensive therefore I'm better off getting a mortgage" yet they fail to think about rates rising.

Anyone up to the age of 30/31 has only known extremely low rates.

KyussB

Arthur Daley wrote: »

Debt is eroded by paying the blasted thing back

It is incredibly easy to demonstrate that this is false: That requires a budget surplus. If you look at the history of the budget balance of pretty much any country in the world, a surplus is an incredibly rare event, usually followed by an economic crisis.

That's in disagreement with centuries of economic data, from every country on the planet.

External Association

With every week of lockdown, it's more of a worry.

KyussB

Arthur Daley wrote: »

Stop with this nonsense?

I wish they'd bloody start. Start paying down the debt and behave responsibly.

Your philosophy has been the establishment view and got us to where we are today. Not mine.

Government finances do not work like personal/household finances. What is 'responsible' for personal finances, is not the same and is often the opposite with government finances. Governments practically never pay down their debts (as proven by how rare budget surpluses are), they roll them over forever, letting GDP growth erode them.

KyussB

Pussyhands wrote: »

Rates haven't increased for a decade...they've stayed at historically low levels that everyone now needs them to survive.

Just look at people talking about housing. "rent is more expensive therefore I'm better off getting a mortgage" yet they fail to think about rates rising.

Anyone up to the age of 30/31 has only known extremely low rates.

In terms of Eurozone governments, yes: The ECB is trapped into low/negative rates, because without them the Eurozone/Euro will not survive, as raising rates now would crater economies EU-wide (which would be the opposite of the ECB's mandate).

That's why we're not going to see raised rates until there has been a full EU-wide economic recovery.

Again, government finances aren't like personal/household finances: There is no valid comparison to mortgages.

Pussyhands

KyussB wrote: »

In terms of Eurozone governments, yes: The ECB is trapped into low/negative rates, because without them the Eurozone/Euro will not survive, as raising rates now would crater economies EU-wide (which would be the opposite of the ECB's mandate).

That's why we're not going to see raised rates until there has been a full EU-wide economic recovery.

Again, government finances aren't like personal/household finances: There is no valid comparison to mortgages.

Well, if interest rates rise we are finished. Government never really pay off debt, they only buy new bonds and roll it over. It's been great we've been able to roll over our debt to cheaper debt but if inflation kicks off and rates rise high, then the debt is going to roll over very high too and we're ****ed then and will have to cut spending and increase taxes massively.

That's what Leo and Pascal are worried about. The likes of McWilliams saying we should borrow like **** because it's cheap aren't thinking 5/10 years down the line.

An Ri rua

Wanderer78 wrote: »

Again, see above, this is where fiscal conservatism becomes extremely dangerous, most don't understand how our modern monetary systems work, they don't understand the fundamentals of it. they still don't understand that by not expanding the public money supply, forces us to expand it via the private sector money supply, I.e. via credit creation, which results in the same old problem of raising asset prices, in particular property. By continuing this cycle, we in fact are behaving recklessly and are endangering us all

Modern monetary systems don't 'work'. That's the whole point (opposing yours). It may appear to be, but it's not.
We shall re-visit these posts in a year or so.

An Ri rua

Pussyhands wrote: »

Well, if interest rates rise we are finished. Government never really pay off debt, they only buy new bonds and roll it over. It's been great we've been able to roll over our debt to cheaper debt but if inflation kicks off and rates rise high, then the debt is going to roll over very high too and we're ****ed then and will have to cut spending and increase taxes massively.

That's what Leo and Pascal are worried about. The likes of McWilliams saying we should borrow like **** because it's cheap aren't thinking 5/10 years down the line.

He was addressing the public purse, within the constraints of the ECB. And I like his thinking. Make a good lot out of a bad situation. But being a Keynesian, he is missing the broader realities of what's coming. The MMT train will run out of track.

Re personal debt, people (who can) should borrow funny money and buy hard assets. That's what paid mortgages in the 70s. I loaded up on silver and gold a year ago under a similar arrangement. And now I wait.

Arthur Daley

KyussB wrote: »

Government finances do not work like personal/household finances. What is 'responsible' for personal finances, is not the same and is often the opposite with government finances. Governments practically never pay down their debts (as proven by how rare budget surpluses are), they roll them over forever, letting GDP growth erode them.

UK Government debt as a % of GDP was running at just over 50% in the mid to late 70s, when the IMF came in, and Britain was the 'sick man of Europe'

By 1990 it had fallen to less than 30%. This was a real economy, with real GDP figures, a real currency, and associated budget revenues to back up the debt. People felt wealthier in a tangible way and living standards improved substantially. This was sustained up to 1997 and Blair inherited a strong economic position.

Since Blair and Brown UK government debt has taken off like a rocket to more than 80% of GDP, following the same 'emperor's new clothes' logic we've seen on this thread.

It's also been stated on here that the ramp up in Irish Sov Debt was primarily private sector debt. No doubt this is 'it was the banks' sort of nonsense that left wing think tanks and politicians want people to believe ad infinitum.

The reality is that most of the debt ramped up since 2006 is overspending by the government, with a relatively small amount of the debt being attributable to Anglo etc. And I'm not on here to make apologies for the likes of Anglo, AIB or Irish Nationwide either.

Wanderer78

Arthur Daley wrote:

The reality is that most of the debt ramped up since 2006 is overspending by the government, with a relatively small amount of the debt being attributable to Anglo etc. And I'm not on here to make apologies for the likes of Anglo, AIB or Irish Nationwide either.

The bailout out debts are what's called odious debts, they should in fact be cancelled, another element of our rising public debts post 08 was in fact caused by austerity, well known globally for surpressing economic growth during economic downturns. it can be clearly seen in data that during the previous boom we had become over reliant on private debt, I.e. credit, as our primary money supply, and significantly under reliant on the public money supply, I.e. public debt. Again this is where fiscal conservatism becomes extremely dangerous, by defaulting to it's normal position, i.e. reducing public debt, during and/or post economic downturn, thankfully it seems America could be seeing sense with its 2 trillion stimulus

KyussB

Pussyhands wrote: »

Well, if interest rates rise we are finished. Government never really pay off debt, they only buy new bonds and roll it over. It's been great we've been able to roll over our debt to cheaper debt but if inflation kicks off and rates rise high, then the debt is going to roll over very high too and we're ****ed then and will have to cut spending and increase taxes massively.

That's what Leo and Pascal are worried about. The likes of McWilliams saying we should borrow like **** because it's cheap aren't thinking 5/10 years down the line.

You're ignoring that interest rate changes follow a cycle which simultaneously affects government spending and debt, as described below:

KyussB wrote: »

How are people not making the harmonious link between: Economic Slowdown (GDP drop) > Lower Inflation and Interest Rates > Increased Public Spending with floating Public Debt (restored GDP) > Economic Recovery > Restored Inflation and Interest Rates > Reduced Public Spending with less Public Debt.

Public Debt is eroded primarily by GDP growth (substitute with GNI or GNI* if preferred, still holds true) - so you concentrate on keeping GDP growth maximized, and let Public Debt levels, Inflation levels, and Interest Rate levels, adjust depending on the different stages of the slowdown/recovery cycle.

That harmonious cycle, combined with maximizing GDP growth, eliminates any potential threat from debt/interest levels - those things occur at different parts of the cycle.

With the ECB's current "whatever it takes" policies (a much different situation to 2010), the part of the recovery cycle when interest rates rise, is precisely the time that government spending is cut back when at or close to Full Output.

This makes debt servicing a non-issue. At that period of time most of the debt stock will remain low-interest (bonds have maturity periods typically ranging in years, often decades, spreading out the due dates widely) - there will be little-to-no reliance on new debt issuance - both maximized GDP growth and higher inflation will be eroding the debt stock.

Stop trying to look at single variables like the Interest Rate or raw Public Debt level in isolation. You have to look at the main macroeconomic figures all at once, and the structure of the debt - and understand how that fits into the stage of the recovery cycle we're at.

KyussB

Arthur Daley wrote: »

UK Government debt as a % of GDP was running at just over 50% in the mid to late 70s, when the IMF came in, and Britain was the 'sick man of Europe'

By 1990 it had fallen to less than 30%. This was a real economy, with real GDP figures, a real currency, and associated budget revenues to back up the debt. People felt wealthier in a tangible way and living standards improved substantially. This was sustained up to 1997 and Blair inherited a strong economic position.

Since Blair and Brown UK government debt has taken off like a rocket to more than 80% of GDP, following the same 'emperor's new clothes' logic we've seen on this thread.

It's also been stated on here that the ramp up in Irish Sov Debt was primarily private sector debt. No doubt this is 'it was the banks' sort of nonsense that left wing think tanks and politicians want people to believe ad infinitum.

The reality is that most of the debt ramped up since 2006 is overspending by the government, with a relatively small amount of the debt being attributable to Anglo etc. And I'm not on here to make apologies for the likes of Anglo, AIB or Irish Nationwide either.

The UK went from 50% debt levels to 30% in the period you mention, without a single surplus - proving that GDP growth was used to erode it.

The cost to the public finances is the debt servicing cost, not the Public Debt level. You can not calculate or predict the debt servicing cost, without looking at the structure of government bonds, and the period of the recovery cycle that we are at.

This makes Public Debt a meaningless figure - and makes Public Debt vs GDP a dangerously misleading figure, given how GDP may be far below Full Output in a downturn.

Geuze

Wanderer78 wrote: »

Again, see above, this is where fiscal conservatism becomes extremely dangerous,

If by fiscal conservatism you mean running budget surpluses, then there's no need to worry, as they are as rare as hen's teeth.

2014 to 2019 = Budget Deficits each and every year, except

2018 = balanced budget

2019 = small surplus


I'd say 2019 will be the only year of Budget Surplus in twenty years!!!

KyussB

The best way to look at it in my view, is that Fiscal Conservatism broadly means holding the economy below Full Output, by strangling Government Spending.
It's the misguided focus on accounting variables like the budget balance (where it's normal for that to wax and wane) - versus focusing on the real economy.

The difference between targeting Full Output and Full Employment, instead of targeting an arbitrary accounting figure.

Geuze

KyussB wrote: »

The best way to look at it in my view, is that Fiscal Conservatism broadly means holding the economy below Full Output, by strangling Government Spending.

Okay.

No need to worry about that here.

Public spending has been racing ahead in recent years.

2014 = 73,996m

2019 = 87,285m

18% rise in five years.

Irish politicians find it difficult to say no to spending demands from vested interests and trade unions.

KyussB

A proxy for determining that we are below Full Output, is to see how far we are from Full Employment - and right now we're hovering around ~25% covid-adjusted unemployment - so our Output Gap is huge at the moment, and the government isn't spending anywhere near enough to maintain Full-Output/Full-Employment.

It's the right time economically (even if covid makes it more difficult practically), to be engaging in a blitz of spending on capital projects, such as massive amounts of housing/accommodation building (a high percentage of which can be made self-financing over time, with the right configuration).

Geuze

Output being below potential output now is due to restrictions, not due to a lack of State expenditure.

As the restrictions ease, output will rise back up.

KyussB

When the private sector fails to maintain Full Output/Employment, only the state can continue to maintain Full Output/Employment until the private sector recovers.

Output being below potential is due to both restrictions (deflating the private sector, creating an Output Gap), and lack of State expenditure (the state is choosing to leave people unemployed and thus leave output below potential, when there is endless useful/urgent work to be done).

Fiscal conservatism is anything which opposes the state taking up the slack, in shoring up Full Output/Employment - by referencing the budget balance (which is a near-meaningless figure).

Arthur Daley

And where is Robotics/Automation in this argument? The push for UBI, the digitisation of businesses including online retail. what if a lot of the people put on the dole in the last year do not have viable jobs to go back to?

What real savings are there from digitisation if if just means expenditure is shifted on to the state.

Does this model deal with structural changes in the economy? It probably needs to.

KyussB

I don't see robots building all the housing/accommodation we need, retrofitting our economy for eliminating climate changing emissions, doing all the R&D and technological development etc. needed for advancing renewables and other climate goals, or expanding our public transport or internet infrastructure etc..

There is a practically endless backlog of urgent work that needs doing, which isn't being done because of political opposition to governments employing people to do it, with Fiscal Conservatism as the guise for that political opposition.

Arthur Daley

Ok so basically a massive social housing programme, and make work schemes on top of the €240bn in existing debt. At least we know where we stand anyway.