(Crazy) economy news

[Skybird]

Originally Posted by mapuc

Would this be part of the economical perfect storm ?
>>This was the worst first half for the market in 50 years and it’s all because of one thing — inflation<<
Markus

Of course it is, inflation. It went up already before the war broke out. See point 3 in post two posts up.

[Jimbuna]

On a personal note: My Police pension rises in April each year at the rate of inflation calculated in the previous month of September, for some reason or rule I have never actually fully understood or bothered to enquire about.

My annual increase this April was 3.1% based on the previous September rate of inflation and despite the fact the April rate of inflation was 7% (current UK rate is about 9% and is expected to rise to at least 11% later this year)

Needless to say I'll be watching the inflation rate this coming September like a hawk.

[Skybird]

The Euro has dropped to parity with the dollar, for the first time since two decades (1 Euros=1,005 Dollar, 12-07-22 14:20LOC)


Usually that is good for an exporter like mGermany, but this time its ver ybad due to high inflation. The weak Euros means that imported goods become even more expensive, pushing prices upwards even further and thus fueling inflation.


Thank you, dear ECB. Your refusal to fight inflation as would be your mandatory and mandated legal obligation has helped so tremendously to brign us to this pass.



Instead the eCB yesterday gets rpeorted to have voiced it wants to push much harder for green deal obligations and ecological banking.



Im going out on a limb there, but I commit myself: the Euro will collapse in the forseeable future, within less than ten years. The Eurozone is no longer merely ripe: it is hopelessly overcooked and mushy. It was a criminally stupid idea from day one on.



Of course this fiscal-political desaster will not help Europe one bit to keep its position in the concert of the global big players.

[Jimbuna]

A single euro bought $0.998 on the foreign exchange market at 12:45 GMT, down by 0.4% in the day's trading.

[Skybird]

^ And US inflation up to 9.1% despite the FED doing more against inflation than the useless gangsters at the ECB. Shows that the thing is out of control.

Eurozone inflation 8.6% at beginning of July. Germany: 7.3%


I stick to my earlier prediction, we will see two digit inflation rates that will stay for long time to come.



Engine room, bridge: set recession speed. Helm, plot course for Stagflation Island. Bring us into a spiralling orbit around it until we run aground.

[Skybird]

The gallopping inflation is not a consequen ce of the Ukreqiane war , nor of the Corona pandemic, as many people think and givenrments and centela bankers argue. It has been in the making since decades, and was just artifically cosmetically glossed over, suppressed, hidden. Putin only served as a catalyst to speed things up, so did the pandemic. Without these, the develoolment wpould have been the same, just slower incoming. The pressure in the kettle now is to high, thats why th security valves burst.
Solution? I know only one. Let it run and raise interest rates NO MATTER WHAT that means for single states - and hope you are amongst those hwo make it throphgh in one pice. The accumulated sins of thirty or fourty years of criminally irresponsible monetarian policy are now raining down on us.



FOCUS writes:


The inflation currently prevailing in many parts of the world has recently been widely associated with the war in Ukraine. The ECB sees the Corona pandemic as the reason why prices had already risen significantly before that. But the reasons for inflationary pressures across the board lie deeper.

Since the middle of 2021, inflation rates have risen significantly worldwide. For May 2022, inflation was measured at 8.7 percent for Germany and 8.1 percent for the euro area. In the USA, 8.6 percent was reached in May 2022. Consumer prices have also risen significantly in many developing and emerging countries. Egypt reported a value of 13.1 percent in April 2022, Brazil 12.1 percent and Sri Lanka as much as 33.8 percent.

Inflation: war is often cited as the reason

Still, there were some countries with low inflation rates: In Japan, China and Switzerland, inflation rates remained low at 2.5 percent, 2.1 percent and 2.5 percent, respectively, in April 2022. Where are the global inflation pressures coming from, and what are the differences resulting from?

Recent global inflationary pressures have been widely linked to the Ukraine war due to sharp increases in energy, commodity and food prices. U.S. President Joe Biden has therefore attributed seventy percent of inflation in the U.S. in the month of March to Russian President Vladimir Putin. In light of the war, the European Central Bank (ECB) has also explicitly pointed to the importance of soaring energy prices for high inflation in the euro area. ECB President Christine Lagarde believes that the fact that the inflation rate had already risen significantly before that was due to the Corona pandemic.

Inflationary pressure has been building for 30 years

But the reasons for the inflationary pressure on a broad front lie deeper. It has built up over a period of more than thirty years, as interest rates were cut sharply in crises starting in the U.S., but not raised to the same extent in the recovery phases after the crises. Since every devaluation of the dollar put upward pressure on the other currencies in the world monetary system, most central banks have followed the U.S. monetary expansion course since the 1990s. The global money glut is now reflected in rising producer prices worldwide and - only partially! - in sharply rising consumer prices.

For many industrialized countries, inflationary pressures were for a long time not visible in official consumer price indices because of the way inflation was measured. Since the 1990s, starting in the U.S.A., there has been a push for quality adjustment in inflation measurement. Statistical authorities have increasingly used quality improvements - for example, in industrial products such as cell phones and computers - as an opportunity to adjust prices measured in stores downward in the price statistics.

At the same time, quality adjustments in the form of extrapolated prices have not taken place for other product categories where quality losses can be suspected - for example, services, where self-service has increased significantly, or food, where production methods have become less sustainable.

Failures to measure inflation

Similarly, the weights of the goods represented in consumer price indexes have been adjusted to reflect changes in consumption patterns. This is likely to have led to the gradual replacement in the price indices of expensive goods with high price increases - such as solid wood furniture - by cheap goods with low price increases - such as pressboard furniture for self-assembly. Important groups of goods such as real estate, stocks and public goods (for example, roads, old-age pensions and airports) remained excluded from price measurement altogether. In the euro area, in contrast to other countries such as Switzerland or the U.S., even owner-occupied real estate is excluded from inflation measurement, although the ECB has contributed to a significant increase in real estate prices with persistently low interest rates.

In many countries, subsidies play an important role in keeping store prices stable for a long time. The ongoing low, zero and negative interest rate policies of central banks have subsidized companies around the world, which have been able to pass on the interest rate subsidies in the form of lower prices. Similarly, numerous crises in many countries have undermined the bargaining power of unions, allowing wage costs to be kept under control along with price pressures. Almost all industrialized countries subsidize agriculture, which keeps food prices low.

Subsidies artificially depress inflation

Subsidies have reached a particularly large scale in Japan, where the state has gained enormous additional spending leeway since the bursting of a stock and real estate price bubble in the early 1990s thanks to immense government bond purchases by the Bank of Japan. According to estimates by the Washington International Trade Association, over forty percent of Japanese farmers' income comes from the state. Generous aid to rice farmers has contributed to a significant drop in the price of rice in recent years. In addition, wheat, soybeans, buckwheat and rapeseed (also used as animal feed) are subsidized.

Other subsidies are found in rail transport, which plays an important role in densely populated Japan. Government aid has depressed school and university fees since 2009. Demand for cars has been repeatedly boosted by subsidies - most recently for electric vehicles - so that their prices have remained largely constant since 1990. Fast-growing government co-payments have dampened health care price increases. Government-controlled prices for water and electricity have also risen only weakly. In response to the recent steep rise in crude oil prices, wholesale gasoline prices have been subsidized.

China is pumping a lot of cheap liquidity into the corporate sector

China is moving in a similar direction. There, in contrast to the USA, the recent sharp rise in producer prices has not had a noticeable impact on consumer prices. This is probably due to the fact that the Peoples Bank of China is pumping a lot of cheap liquidity into the corporate sector via the state-controlled banking sector and local governments in response to the Ukraine crisis. Prices of public services - which dominate the services represented in the price index - and prices of industrial goods - which are often produced by state-owned enterprises - appear to be set with the central government's inflation targets in mind. Most recently, comparatively restrictive fiscal policies as well as corona lockdowns are likely to have dampened politically dangerous inflationary pressures.

With the latest price surge, driven primarily by energy prices, the East Asian model could now also be setting an example in the European Union. The low inflation in France by European standards is probably due not least to the fact that gas and electricity prices were already capped there last fall. In January 2022, the government in Paris decided to limit the price increase for electricity to four percent this year. In response to soaring inflation rates, many countries in the European Union are now also introducing comprehensive subsidies. These include direct payments to citizens - such as the one-off 300-euro payment for each income tax payer in Germany - and subsidies for energy, which pushes down prices for consumers.

Germany has reduced the energy tax on fuel to the European minimum for three months and suspended the levy for renewable energy plants (EEG levy). The nine-euro ticket will reduce prices on local public transport for three months. Austria plans to reduce taxes on gas and electricity for households and small businesses. Hungary's Prime Minister Viktor Orbán has cut electricity and gas prices by 25 percent and capped prices for wheat flour, sugar and milk.

The Netherlands made a one-time reduction in energy taxes and will cut the VAT on energy from 21 percent to nine percent starting this summer. Poland has reduced the VAT rate on gasoline and diesel from 23 percent to eight percent. The Czech government has eliminated road taxes. Romania has capped prices for electricity and natural gas. In Italy, network charges are eliminated and 25 cents is refunded for each liter of fuel. In Spain, the refund is twenty cents, while in Portugal the government sends out gasoline vouchers.

Switzerland finds a special way to combat inflation

Switzerland, which is considered a safe haven for capital inflows in the global inflationary environment, has found a special way to keep prices low. If the large capital inflows were to remain in Switzerland, it would both push up stock and real estate prices sharply and fuel credit growth and thus inflation. But by keeping interest rates well below those in the U.S., the Swiss National Bank is encouraging large-scale capital outflows that dampen domestic inflationary pressures.

Moreover, if the Swiss National Bank allows the Swiss franc to appreciate, as it has done in recent months, the prices of imported goods will fall. The pressure on domestic companies and domestic trade to keep prices low is growing. Swiss citizens have therefore benefited in the past from significantly lower inflation rates than citizens in the euro area.

While the quantity of subsidized goods appears to be growing over time in many countries, the financing of rampant government spending remains an open question. With coffers widely empty and cuts in other areas of spending unpopular, many governments in the euro area - as in the case of Japan - appear to be relying on additional debt and thus on the ECB's purchase of government bonds. However, this continues to grow the money supply, which is likely to push inflationary pressures even higher in the longer term.

ECB must raise interest rates

There is only one way to escape this vicious circle: central banks must raise interest rates. Since this limits the spending scope of the highly indebted euro countries in the medium term and is bad for the economy, the ECB still seems reluctant to take decisive steps, despite the first announced interest rate steps. By contrast, many other central banks have already embarked on a clear course of interest rate increases. In the USA, the Federal Reserve (Fed) has ended its bond purchases in light of high inflation rates and signaled numerous interest rate steps for 2022.

The Bank of England has already raised interest rates several times. Sweden's Riksbank has made a fundamental change of course and brought forward the timing of its first interest rate hike. Central and Eastern European countries with reform experience, such as Poland, the Czech Republic and Hungary, have also raised interest rates. It remains to be seen whether these central banks will sustain their monetary tightening courses in light of growing economic and political instabilities that are likely to be associated with the rate hikes.

Regardless, one thing is certain: historically, excessive government spending and persistently loose monetary policies have been associated with economic and political instability. Hiding inflation with the help of subsidies and price controls may justify persistently loose monetary and fiscal policies in the short term, but it does not solve the problem of excessive spending commitments. It is therefore to be hoped that the announcement of interest rate hikes in the U.S. and many other countries heralds the start of a global monetary and fiscal stabilization process.

Translated with www.DeepL.com/Translator (free version)

While the ECB now has started to raise interest rates - too late, too slow, too little - it also has alraedy said it prepares to stick to its self-chosen but by law and treaty unlegitimised(!) role of financing states in the south like Italy, Greece, but also France, wanting to enforce that interests that states with high debts must pay for risk compensation do not become "too high", in the devine ECB's judgement at least. That is money socialism at its purest level, pure planned economy. It also means that the ECB already prepares its own exit from the money reducing measures it now tries with raising interests, by preparing to pump even more money into the ECB zone with its new intended means to prevent a too huge spread of interests for national state bonds. It sabotages its own interst raising that way!

All this can and will not go well, but lead into desaster. Russia is our smaller problem, Italy, Greece and especially France are far more worrying conerns of ours. At least they should be!

I predict social unrest and riots in the street within ten years, probably significantly less. I do not even rule out civil wars and even wars between former EU member states in the long run. And all that socialist Eiteitei and Ringelpietz mit Anfassen they will try until then will not change that. Things have started to move in large now, and the momentum now is beyond the point where you still could stopp things from starting to slide and form an avalanche - even less so with such incometent clueless and irrepsonsble carriocature sof political leaders at the helms everywhere, from national governments to international institutions. EVERYTHING NOW SPEAKS AGAINST US. In an useless bid to nevertheless try to stop the momentum states will turn increasingly totalitarian and socialist. That will fail in the end, but kill freedoms and civil liberties, and private property rights. After these - the middle class will have been mostly annihilated by then - the radicals from the other end of the spectrum, in some countries also religious fanatics, will raise their ugly heads.

The EU as known today has already lived the better share of its life, its now in its end game. This end game will run for one or two decades, but the end game it nevertheless is. The Euro will collapse earlier. Before end of this century Europe will have become completely irrelevant for all and everything, and will be nothing more than the running joke of global politics.

[Skybird]

The Tagesspiegel comments:


The government crisis in Rome will trigger a severe euro crisis and devalue money. The ECB is setting the wrong incentives with bailout promises. It's bad enough that Italy is losing its government. Especially now, when the consequences of the Ukraine war demand concerted and decisive action in Europe.

It's likely to get worse, not just for Italy, but for all eurozone countries and their citizens. A new currency crisis is probably only a matter of time.

It will cause far greater damage than the Greek crisis. Italy is the third largest economy in the EU after Germany and France.

Its gross domestic product (GDP) is around ten times larger than Greece's. If international confidence in such an important country and its economy is lost, the potential for destruction is enormous.

This risk triggered concerns back in 2015, when Greece threatened to sweep Italy away. Since then, the risks have grown.

Italy was 130 percent of its GDP in debt then, 150 percent today. At the time, the Renzi government inspired confidence among EU partners and international markets that it intended to address the problems. Now, the wanton overthrow of respected Prime Minister Mario Draghi is leading to a vote of no confidence. He, too, has been too timid in reforming. But the direction was right, the will was evident.

The opposite is expected in the future: a right-wing populist coalition of the Friars of Italy led by Giorgia Meloni-she would be the first woman to head the government-Matteo Salvini's Lega Nord and the Forza Italia of the aged Silvio Berlusconi. They all have a reputation for treating the state as prey and ignoring their responsibility to Italy's citizens and Europe's cohesion.

The extent of the mistrust can be seen in the "spreads," the difference in interest rates for German and Italian government bonds. It would be even wider if the ECB had not announced new bailouts just in case: It wants to buy bonds of tottering euro states to stabilize the euro.

This is not only legally questionable. The ECB is not allowed to indirectly finance euro states. Above all, it is a "moral hazard," a false incentive. It would have to urge Italy's government to reform, not encourage it to ignore interest rates and debt, because the ECB will save the country and the euro partners must go along because otherwise the common currency will break up.

Who will save the euro from Italy's politics? The rules for the EU and eurozone date from a time when everyone was trusted to follow rules. There are no effective penalties for misconduct.

Here, too, it's time for a rethink in Berlin, Paris and Brussels. How can you hurt rule-breakers so much that they prefer to cooperate?

Translated with www.DeepL.com/Translator (free version)

[Skybird]

Putting it here, lacking a better place and not wanting to start a new thread on it.


I knew the French had shut down several powerplants for maintenance. I did not know their situation is this dire. That has consequences for Germany as well. Germany counts on getting bailed out with electricity by its neighbours in times when German demand is high than homegrown power generation. If luck is not on all our side, interesting times lie ahead. I am, if you have not guessed it already , pessimistic on all this.



The Neue Zürcher Zeitung writes:


Everyone talks about the German energy crisis - but in France the situation is far worse

French electricity prices are far higher than in Germany because many nuclear power plants are not in operation. If consumption does not fall, there is a threat of a blackout in winter.

Electricity is in danger of running out in France, a nuclear country. Compared to the average between 2010 and 2020, the price of a megawatt hour in France is now ten times as expensive. Traders now have to pay over 500 euros for it. In Germany, the price is much lower and currently ranges between 350 and 370 euros.

Is France facing a blackout?

Under normal conditions, nuclear power accounts for about 70 percent of France's energy mix. On Friday afternoon, however, French nuclear power plants supplied only 59 percent of the electricity needed, according to grid operator RTE. This is because only 26 of the 57 reactors are currently in operation. France must increasingly switch to gas-fired power plants, wind and imports.

In summer, when French electricity consumption is around 45 gigawatts per hour, this can still be absorbed. In winter, however, demand is about twice as high. If electricity consumption does not fall substantially, France would be the first European country to see its lights go out - and not Germany.

Heat and old reactors lead to outages

Because of the extreme temperatures in July, many nuclear power plants had to be shut down. This is because the cooling water that the nuclear power plants discharge into the rivers must not exceed a certain temperature, according to the law. At many locations, where temperatures exceeded 40 degrees last week, the reactors had to shut down.

In addition, many of the French reactors are old and need to be overhauled. At the Gravelines nuclear power plant in northern France, engineers had found massive corrosion damage during an inspection. The repairs will take six months. Because of the Corona pandemic, many reactors in France were not maintained. This is now being made up for, and increased outages are occurring.

Winter threatens bad things

For private consumers, electricity prices are capped, but French companies have to pay the skyrocketing market prices. In the coming winter, the Bloomberg news agency therefore assumes a nasty scenario: The price of the base load is expected to rise to 1000 euros per megawatt hour in December, and even to 2000 euros in the evening hours. This would correspond to twice the expected prices in Germany.

If there is little wind in the fall and the winter is colder than average, demand could exceed the supply of electricity. In that case, the network operator RTE could cut off the power to individual energy-intensive companies for 15 minutes to an hour to relieve the network.

The companies affected would receive financial compensation for this. So far, the French network operator has only very rarely used the mechanism. Most recently once in 2019 and once in 2020. It is likely that the French grid operator will declare the highest energy warning level in winter. In this case, households and businesses will be urged to reduce their consumption to prevent a blackout.

The state takes over as operator of the nuclear power plants

The French state has already stepped in to prevent the worst from happening: The government announced it would fully take over the struggling energy company EdF. Previously, the state owned 84 percent of the shares in the company, which operates all nuclear power plants in the country. On Thursday, EdF reported a loss of more than 5 billion euros in the first half of 2022. The nationalization is expected to spur major investments in new nuclear power plants.

However, the government has yet to tackle the most important construction site in the group. After the takeover, the energy group's CEO, Jean-Bernard Lévy, is to leave. He had previously spoken out against nationalization and the price cap. Despite Lévy's imminent departure, President Emmanuel Macron has not yet announced a successor.

[Jimbuna]

I think it will be interesting to see what happens energy-wise in many European countries (UK included) this coming winter.

[mapuc]

Since Skybird talked about coming blackout in some European countries I thought I would post it here-Since it has to do with energy supplies.

Poland has decided to rent a German Nuclear powerplant. It was in the news here and some Danish Politicians said Denmark should do the same-Rent a nuclear powerplant in Germany.

There are three of these who is about to be shut down-So instead of shutting them down they deliver electricity to Poland and maybe Denmark.

I can't say if it's good or a bad thing.

Markus

[Skybird]

Not realistic, it was a provocation only, Markus, to direct attention at the obvious contradiction of the Germans' energy policies. They want to switch off nuclear powerplants, but want to import nuclear power, and they do not want to frack their gas of which they have more than I knew until recently, but they beg that the US ships them as much fracking gas as possible - at extensive costs already before the crisis - in liquified form, and they do want to save gas and want solidarity that other nations should save gas and risk blackpouts as well so that Germany can continue to burn gas for producing electrity of which they tell the German people that there is no link between an electric future, e-heating, e-cars, and gas burnt for power production

The German positions are a stellar inner contradiction from A to Z , and nothing in the German arguments is defendable, its all BS of unbelievable proportions. The whole German energy transformation policy and plan is a hilarious heap of BS. From beginning on. Unrealistic, incompetently thought-out BS.

Thats what happens if you let ideologists and social experimentators and incompetent dilletantes run a country, unable quota girls and alpha males too full of themsleves and their powerpolitical party games.

Since decades this country gets ruled and ruined by ideologists who think reality and the laws of nature would bend to their dreamdancing. And not just Germany. And not just on nation-level, but in international institutions as well. Why do you think I'm always so pissed off, since many years?

[Jimbuna]

[mapuc]

Originally Posted by Skybird

Not realistic, it was a provocation only, Markus, to direct attention at the obvious contradiction of the Germans' energy policies. They want to switch off nuclear powerplants, but want to import nuclear power, and they do not want to frack their gas of which they have more than I knew until recently, but they beg that the US ships them as much fracking gas as possible - at extensive costs already before the crisis - in liquified form, and they do want to save gas and want solidarity that other nations should save gas and risk blackpouts as well so that Germany can continue to burn gas for producing electrity of which they tell the German people that there is no link between an electric future, e-heating, e-cars, and gas burnt for power production

The German positions are a stellar inner contradiction from A to Z , and nothing in the German arguments is defendable, its all BS of unbelievable proportions. The whole German energy transformation policy and plan is a hilarious heap of BS. From beginning on. Unrealistic, incompetently thought-out BS.

Thats what happens if you let ideologists and social experimentators and incompetent dilletantes run a country, unable quota girls and alpha males too full of themsleves and their powerpolitical party games.

Since decades this country gets ruled and ruined by ideologists who think reality and the laws of nature would bend to their dreamdancing. And not just Germany. And not just on nation-level, but in international institutions as well. Why do you think I'm always so pissed off, since many years?

You know a hell of a lot more about Germany's Nuclear powerplant, than I ever will. I believe you more than what I heard in the news. Now there are even an article about it. Found even an English version

A meeting of the EU Affairs Committee in the Polish parliament on Thursday addressed a project to lease from Germany its nuclear power plants, which are due to close soon. Germany is pursuing a plan dating back to 2000 to extinguish its nuclear sector completely.

https://www.euractiv.com/section/pol...-power-plants/

Markus

[Skybird]

No, I do not know " a hell of a lot" about German nuclear powerplants, but I am capable to do simple basic arithmetics, and I can read. And what I read is that the 6 remaining German powerplants were/are amongst the safest and most modern in the world, the statistics on technical problems clearly show that, and the six powerplants now talked about rank amongst the 10 or 12 safest and modern powerplants in the world today - still so.

When I do a bike tour southwest, i sometimes come into the vicinity of the town of Datteln, which is seat to the most modern and cleaniest coal and newest powerplant in Germany. But it never was allowed to work, due to energy transformation policies. You will not find many coal powerplants with similair low emissions, like this one. It was offered to switch this one on and for it switching off 6 of the oldest and dirtiest coal powerplants we had/have. But the ideologists said "no", and insistedo n that no modern new coal powerplant gets connected to the powergrid, not even if that means to switch six much dirtier and older powerplants off. That is fundamentalism at its finest.

We have build the most modern coal powerplant in Germany here, and one of the most modenr and cleaniest coal powerplants in all Europe. It costed much money. It then got blocked, and got taken off the grid, newer was allwoed t run for a single day, and AFAIK they have now started to dismantle it, or prepare to dismantle it. It was not on duty for a single day. Many older, dirtier coal powerplants still run. Its against all logic. The government now even reactivated BROWN COAL mining and powerplants, which is even heavier in emmissions that charcoal, only so that they want to ignore nuclear power.

This is not any rational position anymore. This is fanatism coupled with irrationalism and criminal irresponsibility.

And Germany is full of such political stunts.

[mapuc]

Thinking after I should have used other words than these hell of a.

But when it comes to political and other not technology related stuff about your power plants I trust you more than I do some Danish reporter in Germany.

Dan Jørgensen our Danish Minister for Climate, Energy and Supply. Will not hear anything about nuclear power-Despite 1 big or some few smaller reactor could supply Denmark with the electricity they need and we do not have to buy from Sweden, Norway or Germany.

We could rent one from our neighbour until we have built our own.

Markus