Richard Koo is the first speaker on this video
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Debunking austerity claims makes no difference to Europe’s monks and zealots | Telegraph Blogs
Ambrose Evans-Pritchard attacks euro-zone austerity:
Britain’s public debt was 260pc of GDP in 1816 at the end of near perma-wars: Seven Years War, American War of Independence, and the Napoleonic Wars. This was whittled down to 24pc over the next century by the magical compound effects of economic growth. The debt reached 220pc in 1945, the price for defeating fascism. This was certainly a drag on the post-War recovery, but it did not stop debt falling to 36pc by the mid-1990s.
Britain twice recovered from massive debt through a combination of growth and inflation — not necessarily in that order — but they had control of their own currency. The states of Europe are strait-jacketed by a currency dominated by the austerity-minded Bundesbank.
Read more at Debunking austerity claims makes no difference to Europe's monks and zealots – Telegraph Blogs.
PIMCO’s Gross: Investing may be more difficult in years ahead
Charles Stein and Alexis Leondis at Bloomberg quote Bill Gross, co-chief investment officer at PIMCO (Pacific Investment Management Co) about the outlook for the next decade:
Recently, Gross has become more reflective in his monthly online commentaries. In the April outlook, called “A Man in the Mirror,” he suggested that the careers of the great investors of the past three or four decades were fueled by an expansion of credit that may be coming to an end, and that investing may become more difficult in years ahead.
“All of us, even the old guys like Buffett, Soros, Fuss, yeah — me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience,” he wrote. “Perhaps it was the epoch that made the man.”
Central banks have at last awoken to the dangers of rapid credit expansion and are unlikely to allow a repeat of the credit-fueled growth of the last thirty years. Bull markets of the future are therefore likely to be a lot more sedate.
Read more at Pimco’s Rising Stars Pull in Money for Future After Gross – Bloomberg.
Expanding debt: Dousing the flames with gasoline
We are now in the fifth year of recovery from the worst financial crisis in 50 years — fueled by expanding household debt, rising from 50% of GDP in the 1980s to close to 100% in 2008. Contraction since the GFC has brought US household debt back to 80% of GDP…
But a worrying sign is that consumer debt has started to rise
And Steve Keen points out that margin debt is also rising, fueling the latest stock market rally.
[click on the image to view the video in a separate window]
Holding interest rates at artificially low levels for an extended period risks fueling another credit bubble. The Fed/central bank needs to react quickly to expanding credit in any area of the economy. We all hope for a recovery, but it must be sustainable — with consumption fueled by rising employment rather than rising debt — and not another debt-fueled boom-then-bust.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Australia: Housing affordability still poor
Interesting article by Leith van Onselen on Australian housing affordability.
Today it takes “380 weeks on the average wage (just over seven year’s income) to buy a typical house. This is down from around 430 weeks average wages (just over eight year’s income) required to buy a home in 2008 and 2010.”
Good news. But compare that to less than 250 weeks in 1995 — and less than 200 weeks in 1987.
In 1960, it took homebuyers just 7500 hours [188 weeks on the average wage] to pay off the average mortgage.
via Housing affordability improves but still poor | | MacroBusiness.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Taking the leverage out of economic growth | Reuters
Edward Hadas points out that long-term credit growth has exceeded growth in nominal GDP (real GDP plus inflation) in the US and Europe for some time. Not only does this fuel a credit bubble but it leads to a build up of inflationary pressure within the economy. If not evident in consumer prices it is likely to emerge as an asset bubble.
For the last two decades, accelerating credit has been closely correlated with the change in GDP – both in the United States and the euro zone. GDP growth tended to speed up shortly after the rate of credit growth increased, and slowed down after credit growth started to decrease.
This correlation implies there is an equilibrium rate of credit growth – the rate that corresponds to the long-term pace of nominal GDP growth. Though the pace of credit growth can vary from year to year, over time private debt and nominal GDP have to expand at the same rate for overall leverage to stay constant. That’s not what happened in the past two decades. Since 1990, Deutsche found a significant gap between credit and GDP growth in the United States and the euro zone.
In both, the neutral rate of credit growth – the rate associated with the economy’s long-term growth rate – was 7 percent. Those long-term nominal GDP growth rates were lower: 4.8 percent in the United States and 4 percent in the euro zone. In a single year, the difference of 2-3 percentage points doesn’t have much effect. Over a generation, though, it leads to a massive increase in the ratio of private debt to GDP.
The gap between growth in Domestic Debt and Nominal GDP widened in 2004/5 during the height of the property bubble and has narrowed to near zero since 2010.
Hopefully the Fed have learned their lesson and maintain this course in future.
via Analysis & Opinion | Reuters.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Explain the disease to help US citizens – FT.com
This must-read opinion by Richard Koo explains the impact US private sector saving — a staggering 8 per cent of gross domestic product — has on the US economy.
“….. if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933.”
via Explain the disease to help US citizens – FT.com.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Australia: Household debt crisis
A few days ago I mentioned that Australia is in a housing bubble. The easiest way to gauge this is to compare Australian household debt/disposable income (DPI) to the US peak before the global financial crisis. After all, household debt is the fuel for a housing bubble.
Australia’s current ratio of 150% (or 1.5 times DPI) is higher than the US peak of 1.3 times DPI during the housing bubble. And far higher than the current US ratio of 1.1 times DPI.
No time to be complacent.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
David Murray: Australian government spending on alarming trajectory
David Murray, former Chairman of the Future Fund and former CEO of the Commonwealth Bank warns growing debt-funded entitlement could end with a Europe-style debt crisis.
Hat tip to Unconventional Economist at Macrobusiness.com.au
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Steve Keen on Post-Keynesian Macroeconomics
Prof Steve Keen’s presentation to the UMKC Post Keynesian conference in 2012.
Paul Krugman would argue that Income = Aggregate Demand when the economy is in equilibrium.
Steve Keen shows that the economy is not in equilibrium when aggregate debt is rising or falling:
Income = Aggregate Demand + Change in Debt
He illustrates (at 13:20) how, while GDP fell from $14.5 to $14.0 trillion, the US economy went from $18.5 to $11.5 trillion because of private debt contraction.
This does not seem entirely accurate as my earlier chart of US Debt shows that Domestic (Non-Financial) Debt growth slowed but at no stage contracted during the GFC. I suspect that Steve has omitted Government Debt which acted as an important counter-weight to Private Debt contraction during the GFC.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.