Thanks for this. After graduating in 2009 at the peak of the crisis I couldn't find a job. Eventually I did but it messed up my career plans. Went back to school in 2018 and now will be graduating again just in time for the second recession. Somehow I could not care less this time around because I realise the figures around unemployment rates became a total joke since the latest crisis. All I can see when job hunting is the jobs with 500+ applicants and the ones with 0 applicants that nobody wants to do. The latest crisis saw the uberisation of the economy as a magical pill (zero hour contracts, self-employment etc) but since the 2020 lockdowns people have had enough of crap jobs and crap salaries. So there won't be any soft landing. People will cut back on spending and rather sit at home than carry on with horrible useless jobs. There are a bunch of studies showing that most jobs nowadays are indeed precarious and low paid, which wasn't the case before. Saying we brought unemployment rate to 3.8% doesn't make any sense to brag about the health of the economy when 90% of jobs are sh** and people chronically ill.
@John_Snow.....you are absolutely correct....and the Western central banks and governments are all taking actions which will have zero effect on supply chain inflation but will have disastrous effects on citizens and the economy, in general. My mate has 4 degrees, all in STEM and investments subjects...(supposedly highly employable subjects and all,supposedly in demand) .he cannot find a job to save his life.......hundreds of applicants for each job....so yes, there will be a crisis soon brewing in all,western nations and i foresee social unrest, riots, and massive civil ,disobedience in the very near future!
And the fools in charge think that by causing the economy to go into recession, that those citizen will be willing too take any job at any wage.....thus "fixing" the supposedly "tight labour market"......but they have no clu that WE won't be fooled again!
My Dad, born 1916, said 30 years ago "There's nothing wrong with this country that a good depression wouldn't solve." Too good for too long is both addictive and dangerous. We all want the "spoonful of sugar" but to hell with the "medicine going down" part.
except it hasn’t been good at all has it. maybe for certain people feeling like they sit above everyone else and can ‘take the hit’. But the reality is it has been shit for a long time.
Let's be honest, we are really due 2 recessions, the one that was never allowed to happen in the financial crisis back in 2009 and the current one. Recessions are nothing more than a process of removing seasonal and accumulated dead wood in a garden to enable healthy growth.
@UCParlrVubw3UCGAj8SJwQbw Who is being flippant? I think it is more about facing facts and a bit of common sense. If people are stupid enough to believe that they can have something for nothing then we have a recipe for disaster. The only free cheese is in a mousetrap. As for 'tyrannical regimes', the world is in the grip of that very thing right now by a process of stealth but they don't ring a bell and announce it.
The banks were bailed out, so the people who caused the recession in the first place are still around and thriving. If bad companies can't be allowed to fail, and instead are pumped with huge amounts of taxpayer money, then yes that was not a proper recession for economic health (we still have those badly run companies and excessive printed money).
@@pip1723 Raise taxes to pay for what is needed. The difficulty is determining need. I know I can’t have everything and it follows that society can’t have everything that everyone wants either.
@@pip1723 Your government is already spending over 40% of the country's GDP on those "overstretched" public services. We all know no matter how much money we give the NHS and the education system, they are always going to be "underfunded" and "overstretched." Privatise the public services and let everybody pay for their own stuff. Ever heard of private medical insurance? Ever heard of private schools? Ever head of private pensions? Oh, a tiny minority of people can't afford that stuff? I'd rather give people in need the cash for them to spend directly than give it to that bottomless money pit called the NHS, for example. Wanna help your neighbour beyond medical insurance or basic education? You can always do it with your own money, and I can guarantee you nobody will get in your way.
I'm going to make a couple of forecasts: - The BOE won't raise interest rates sufficiently to control inflation. If they were going to do that wouldn't they have done it by now? There is too much debt out there. Inflation will be left to run. After all, it's great for eroding debt away. In the meantime politicians can always say "they understand the difficulties people are experiencing and they're going to do something about it". Pretty much as they are doing now. Help will be in the form of continued cash "support", exacerbating the inflation problem. - We will have a recession, but it won't cure inflation. We'll get stagflation.
I concur with your guesses. Add into the mixer about 50% of current inflation is due to energy prices. Most people cannot choose to consume less of it and chances are supply weakens further. High likelihood this entrenches that inflation and results in stagflation.
Sorry but Gordon told us there would be no more boom and bust. That's the problem, they've been using QE and spending to avoid recessions. That leaves us with over inflated assets prices, huge sovereign debts and a host of zombie companies.
I can't agree with your hypothesis. Inflation is currently being driven by supply shortage since 2020 and energy supply shortage crushing supply by increasing interest rates is destructive rather than constructive as it doesn't address the fundementals. Do what you want with interest rates and it does nothing to solve either. Most of the labour demand is for low paid jobs, this tells you something about those companies they are either exploitative or zombie companies who don't know they are dead or perhaps haven't priced themselves correctly in the market. The global economy is in a new economic cycle, its a shake down period where a new normal will appear. What that new normal is I have now idea.
Hello. Your video is great sir, but I would like to clear a minor detail; the war in Ukraine and it’s consequences are not the main cause of the high energy prices. For example, the German government obligated nuclear energy companies to close. Here in the US the government has plans to eliminate fossil fuel consumption, because of this, many energy companies had stopped investing in themselves because of the fear of being closed by bureaucrats. High energy prices are also responsibility of OPEC, due to the fact that the cartel is making tons of money keeping production low, therefore prices high. Government is always liable for this unusual global economic disruptions like this one.
To address that oft-repeated misconception: the wage-price spiral concept doesn't apply at the moment because increase in wages is needed in response to higher bills (such as energy); it doesn't give people additional buying power.
Increases in wages rises costs for companies. They wil try to pass that bill to the customer, thus increasing inflation. There you have a wage price spiral.
@@frisos3944 And that’s usually true too, but can companies pass their wage costs on to consumers (i.e. increase their prices) when consumers don’t have the money to buy their goods because they’re spending it all on energy? Only for essential goods I would suggest.
@@frisos3944 It depends whether the extra cost can be absorbed, the ftse 250 companies are reporting healthy reserves and profits At the moment profits are being protected over peoples lives, and thats going to end up in mass riots
High inflation is temporary. It will go down when the current geopolitical situation is done. We could even have deflation if energy costs plummet. A pay rise now in line with inflation is permanent. If you get a pay rise of 10% to match inflation this year, would you accept a pay cut of 8% to match deflation next year? A better alternative to a big pay rise would be a bonus as it's a reasonable solution to the temporary inflation problem
Let us not forget that the USA airlines were given massive bailouts during the pandemic with the express requirement that they NOT layoff staff/pilots. Instead USA airlines decided to encourage early retirement for staff/pilots (the very same effect on employee numbers, but a loophole so they would be operating within the letter of the agreement). Then when demand rebounded,,they simply throw up,their arms and say "we cannot find staff/pilots, therefore we must raise prices to meet this demand surge"!..... Thus, once again making a fool of the government at th expense of consumers!
Inflatin caused by loose monetary policy (low interest rates, QE, increasing the money multiplier in the fractional,reserve banking system, etc. ) can be fought by monetary policy fixes (.i.e raising rates, QT, etc). However, using monetary policy to,fight inflation caused solely by by supply chain problems CANNOT be fixed by monetary policy tools...... That is raising interest rate will NOT bring down the prices of goods/ services for the current CPI inflation.....and will,likely lead to,a recession and the followed by massive unployment, no confidence, and deflation as consumer will not spend money as they have little,or no discretionary funds! The current measure being used by western central banks will, in future prove disastrously wrong and dangerous!
I subscribed to your newsletter. Tip, send it on Sunday afternoon or early Monday before market opens, as there is a HBR study that says people don't really put much attention on emails received on Friday's as its the end of the week and they just want to relax.
Unemployment..."a price worth paying" eh? Careful what you wish for fella! Pitchforks may be a bit rusty and not very sharp. That can all change very quickly.
@@Pensioncraft I have 2 minds about the financial elites and their motives. On a good day I feel like thay are just decent people who are desperate to keep the plates spinning to spare the vast majority of people as much pain as possible. On a bad day I feel that they are respectable versions of Bernie Madoff who are looking for the weakest suckers to pay the price of their hubris and trying to make sure it is not them, their families or there tribe that will bear thd cost. Capitalists never cease to amaze me when they think that Communism and Fascism are just periods in history rather than aspects of the human psyche. Your glibb response tells me that you don't understand this either? You are talking about the ruination of the poorest in society as the panacea to the system? If...and I realise it is a big "if" we hit a great depression the monopoly board will go over.
What I don't understand is why house price changes are not included in the inflation figures. If this was the case, the inflation alarm bells would have gone off earlier and BoE (or other central bank) could have got onto the front foot with interest rate hikes and we may have a bit more control of the situation.
Inflation is generally going to follow whatever will show the lowest figure If we want real inflation then include the inflation rate on stock prices, that’ll give an accurate reflection
By "inflation", if you mean CPI, then houses aren't consumer products. I agree that house prices have got out of all proportion. It's not necessary to use interest rates to control that, regulations could limit the amount of private sector money creation (ie bank lending) that is directed into asset speculation rather than productive capacity. I can't believe any UK government is going to encourage that though.
Inflation was split into price inflation CPI and asset inflation in the 80s. It was then decided (Fed, BoE, ECB) that asset inflation was ok, it makes people feel rich etc, so it was not part of their action. This became an increased issue with a perm zero IR pushing out yield curves to riskier assets and causing other asset inflation.
Yes, and it is why they only record CPI inflation.......and also,why the wealth gap was allowed to massive grow during the past 15 years of QE.....the rich got richer and the poor got poorer.....If the public was truly aware of this two decades ago, my guess is that it would have lead to fractures in society and violent social,unrest!
Ramin, do you think the expansion of the money supply (by nearing on £0.5trillion) in 2020 has anything to do with the inflation we're experiencing now?
Bear stock market rallies have been occuring here in Brazil with money managers sticking to Powell's soft landing narrative publicly while playing with a level of volatility that can simply swallow, devour us simply mortals, in a frentic portfolio rearrangement. Most of them are even pretending that are not aware that the next feds rise in american interest rates will affect ours considerably despite our current economic slowdown. I mean, they are acting as if our basic interest rates were already too high (13.75%, very high indeed but can get higher considering the world inflation, and that we had 12% annual inflation just 60 days ago). Here, we advanced in rising basic interests quite timely and have experienced some deflation in July and mid-August but mostly related to tax cut on fuel. Now banks projections show inflation AND interest rates above 2 decades historical average for at least 2 more years with the worldly omnipresent distortion of the short to long term curve. There is something strange in the air as if everybody knew that the Market wont buy bonds which interests do not cover inflation anymore from a country with an astronomical debt... something that is not said by money managers openly. Maybe the time that american bonds are considered risk free (as it used to be by definition and subsequent market consent) is no longer there, and for practical evidence. No doubt that GEOPOLITICS will speak up. That means deffending dollar. The pressure is mighty. My humble opinion.
Missed the but about our governments monetising billions (UK) / trillions (US) of currency to pay for the unnecessary forced economic shut down which created the inflation we're now enduring. All the other components, Russian border dispute and shortages just made that situation worse. Until central banks correct that mistake inflation will be rampant.
In the UK QE was 1 trillion and cause the inflation. The state owes itself. That debt can always be “paid” as its just cancelled. The real problem is the pension debts. £16 trillion that can’t be paid. It’s inflation linked, you can’t inflate your way out for starters. Your have to default, increase taxes, cut spending. Ie. The only solution is austerity.
Listening to all this reminds one of why capitalism is such a great self regulating system. Thing of absolute beauty......if you're rich. Is you're on the receiving end of it all...not so much excitement. That's why we love democracy just not in the work place where most people are really forced to live their lives.....what is the exact definition of forced labour? So is the recession option a sign of a total lack of social responsibility or is it a case of a little collateral damage for the greater good.....again for exactly who? The next question is why would anyone in their right mind want to use such an unstable economic system that demands a recessionary reflush every 6-8 years? Where is the debate on can we do BETTER? Rather than this seemingly mindless acceptance that recessions are just laws of nature. Just the last ravings of an old guy about to probably die from COVID because my government who I thought was charged with protecting me decided instead to protect the economy. I'm gaining a real appreciation for the concept of collateral damage as l lie in bed struggling to type this. What is the current COVID death toll in the USA/UK/West......wonder what it is in China? Probably too late for me but perhaps not for some of you to ask these questions. Good luck to you all. Hope it's a soft landing. PS. Last ramble...But then again a depression may be the collateral damage required to force a rethink. A small price to pay!
I don't think any other economic system produces abundance, growth, and innovation as well as capitalism. We are soft and ungrateful in the West I think. Very used to having everything we want, luxurious and international food, technology, travel, safety, healthcare. And all we can do is look at a tiny proportion of very successful people and be envious. It would be great if we could clean up the blatant nepotism and corruption in government. The Tories have been embarrassing.
I don’t understand why we need to bring down inflation at the cost of increasing unemployment rate. That means ppl losing their job. Is that means in order to let some people have a cheaper goods to buy, we need to have some ppl suffer ?
It's a natural consequence of increasing rates. Money becomes more expensive to borrow, so business growth contracts. This often means layoffs to cut costs. You must remember that most businesses are operating basically leveraged - as in if they fail to grow, they will fail full stop. Simply maintaining a steady ship is not enough a lot of the time. And during periods of tightening investors often have to double down at bargain prices (making the business leveraged even more) just to keep things going. Competition makes all the margins paper thin for most markets.
Patient asks doctor: Doctor, I got this constant nagging headache, it's killing me. Doctor: Let me chop your head off, then you won't have the headache. Patient: But I won't be alive once you chop my headache. Doctor: Let me tell you why I need to chop your head off. It's because I have no clue as to what I am doing, I figure this is the only way to cure your problem. I will chop your headache, then you won't have the problem, then I will pivot and suture your headache back to your body.
With government and the Bank of England having opposing strategies it makes zero sense as one hand gives and the other takes away. Literally pointless.
Many people were poor and struggling when we had the boom for them there was no boom, and now they have been put under more pressure because of the recession. This system does not work and is not fair.
@@wolfiestreet6899 housing is 40% of inflation. Raising interest rates reduces investment in new buildings plus also gives a stronger whip hand to landlords when setting the rents their victims have to pay for the privilege of remaining housed.
@@tachikaze222 On the other hand, raising interest rates helps people who save and can then buy their own property rather than needing long-term renting options from landlords.
It's interesting to watch that 7 months later, it seems that we may have a very soft landing after all ... almost impossible to predict anything based on historical data. Thank you for the great video
I cannot believe that the interest rates have stayed so low for so long they needed to be raised a year ago buy a full percent to slow things down. This I believe is to do with the uk government wanting the higher inflation as it effectively reduces there debt they also get more tax on the likes of fuel, property, energy and anything else that is traded and taxed. I think we need interest rates to be up 3 percent to have an effect. The longer they leave it the harder it will be to control no soft landing then.
@@wolfiestreet6899 nope, a recession means less tax receipts, leading to defaulting on government debt, which they won't allow to happen. The only way out is to print more, they're trapped. You'll see, my guess is that the fed will pivot before Christmas.
@@apc4884 False. Lower tax revenue doesn't equate to not being able to meet debt servicing requirements. Expenditure cuts and austerity will be the initial policy choices. And there's plenty to cut back. You WISH the fed will pivot, but you've bought that line from the financial institutions that need you to keep investing. It's PR spin. Don't fight the Fed.
Its tough but the answer has always been the same, you have to work hard and smart and save everything you can, live frugally ( with mum and dad if you have that option ), with good deposit saved and good career you can get a mortgage to buy a house. My first house was 10x my wage and interest was 17.5%, bank wanted 20% deposit, I had to buy it thoigh shared ownership shame with a friend who I later bought out , we had a 40% share and paid rent on the rest, could not afford to have heating on or buy carpets and got food off Market at end of day when they were selling it off cheap. Good news is 35 years later I own my house outright BUT I'm too old and knackered to work like I did back then and can barely afford the energy Bill's now lol. Isnt capitalism great!!
@@FlyingFun. Thats not an answer… thats completely unacceptable Furthermore, people cant afford to heat and eat… people are being put into a corner where they fight or literally die
@@JuanAristi I didn't cause the problem and I dont have the answer to the problem that money printing ith low interest rates has caused. All I've done all my life is work hard and start up my own business and put every penny to buying and paying for my house, it's not right that such a basic need as a roof over your head should be such a strain but while people are allowed to profit from buying houses and renting them out it will be seen as a solid investment and prices will always be at the very limit of affordability. Gov could simply outlaw btl rather than taxing it more and forcing prices up more. i know other countries do not have such problems , the fear and greed associated with our society us horrid. We either accept it and work hard to make the best of it or we rebel in a meaningful way TOGETHER , the gov and powerful people want us to fight amongst ourselves while they completely screw us over.
@@FlyingFun. I completely agree… there just isn’t enough housing, buy to let shouldn’t be unlawful but not at the cost of society at large… you shouldn’t have to eat ‘cold beans’ for years in order to afford a house I agree we have to change things together… however, a significant number of people have been left with nothing to loose, and whole sections of society are breaking down… there’s not even Barristers to prosecute crimes right now, what about when Police are literally hungry and/or cold… It looks like we’re going in for a Currency Crisis, confidence is being lost domestically and internationally… 50% of the population in fuel poverty by April 2023… we’re a ship adrift
It feels like poison not medicine and the difference between the two of course being the dose. It feels like they've got the dose wrong and that the symptoms are being treated not the cause. Ultimately, it's about energy and depending on other states. The UK needs to invest in it's own. In the long run cheaper than wars, provides more economic stability and reduces global conflict. Imagine that as a longterm strategy?
I agree @Mahogany Goddess the central banks can only affect demand not supply. Government has to do its job to ensure supply. But current policies don't address that e.g. tax cuts. Long-term energy policy should focus on accelerating renewables as we could produce those domestically. Thanks, Ramin.
@@Pensioncraft yes tax cuts for multinational and national companies has resulted in deregulation and under investment in national infrastructures. The government and banks seem to make citizens pay more tax or interest while doing nothing about industry. It's the fuzzy end of the lollipop for citizens in every era and many countries.
None of these hikes address the issue of money printing though, it has only grown, it limits what the FED can do, this is better seen in Europe though.
Because inflation caused by supply chain issues CANNOT be controlled by monetary policy actions (like raising interest rates).....raising rate now will only lead to recession or economic collapse!
This is not only supply chain caused - the banks are printing currencies into oblivion. The inflation of currency supply is completely controllable - but it is worldwide policy to let inflation run riot... and thereby inflate away government debt....
Great explanation, I largely agree but I'm not sure how much a recession is going to help. A big portion of the inflation is either directly or indirectly due to energy costs and I can't see a significant drop in demand there unless things get really bad. Even if the war in Ukraine ended today in a favourable way I'm not sure this problem is going to go away. Presumably we wouldn't just start buying gas and oil from Russia again.
Ukraine is a fig-leaf. Brent and WTI are both currently priced almost exactly as they were just prior to the war at a level ~50% above the Feb 2020 price. Some people will claim that governments spending money like it's going out of fashion doesn't cause inflation, but Occam's Razor and all that.
Nope. This inflation is mostly due to extreme loose monetary policy. Commodities, priced in USD, responded accordingly. The war was merely an unwelcome catalyst.
I don't really know much about economics but this ignores what is causing inflation. This inflation is not caused by too much demand. Its the supply which is driving inflation. By reducing demand by increasing interest rates will not help this.
@@kevinrogers326 I agree. The BoE has only two controls though, it can either create or destroy bank reserves (ie QE / QT), or it can raise / lower interest rates at the short end of the curve, neither of which improves the supply problem. The problem is widely perceived as a cost of living crisis, but its actually a shortage of supply crisis that can't be fixed without people consuming less. However people don't want to consume less, they just want to continue living as they did previously and are bidding the prices through the roof. No politician seems to be able to say this, that people are going to have to just suck it up and consume less.... with the caveat that obviously we have to help the very poorest.
A couple of points; - MOST of the inflation problems the west is having is energy related. With both the increased cost of oil/gas and environmental regulations playing at large part, and reverberating through the economy. - the reason why there are so many job vacancies in the US is partly due to demographics. And partly due to some of the ‘lean’ methodologies employed by corporations. Many of these businesses did not anticipate years ago the effects of cutting thinks like job training programs and running with a ‘skeleton crew’ of staff. Now that staff is retiring or leaving, and the replacements for those people, who often had 20 years or more experience, are entry level employees who are usually less efficient.
Even if central banks did not exist, interest rates would not stay significantly below the rate of inflation indefinitely because lenders would raise the rates they demanded while borrowers competed to borrow at rates below the rate of inflation. Those with capital would try to increase the leverage they used to hold real assets (for example real estate investors).
The massive problem is that energy prices are fuelling inflation. With households having to find an extra £300-400 a month. Average household income means that wages would have to rise 10-15% JUST to cope with this particular increase. Fewer people have that money, and with mortgage bills going up as well... Using interest rates to curb spending when no-one can afford to spend is blinkered thinking at best. Whilst your video was a good explainer, you've missed the whole reason why inflation is surging and as a result any argument becomes flawed. Sorry.
The problem is QE. The government printing money which has caused the inflation. Hence a massive cut in state spending is needed. That’s deflationary and doesn’t affect the productive economy.
@Gammons Trout QE is the main cause On energy. Regulation is the next. The took out all the small companies meaning zero competition. So what fraction of gdp are the increased profits because that is the contribution to inflation
Good presentation but I wonder if Government policy can (and should) do more to protect people from the negative impacts of an unfettered free market. After all society is more than just investors. Mass unemployment has a huge social and ecenonomic cost to the people who get laid off and also to the taxpayer. It seems to me that the job of Government is to find ways to protect employment whilst cooling the economy. Is mass unemployment really "necessary" or an inhumane political choice?
Sadly it is a global problem that impacts on individual countries. Not one government can resolve the current problems especially when other countries cause the issue.
Only someone who is not going to be effected by rampant unemployment and homelessness would make these arguments. Instead of forcing unemployment, why not force inflation matching wage increase before any dividend paid out? Its the same amount of money in circulation but it incentivices companies to keep prices low in order to be able to pay dividends
The biggest problem that I had seen, which hopefully should go away now, are the people investing due to historically low interest rates and stamp duty holidays. Foreign investment into properties is also a big factor where you get returns of 4-5% per annum plus increase in overall house prices year on year. Currently it is looking that the perfect storm is brewing which should keep a lot of these away from the market.
A recession is needed for sustained growth in the future. Surprised there was no mention of currency debasement in the general discussion. Enjoyable video, thanks.
What happened to the middle ground? Instead of aiming at a recession to avoid inflation or aiming at inflation to avoid a recession, why not try to ajust interest rates, monetary policy, public spending and taxation so that we can avoid a strong recession and bring down inflation.
You very briefly started to touch on the fact that the PED for the items in the CPI basket that are increasing mostly due to the Ukraine/Russia situation are almost perfectly inelastic as they are essentials for most people. Yet you then fail to elaborate. The price of energy and food could increase 10 fold but people still need to purchase them to survive. Hence the usual methods of controlling inflation (raising interest rates to lower AD) don't work here as people will have to keep purchasing no matter the price. Hence the usual method of increasing interest rates will just inflict suffering and create poverty but will end up with inflation not decreasing at the expected rates.
Great presentation. A component of the current jobs vacancy rate is the withdrawal of people from the labour market post-covid, for example older workers. Will stagflation force more of these back into work, if so how would this influence (dis)inflation?
I understand where you are coming from Ramin, but as investors its not for us to say what is or isn't needed - leave that to policy makers and naysayers. Our job as investors is to navigate the waters as best we can with the options available to us. It's not the blowing of the wind, it's the setting of the sail (courtesy, Jim Rohn).
would you not argue that as an investor the greatest knowledge you could have would be to understand EXACTLY what the policy makers are going to do? No point setting a sail inside a cave where the wind don't blow... So yeah, you need to understand wind and aerodynamics if you ever have any intention of lift off (Courtesy, Robert Proudfoot)
Yes, Ramin assumes price inelasticity of demand. This is obviously not the case. Only a minority of businesses will be able to pass on higher wages in full to consumers. Utility companies are good examples of companies who can pass on prices in full, hence their prominant role in the current crisis. Most companies face much more elastic price / demand environments, which means they wont be able to pass on wage rises in full. They will see a profit squeeze & some will go bust.
Very good explanation on inflation and how to deal with it. However, as others have noted, this inflation is mainly caused by the reduced supply of gas and oil. Hence increasing the interest rates will not reduce the inflation that much. Seems quite the opposite - making sure people MUST get/ask for better salaries otherwise they won't be able to heat their homes. Add the BOE interest rate hikes and the mortgage rates/rents increase, which fuel the inflation even more. This formula of increasing the BOE rates works if there is too much money in the economy. However, currently it is quite the contrary.
It’s caused by gas but that has a knock on effect. Everything we buy and consume is made using energy in some form and hence the inflation spreads. And it needs to…
@@hitchjack true. Inflation spreads. I just don't see how raising interest rates will curb it when gas price ain't gonna get cheaper due to this. It's a necessity like food. No matter how expensive, we need it to survive more or less. People already struggle to pay the bills. Unless I'm missing something?
@@arnoldasgurskis2945 but not everyone is struggling/worrying. I go to Costco once a week for work and I’m still watching people cart out trolleys of booze and tv’s. People need to slow their spending so demand matches supply. And it’s why the poorest need targeted government support. The other big thing is, and I haven’t seen it pushed by the UK government like others around Europe yet… we need to be prompted as a nation to actually use less gas and electricity this winter, not expect the government to give handouts for people to just consume at the same level.
What is the problem if inflation is at 20% and wage increases are at 20%? Well, meaningful investment gets eroded, confidence dive bombs and a whole lot of other c*** happens as the economy and structural integrity of the country tanks.
Energy disruption could continue till Europe accepts the annexation of East Ukraine as a fait accompli. Meanwhile the recurring extreme drought due to climate change will have an impact on food cost inflation.
A pretty good bet I think but Govt debt rather than some of the risky corporate stuff. A recession in the near future would likely slow down rate hikes or reverse them pushing down yields (and prices therefore go up)
Economy for the Economists! That is what the world needs......right? How is the US Government supposed to pay for the $30 trillion they owe? The GDP seems to be decreasing? The Debt seems to need to cover some stimulus checks as well as the 30 year T-Notes. "They didn't think it through." .........Conrad Breen
What a great video! Your videos are always great. I want to thank you for the information you bring me because it has been very helpful. I’m sure your Chanel will succeed much more because your videos are amazing. I wish you much more success.
Hi @googleisshittoss inflation in double digits is likely to hurt the poorest in society more than a slightly higher unemployment rate. There's no easy way out of this crisis. Thanks, Ramin.
retirees want to preserve their nesteggs even it costs millions of households losing employment and becoming desperate for any work. working class isn't so sure that's a good, or necessary, tradeoff. if we're so afraid of inflation just raise taxes. problem solved.
Sorry but taxes taxes taxes can't be the only go to. Folks are hurting so how does increasing taxation make things better. And I'm talking about people getting desperate and not just not having luxuries.
@@kennztube i don't think anyone's claiming it will make things better from the perspective of the individual. If we put aside the poorest in society who obviously will need help., the rest of us will have to just live through this. There isn't a painless solution. Collectively, we either cut down on consumption or money will be removed from the economy to hinder people bidding up prices.
Germany took the right path. But their curse is to be at the head of the Eurozone. They're having that recession and will be able to grow later on. One of the few responsible countries in the EU. In the world.
I am a rate hawk and believe a recession is good as well. In terms of a forest analogy you can argue a forest fire is healthy long term to clear out the underbrush and fertilize the soil for a new generation of trees. Trees can grow with tall brush and weeds or reproduce
Removing the currancy of a tanagable assist ment govt can just use the printing press to create money not be held back on spending Considering its the tax payers paying goverment borrowing back & the public don't get to say no and block there borrowing could be considered fruad and abuse of power by the goverment who themselvs are only a buisness
Central banks don't like unforeseen catastrophes that induce an uncontrolled recession or worse, threaten a depression. They only like recessions they induce and can control. That's why investors need to understand that they only promote loose monetary policy to remedy the unforeseen. They are content to induce a recession themselves if and when required.
@@mikkimikki5376 I think he means that he feels he is paying an inconsequential amount on his low rate mortgage because inflation is high ? Just my best guess
I pay 1,5% for 20 years with inflation soaring high. My mortgage vanishes with this macro, and with the next economic boom housing prices here skyrocket to new highs. Basically getting paid to live in a city apartment that appreciates in value while monthly cost of ownership is going down.
Thanks for this. After graduating in 2009 at the peak of the crisis I couldn't find a job. Eventually I did but it messed up my career plans. Went back to school in 2018 and now will be graduating again just in time for the second recession.
Somehow I could not care less this time around because I realise the figures around unemployment rates became a total joke since the latest crisis. All I can see when job hunting is the jobs with 500+ applicants and the ones with 0 applicants that nobody wants to do. The latest crisis saw the uberisation of the economy as a magical pill (zero hour contracts, self-employment etc) but since the 2020 lockdowns people have had enough of crap jobs and crap salaries. So there won't be any soft landing. People will cut back on spending and rather sit at home than carry on with horrible useless jobs. There are a bunch of studies showing that most jobs nowadays are indeed precarious and low paid, which wasn't the case before. Saying we brought unemployment rate to 3.8% doesn't make any sense to brag about the health of the economy when 90% of jobs are sh** and people chronically ill.
Crap.
Yes I had a similar experience in 1982 and 1990. My career never really recovered.
@John_Snow.....you are absolutely correct....and the Western central banks and governments are all taking actions which will have zero effect on supply chain inflation but will have disastrous effects on citizens and the economy, in general.
My mate has 4 degrees, all in STEM and investments subjects...(supposedly highly employable subjects and all,supposedly in demand) .he cannot find a job to save his life.......hundreds of applicants for each job....so yes, there will be a crisis soon brewing in all,western nations and i foresee social unrest, riots, and massive civil ,disobedience in the very near future!
And the fools in charge think that by causing the economy to go into recession, that those citizen will be willing too take any job at any wage.....thus "fixing" the supposedly "tight labour market"......but they have no clu that WE won't be fooled again!
Could you please avoid going to school again? I can see a pattern here. 😂
My Dad, born 1916, said 30 years ago "There's nothing wrong with this country that a good depression wouldn't solve." Too good for too long is both addictive and dangerous. We all want the "spoonful of sugar" but to hell with the "medicine going down" part.
Some are being force fed the medicine.Some have sugar coming out of their ears.
except it hasn’t been good at all has it. maybe for certain people feeling like they sit above everyone else and can ‘take the hit’. But the reality is it has been shit for a long time.
I sailed a business through the 2008 recession it's not something I'd like to experience again .
Let's be honest, we are really due 2 recessions, the one that was never allowed to happen in the financial crisis back in 2009 and the current one. Recessions are nothing more than a process of removing seasonal and accumulated dead wood in a garden to enable healthy growth.
@UCParlrVubw3UCGAj8SJwQbw Who is being flippant? I think it is more about facing facts and a bit of common sense. If people are stupid enough to believe that they can have something for nothing then we have a recipe for disaster. The only free cheese is in a mousetrap. As for 'tyrannical regimes', the world is in the grip of that very thing right now by a process of stealth but they don't ring a bell and announce it.
wdym it wasn’t allowed to happen??? the housing market crashed
There was a huge recession in 2008, what are you talking about?
He means qe? They didn’t let the market recover naturally. Instead of removing the weeds and deadwood, the culprits were bailed out?
The banks were bailed out, so the people who caused the recession in the first place are still around and thriving. If bad companies can't be allowed to fail, and instead are pumped with huge amounts of taxpayer money, then yes that was not a proper recession for economic health (we still have those badly run companies and excessive printed money).
Governments need to quit spending money beyond what they raise in taxes. That will stop inflation.
And what happens to already stretched public services.
@@pip1723 Raise taxes to pay for what is needed. The difficulty is determining need. I know I can’t have everything and it follows that society can’t have everything that everyone wants either.
@@pip1723 Your government is already spending over 40% of the country's GDP on those "overstretched" public services. We all know no matter how much money we give the NHS and the education system, they are always going to be "underfunded" and "overstretched." Privatise the public services and let everybody pay for their own stuff. Ever heard of private medical insurance? Ever heard of private schools? Ever head of private pensions? Oh, a tiny minority of people can't afford that stuff? I'd rather give people in need the cash for them to spend directly than give it to that bottomless money pit called the NHS, for example. Wanna help your neighbour beyond medical insurance or basic education? You can always do it with your own money, and I can guarantee you nobody will get in your way.
@Gammons Trout Privatisation you will have to pay for your own stuff in a competitive market. No free lunch for you.
What he doesn’t say is that with high interest rates companies won’t be invest and the recovery will lack in the future
I'm going to make a couple of forecasts:
- The BOE won't raise interest rates sufficiently to control inflation. If they were going to do that wouldn't they have done it by now? There is too much debt out there. Inflation will be left to run. After all, it's great for eroding debt away. In the meantime politicians can always say "they understand the difficulties people are experiencing and they're going to do something about it". Pretty much as they are doing now. Help will be in the form of continued cash "support", exacerbating the inflation problem.
- We will have a recession, but it won't cure inflation. We'll get stagflation.
I concur with your guesses.
Add into the mixer about 50% of current inflation is due to energy prices. Most people cannot choose to consume less of it and chances are supply weakens further. High likelihood this entrenches that inflation and results in stagflation.
I agree. I don't think they have a choice. It's either decimate the economy beyond repair, or accept an elevated inflation. Maybe I'm wrong tho.
Sorry but Gordon told us there would be no more boom and bust. That's the problem, they've been using QE and spending to avoid recessions. That leaves us with over inflated assets prices, huge sovereign debts and a host of zombie companies.
I can't agree with your hypothesis. Inflation is currently being driven by supply shortage since 2020 and energy supply shortage crushing supply by increasing interest rates is destructive rather than constructive as it doesn't address the fundementals. Do what you want with interest rates and it does nothing to solve either. Most of the labour demand is for low paid jobs, this tells you something about those companies they are either exploitative or zombie companies who don't know they are dead or perhaps haven't priced themselves correctly in the market. The global economy is in a new economic cycle, its a shake down period where a new normal will appear. What that new normal is I have now idea.
My favourite part of the video is when your overlay was on Andrew Bailey's forehead. Third eye market analysis.
Hello. Your video is great sir, but I would like to clear a minor detail; the war in Ukraine and it’s consequences are not the main cause of the high energy prices.
For example, the German government obligated nuclear energy companies to close.
Here in the US the government has plans to eliminate fossil fuel consumption, because of this, many energy companies had stopped investing in themselves because of the fear of being closed by bureaucrats.
High energy prices are also responsibility of OPEC, due to the fact that the cartel is making tons of money keeping production low, therefore prices high.
Government is always liable for this unusual global economic disruptions like this one.
That is incorrect. Printing money created price rises of energy. This started pre Ukraine War. It helped Putin fund the war!
No recession please
To address that oft-repeated misconception: the wage-price spiral concept doesn't apply at the moment because increase in wages is needed in response to higher bills (such as energy); it doesn't give people additional buying power.
That’s true and might be a reason why, in this instance, reducing taxes won’t be inflationary either.
Increases in wages rises costs for companies. They wil try to pass that bill to the customer, thus increasing inflation. There you have a wage price spiral.
@@frisos3944 And that’s usually true too, but can companies pass their wage costs on to consumers (i.e. increase their prices) when consumers don’t have the money to buy their goods because they’re spending it all on energy? Only for essential goods I would suggest.
@@frisos3944 It depends whether the extra cost can be absorbed, the ftse 250 companies are reporting healthy reserves and profits
At the moment profits are being protected over peoples lives, and thats going to end up in mass riots
High inflation is temporary. It will go down when the current geopolitical situation is done. We could even have deflation if energy costs plummet. A pay rise now in line with inflation is permanent. If you get a pay rise of 10% to match inflation this year, would you accept a pay cut of 8% to match deflation next year? A better alternative to a big pay rise would be a bonus as it's a reasonable solution to the temporary inflation problem
Let us not forget that the USA airlines were given massive bailouts during the pandemic with the express requirement that they NOT layoff staff/pilots.
Instead USA airlines decided to encourage early retirement for staff/pilots (the very same effect on employee numbers, but a loophole so they would be operating within the letter of the agreement).
Then when demand rebounded,,they simply throw up,their arms and say "we cannot find staff/pilots, therefore we must raise prices to meet this demand surge"!.....
Thus, once again making a fool of the government at th expense of consumers!
Inflatin caused by loose monetary policy (low interest rates, QE, increasing the money multiplier in the fractional,reserve banking system, etc. ) can be fought by monetary policy fixes (.i.e raising rates, QT, etc).
However, using monetary policy to,fight inflation caused solely by by supply chain problems CANNOT be fixed by monetary policy tools......
That is raising interest rate will NOT bring down the prices of goods/ services for the current CPI inflation.....and will,likely lead to,a recession and the followed by massive unployment, no confidence, and deflation as consumer will not spend money as they have little,or no discretionary funds!
The current measure being used by western central banks will, in future prove disastrously wrong and dangerous!
I subscribed to your newsletter. Tip, send it on Sunday afternoon or early Monday before market opens, as there is a HBR study that says people don't really put much attention on emails received on Friday's as its the end of the week and they just want to relax.
Unemployment..."a price worth paying" eh? Careful what you wish for fella! Pitchforks may be a bit rusty and not very sharp. That can all change very quickly.
Hi @marccas10 I'll keep my running shoes close by, thanks for the tip! Thanks Ramin
@@Pensioncraft I have 2 minds about the financial elites and their motives. On a good day I feel like thay are just decent people who are desperate to keep the plates spinning to spare the vast majority of people as much pain as possible. On a bad day I feel that they are respectable versions of Bernie Madoff who are looking for the weakest suckers to pay the price of their hubris and trying to make sure it is not them, their families or there tribe that will bear thd cost. Capitalists never cease to amaze me when they think that Communism and Fascism are just periods in history rather than aspects of the human psyche. Your glibb response tells me that you don't understand this either? You are talking about the ruination of the poorest in society as the panacea to the system? If...and I realise it is a big "if" we hit a great depression the monopoly board will go over.
What's a pitchfork against autonomous flying robot killing machines?
The British do not revolt, they bend over and take it, we aren't the French after all.
Antonmursid✌🙏🙏🙏🙏🙏
What I don't understand is why house price changes are not included in the inflation figures. If this was the case, the inflation alarm bells would have gone off earlier and BoE (or other central bank) could have got onto the front foot with interest rate hikes and we may have a bit more control of the situation.
Inflation is generally going to follow whatever will show the lowest figure
If we want real inflation then include the inflation rate on stock prices, that’ll give an accurate reflection
Because it’s a speculative asset, not a production cost priced asset.
By "inflation", if you mean CPI, then houses aren't consumer products. I agree that house prices have got out of all proportion. It's not necessary to use interest rates to control that, regulations could limit the amount of private sector money creation (ie bank lending) that is directed into asset speculation rather than productive capacity. I can't believe any UK government is going to encourage that though.
Inflation was split into price inflation CPI and asset inflation in the 80s. It was then decided (Fed, BoE, ECB) that asset inflation was ok, it makes people feel rich etc, so it was not part of their action. This became an increased issue with a perm zero IR pushing out yield curves to riskier assets and causing other asset inflation.
Yes, and it is why they only record CPI inflation.......and also,why the wealth gap was allowed to massive grow during the past 15 years of QE.....the rich got richer and the poor got poorer.....If the public was truly aware of this two decades ago, my guess is that it would have lead to fractures in society and violent social,unrest!
This guy should be teaching in schools then we wouldn’t have theses problems in the future great video very professional love it 👏🏾👊🏽👍🏾🥂
Thanks for watching @jermaine robinson
Ramin, do you think the expansion of the money supply (by nearing on £0.5trillion) in 2020 has anything to do with the inflation we're experiencing now?
It has EVERYTHING to do with the inflation we’re experiencing now
Bear stock market rallies have been occuring here in Brazil with money managers sticking to Powell's soft landing narrative publicly while playing with a level of volatility that can simply swallow, devour us simply mortals, in a frentic portfolio rearrangement. Most of them are even pretending that are not aware that the next feds rise in american interest rates will affect ours considerably despite our current economic slowdown. I mean, they are acting as if our basic interest rates were already too high (13.75%, very high indeed but can get higher considering the world inflation, and that we had 12% annual inflation just 60 days ago). Here, we advanced in rising basic interests quite timely and have experienced some deflation in July and mid-August but mostly related to tax cut on fuel. Now banks projections show inflation AND interest rates above 2 decades historical average for at least 2 more years with the worldly omnipresent distortion of the short to long term curve. There is something strange in the air as if everybody knew that the Market wont buy bonds which interests do not cover inflation anymore from a country with an astronomical debt... something that is not said by money managers openly. Maybe the time that american bonds are considered risk free (as it used to be by definition and subsequent market consent) is no longer there, and for practical evidence. No doubt that GEOPOLITICS will speak up. That means deffending dollar. The pressure is mighty. My humble opinion.
Missed the but about our governments monetising billions (UK) / trillions (US) of currency to pay for the unnecessary forced economic shut down which created the inflation we're now enduring. All the other components, Russian border dispute and shortages just made that situation worse. Until central banks correct that mistake inflation will be rampant.
Nail on the head. Ukraine is a side show
In the UK QE was 1 trillion and cause the inflation. The state owes itself. That debt can always be “paid” as its just cancelled.
The real problem is the pension debts. £16 trillion that can’t be paid. It’s inflation linked, you can’t inflate your way out for starters. Your have to default, increase taxes, cut spending. Ie. The only solution is austerity.
Listening to all this reminds one of why capitalism is such a great self regulating system. Thing of absolute beauty......if you're rich. Is you're on the receiving end of it all...not so much excitement. That's why we love democracy just not in the work place where most people are really forced to live their lives.....what is the exact definition of forced labour?
So is the recession option a sign of a total lack of social responsibility or is it a case of a little collateral damage for the greater good.....again for exactly who? The next question is why would anyone in their right mind want to use such an unstable economic system that demands a recessionary reflush every 6-8 years? Where is the debate on can we do BETTER? Rather than this seemingly mindless acceptance that recessions are just laws of nature.
Just the last ravings of an old guy about to probably die from COVID because my government who I thought was charged with protecting me decided instead to protect the economy. I'm gaining a real appreciation for the concept of collateral damage as l lie in bed struggling to type this. What is the current COVID death toll in the USA/UK/West......wonder what it is in China?
Probably too late for me but perhaps not for some of you to ask these questions.
Good luck to you all. Hope it's a soft landing.
PS. Last ramble...But then again a depression may be the collateral damage required to force a rethink. A small price to pay!
I don't think any other economic system produces abundance, growth, and innovation as well as capitalism. We are soft and ungrateful in the West I think. Very used to having everything we want, luxurious and international food, technology, travel, safety, healthcare. And all we can do is look at a tiny proportion of very successful people and be envious. It would be great if we could clean up the blatant nepotism and corruption in government. The Tories have been embarrassing.
@@RogerYeahmon Fair point - thanks.
Forced labour/ slavery in other words.......... a good definition?
Chian , common prosperity leads the way. Socialism with caring prosperity.
I don’t understand why we need to bring down inflation at the cost of increasing unemployment rate. That means ppl losing their job. Is that means in order to let some people have a cheaper goods to buy, we need to have some ppl suffer ?
It's a natural consequence of increasing rates. Money becomes more expensive to borrow, so business growth contracts. This often means layoffs to cut costs. You must remember that most businesses are operating basically leveraged - as in if they fail to grow, they will fail full stop. Simply maintaining a steady ship is not enough a lot of the time. And during periods of tightening investors often have to double down at bargain prices (making the business leveraged even more) just to keep things going. Competition makes all the margins paper thin for most markets.
It’s definitely time to start wearing those: End is Nigh sandwich boards. 😂
Patient asks doctor: Doctor, I got this constant nagging headache, it's killing me.
Doctor: Let me chop your head off, then you won't have the headache.
Patient: But I won't be alive once you chop my headache.
Doctor: Let me tell you why I need to chop your head off. It's because I have no clue as to what I am doing,
I figure this is the only way to cure your problem. I will chop your headache, then you won't have the problem,
then I will pivot and suture your headache back to your body.
This is total madness. But i like it.
Can you make a video looking back what did you get right and wrong in the past videos?
Thank you
Great video. Your charts always provide a great representation. Intrigued as to where you get all the figures from?
@RED EYES I get it from many sources but I usually put the source on the bottom of the slide. thanks Ramin
With government and the Bank of England having opposing strategies it makes zero sense as one hand gives and the other takes away. Literally pointless.
Many people were poor and struggling when we had the boom for them there was no boom, and now they have been put under more pressure because of the recession. This system does not work and is not fair.
What’s the point in raising interest rates, if the prime cause of inflation isn’t affected by interest rate rises?
Of course it is.
@@wolfiestreet6899 housing is 40% of inflation. Raising interest rates reduces investment in new buildings plus also gives a stronger whip hand to landlords when setting the rents their victims have to pay for the privilege of remaining housed.
@@tachikaze222 'Victims'....
I don't converse with ideologues.
@@tachikaze222 On the other hand, raising interest rates helps people who save and can then buy their own property rather than needing long-term renting options from landlords.
It's interesting to watch that 7 months later, it seems that we may have a very soft landing after all ... almost impossible to predict anything based on historical data. Thank you for the great video
Wow, that was well presented.
Thanks @Terrill Melville
The argument presented is seriously flawed, as I have explained in my other comments on this video.
Whats a recession? The economy has been going downwards since i left school 20+years ago. Do you mean relative recession?
I cannot believe that the interest rates have stayed so low for so long they needed to be raised a year ago buy a full percent to slow things down. This I believe is to do with the uk government wanting the higher inflation as it effectively reduces there debt they also get more tax on the likes of fuel, property, energy and anything else that is traded and taxed. I think we need interest rates to be up 3 percent to have an effect. The longer they leave it the harder it will be to control no soft landing then.
This is the price for leaving the money printer on in 2021
It will turn back on again soon.
@@apc4884 Nope. They are happy to induce a recession. They only fund the unforeseen.
@@wolfiestreet6899 nope, a recession means less tax receipts, leading to defaulting on government debt, which they won't allow to happen. The only way out is to print more, they're trapped. You'll see, my guess is that the fed will pivot before Christmas.
@@apc4884 False. Lower tax revenue doesn't equate to not being able to meet debt servicing requirements. Expenditure cuts and austerity will be the initial policy choices. And there's plenty to cut back.
You WISH the fed will pivot, but you've bought that line from the financial institutions that need you to keep investing. It's PR spin.
Don't fight the Fed.
What about the need of lowering price of assets? Millenials would like to own something eventually
Its tough but the answer has always been the same, you have to work hard and smart and save everything you can, live frugally ( with mum and dad if you have that option ), with good deposit saved and good career you can get a mortgage to buy a house.
My first house was 10x my wage and interest was 17.5%, bank wanted 20% deposit, I had to buy it thoigh shared ownership shame with a friend who I later bought out , we had a 40% share and paid rent on the rest, could not afford to have heating on or buy carpets and got food off Market at end of day when they were selling it off cheap.
Good news is 35 years later I own my house outright BUT I'm too old and knackered to work like I did back then and can barely afford the energy Bill's now lol.
Isnt capitalism great!!
True Miquel that's another benefit of a recession if it lowers house prices for example. Thanks, Ramin
@@FlyingFun. Thats not an answer… thats completely unacceptable
Furthermore, people cant afford to heat and eat… people are being put into a corner where they fight or literally die
@@JuanAristi I didn't cause the problem and I dont have the answer to the problem that money printing ith low interest rates has caused. All I've done all my life is work hard and start up my own business and put every penny to buying and paying for my house, it's not right that such a basic need as a roof over your head should be such a strain but while people are allowed to profit from buying houses and renting them out it will be seen as a solid investment and prices will always be at the very limit of affordability.
Gov could simply outlaw btl rather than taxing it more and forcing prices up more.
i know other countries do not have such problems , the fear and greed associated with our society us horrid.
We either accept it and work hard to make the best of it or we rebel in a meaningful way TOGETHER , the gov and powerful people want us to fight amongst ourselves while they completely screw us over.
@@FlyingFun. I completely agree… there just isn’t enough housing, buy to let shouldn’t be unlawful but not at the cost of society at large… you shouldn’t have to eat ‘cold beans’ for years in order to afford a house
I agree we have to change things together… however, a significant number of people have been left with nothing to loose, and whole sections of society are breaking down… there’s not even Barristers to prosecute crimes right now, what about when Police are literally hungry and/or cold…
It looks like we’re going in for a Currency Crisis, confidence is being lost domestically and internationally… 50% of the population in fuel poverty by April 2023… we’re a ship adrift
Pay off your debts in good times helps get you through the tough times
It feels like poison not medicine and the difference between the two of course being the dose. It feels like they've got the dose wrong and that the symptoms are being treated not the cause. Ultimately, it's about energy and depending on other states. The UK needs to invest in it's own. In the long run cheaper than wars, provides more economic stability and reduces global conflict. Imagine that as a longterm strategy?
I agree @Mahogany Goddess the central banks can only affect demand not supply. Government has to do its job to ensure supply. But current policies don't address that e.g. tax cuts. Long-term energy policy should focus on accelerating renewables as we could produce those domestically. Thanks, Ramin.
@@Pensioncraft yes tax cuts for multinational and national companies has resulted in deregulation and under investment in national infrastructures. The government and banks seem to make citizens pay more tax or interest while doing nothing about industry. It's the fuzzy end of the lollipop for citizens in every era and many countries.
None of these hikes address the issue of money printing though, it has only grown, it limits what the FED can do, this is better seen in Europe though.
Given all this, why has BOE taken so long to start raising interest rates, as all this has been forecast for many months?
Because inflation caused by supply chain issues CANNOT be controlled by monetary policy actions (like raising interest rates).....raising rate now will only lead to recession or economic collapse!
This is not only supply chain caused - the banks are printing currencies into oblivion. The inflation of currency supply is completely controllable - but it is worldwide policy to let inflation run riot... and thereby inflate away government debt....
They probably wanted to inflate away some national debt. The fed basically said that when it said it would accept symmetrical inflation.
Great explanation, I largely agree but I'm not sure how much a recession is going to help. A big portion of the inflation is either directly or indirectly due to energy costs and I can't see a significant drop in demand there unless things get really bad. Even if the war in Ukraine ended today in a favourable way I'm not sure this problem is going to go away. Presumably we wouldn't just start buying gas and oil from Russia again.
Great comment.
Ukraine is a fig-leaf. Brent and WTI are both currently priced almost exactly as they were just prior to the war at a level ~50% above the Feb 2020 price. Some people will claim that governments spending money like it's going out of fashion doesn't cause inflation, but Occam's Razor and all that.
Nope. This inflation is mostly due to extreme loose monetary policy. Commodities, priced in USD, responded accordingly. The war was merely an unwelcome catalyst.
Utter nonsense - the cause of this inflation was money printing during “lockdown”. Wake up!
Surely the labour market would reach equilibrium and the effect on inflation would be bounded.
I think that's a possible missing solution. But it doesn't stop the bad investments that have been occuring due to near free money.
Great video, very well explained!
Recession is the reset button..
I don't really know much about economics but this ignores what is causing inflation. This inflation is not caused by too much demand. Its the supply which is driving inflation. By reducing demand by increasing interest rates will not help this.
Reducing demand won't increase supply, but it should reduce inflation by taking away people's ability to bid up prices.
@@downshift4503 Yes but by damaging the the part of the economy which is not causing the inflation.
@@kevinrogers326 I agree. The BoE has only two controls though, it can either create or destroy bank reserves (ie QE / QT), or it can raise / lower interest rates at the short end of the curve, neither of which improves the supply problem. The problem is widely perceived as a cost of living crisis, but its actually a shortage of supply crisis that can't be fixed without people consuming less. However people don't want to consume less, they just want to continue living as they did previously and are bidding the prices through the roof. No politician seems to be able to say this, that people are going to have to just suck it up and consume less.... with the caveat that obviously we have to help the very poorest.
A couple of points;
- MOST of the inflation problems the west is having is energy related. With both the increased cost of oil/gas and environmental regulations playing at large part, and reverberating through the economy.
- the reason why there are so many job vacancies in the US is partly due to demographics. And partly due to some of the ‘lean’ methodologies employed by corporations. Many of these businesses did not anticipate years ago the effects of cutting thinks like job training programs and running with a ‘skeleton crew’ of staff. Now that staff is retiring or leaving, and the replacements for those people, who often had 20 years or more experience, are entry level employees who are usually less efficient.
dont talk sense, h e will think youre crazy.
Wages have been repressed as well.
Even if central banks did not exist, interest rates would not stay significantly below the rate of inflation indefinitely because lenders would raise the rates they demanded while borrowers competed to borrow at rates below the rate of inflation. Those with capital would try to increase the leverage they used to hold real assets (for example real estate investors).
Demand will have to be reduced to meet Net Zero targets.
The massive problem is that energy prices are fuelling inflation. With households having to find an extra £300-400 a month. Average household income means that wages would have to rise 10-15% JUST to cope with this particular increase. Fewer people have that money, and with mortgage bills going up as well...
Using interest rates to curb spending when no-one can afford to spend is blinkered thinking at best.
Whilst your video was a good explainer, you've missed the whole reason why inflation is surging and as a result any argument becomes flawed. Sorry.
The problem is QE. The government printing money which has caused the inflation. Hence a massive cut in state spending is needed. That’s deflationary and doesn’t affect the productive economy.
QE has caused inflation.
QE has stopped so not that anymore
@@mattwalker2158 QE is still in place and has cause the inflation. Just yesterday the APF has announced it will start selling off gilts
@Gammons Trout QE is the main cause
On energy. Regulation is the next. The took out all the small companies meaning zero competition.
So what fraction of gdp are the increased profits because that is the contribution to inflation
Good presentation but I wonder if Government policy can (and should) do more to protect people from the negative impacts of an unfettered free market. After all society is more than just investors. Mass unemployment has a huge social and ecenonomic cost to the people who get laid off and also to the taxpayer. It seems to me that the job of Government is to find ways to protect employment whilst cooling the economy. Is mass unemployment really "necessary" or an inhumane political choice?
Sadly it is a global problem that impacts on individual countries. Not one government can resolve the current problems especially when other countries cause the issue.
Only someone who is not going to be effected by rampant unemployment and homelessness would make these arguments.
Instead of forcing unemployment, why not force inflation matching wage increase before any dividend paid out? Its the same amount of money in circulation but it incentivices companies to keep prices low in order to be able to pay dividends
The biggest problem that I had seen, which hopefully should go away now, are the people investing due to historically low interest rates and stamp duty holidays. Foreign investment into properties is also a big factor where you get returns of 4-5% per annum plus increase in overall house prices year on year. Currently it is looking that the perfect storm is brewing which should keep a lot of these away from the market.
A recession is needed for sustained growth in the future. Surprised there was no mention of currency debasement in the general discussion. Enjoyable video, thanks.
What happened to the middle ground? Instead of aiming at a recession to avoid inflation or aiming at inflation to avoid a recession, why not try to ajust interest rates, monetary policy, public spending and taxation so that we can avoid a strong recession and bring down inflation.
The suggestion is that we are now to deep in the problem
You very briefly started to touch on the fact that the PED for the items in the CPI basket that are increasing mostly due to the Ukraine/Russia situation are almost perfectly inelastic as they are essentials for most people.
Yet you then fail to elaborate. The price of energy and food could increase 10 fold but people still need to purchase them to survive. Hence the usual methods of controlling inflation (raising interest rates to lower AD) don't work here as people will have to keep purchasing no matter the price.
Hence the usual method of increasing interest rates will just inflict suffering and create poverty but will end up with inflation not decreasing at the expected rates.
Great presentation. A component of the current jobs vacancy rate is the withdrawal of people from the labour market post-covid, for example older workers. Will stagflation force more of these back into work, if so how would this influence (dis)inflation?
I understand where you are coming from Ramin, but as investors its not for us to say what is or isn't needed - leave that to policy makers and naysayers. Our job as investors is to navigate the waters as best we can with the options available to us. It's not the blowing of the wind, it's the setting of the sail (courtesy, Jim Rohn).
would you not argue that as an investor the greatest knowledge you could have would be to understand EXACTLY what the policy makers are going to do? No point setting a sail inside a cave where the wind don't blow... So yeah, you need to understand wind and aerodynamics if you ever have any intention of lift off (Courtesy, Robert Proudfoot)
11:40 looks like you are inside Bailey's brain 🤣
Quite spacious in there, I reckon.
@@MichaelPodcasts if only there actually was just a little Ramin in his head.... giving him guidance....
That would explain the echo
We're gonna get a very hard recession
Price of products do not follow the price of labour, this is false. This is according to free market economy. But wage increases reduce profit
Yes, Ramin assumes price inelasticity of demand. This is obviously not the case. Only a minority of businesses will be able to pass on higher wages in full to consumers. Utility companies are good examples of companies who can pass on prices in full, hence their prominant role in the current crisis.
Most companies face much more elastic price / demand environments, which means they wont be able to pass on wage rises in full. They will see a profit squeeze & some will go bust.
Epic breakdown 👍🏼🙏🏽❤️🙌🏼🏆thank you 👍🏼🙌🏼❤️
Glad it was helpful @Ty Jameson
Another excellent presentation . Thank you for sharing this and giving us the opportunity to learn more about the current economic environment.
Glad you enjoyed it @kobus venter
Very good explanation on inflation and how to deal with it.
However, as others have noted, this inflation is mainly caused by the reduced supply of gas and oil. Hence increasing the interest rates will not reduce the inflation that much. Seems quite the opposite - making sure people MUST get/ask for better salaries otherwise they won't be able to heat their homes. Add the BOE interest rate hikes and the mortgage rates/rents increase, which fuel the inflation even more.
This formula of increasing the BOE rates works if there is too much money in the economy. However, currently it is quite the contrary.
It’s caused by gas but that has a knock on effect. Everything we buy and consume is made using energy in some form and hence the inflation spreads. And it needs to…
@@hitchjack true. Inflation spreads. I just don't see how raising interest rates will curb it when gas price ain't gonna get cheaper due to this. It's a necessity like food. No matter how expensive, we need it to survive more or less. People already struggle to pay the bills. Unless I'm missing something?
@@arnoldasgurskis2945 but not everyone is struggling/worrying. I go to Costco once a week for work and I’m still watching people cart out trolleys of booze and tv’s. People need to slow their spending so demand matches supply. And it’s why the poorest need targeted government support. The other big thing is, and I haven’t seen it pushed by the UK government like others around Europe yet… we need to be prompted as a nation to actually use less gas and electricity this winter, not expect the government to give handouts for people to just consume at the same level.
What is the problem if inflation is at 20% and wage increases are at 20%? Well, meaningful investment gets eroded, confidence dive bombs and a whole lot of other c*** happens as the economy and structural integrity of the country tanks.
And just like that you condem millions of people to hunger and poverty.
All this to transfer money from the masses to the super rich .
Energy disruption could continue till Europe accepts the annexation of East Ukraine as a fait accompli. Meanwhile the recurring extreme drought due to climate change will have an impact on food cost inflation.
The climate isn't changing. Stop parroting narratives.
@@wolfiestreet6899 Yes, yes, it's changing as Al Gore predicted. All the arctic ice melted almost one decade ago... Hang on one second...
Where do we invest going in to a recession then 🤔 bonds?
A pretty good bet I think but Govt debt rather than some of the risky corporate stuff. A recession in the near future would likely slow down rate hikes or reverse them pushing down yields (and prices therefore go up)
Art, wine, whisky, cars, up your bum. You pick
Economy for the Economists!
That is what the world needs......right?
How is the US Government supposed to pay for the $30 trillion they owe?
The GDP seems to be decreasing?
The Debt seems to need to cover some stimulus checks as well as the 30 year T-Notes.
"They didn't think it through." .........Conrad Breen
What a great video!
Your videos are always great. I want to thank you for the information you bring me because it has been very helpful. I’m sure your Chanel will succeed much more because your videos are amazing. I wish you much more success.
You are so welcome @Jorge Pb
Thanks. Concise and makes sense.
Glad it was helpful @Andrew Marsden
define recession
To hell with people losing their jobs, provided the money grabbers keep their cash. Oh the humanity
Hi @googleisshittoss inflation in double digits is likely to hurt the poorest in society more than a slightly higher unemployment rate. There's no easy way out of this crisis. Thanks, Ramin.
Anybody who is working is not stuggling to pay their bills, if they are it's their fault
They won’t let it fail until they want it to. Pumping and brrrrr forever until the mint explodes. It will be a controlled descent
I've said this, we need to put a lid on it, i.e a recession.
Hello John
Why do you talk about the US? Why not Briton??
retirees want to preserve their nesteggs even it costs millions of households losing employment and becoming desperate for any work.
working class isn't so sure that's a good, or necessary, tradeoff.
if we're so afraid of inflation just raise taxes. problem solved.
Raising taxes definitely helps to hoover money our of the private sector but it will still result in higher unemployment.
Sorry but taxes taxes taxes can't be the only go to. Folks are hurting so how does increasing taxation make things better. And I'm talking about people getting desperate and not just not having luxuries.
@@kennztube
i don't think anyone's claiming it will make things better from the perspective of the individual. If we put aside the poorest in society who obviously will need help., the rest of us will have to just live through this. There isn't a painless solution. Collectively, we either cut down on consumption or money will be removed from the economy to hinder people bidding up prices.
We need a 50%+ cut in state spending. That deals with inflation
Or a 50% cut in profits and rents. That also deals with inflation and probably much fairer.
@@royjones4400 So a 50% cut in wages. That’s your profit from others
Germany took the right path. But their curse is to be at the head of the Eurozone. They're having that recession and will be able to grow later on. One of the few responsible countries in the EU. In the world.
2023 will be a lost year for business.
People are already in poverty so evictions..hypothermia.. hunger and death will surely help
To reduce the number of jobs available without making more people unemployed, raise the minimum wage
Did you not listen. That will fuel wage growth and increase inflation more as prices rise.
@@crimsonpirate1710 wage price spirals dont really happen, its just scare mongering, inflation is happening anyway, and doesnt care if wages go up
I am a rate hawk and believe a recession is good as well. In terms of a forest analogy you can argue a forest fire is healthy long term to clear out the underbrush and fertilize the soil for a new generation of trees. Trees can grow with tall brush and weeds or reproduce
You're right about that. There is a huge amount of bad investment and debt out there.
The lack of understanding is staggering….
so buy TLT to hedge against a recession???
Too early probably
The system is rigged.
Removing the currancy of a tanagable assist ment govt can just use the printing press to create money not be held back on spending
Considering its the tax payers paying goverment borrowing back & the public don't get to say no and block there borrowing could be considered fruad and abuse of power by the goverment who themselvs are only a buisness
10% interest rate rise would sort it 😉
Amazing content as usual. Thanks
Much appreciated @J Roig
You didn’t talk about the energy crisis in Europe and Russia 🇷🇺 invasion of ukraine 🇺🇦? You briefly mentioned it? Expand !!
did you buy TLT (bond etf)?
Central banks don't like unforeseen catastrophes that induce an uncontrolled recession or worse, threaten a depression.
They only like recessions they induce and can control.
That's why investors need to understand that they only promote loose monetary policy to remedy the unforeseen. They are content to induce a recession themselves if and when required.
“Just” computers on wheels?
My fix rate mortgage is vanishing as thin air 😆
Explain. Might not be fixed?
@@mikkimikki5376 my 20 year mortgage rate is 1,5%.
@@mikkimikki5376 I think he means that he feels he is paying an inconsequential amount on his low rate mortgage because inflation is high ? Just my best guess
@@skinnymoonbob hope your provider doesnt go bust and pass your debt on to someone who will charge more but otherwise you have saved a fortune.
I pay 1,5% for 20 years with inflation soaring high. My mortgage vanishes with this macro, and with the next economic boom housing prices here skyrocket to new highs. Basically getting paid to live in a city apartment that appreciates in value while monthly cost of ownership is going down.
and in the middle of this is an advert by Nigel Farage no less.
The great reset train is moving...
Allowing skilled migration is also an option, though an unpalatable one in the uk and us
Skilled migration has never been the problem.
BUY TLT
you muppet what do you think the last decade has been.
🙏