Europe heading into recession
Discussion
Interesting comments from this ex-IMF economist and former central banker.
https://en.wikipedia.org/wiki/Raghuram_Rajan
https://www.thisismoney.co.uk/money/markets/articl...
"'For reasons we don't fully understand, the underpinnings of growth have been very weak for almost two decades,' he says. 'And the way we've remedied that is by easier and easier money and a pile-up of debt.
'Every time growth falters we say, 'Let's push some more easy money and more debt.'
At some point we will have to pay that price. So on the one hand, we still have enormous uneasiness with the unequal growth that people have experienced.
And on the other hand, we have limits to pushing more growth. And they are coming for a collision."
https://en.wikipedia.org/wiki/Raghuram_Rajan
https://www.thisismoney.co.uk/money/markets/articl...
"'For reasons we don't fully understand, the underpinnings of growth have been very weak for almost two decades,' he says. 'And the way we've remedied that is by easier and easier money and a pile-up of debt.
'Every time growth falters we say, 'Let's push some more easy money and more debt.'
At some point we will have to pay that price. So on the one hand, we still have enormous uneasiness with the unequal growth that people have experienced.
And on the other hand, we have limits to pushing more growth. And they are coming for a collision."
Murph7355 said:
I think Mark Blythe has been saying similar for a while.
Will be interesting to see what the chap does if he does get the BoE job...
Yup, and IIRC he ascribes it to western governments switching policy from targeting unemployment to targeting inflation about 30 years agoWill be interesting to see what the chap does if he does get the BoE job...
amusingduck said:
Murph7355 said:
I think Mark Blythe has been saying similar for a while.
Will be interesting to see what the chap does if he does get the BoE job...
Yup, and IIRC he ascribes it to western governments switching policy from targeting unemployment to targeting inflation about 30 years agoWill be interesting to see what the chap does if he does get the BoE job...
I do not think mild rate hikes would stall the economy and, in any case, most people's debt is based on rates far higher than BoE base, so a half a point rise here or there would be like boiling a frog. More importantly though, the central bank retains the ability, thereby, to reduce rates fast in the event of a recession.
At present, it feels to me like the main EU economies are a bit like surfers who stay out too long. They think they can keep riding the waves, unaware that the next big one is going to pin them to the seabed.Every waved survived gives more confidence in their misguided opinion, but it cannot last.
Disclaimer, I know nothing about surfing. I went once and broke two ribs.
Gecko1978 said:
the analogy works well, much like riding a sports bike you get away with all sorts of stuff on a 600, so how much worse can a 1000cc machine be....you don't get to update book face because your brown bread bit like EU economic policy
2008 was a Global banking crisis as will the next one, until the global trading/banking is sorted nothing will change neither the EU or UK can do this in isolation. I recently discovered Richard Werner’s arguments and , as a total novice, found them quite compelling. I’m aware, however, that he’s not at all mainstream, so if any one reading this thread can point me at a novice-level counterargument to his position or credible people that would rebut his arguments i’d appreciate it.
The core of his arguments seems to be that banks are engaged in profitable lending that is unproductive for the economy, and that the reason for Germany’s comparative success is that there are a very large number of small banks lending for productive activities.
Of course A counter argument is why shouldn’t a bank choose to lend wherever it will get the greatest return, and that I suppose comes down to an existential discussion on the role of banks and banking.
The core of his arguments seems to be that banks are engaged in profitable lending that is unproductive for the economy, and that the reason for Germany’s comparative success is that there are a very large number of small banks lending for productive activities.
Of course A counter argument is why shouldn’t a bank choose to lend wherever it will get the greatest return, and that I suppose comes down to an existential discussion on the role of banks and banking.
Digga said:
We could have been slowly and steadily hiking rates, to have a bigger lever in hand for a rainy day. Employment is strong and sterling is weak, there would have been very little downside to so doing. All IMHO.
BTL is still suffering from all the recent government persecution and there's a shortage of available decent houses to rent, prices are rising & will continue to do so. Raising interest rates will exacerbate that problem.Agammemnon said:
Digga said:
We could have been slowly and steadily hiking rates, to have a bigger lever in hand for a rainy day. Employment is strong and sterling is weak, there would have been very little downside to so doing. All IMHO.
BTL is still suffering from all the recent government persecution and there's a shortage of available decent houses to rent, prices are rising & will continue to do so. Raising interest rates will exacerbate that problem.Toaster said:
2008 was a Global banking crisis as will the next one, until the global trading/banking is sorted nothing will change neither the EU or UK can do this in isolation.
No, it will be a sovereign default event that starts a chain reaction. Constant reg tinkering and pushing back BASLE reforms by the EC will leave EU banks with virtually no loss absorption buffer. We witnessed such a stress on Italian banks several times, including volitility arojnd the BREXIT vote (if held to UK reg cap standards several Italian banks blew through their reg cap). But these events are sovereign led.
US, UK and RoW banks are sressed much tougher levels. But if you look through the regs, post BASLE2 even, you can see a pattern that requires banks to support public sector debt balloon and hold it as capital. In Europe, the ECB and Germany is going to be eating a mega, mega right-off. Oh, and teh ECBs gonna eat the banks senior debt too. Clowns.
stongle said:
US, UK and RoW banks are sressed much tougher levels. But if you look through the regs, post BASLE2 even, you can see a pattern that requires banks to support public sector debt balloon and hold it as capital. In Europe, the ECB and Germany is going to be eating a mega, mega right-off. Oh, and teh ECBs gonna eat the banks senior debt too. Clowns.
In layman's terms, what are the likely consequences of all this in the near to medium future?
Agammemnon said:
In layman's terms, what are the likely consequences of all this in the near to medium future?
Probably can kicking by EC to lower banks capitam standards, possibly more state support for peripheral banks. At some point the market is going to have to rate a lot of EUROZONE banks as (worse than) junk status so their wholesale borrowing costs go into orbit. They simply wont be able to finance themselves as their capital position is so poor. The spark will be increasing yields or sov default. The banks are the fuel, and Target2 is the oxygen.
Edited by stongle on Monday 22 July 13:05
stongle said:
Probably can kicking by EC to lower banks capitam standards, possibly more state support for peripheral banks. At some point the market is going to have to rate a lot of EUROZONE banks as (worse than) junk status so their wholesale borrowing costs go into orbit.
They simply wont be able to finance themselves as their capital position is so poor. The spark will be increasing yields or sov default. The banks are the fuel, and Target2 is the oxygen.
What will be the consequence to the ordinary person?They simply wont be able to finance themselves as their capital position is so poor. The spark will be increasing yields or sov default. The banks are the fuel, and Target2 is the oxygen.
Agammemnon said:
What will be the consequence to the ordinary person?
Assuming state / EC intervention, not much in the UK. European citizens especially in Italy, whom hold bank debt / bonds likely to get "bailed in" and loose their investments. Overall, we should an increase in borrowing costs as banks have to put proper buffers in place - but thats counter to Easing policy.Equities likely to be very choppy, but fairly resiliant. After Lehmans the MSCI600 only dropped 15% this time the hit may be larger - but they will bounce back (probably of the back of intervention).
So effects fairly minimal to man in street - short term vol, some losses but just more debt build up and can kicking. It'll be man in the street grand-kids paying the price.
Edited by stongle on Thursday 25th July 13:12
stongle said:
Agammemnon said:
What will be the consequence to the ordinary person?
Assuming state / EC intervention, not much in the UK. European citizens especially in Italy, whom hold bank debt / bonds likely to get "bailed in" and loose their investments. Overall, we should an increase in borrowing costs as banks have to put proper buffers in place - but thats counter to Easing policy.Equities lokely to be very choppy, but fairly resiliant. After Lehmans the MSCI600 only dropped 15% this time hit may be bigger - but they will bounce back (prop of intervention).
So effects fairly mininL to man in street - just more debt build up Bd can kicking. Itll be man in the street grandkids paying the price.
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