Recession predictions

Geuze wrote: »

Let's assume sharp falls in GDP in Q2, but a slight rise in Q3.

Is a recession defined as two consecutive quarters of falling GDP?

We might have one very sharp quarterly fall in Q2, then growth?

If all the decline is concentrated into Q2, but 2020 GDP still ends up lower than 2019, is that a recession?

I assume it is.

This is a weird one. The decline is the same as 2-3 negative qtrs wrapped up in 1.

We have moved slightly further into deflation.

CPI May 2020

https://www.cso.ie/en/releasesandpublications/er/cpi/consumerpriceindexmay2020/

KyussB wrote: »

^^ Replacing debt with reserves/money isn't inflationary - bonds are already almost as good as money. The interest payments on bonds make them more inflationary over time than money alone, as they compel greater government spending than is needed (which means issuing more debt, which is inflationary etc.).

There is little difference between the perpetuities he advocates, and printing money - just that the perpetuities pay interest.

I think I see what you are getting at:

There isn't much difference between Govt bonds and central bank reserves?

They are both liabilities of the GG sector, as is discussed here:

https://voxeu.org/article/money-and-debt-paying-crisis

He compares the two liabilities.

Money and debt
Consider a consolidated balance sheet of the government and central bank. From this perspective, central bank money (reserves) and government bonds appear very similar. Both are liabilities of the consolidated government. Both are, ultimately, backed by the future flow of fiscal surpluses. Today, both carry interest (as monetary policy is conducted by paying interest on reserves). When interest rates are at zero, reserves and short-term bonds are very close substitutes in the portfolios of investors

Short answer:
That's not quite what I meant, but is similar - bonds are just about 'as good as money' regardless - and I'm talking about money in general, not bank reserves.

The different types of risk between money/bonds don't really have a significant effect on this, outside of extreme circumstances - so day to day, they are practically the same - and both have practically the same effect on inflation when issued.

Ireland's banking closure in the 70's, provides a very interesting and useful way to think about this - when cheques/IOU's were exchanged as money:
https://www.bbc.com/news/business-40189959

They aren't government bonds, but bonds are a form of IOU/debt (and obviously a lot more stable/secure than in above article ) - and are exchangeable almost as good as money - making them just as inflationary.


Longer answer (picks apart the article, but risks muddying my answer, as it isn't directly relevant to your question):
That article has the problem of talking about the 'real equilibrium interest rate', which is based on unsound and empircally unsupported theory, that there is a 'natural' rate of interest at which economic activity is optimal (which, long-story short, leads to assuming a 'natural rate of unemployment' - i.e. deliberately leaving huge numbers of people unemployed, sometimes for years and years on end - which is economically/morally unjust).

This is part of neoclassical equilibrium assumptions in economics, which are disproved by the long-term reality of states of disequilibrium - e.g. caused by debt-deflation, and again cases like Japan (even referenced in the article, at not having met inflation targets for decades) - and because this is part of decisionmaking in how policy is made, it contributes to unjustified levels of unemployment.


Instead of using monetary policy and blunt tools like interest rates to manage the level of economic activity (which is incredibly inefficient, as raising interest rates to deflate overheating regions/sectors, also deflates regions/sectors that aren't overheating, which is critically relevant/important in the Eurozone) - fiscal policy should be used instead, which is far more efficient as taxation can properly be directed at overheating sectors/regions, and spending into programs like the Job Guarantee can permanently end unemployment, while boosting the private sector - which also makes fiscal policy better at managing inflation (due to directly targetting overheating sectors).

With that set of policy, the interest rate should be permanently parked at 0% - which would be the true 'natural' rate of interest. This sort of ties in with the part of the article you quote. The ECB will not be doing things this way, though...


I don't agree that reserves/debt are backed by the future flow of fiscal surpluses, but not important/relevant here. Nor that government bonds need to have a date for redeeming. You can also guarantee government bonds by allowing them to be used at face value for paying taxes (and limits can be put on this, so your whole tax base isn't made up of bonds), mostly eliminating default risk (on the principal anyway). Inflation risk - due to what I describe above of fiscal policy being a better tool for inflation management - isn't solely determined by monetary policy either.

KyussB wrote: »

That article has the problem of talking about the 'real equilibrium interest rate', which is based on unsound and empircally unsupported theory, that there is a 'natural' rate of interest at which economic activity is optimal (which, long-story short, leads to assuming a 'natural rate of unemployment' - i.e. deliberately leaving huge numbers of people unemployed, sometimes for years and years on end - which is economically/morally unjust).

Off-topic, but the natural rate of unemployment does not means "large numbers unemployed for years and years".

A typical natural rate of UN might be 4-5% of the labour force.

Of these, maybe typically 25% are LT unemployed.

So maybe 1% of the labour force is LT unemployed.

https://data.oecd.org/unemp/long-term-unemployment-rate.htm

It's safe to assume that these people are unskilled / need re-training, etc.




I see LT UN at 10% of UN in Swedeen, so that means that approx 0.5% of the LF are LT UN.

Roger the cabin boy wrote: »

I get this feeling as well. I am just tempering it with a notion that i am being over pessimistic.

Not related to jobs in Ireland but you have this thread on Twitter that gives you a first idea:

https://twitter.com/NorthmanTrader/status/1259965427679182848

Deub wrote: »

Not related to jobs in Ireland but you have this thread on Twitter that gives you a first idea:

https://twitter.com/NorthmanTrader/status/1259965427679182848

Jeypers.


Once the Covid payments end, its going to be interesting.

Xmas should be a hoot....

Wanderer78 wrote: »

scary for parents that find themselves outta work more like

Scary for the country.

Its a major revenue generator for a lot of business.
If Covid is going to continue to dampen economic activity through the summer/Autumn, Xmas will be a sorry affair this year and it will be carnage in the jobs market.

Ask yourself, why we are exiting lockdown without any evidence whatsoever that Covid has been eliminated. Its because we are now at the point where economically, we have no choice.

The last 3 months were the easy bit. Now its time for the difficult stuff.

Roger the cabin boy wrote: »

Scary for the country.

Its a major revenue generator for a lot of business.
If Covid is going to continue to dampen economic activity through the summer/Autumn, Xmas will be a sorry affair this year and it will be carnage in the jobs market.

Ask yourself, why we are exiting lockdown without any evidence whatsoever that Covid has been eliminated. Its because we are now at the point where economically, we have no choice.

The last 3 months were the easy bit. Now its time for the difficult stuff.

Jeees, Id say you're the fun one at a party.

Wanderer78 wrote: »

The 30bn is probably keeping many businesses open, we need the government to continue borrowing or this wil turn out to be a very long and difficult downturn

But government borrowing is just an advanced tax payment. There is a point where it makes more economical sense to stop subsiding businesses and just have an increase of people getting the dole, etc. Especially with the assumption that tax collection will decrease in the coming months/years.

However I agree that it was a good decision at the start but it could become the wrong one if it lasts too long.

Wanderer78 wrote: »

The 30bn is probably keeping many businesses open, we need the government to continue borrowing or this wil turn out to be a very long and difficult downturn

all this borrowing is just subsidising over priced commercial and residential landlords

rents and rates are absolutely ridiculous we have learned nothing from 2008 recession

theguzman wrote:

The trouble with Socialism is that eventually you run out of other people's money. - Margaret Thatcher.

....and the problem with free market libertarianism is its abilities are a myth, the market isn't actually fully capable of providing us with all our needs. Always interesting to see free market libertarians talk about money, when they advocate the markets money creators, I. E. Banks, can create as much of it as it wants via credit creation, which in turn just drives up asset prices, particularly related to housing.

The covid payment was not a scandal, but it was amazing to see a normally very conservative government, economically speaking realise, if we don't create money here via borrowing, our economy will crash, I. E. They done the right thing, in fact I think they should extent it, because it's looking highly unlikely the private sector is gonna be able to react to this downturn for a while. If you contract both private and public methods of money creation at the same time in a major downturn, expect big trouble

AlmightyCushion wrote: »

I imagine they will keep borrowing but they will wind down the increased welfare payments and use borrowings for capital investment like public transport and housing. At least I hope they do.

If the current government coalition is approved today, they intend to balance the budget in as little as 2/2.5 years - which means (unless there is a V shaped recovery pretty much) we will very likely have austerity again.

They also have no intention of building enough houses to meet demand, judging by the plan they published.