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Recession predictions

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Comments

  • #872
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    If what you are saying the money is ending up in asset markets then by default it is leading to higher private debt. Putting this argument aside there is still a limit to the amount of public debt that can be issued for the reasons I mentioned earlier. My prediction is that countries will struggle to service their debt in years to come due to increased imported inflation and it will lead to a sovereign debt crisis which in turn will lead to tax rises and cuts in expenditure. The only way this will be avoided is if there is a vaccine and a very strong economic recovery. The longer it goes on the greater the risk.
    There are no more sovereign debt crises, with central banks undertaking 'whatever it takes' QE policies that guarantee debt sustainabiity.


  • #873
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    QE doesn't have a direct effect on currency valuation. Its effects on foreign demand for a currency are limited to the financial sector, not trade.

    Yes it does and is the main channel for generating economic growth as the more QE you do the currency devalues and makes exports cheaper.

    Just read any of the ECB reports on QE and it tells you this.


  • #874
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    Wanderer78 wrote: »
    I appreciate your opioion and knowledge, but as you said, if we don't take some of the debt onto the public balance sheet, it ll just push the need to increase the money supply out into the private sector, and with confidence collapsing in this sector, the demand for this credit will more than likely remain reletively low for some time. So its either expand the deficit or potentially face an overall contraction of the economy. You could very well be right about a sovereign debt crisis in the future, but it's something I'm not concerned about at all, these debts can be rolled over, almost indefinitely, without any major issues, just as long as the debts are regularly serviced, it should be fine. As 08 showed us, having more debt on the public books is far safer than having the bulk in the private sector, although not problem free, as you've explained very well

    I agree that it is the right course of action what I am trying to point out it is not risk free and there is a limit to public debt.


  • #875
    Wanderer78
    Registered Users Posts: 28,779 ✭✭✭✭Wanderer78


    Timing belt wrote: »
    I agree that it is the right course of action what I am trying to point out it is not risk free and there is a limit to public debt.

    oh i do also agree, there are risks and limits involved, but generally, its safer to keep the bulk of the debt on the public balance sheet, particularly right now, again, im not concerned about the deficit at all, but it does need to be put to good use


  • #876
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    Yes it does and is the main channel for generating economic growth as the more QE you do the currency devalues and makes exports cheaper.

    Just read any of the ECB reports on QE and it tells you this.
    There is no flow for QE to reach foreign exchange markets in any significant amounts - the money is going into Euro economies, not into external/foreign economies - so there is no/little drop in foreign demand for Euro's, in any significant amounts - which is what is required to affect exchange rates.

    The money is going into 'domestic' i.e. Euro area assets - not into foreign exchange.


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  • #877
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    There is no flow for QE to reach foreign exchange markets in any significant amounts - the money is going into Euro economies, not into external/foreign economies - so there is no/little drop in foreign demand for Euro's, in any significant amounts - which is what is required to affect exchange rates.

    The money is going into 'domestic' i.e. Euro area assets - not into foreign exchange.

    Yes I agree that at the moment it is not devaluing the euro because all countries are undertaking QE. But if one country stops or slows It will create a devaluation.


  • #878
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    There is no flow for QE to reach foreign exchange markets in any significant amounts...which is required for QE to affect foreign exchange - which determines currency valuation - which is where devaluation would have to occur...


  • #879
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    There is no flow for QE to reach foreign exchange markets in any significant amounts...which is required for QE to affect foreign exchange - which determines currency valuation - which is where devaluation would have to occur...

    You have already said that and as I have said we are not seeing it because all countries are undertaking QE at the same time.

    Just look at the impact on the FX market when yields started to rise in USD debt in March/April. Once there is a slow down in QE by one country then there will be an impact on the FX markets.

    https://www.managementstudyguide.com/quantitative-easing-and-forex-market.htm




    .


  • #880
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Through what exact mechanism are you claiming QE affects the foreign exchange markets? All countries undertaking QE at the same time, is irrelevant if QE does not reach foreign exchange markets in significant amounts.


  • #881
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    Through what exact mechanism are you claiming QE affects the foreign exchange markets? All countries undertaking QE at the same time, is irrelevant if QE does not reach foreign exchange markets in significant amounts.

    Lets try a different approach where is the flaw in the this article:

    https://www.managementstudyguide.com/quantitative-easing-and-forex-market.htm


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  • #882
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    The source you're usng thinks we are in a fractional reserve banking system where money creation works based on a money multiplier, when that is not how banking money creation works - it's not a usable source of economic information. I'm not just going to rebut random articles thrown at me - if you want to use the argument from an article, at least put it in your own words.


  • #883
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    The source you're usng thinks we are in a fractional reserve banking system where money creation works based on a money multiplier, when that is not how banking money creation works - it's not a usable source of economic information. I'm not just going to rebut random articles thrown at me - if you want to use the argument from an article, at least put it in your own words.

    Ok lets use an example:

    Say the EU stops undertaking QE and USA continue with QE.

    Yields rise on Euro Debt

    Yields stay low on USA Debt

    US investors chase yield and therefore buy EU Debt creating a movement in FX rates.


  • #884
    Wanderer78
    Registered Users Posts: 28,779 ✭✭✭✭Wanderer78


    KyussB wrote:
    The source you're usng thinks we are in a fractional reserve banking system where money creation works based on a money multiplier, when that is not how banking money creation works - it's not a usable source of economic information. I'm not just going to rebut random articles thrown at me - if you want to use the argument from an article, at least put it in your own words.

    Jesus, neoclassical sources are just disturbing at this stage


  • #885
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    Wanderer78 wrote: »
    Jesus, neoclassical sources are just disturbing at this stage

    Wander78 explain to me what your economic theory on money supply? Explain to me how the example I gave does not impact the FX market.


  • #886
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    Ok lets use an example:

    Say the EU stops undertaking QE and USA continue with QE.

    Yields rise on Euro Debt

    Yields stay low on USA Debt

    US investors chase yield and therefore buy EU Debt creating a movement in FX rates.
    Ok - that's just an interest rate change on bonds, not a devaluation - and its effects are mostly limited to the finance sector, not having any fundamental change on trade.

    I did a bit more reading, and this old document from Michael Hudson on US QE, gives a good overview of how it can affect the foreign sector and currency valuation:
    http://gesd.free.fr/hudsonqi.pdf

    The different potential flows of money for QE are complicated - but the key point is this: QE will go on for as long as the economy is below full potential, as long as inflation is below target.

    So if QE money is directed into the domestic economy (such as, by governments issuing enough bonds, to fund enough spending to bring back Full Output and Full Employment) until the Private Sector recovers fully - then QE will not lead to significant flows of money into the 'foreign sector', and foreign exchange, which could push down currency valuation.

    If however, governments choose to stay in a prolonged state of economic downturn (which they have and do), then that can lead to recipients of QE money seeking assets - both domestic and foreign - in search of yield, as you say.

    The ability (or not) to pour QE money into foreign assets (and thus push down currency valuation) is extremely complicated - because other countries do not want their currency to appreciate, they may hold a lot of the depreciating currency, among many other issues etc. (Hudson goes into the issues well).
    So it's just not as simple as one country stopping QE while others don't, thus allowing wide variations in currency value - that's going to be resisted heavily, and countries have more weapons in their arsenal for resisting that, than just reciprocating with their own QE.

    So ya, TLDR: Whether QE money can flow into the foreign sector is a policy choice of governments, since they can direct QE money into domestic economies. QE is not as simple as devaluation due to this, and due to QE money being heavily resisted in complex ways by foreign countries, in its ability to flow into foreign assets.


  • #887
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    Ok - that's just an interest rate change on bonds, not a devaluation - and its effects are mostly limited to the finance sector, not having any fundamental change on trade.

    I did a bit more reading, and this old document from Michael Hudson on US QE, gives a good overview of how it can affect the foreign sector and currency valuation:
    http://gesd.free.fr/hudsonqi.pdf

    The different potential flows of money for QE are complicated - but the key point is this: QE will go on for as long as the economy is below full potential, as long as inflation is below target.

    So if QE money is directed into the domestic economy (such as, by governments issuing enough bonds, to fund enough spending to bring back Full Output and Full Employment) until the Private Sector recovers fully - then QE will not lead to significant flows of money into the 'foreign sector', and foreign exchange, which could push down currency valuation.

    If however, governments choose to stay in a prolonged state of economic downturn (which they have and do), then that can lead to recipients of QE money seeking assets - both domestic and foreign - in search of yield, as you say.

    The ability (or not) to pour QE money into foreign assets (and thus push down currency valuation) is extremely complicated - because other countries do not want their currency to appreciate, they may hold a lot of the depreciating currency, among many other issues etc. (Hudson goes into the issues well).
    So it's just not as simple as one country stopping QE while others don't, thus allowing wide variations in currency value - that's going to be resisted heavily, and countries have more weapons in their arsenal for resisting that, than just reciprocating with their own QE.

    So ya, TLDR: Whether QE money can flow into the foreign sector is a policy choice of governments, since they can direct QE money into domestic economies. QE is not as simple as devaluation due to this, and due to QE money being heavily resisted in complex ways by foreign countries, in its ability to flow into foreign assets.

    As you said a while ago I'm not going to comment on some article... Go back to my simple example and explain how it will not impact FX rates.


  • #888
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    I did, I linked the article as it was interesting, but gave examples in my own words derived from it, which do not depend on the article.

    The article partially moves my position closer to agreeing with you - but I make my own point independent of the article, about governments being able to direct QE money to the domestic economy, instead of that money potentially being directed into the foreign sector - thus giving governments control on whether or not it affects currency valuation.


  • #889
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    I did, I linked the article as it was interesting, but gave examples in my own words derived from it, which do not depend on the article.

    The article partially moves my position closer to agreeing with you - but I make my own point independent of the article, about governments being able to direct QE money to the domestic economy, instead of that money potentially being directed into the foreign sector - thus giving governments control on whether or not it affects currency valuation.

    Yes I agree that Countries will defend there currency and have tools in their arsenal to do so.

    Central banks have different mandates so if you look at the EU it is based purely on inflation and USA on full employment

    What I am trying to say is that there is a limit to the amount of government debt that can be issued as the more debt will lead to increased refinancing costs when the debt rolls over. Granted if all countries undertake QE it has little impact but we know that emerging economies cannot do this without the markets turning on them and as they supply a lot of the commodities that we require it will lead to imported inflation which in turn will push up yields on EU government debt.

    I suppose what I am trying to say is that there is a bottom to debt issuance by countries. Are we near that I don't know is the issuing of government debt the correct thing to do at them moment.... definitely yes.... But the longer this crisis continues the more likelihood that we will see sovereign debt crisis around the global greatly increase.

    If a sovereign debt crisis hits it will lead to a increase in tax and a cut on government expenditure.

    If a lack of confidence on government debt sets in then the financial markets collapse as this is what is used to provide collateral for the majority of trades.


  • #890
    Wanderer78
    Registered Users Posts: 28,779 ✭✭✭✭Wanderer78


    Timing belt wrote:
    Wander78 explain to me what your economic theory on money supply? Explain to me how the example I gave does not impact the FX market.

    Apologies, I simply can't, I don’t have the deep understanding that KyussB has, but I do very roughly understand the process of money creation
    KyussB wrote:
    I did a bit more reading, and this old document from Michael Hudson on US QE, gives a good overview of how it can affect the foreign sector and currency valuation:

    Been following hudsons work for some time now, he has an astonishing understanding of economics, fairly sure I came across him in my teens.


  • #891
    Wanderer78
    Registered Users Posts: 28,779 ✭✭✭✭Wanderer78


    https://www.youtube.com/watch?v=
    kyuss, is this what you re trying to explain, particularly at the 1.30hr mark?



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  • #892
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    Yes I agree that Countries will defend there currency and have tools in their arsenal to do so.

    Central banks have different mandates so if you look at the EU it is based purely on inflation and USA on full employment

    What I am trying to say is that there is a limit to the amount of government debt that can be issued as the more debt will lead to increased refinancing costs when the debt rolls over. Granted if all countries undertake QE it has little impact but we know that emerging economies cannot do this without the markets turning on them and as they supply a lot of the commodities that we require it will lead to imported inflation which in turn will push up yields on EU government debt.

    I suppose what I am trying to say is that there is a bottom to debt issuance by countries. Are we near that I don't know is the issuing of government debt the correct thing to do at them moment.... definitely yes.... But the longer this crisis continues the more likelihood that we will see sovereign debt crisis around the global greatly increase.

    If a sovereign debt crisis hits it will lead to a increase in tax and a cut on government expenditure.

    If a lack of confidence on government debt sets in then the financial markets collapse as this is what is used to provide collateral for the majority of trades.
    For a government in control of their own currency, there is no limit to government debt other than the inflation caused by the spending of it - those governments own the central bank, and can never involuntarily default on their debts.

    For Euro countries, the dynamics of debt financing costs etc. don't impede spending to the point of Full Output and Full Employment, due to the ECB's 'whatever it takes' QE policies - which don't taper up until inflation is produced from Full Output/Employment anyway, which are the perfect conditions for debt sustainability - and which means QE comes back if there's ever a hint of soverign debt crises again, nullifying any risk of that (the Euro can not survive another debt crisis).

    So there is a limit on government debt based spending, and that limit is inflation brought about through Full Output and Full Employment - not debt.


  • #893
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    For a government in control of their own currency, there is no limit to government debt other than the inflation caused by the spending of it - those governments own the central bank, and can never involuntarily default on their debts.

    For Euro countries, the dynamics of debt financing costs etc. don't impede spending to the point of Full Output and Full Employment, due to the ECB's 'whatever it takes' QE policies - which don't taper up until inflation is produced from Full Output/Employment anyway, which are the perfect conditions for debt sustainability - and which means QE comes back if there's ever a hint of soverign debt crises again, nullifying any risk of that (the Euro can not survive another debt crisis).

    So there is a limit on government debt based spending, and that limit is inflation brought about through Full Output and Full Employment - not debt.

    Inflation can occur without full output and full Employment. Stagflation..


  • #894
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Wanderer78 wrote: »
    kyuss, is this what you re trying to explain, particularly at the 1.30hr mark?

    https://www.youtube.com/watch?v=mQbrahOLftw
    Skimmed through it, but that's a good video! Didn't realize the economic fake-nobel laureate made such crazy climate change claims - Keen does a good job discrediting that, and highlighting what actual climate scientists say. Keen has done good work on macroeconomic models which properly take energy and climate limits into account - and has a simplified one in his Minsky modelling program, at 1:07.

    The part you reference at 1:30 - that's an accurate way of describing how government finances for countries with their own currency work (not accurate for individual Euro nations though), and it's the way government finances generally should be discussed - but is only 'sort of' what I've been discussing here, because I'm making arguments in the out-of-date context of debt/bond market dynamics (kind of have to for Euro nations), to show that even in that outdated way of discussing government finances, current conditions mean that limits to spending are still based on Full Output/Employment i.e. inflation, not based on debt levels.


  • #895
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    Inflation can occur without full output and full Employment. Stagflation..
    Ya, that's why the ultimate limit to spending is inflation - when there is a supply shock like in stagflation, you can still recover Full Output and Full Employment, by shifting work to a different area of the economy that does not put pressure on the supply constraint (preferably, into work that substitutes that constrained supply with something else more readily available).

    If the constraint is something critical to the whole economy like e.g. energy, your level of potential Full Output is likely going to be significantly lower for a long time, until you fully substitute that supply for something else (e.g. substitute fossil fuels if they are constrained, for locally generated renewables).


  • #896
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    Ya, that's why the ultimate limit to spending is inflation - when there is a supply shock like in stagflation, you can still recover Full Output and Full Employment, by shifting work to a different area of the economy that does not put pressure on the supply constraint (preferably, into work that substitutes that constrained supply with something else more readily available).

    If the constraint is something critical to the whole economy like e.g. energy, your level of potential Full Output is likely going to be significantly lower for a long time, until you fully substitute that supply for something else (e.g. substitute fossil fuels if they are constrained, for locally generated renewables).

    I had a quick look today what effect the QE announcements have had on Euro FX rates over the past few years.

    Back in march 2015 when the ECB started QE the Euro fell in value to most currencies.

    In April 2016 when they increased the QE the Euro fell in value again.

    In April 2017 when they reduced the QE the Euro got stronger.

    What is interesting is when the ECB did there massive QE this time rather than seeing the value of the Euro drop it actually increased as people looked at as a safe haven with the ECB willing to do everything approach.

    This shows that QE does impact the FX rate.


  • #897
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    It does impact the exchange rate, it just isn't devaluation. The effect it has is fairly indirect, and the last case there backs my point that when governments will be using the QE money, it's directed into the domestic economy rather than risking filtering into the foreign sector and foreign exchange market, with their being no mechanism for it to reduce currency valuation in that circumstance.


  • #898
    Timing belt
    Registered Users Posts: 3,406 ✭✭✭Timing belt


    KyussB wrote: »
    It does impact the exchange rate, it just isn't devaluation. The effect it has is fairly indirect, and the last case there backs my point that when governments will be using the QE money, it's directed into the domestic economy rather than risking filtering into the foreign sector and foreign exchange market, with their being no mechanism for it to reduce currency valuation in that circumstance.

    I can see that as the Governments are spending it has boasted the EUR as the expectations of growth increase. However in the past when QE was undertaken without government sending it lead to a lower EUR.


  • #899
    Geuze
    Registered Users Posts: 13,032 ✭✭✭✭Geuze


    Impact of QE on the exchange rate:

    https://www.ecb.europa.eu/pub/economic-research/resbull/2020/html/ecb.rb201020~85fb68a983.en.html


  • #900
    Geuze
    Registered Users Posts: 13,032 ✭✭✭✭Geuze


    The recovery is slowing down, I suppose due to this second wave of virus spread.

    I see talk of a "double-dip" recession.

    https://www.rte.ie/news/business/2020/1023/1173410-euro-zone-economic-activity/


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  • #901
    Wanderer78
    Registered Users Posts: 28,779 ✭✭✭✭Wanderer78


    Geuze wrote: »
    The recovery is slowing down, I suppose due to this second wave of virus spread.

    I see talk of a "double-dip" recession.

    https://www.rte.ie/news/business/2020/1023/1173410-euro-zone-economic-activity/

    inevitable unfortunately, before the budget, the government was defaulting, and put the cart before the horse as usual, by reducing covid payments, and trying to encourage people to spend their savings and to take on more debt, thankfully theyre starting to see sense


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