Topic: The World Economy - Uncharted Waters

[BarryCrocker]

Over the past couple of weeks two financial offers have certainly got economists scratching their heads about where to next.

In Germany €824m worth of 30-year bonds were auctioned off @ 0% interest and in Denmark, Jyske Bank are offering 10-year home loan @ -0.5%.

I know that the rates cut by the central bank in Australia has resulted in people paying more off their loans rather than spending it and stimulating the economy.

So what does that tell us about the foreseeable future? Any learned people willing to share their opinion on here?

https://www.abc.net.au/news/2019-08-27/interest-rates-predicted-to-stay-low-economists/11450918?section=business

https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage

[Giono]

Great title of the thread. Is there any time in history that looks like these days?

[lobsterboy]

Decline of Rome I would guess?

[west_london_red]

We saw zero interest rates in the Euro zone after the financial crash don’t forget so it’s not completely unknown or new but it’s certainly odd. The worry from my amateur economic view is that we are due a recession (they generally happen every 7-8 years) and successive governments and central banks across the developed world (other then the US to be fair) didn’t take the opportunity during the good years of increasing interest rates depriving themselves of their best weapon during a recession, leaving only 2 options to fight a recession - either fiscal policy is loosened (which a lot of countries can’t afford) or more quantitative easing (printing more money) which has been shown reasonably well to be a massive contributor to wealth inequality because it inflates the value of assets to the benefit of those that own them vs those that don’t and as we have seen so many times wealth doesn’t trickle down, it tends to trickle up!

[redmark]

May you live in interesting times.

[Iska]

In Germany €824m worth of 30-year bonds were auctioned off @ 0% interest and in Denmark, Jyske Bank are offering 10-year home loan @ -0.5%.

I used to be into this when interest rates fell and house prices soared in the early 2000s, trying to get my head around it all.  The theory that ended up making the most sense to me is that there’s too much money around, looking for investments to buy, so yields on everything are forever falling lower and lower.  It was put down to surplus Chinese savings at the time; but now I think it’s more about rich countries ageing and having to save en masse for retirement.

It sounds almost stupidly simplistic - there’s loads of money available so it’s cheap to borrow it - but if there’s any truth to it it means low interest rates will be here to stay because capital will flow towards any reliable investment at all, regardless of whether it offers an attractive return.

Sub-zero yields sound even more  stupid though, yet here we are.

[Gnurglan]

Bonds with negative yield - I'd call it an open scam. Why on earth would you pay someone to hold your money for 1, 10 or 30 years? Why not just keep it yourself? If your neighbor offered you that deal, you would never take it. It's insane, but for a reason. Because they have fucked up after the last crisis. At least that's my take on it.

If I speak for where I live, I know why they want to continue with the madness. If they raise interest rates our housing market will crash. And that would put our banks in the shit and from there, who knows..,

On this topic, I have a tip. Recently I came across a place called Realvision where they have had some really interesting discussions about financial matters. Check it out on youtube if you have any sort of interest. I can't claim to know what they are talking about all the time, but I am fascinated by the data and the discussions. It's far more advanced than anything I have seen before.

[west_london_red]

Bonds with negative yield - I'd call it an open scam. Why on earth would you pay someone to hold your money for 1, 10 or 30 years? Why not just keep it yourself? If your neighbor offered you that deal, you would never take it. It's insane, but for a reason. Because they have fucked up after the last crisis. At least that's my take on it.

If I speak for where I live, I know why they want to continue with the madness. If they raise interest rates our housing market will crash. And that would put our banks in the shit and from there, who knows..,

On this topic, I have a tip. Recently I came across a place called Realvision where they have had some really interesting discussions about financial matters. Check it out on youtube if you have any sort of interest. I can't claim to know what they are talking about all the time, but I am fascinated by the data and the discussions. It's far more advanced than anything I have seen before.

If your a financial institution with say several billion in cash, you can’t just put it under the mattress - you have to put your money somewhere.

But yes, completely agree on the impact of low or negative rates. We have become addicted to them now and no one wants to ween us off because of the impact on the housing market and consumer credit.

[thaddeus]

As somebody mentioned earlier, this is theoretically a boom period but it certainly doesn't feel like it (Brexit is playing a role locally but even globally it doesn't feel right).  The US and China, with Europe occasionally drawn in, engaging in tit-for-tat policies is a probable cause.

The seeming nervousness to invest aggressively - or just the lack of anything meaningful to invest in (witness the amount of money thrown into Unicorn start-ups) - means there is an almost endless supply of capital available.  There's little motive to raise central bank rates as attracting capital isn't really a problem.

Playing this forward 5, 10 or 20 years though seems impossible.  At some point something will have to give.  Maybe the climate emergency will be that trigger or, probably more likely, we'll carry on cutting off our noses to spite our faces on a global level as the world quite literally burns.

 

[Iska]

Playing this forward 5, 10 or 20 years though seems impossible.  At some point something will have to give.  Maybe the climate emergency will be that trigger or, probably more likely, we'll carry on cutting off our noses to spite our faces on a global level as the world quite literally burns.

There is a potential positive to the surplus of capital, which is that funds needed to properly develop the parts of the world that need developing should match up with those places’ potential to provide a return.  I’m thinking primarily of sub-Saharan Africa here, where the population projections even in our lifetimes are barely believable:

Of course good governance is always a problem, and successful development does rather assume continued globalisation, when right now the short-term trend is the opposite.

That’s one example, but proper conversion to renewables could be another.  I don’t feel like it would take a massive global shift in political will to make that an overwhelmingly compelling investment.

[Gnurglan]

If your a financial institution with say several billion in cash, you can’t just put it under the mattress - you have to put your money somewhere.

But yes, completely agree on the impact of low or negative rates. We have become addicted to them now and no one wants to ween us off because of the impact on the housing market and consumer credit.

No, they can't use the mattress. Would be some mattress though.

What's scary is pension funds need about 7-8% return/year and yet some are forced to invest in bonds. That give perhaps 2%. Meaning they need to invest in riskier and riskier things to keep up. It's not a good mix. So the negative bonds are killing pensions for millions of people.

[Gnurglan]

As somebody mentioned earlier, this is theoretically a boom period but it certainly doesn't feel like it (Brexit is playing a role locally but even globally it doesn't feel right).  The US and China, with Europe occasionally drawn in, engaging in tit-for-tat policies is a probable cause.

The seeming nervousness to invest aggressively - or just the lack of anything meaningful to invest in (witness the amount of money thrown into Unicorn start-ups) - means there is an almost endless supply of capital available.  There's little motive to raise central bank rates as attracting capital isn't really a problem.

Playing this forward 5, 10 or 20 years though seems impossible.  At some point something will have to give.  Maybe the climate emergency will be that trigger or, probably more likely, we'll carry on cutting off our noses to spite our faces on a global level as the world quite literally burns.

 

Doubt it will be climate change. Mainly because I fear something will break within the next couple of years. Nobody seems to be optimistic about the general trend.

[thaddeus]

There is a potential positive to the surplus of capital, which is that funds needed to properly develop the parts of the world that need developing should match up with those places’ potential to provide a return.  I’m thinking primarily of sub-Saharan Africa here, where the population projections even in our lifetimes are barely believable:
...
Of course good governance is always a problem, and successful development does rather assume continued globalisation, when right now the short-term trend is the opposite.

That’s one example, but proper conversion to renewables could be another.  I don’t feel like it would take a massive global shift in political will to make that an overwhelmingly compelling investment.

Sub-Saharan Africa, and just Africa in general, is perhaps the most vulnerable to climate change.  Such an explosion in population seems far-fetched but with widespread industrialisation and urbanization, who knows?  I doubt humanity would survive as far as 2100 in that scenario though.

Preferably those with the excess capital would go heavily into renewables and decarbonisation instead of trying to recreate China in Africa...

[thaddeus]

Doubt it will be climate change. Mainly because I fear something will break within the next couple of years. Nobody seems to be optimistic about the general trend.

By "break" do you mean economically, politically or ecologically/environmentally? (not that they need be mutually exclusive)

[Gnurglan]

By "break" do you mean economically, politically or ecologically/environmentally? (not that they need be mutually exclusive)

Economically. But if that happens, it will have consequences.
The more I learn, the more worried I get. It seems everyone has too much debt. Governments, corporations, citizens,... It appears the problems in the 2008-09 crisis were never solved. And now we may have magnified those problems. If this breaks, I fear it will be much worse than 08-09. At that point, we won't be talking climate change. We will have problems much closer to home. Like unemployment, poor pensions, political instability etc.

[Giono]

Decline of Rome I would guess?

That's a bit cliche. The world is going through big changes similar to changing from agrarian economies and all those folks being cut lose 100 years ago. Two world wars decimated the working population that had been cut adrift.

Like back then we are in a period where old ways are not going to work anymore.

[Giono]

We saw zero interest rates in the Euro zone after the financial crash don’t forget so it’s not completely unknown or new but it’s certainly odd. The worry from my amateur economic view is that we are due a recession (they generally happen every 7-8 years) and successive governments and central banks across the developed world (other then the US to be fair) didn’t take the opportunity during the good years of increasing interest rates depriving themselves of their best weapon during a recession, leaving only 2 options to fight a recession - either fiscal policy is loosened (which a lot of countries can’t afford) or more quantitative easing (printing more money) which has been shown reasonably well to be a massive contributor to wealth inequality because it inflates the value of assets to the benefit of those that own them vs those that don’t and as we have seen so many times wealth doesn’t trickle down, it tends to trickle up!

Or raise taxes and redistribute with universal basic income to stimulate bottom up for a change?

[Giono]

Economically. But if that happens, it will have consequences.
The more I learn, the more worried I get. It seems everyone has too much debt. Governments, corporations, citizens,... It appears the problems in the 2008-09 crisis were never solved. And now we may have magnified those problems. If this breaks, I fear it will be much worse than 08-09. At that point, we won't be talking climate change. We will have problems much closer to home. Like unemployment, poor pensions, political instability etc.

It could be real estate again. That is making so many older folks feel secure and comfortable. When the real estate market declines again it could be painful. The levers to restimulate the real estate market have been tapped.

[west_london_red]

Or raise taxes and redistribute with universal basic income to stimulate bottom up for a change?

Personally I am yet to be convinced whether a Universal Basic Income would work, but certainly we need some redistribution of wealth as right now the levels of inequality mixed with other social and political issues are a real issue.

[west_london_red]

Economically. But if that happens, it will have consequences.
The more I learn, the more worried I get. It seems everyone has too much debt. Governments, corporations, citizens,... It appears the problems in the 2008-09 crisis were never solved. And now we may have magnified those problems. If this breaks, I fear it will be much worse than 08-09. At that point, we won't be talking climate change. We will have problems much closer to home. Like unemployment, poor pensions, political instability etc.

Completely, there are mountains of debt across the western world with low interest rates the only thing propping everything up. We have also found new ways of increasing our indebtedness by things like the growth in buying cars under finance agreements which is another ticking time bomb and tuition fees.

[leroy]

Personally I am yet to be convinced whether a Universal Basic Income would work, but certainly we need some redistribution of wealth as right now the levels of inequality mixed with other social and political issues are a real issue.

If anyone has any info they can pass on regarding this it would be appreciated.  I've gone on searches a few times and never seen a convincing model on how it works.  They always leave this open questions of "if you can control this" or "if this can be solved" about the biggest problems UBI seems to present.

[Snail]

Or raise taxes and redistribute with universal basic income to stimulate bottom up for a change?

Perish the thought!

[Iska]

Such an explosion in population seems far-fetched

That was my reaction too, and probably everyone’s - but look at the numbers and it’s already increased almost four-fold in the last fifty years, and the projection is that that slows down to almost three-fold in the next fifty.  Africa only caught up with Europe around 1995 and now it’s already twice as big.

The population pyramids for places like Nigeria are completely unlike those for anywhere else, they have colossal young people populations who haven’t even reached the child-having stage yet:


Basically it’s the population explosion Europe had 150 years ago, America 100 years ago, and Asia 50 years ago (give and take), as societies modernised and infant mortality improved, but family patterns hadn’t caught up.

btw one unexpected consequence I saw projected is that because of where the boom is to be focused (West Africa), by the end of the century the world’s most-spoken language will be French.

[classycarra]

If anyone has any info they can pass on regarding this it would be appreciated.  I've gone on searches a few times and never seen a convincing model on how it works.  They always leave this open questions of "if you can control this" or "if this can be solved" about the biggest problems UBI seems to present.

Best bet is to find a meta analsysis/systematic review of academic research (I expect the heath aspect of research will be far more rigorous than economic research - but that's my personal bias). There's thousands of commentary articles on it, but these tend to rely on the things you've flagged along with cliche and bias.

I am not aware of any recent publications though, it's probably too early, but I expect it will burgeon in the next few years particularly after the completion of the high profile Finnish cohort.

[west_london_red]

That was my reaction too, and probably everyone’s - but look at the numbers and it’s already increased almost four-fold in the last fifty years, and the projection is that that slows down to almost three-fold in the next fifty.  Africa only caught up with Europe around 1995 and now it’s already twice as big.

The population pyramids for places like Nigeria are completely unlike those for anywhere else, they have colossal young people populations who haven’t even reached the child-having stage yet:


Basically it’s the population explosion Europe had 150 years ago, America 100 years ago, and Asia 50 years ago (give and take), as societies modernised and infant mortality improved, but family patterns hadn’t caught up.

btw one unexpected consequence I saw projected is that because of where the boom is to be focused (West Africa), by the end of the century the world’s most-spoken language will be French.

I don’t want to go too Prince Harry and I know it’s controversial but maybe people need to be encouraged to have smaller families? A lot of time it happens by itself as countries become more developed and it’s probably not a good idea to go as far as the old Chinese policy but maybe something less draconian will be needed in the future.

[classycarra]

I don’t want to go too Prince Harry and I know it’s controversial but maybe people need to be encouraged to have smaller families? A lot of time it happens by itself as countries become more developed and it’s probably not a good idea to go as far as the old Chinese policy but maybe something less draconian will be needed in the future.

I can't vouch for all of this data, haven't checked it all, but this section suggests that post-industrial revolution the birth rate can change quite dramatically over a shorter period of time than expected.

https://ourworldindata.org/fertility-rate#fertility-rates-can-decline-extremely-fast

[Iska]

I can't vouch for all of this data, haven't checked it all, but this section suggests that post-industrial revolution the birth rate can change quite dramatically over a shorter period of time than expected.

https://ourworldindata.org/fertility-rate#fertility-rates-can-decline-extremely-fast

That’s fascinating, thanks for the link.

[Giono]

Personally I am yet to be convinced whether a Universal Basic Income would work, but certainly we need some redistribution of wealth as right now the levels of inequality mixed with other social and political issues are a real issue.

Andrew Yang qualified for the next Democrat party debate and it is his signature policy. It ill be interesting as Bernie Sanders has rejected UBI and proposed a government job guarantee, which to me sounds like 100 year old traditional policy from the left.

UBI not only redistributes income, but it geographically distributes it to stimulate small and big population centres. That can be an interesting feature in that the distributions  to smaller centres can particularly stimulate growth and breath economic life into those places that were once single industry one-horse-towns. It would also allow entrepreneurs and gig economy people in smaller centres the possibility to support themselves in a low overhead location (cheaper rents etc.) rather than having to gravitate to large cities where more potential contracts appear more frequently. It also levels some of the boom and bust swings of fortune in one industry or natural resource towns. That allows a foundation for sustainable economic activity.

Alaska has had a dividend, a cheque cut to every citizen, for 40 years.

[Giono]

If anyone has any info they can pass on regarding this it would be appreciated.  I've gone on searches a few times and never seen a convincing model on how it works.  They always leave this open questions of "if you can control this" or "if this can be solved" about the biggest problems UBI seems to present.

There was a trial in the Canadian province of Ontario (the big province with Toronto). It was supposed to be for 3 years in a few small cities, but it got axed prematurely by the new populist right wing government that came to power.


Here are a couple of articles from MIT:



https://www.technologyreview.com/s/611418/basic-income-could-work-if-you-do-it-canada-style/

https://www.technologyreview.com/f/611797/ontario-is-axing-its-test-of-universal-basic-income/

[conman]

Personally I am yet to be convinced whether a Universal Basic Income would work, but certainly we need some redistribution of wealth as right now the levels of inequality mixed with other social and political issues are a real issue.

I doubt it would work, as companies would simply raise the price of goods to accomodate for the new "free" income.

A better solution I feel could be to offer everyone free education every 4-5 years, so that we can all upskill in whatever type of role we want without the burden of paying for it. There could be an accompanying basic income for the duration of each course too. Offering a glorified dole would not do us much use.

Working less hours is also another useful thought, which could go hand in hand with education and UBI inventives.

[bigbonedrawky]

Or raise taxes and redistribute with universal basic income to stimulate bottom up for a change?

Sounds like God Damned Commienizm to me son. 

[west_london_red]

Andrew Yang qualified for the next Democrat party debate and it is his signature policy. It ill be interesting as Bernie Sanders has rejected UBI and proposed a government job guarantee, which to me sounds like 100 year old traditional policy from the left.

UBI not only redistributes income, but it geographically distributes it to stimulate small and big population centres. That can be an interesting feature in that the distributions  to smaller centres can particularly stimulate growth and breath economic life into those places that were once single industry one-horse-towns. It would also allow entrepreneurs and gig economy people in smaller centres the possibility to support themselves in a low overhead location (cheaper rents etc.) rather than having to gravitate to large cities where more potential contracts appear more frequently. It also levels some of the boom and bust swings of fortune in one industry or natural resource towns. That allows a foundation for sustainable economic activity.

Alaska has had a dividend, a cheque cut to every citizen, for 40 years.

Could you not just look at the minimum wage and how it’s enforced when it comes to the ‘self employed’ and gig workers?

I am aware of the Alaska dividend but Alaska is very resource rich with a small population that makes that financial viable (unlike most of Europe for example), also we’re talking about $1000 - $2000, it’s not an enough to live on.

[ericthered10]

I don’t want to go too Prince Harry and I know it’s controversial but maybe people need to be encouraged to have smaller families? A lot of time it happens by itself as countries become more developed and it’s probably not a good idea to go as far as the old Chinese policy but maybe something less draconian will be needed in the future.

I really don't see people being encouraged working out so much as putting all the indirect pieces in place that lead to people having less children. Economic development, urbanization, access to contraception, education/secularization, women's rights all lend themselves to birth rate decreases and the shift to the next stage of the demographic transition model where both birth and death rates are low. Without that happening, it will be your more nature/resource based factors keeping population in check...war, famine, mass migration, etc.

[ericthered10]

I doubt it would work, as companies would simply raise the price of goods to accomodate for the new "free" income.

A better solution I feel could be to offer everyone free education every 4-5 years, so that we can all upskill in whatever type of role we want without the burden of paying for it. There could be an accompanying basic income for the duration of each course too. Offering a glorified dole would not do us much use.

Working less hours is also another useful thought, which could go hand in hand with education and UBI inventives.

In a properly functioning and regulated capitalist system, competition would deter those massive price hikes. Companies would only need to increase prices to the extent of the tax increases on them to maintain their profit margin. Whether most of the west would be categorized as a properly functioning system is another conversation. We have to get there first before UBI would be viable enough long term.

[Giono]

Sounds like God Damned Commienizm to me son. 

Actually it unleashes an entrepreneurial economy where people are not tied to corporate or government gigs for security. It also eliminates the need for countless bureaucrats administrating programs and all the disincentives to work traditional safety nets demand. It's actually more efficient and small government, not more. That's quite right wing...in the traditional sense. 

[Lusty]

Actually it unleashes an entrepreneurial economy where people are not tied to corporate or government gigs for security. It also eliminates the need for countless bureaucrats administrating programs and all the disincentives to work traditional safety nets demand. It's actually more efficient and small government, not more. That's quite right wing...in the traditional sense. 

I think it was originally a right wing idea was it not?  Nixon tried to bring it in I thought.  And a lot of the US tech billionaires are in favour of it.

UBI is one of those things that should transcend right/left wing leanings.  Either it works, and it's a good idea, or it doesn't and it's a bad one.  I don't think there's much evidence either way yet.  I had thought that the trials in Finland that they did weren't promising though.

[The Last Known Survivor]

Hans Rosling has a very good video on population increase, its on YouTube and well worth a watch.

[Gnurglan]

Hans Rosling has a very good video on population increase, its on YouTube and well worth a watch.

Agree. I was just thinking about that one. Basically as life improves families become smaller. He had all sorts of stats for it and anyone who is yet to watch his Ted talk should spend 20 minutes to see what he has to say.

[Gnurglan]

Or raise taxes and redistribute with universal basic income to stimulate bottom up for a change?

That's the traditional idea. Get the money in through taxes and then redistribute to what your party thinks is most needed. The problem with this is people and companies who make money have to give it to those who don't. In short, why should you work 8 hours per day and give money to your neighbour who sits at home? Don't get me wrong, I am with you on the idea that there's a problem, but I have heard a different approach.

What came out of the 08-09 crisis ended up being a big wealth transfer that benefited the richest. It wasn't meant to do that, but that's what happened. Basically everyone had to suffer so that we could save the people who created the mess, and while we were at it, we decided to make them richer too. That's extremely unfair and people may well revolt against it if we get a crisis and need a new plan.

The suggestion I heard was that the next attempt would be to give money to ’bail out people’ the same way that was done to the banks after 08-09. Difference being it would be targeted this time, to allow people to pay off debt. Say everyone gets 100k. You can only use it to pay off debt, nothing else. If you had no debt, you would get 100k to buy shares. Companies would then take the money it gets and being forced to pay off its debt. Basically it's a debt relief. The point here would be that you wouldn't be able to spend the money on anything else, nor save it. But the idea there is to let the people and not just the richest benefit.

[Snail]

I don’t want to go too Prince Harry and I know it’s controversial but maybe people need to be encouraged to have smaller families? A lot of time it happens by itself as countries become more developed and it’s probably not a good idea to go as far as the old Chinese policy but maybe something less draconian will be needed in the future.

The richest people on earth are doing a fucking great job of shifting the blame for all our economic woes/climate change towards “over-population” and other such bollocks. David Attenborough going on about Africans having too many babies and the like, which isn’t in the least bit racist.

Lads, the world isn’t fucked because people shag too much and use plastic straws. It’s fucked because of people like Jeff Bezos. That’s not to say that you and I can’t make changes in our lives to try to help things as best we can, and yes we all share a small part of the blame, but the majority of the blame is on the shoulders of people who are never, ever going to be held to account and are probably never going to suffer the consequences cos they’ve already bought their bunkers.