Crazy economics.

[Little John]

I've just been reading up about the latest wobble in the stock markets and how the markets are on "tenterhooks" over the new US payroll jobs data.

Apparently, if the jobs data is crap, that is to say if the jobless total is the same or worse, then the markets will be fine. However, if the jobs data is good, that is to say unemployment has fallen significantly, then the markets will likely tank.

I kid you not

This is how I think it works;

Too much credit is lent into existence on the back of an expectation of perpetual growth, fuelled by a perpetual rise in access to resource, the most crucial of all being energy in the form of hydrocarbons.

The oil price spikes in 2007, leading to the world economy falling on it's arse and to the Western banking system very nearly collapsing.

The Western banking system and the Western economy more generally is kept afloat by a massive injection of funny money, otherwise known as QE. This, in turn, causes stock markets to rapidly rise as all of this funny money looks for a new home to go to.

In the US, in June of 2013, it looks like there is very slight possibility of a very slight improvement in the US jobs data. If there is, this would throw into doubt the continuation of the US government's policy of QE stimulation of the economy. This, in turn, would mean there would be no more funny money to feed the stock markets with. As a consequence, the stock markets are about to have an almighty hissy-fit which will, in turn, feed back through to the economy and possibly throw it back into recession causing significant loss of jobs.

You couldn’t make this shit up.

[UndercoverElephant]

Further evidence that we have actually entered a new economic age - or mini-age - where the rules of the game have changed. You've just explained one of the important changes: the money-printing can't stop - the western economies are now like junkies, hooked on a never-ending supply of fiat currency. The other is that the relative values of currencies are now determined by the relative level of money-printing, rather than the level of interest rates, so the zero or near-zero interest rates can't stop either.

I can see no way back from this situation to the situation we were in before 2008, when "QE" was viewed as bad (because it eventually leads to an inflationary meltdown) and when interest rates could be raised to bring money into western economies. This is the "new normal".

Which leaves us with the following questions:

How long can this new normal continue for?
How will it end?
What will happen next?

A lot of people's financial future will depend on getting the right answers to these questions. Most people are guaranteed to get the answers wrong.

[emordnilap]

So what do you think will happen in currency areas where quantitative is not easing? (You know what I mean).

[UndercoverElephant]

So what do you think will happen in currency areas where quantitative is not easing? (You know what I mean).

There aren't any of those. The non-western economies, like China, are also printing money. The Japanese had been holding out against it, but this has recently also changed: http://www.economist.com/blogs/buttonwo ... nd-markets

Every country now has to keep printing. If any choose not to then their currency becomes a relative "safe haven" and people will start buying it up, causing its value to go sky high relative to the other currencies, which makes their exports prohibitively expensive to foreign buyers. All the fiat currencies are now effectively tied together.

[Little John]

......Which leaves us with the following questions:

How long can this new normal continue for?.....

My guess is when ordinary people can no longer afford to put a roof over their heads and/or fill their bellies.

How will it end?

When ordinary people, as a consequence of the above, force change either directly or indirectly.

What will happen next?

Internal unrest and/or external wars, socialism and/or fascism.

[UndercoverElephant]

I can also offer some sort of answer to one of those questions: when/why does this new economic phase end?

Answer: when the mass of the people stop believing in it. It ends when people start worrying about holding on to cash, instead of hoarding it like they are at the moment. At that moment, and it will happen quickly when it happens, the inflationary genie will be let out of the bottle. Suddenly everybody who has cash will start buying up anything they think will hold its value. This is already starting in the property market. It is the reason why house prices in the UK are taking off again. I believe we are at the start of a new "bubble" in property prices.

[Little John]

So what do you think will happen in currency areas where quantitative is not easing? (You know what I mean).

There aren't any of those. The non-western economies, like China, are also printing money. The Japanese had been holding out against it, but this has recently also changed: http://www.economist.com/blogs/buttonwo ... nd-markets

Every country now has to keep printing. If any choose not to then their currency becomes a relative "safe haven" and people will start buying it up, causing its value to go sky high relative to the other currencies, which makes their exports prohibitively expensive to foreign buyers. All the fiat currencies are now effectively tied together.

Will this provide an incentive for one of them to jump ship and re-adopt a commodity-based currency?

[UndercoverElephant]

......Which leaves us with the following questions:

How long can this new normal continue for?.....

My guess is when ordinary people can no longer afford to put a roof over their heads and/or fill their bellies.

Hunger is guaranteed to lead to unrest/revolution, yes.

And your comment about "roof over their heads" is interesting, given that many people are already locked out of the property market just as house prices start to take off again, this time due to QE and near-zero interest rates being recognised as here to stay, rather than easy credit. There is now a massive disconnect between property-haves an property-have-nots, and it is going to get worse. If you don't already own property, and aren't going to inherit property, then you're screwed, basically.

What will happen next?

Internal unrest and/or external wars, socialism and/or fascism.

Probably. But I was really referring to what happens next in terms of economics.

[Little John]

......Which leaves us with the following questions:

How long can this new normal continue for?.....

My guess is when ordinary people can no longer afford to put a roof over their heads and/or fill their bellies.

Hunger is guaranteed to lead to unrest/revolution, yes.

And your comment about "roof over their heads" is interesting, given that many people are already locked out of the property market just as house prices start to take off again, this time due to QE and near-zero interest rates being recognised as here to stay, rather than easy credit.

Internal unrest and/or external wars, socialism and/or fascism.

Probably. But I was really referring to what happens next in terms of economics.

This is the thing about this QE-led form of economics. It's all just on paper. It doesn't actually lead to people’s spending power increasing or the economy actually growing in any primary sense. Thus, the disconnect between how "well" the economy is doing via such measures as "GDP" and what is actually happening on the ground in ordinary people's lives is growing greater all the time. It's irrelevant to someone to be told on the evening news that that GDP is growing and the stock market and housing sector are booming if they can't afford to pay their rent/mortgage or put a meal on the table.

It's just all lunacy.

[Little John]

I've just read the latest news on the US jobs data in the Guardian. Apparently, there has been a slight rise in unemployment, So I guess that mean we're saved.

Jesus Wept....

[clv101]

I believe we are at the start of a new "bubble" in property prices.

That's in interesting idea... wages aren't increasing, interest rates aren't decreasing, banks aren't lending more... and, desperately, the Government is injecting public money into housing with the help to buy scheme. The housing market risk is all on the down side, not the up side with the exception of areas attracting significant foreign investment.

I think a new property price bubble (prices rising at 5-10% per year for several years) is highly unlikely.

[PS_RalphW]

QE is continuing to inflate the GDP figures and keeping the illusion of BAU even as most people are materially worse off. This can only mean that that social inequality is continuing to get worse, but the wealthy elite are even more sheltered from economic reality within their own bubble.

It also is apparent in the housing market. In fashionable areas like Cambridge, any house with any options for extension and upgrading are snapped up within 2 or 3 days of going on the market at silly prices, whereas lower down the market houses stay around for months, and some even drop their prices. The market is locking up as physical and social mobility collapse.

I feel a bit of a hypocrite, since I am sitting on a pile of cash and looking to spend on property. I just want to be ahead of the rush.

For my personal position I can see my job evaporate, as customers are drying up again, and we have already cut our overheads to the bone (again). I want to be in a position to live off my fixed assets before that happens...

[UndercoverElephant]

I believe we are at the start of a new "bubble" in property prices.

That's in interesting idea... wages aren't increasing, interest rates aren't decreasing, banks aren't lending more... and, desperately, the Government is injecting public money into housing with the help to buy scheme. The housing market risk is all on the down side, not the up side with the exception of areas attracting significant foreign investment.

I think a new property price bubble (prices rising at 5-10% per year for several years) is highly unlikely.

Interest rates can't get any lower.

The government can't afford to allow property prices to fall, because of the precarious situation of the banks. The government is injecting public money into housing because it wants to try to help some of the people who are stranded as the bottom rung of the property ladder rises away from them. It's also trying to make it easier for people to buy new-builds, in an attempt to help the construction industry (in terms of jobs). But the reason house prices will rise is because people who already own property, and have additional spare money coming in (earned from returns on the stock market, which is being fuelled by QE) need something to do with it. What are they going to do with it? Buy property, of course. And they can afford to buy it even if it continues to rise in price, so long as the QE continues.

The funny money has to go somewhere.

[UndercoverElephant]

QE is continuing to inflate the GDP figures and keeping the illusion of BAU even as most people are materially worse off. This can only mean that that social inequality is continuing to get worse, but the wealthy elite are even more sheltered from economic reality within their own bubble.

Yes.

It also is apparent in the housing market. In fashionable areas like Cambridge, any house with any options for extension and upgrading are snapped up within 2 or 3 days of going on the market at silly prices, whereas lower down the market houses stay around for months, and some even drop their prices. The market is locking up as physical and social mobility collapse.

Yes, absolutely. This confirms what I just posted. The rises in the property market are now being driven by people who already own property. Those who are at the lower end of the social scale, and aren't already on the property ladder, are now stranded with no hope.

I feel a bit of a hypocrite, since I am sitting on a pile of cash and looking to spend on property. I just want to be ahead of the rush.

For my personal position I can see my job evaporate, as customers are drying up again, and we have already cut our overheads to the bone (again). I want to be in a position to live off my fixed assets before that happens...

Yep, and plenty of other people in similar positions will keep property prices rising.

[Little John]

QE is continuing to inflate the GDP figures and keeping the illusion of BAU even as most people are materially worse off. This can only mean that that social inequality is continuing to get worse, but the wealthy elite are even more sheltered from economic reality within their own bubble.

It also is apparent in the housing market. In fashionable areas like Cambridge, any house with any options for extension and upgrading are snapped up within 2 or 3 days of going on the market at silly prices, whereas lower down the market houses stay around for months, and some even drop their prices. The market is locking up as physical and social mobility collapse.

I feel a bit of a hypocrite, since I am sitting on a pile of cash and looking to spend on property. I just want to be ahead of the rush.

For my personal position I can see my job evaporate, as customers are drying up again, and we have already cut our overheads to the bone (again). I want to be in a position to live off my fixed assets before that happens...

You shouldn't feel like a hypocrite Ralph. You're just trying to make yourself secure in the same way anyone would in your position. In other words, you're just playing the game as you find it. Hypocrisy is when someone describes reality in a way that does not match it for the purpose of hiding the truth of that reality from themselves or others.