Are we heading into a global recession?

Steven Barrett said:
The worst thing the ECB can do now is increase interest rates to control inflation and slow down the economy.
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They have to fight the battle at hand which is inflation, if they are too late to raising interest rates which is now baked into market expectations anyway well then inflation really kicks off. The US and UK are raising interest rates , if the euro doesn't follow well then its exchange rate will continue to fall exasperating inflation. The most important commodities like oil are priced in dollars therefore it is vitaly important that this exchange rate is stabilised in order to control inflation

During the financial crash the ECB was years too late in reducing interest rates until they ditched Trichet, now they are too late in fighting the current problem which is inflation, Will we have to wait until Lagarde is also moved on to tackle it?
 
joe sod said:
They have to fight the battle at hand which is inflation, if they are too late to raising interest rates which is now baked into market expectations anyway well then inflation really kicks off. The US and UK are raising interest rates , if the euro doesn't follow well then its exchange rate will continue to fall exasperating inflation. The most important commodities like oil are priced in dollars therefore it is vitaly important that this exchange rate is stabilised in order to control inflation

During the financial crash the ECB was years too late in reducing interest rates until they ditched Trichet, now they are too late in fighting the current problem which is inflation, Will we have to wait until Lagarde is also moved on to tackle it?
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The UK is overweight energy so hasn't been hit as hard by the war in Ukraine. The US is somewhat insulated from it due to its location. Europe has been hit hard by the war given its reliance on Russian energy as well as its proximity. An increase in interest rates will cause share values to fall further. To not do it will mean inflation will continue. Decisions on whether to increase rates or not will have repercussions either way.
 
Steven Barrett said:
The UK is overweight energy so hasn't been hit as hard by the war in Ukraine. The US is somewhat insulated from it due to its location. Europe has been hit hard by the war given its reliance on Russian energy as well as its proximity. An increase in interest rates will cause share values to fall further. To not do it will mean inflation will continue. Decisions on whether to increase rates or not will have repercussions either way.
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Yep, each option is inflationary and deflationary depending on the timing and scale of its application.
 
It looks like the recession is starting.
Worldwide borrowing costs to their highest level since June 2009 at nearly 3.8 per cent. They were about 1.3 per cent at the end of last year.

The US Fed has more or less said that a recession is necessary in order to reduce inflation.
Jay Powell, the FED Chairman said, “We have got to get inflation behind us. I wish there were a painless way to do that." "There isn’t.”
Despite, or maybe because of that the Dollar is strengthening as there is a flight to quality.
 
The central banks printed too much money during covid ,then the lockdowns shut down factories ,hospitality and foreign travel which meant there was nowhere for this money to go , demand was shunted into the sectors and products that were still open which sparked inflation in those areas , this inflation then continued onto other areas as they opened up and struggled to get workers. Inflation was well entrenched by the time of the Ukraine invasion which threw petrol on the flames. But it is a mistake to blame inflation on the Ukraine war it had already taken hold during the lockdowns.

The lockdowns were the first time the world economy was basically shut down in the modern era. While its easy to shut things down its a completely different story trying to open everything up again. Lots of workers working in difficult jobs or anti social hours decided not to return to their previous jobs. Because there was so much money out there after covid and money printing they didn't need to. Now that the central banks are pulling all that money back in again it will probably force workers back into those sort of jobs again as a recession arrives. That looks to be the game plan
 
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Purple said:
They've been printing it since the 2008 crash. Covid was just (a lot) more of the same.
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But production was shut down aswell, that's the crucial factor, that's what really sparked the inflation because there was nowhere for that money to go
 
joe sod said:
But production was shut down aswell, that's the crucial factor, that's what really sparked the inflation because there was nowhere for that money to go
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True, but most (85% as far as I know) of all the QE money had gone into the stock market and property so shutting down production just drove the rest in the same direction.
 
Purple said:
True, but most (85% as far as I know) of all the QE money had gone into the stock market and property so shutting down production just drove the rest in the same direction.
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Since the financial crisis, alot of QE went into asset prices ,that's true, but also to fill the hole in the financial sector left by financial crash.
However covid changed that and now inflation that was largely absent from goods and services came back with a vengeance, so now we have real inflation in goods and services which can't now be ignored. The inflation in goods and services has the potential to such money out of everything else and possibly collapse the asset bubble
 
joe sod said:
Since the financial crisis, alot of QE went into asset prices ,that's true, but also to fill the hole in the financial sector left by financial crash.
However covid changed that and now inflation that was largely absent from goods and services came back with a vengeance, so now we have real inflation in goods and services which can't now be ignored. The inflation in goods and services has the potential to such money out of everything else and possibly collapse the asset bubble
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I agree. The QE driven asset price bubble has been ignored. The price inflation is has caused has incorrected been attributed to demand, especially in the case of property.
 
Paul Singer, head of Elliott Management, one of the biggest Hedge Funds in the world, has warned that the world is facing hyperinflation and could be heading towards the worst financial crisis since the Second World War.

While hyperinflation is not inevitable, Elliott said it would cause “global societal collapse and civil or international strife” if it does occur.

Elliott stated that markets face an array of “frightening and seriously negative possibilities” – with a 50% decline in equities a “normal” potential outcome given the risks.

The firm also took aim at the Fed and other central bankers, accusing policymakers of exacerbating the current trouble and being “dishonest” about the root causes of the decades-high inflation currently plaguing American consumers.
Source NY Post

Michael Burry, of The Big Short fame also predicts a 50% decline in the Markets.
 
These guys are all out predicting doomsday because they want the Fed to pivot and stop raising interest rates so that their stock portfolio can start going up again. Hedge fund managers aren't making statements for the good of the general public.
 
interested21 said:
These guys are all out predicting doomsday because they want the Fed to pivot and stop raising interest rates so that their stock portfolio can start going up again. Hedge fund managers aren't making statements for the good of the general public.
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Do you have anything to say about the merits of their arguments, or are you happier with the cynical approach.

It is perfectly true that there has been at least 15 years of very loose fiscal policy. The surprising thing about that is that it has not lead to inflation before this.
 
interested21 said:
These guys are all out predicting doomsday because they want the Fed to pivot and stop raising interest rates so that their stock portfolio can start going up again. Hedge fund managers aren't making statements for the good of the general public.
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When the oil crisis hit in the 1970's global debt was equal to about 100% of global GDP.
Global debt is now 350% of global GDP.

I don't think that's a good thing.
 
Purple said:
When the oil crisis hit in the 1970's global debt was equal to about 100% of global GDP.
Global debt is now 350% of global GDP.

I don't think that's a good thing.
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I am not saying there isn't challenging times ahead economically.

I am saying I put no value in the public statements of hedge fund managers.
 
interested21 said:
I am not saying there isn't challenging times ahead economically.

I am saying I put no value in the public statements of hedge fund managers.
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Okay, but what is it that you disagree with?

The counter argument is that the US economy is strong; wages are keeping pace with inflation, they have very high levels of personal saving, their first time home purchaser has a much better credit rating than during the last recession, unemployment is low and consumer expectation is that inflation will not remain high. Internationally increases in prices of everything from gas to second hand cars is moderating and because the Chinese economy is screwed they are, in effect, exporting deflation.

That ignored the fact that recessions are almost never caused by the same thing twice in a row. After the 2008 recession we just nationalised private debt and funded it with QE. We then artificially depressed the cost of debt. That just kicked the can down the road. I think we've run out of road.
 
Purple said:
Okay, but what is it that you disagree with?

The counter argument is that the US economy is strong; wages are keeping pace with inflation, they have very high levels of personal saving, their first time home purchaser has a much better credit rating than during the last recession, unemployment is low and consumer expectation is that inflation will not remain high. Internationally increases in prices of everything from gas to second hand cars is moderating and because the Chinese economy is screwed they are, in effect, exporting deflation.

That ignored the fact that recessions are almost never caused by the same thing twice in a row. After the 2008 recession we just nationalised private debt and funded it with QE. We then artificially depressed the cost of debt. That just kicked the can down the road. I think we've run out of road.
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I broadly agree with everything you've posted here. How does this lead to the "global societal collapse" of your previous post?
 
interested21 said:
I broadly agree with everything you've posted here. How does this lead to the "global societal collapse" of your previous post?
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I don't think there'll be a global societal collapse but I do think we are heading into a prolonged period of stagnant growth or recession with a strong risk of along period of Stagflation.
Climate Change will also be a major factor as floods and droughts increase food costs, political instability and migration. It will also increase insurance costs for everything since all insurance prices are linked through the reinsurance market.

As usual that will cause inconvenience in the developed world and famine, starvation and death amongst the bottom billion.
 
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