EU Politics: I miss Renaults(don't make fun of me)

The Something Awful Forums > Discussion > Debate & Discussion > EU Politics: I miss Renaults(don't make fun of me)

V. Illych L.: Apr 11, 2008; ASK ME ABOUT LUMBER

well official alignment towards the USA has been marin's official policy for a good while now, and official US policy has been increasingly antagonistic towards china, so this makes sense.

# ? Nov 17, 2022 16:45

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# ? May 25, 2024 04:13

BlankSystemDaemon: Mar 13, 2009

Tesseraction posted:

Colour me shocked that the PM of Nokialand would warn against relying on China for technology going forward.

I get your point, but Nokia doesn't exist anymore except as a brand - they were out-competed by Usania (specifically, the iPhone) despite having passed on the MyOrigo MyDevice a few years earlier, in a move that can only be described as hubris.
Shortly after Nokia passed on it, the MyDevice by MyOrigo was then shown privately to Steve Jobs and he proceeded to copy every single feature, just like he did with the work coming out of Xerox PARC.

BlankSystemDaemon fucked around with this message at 19:11 on Nov 17, 2022

# ? Nov 17, 2022 19:08

Tesseraction: Apr 5, 2009

BlankSystemDaemon posted:

I get your point, but Nokia doesn't exist anymore except as a brand - they were out-competed by Usania (specifically, the iPhone) despite having passed on the MyOrigo MyDevice a few years earlier, in a move that can only be described as hubris.
Shortly after Nokia passed on it, the MyDevice by MyOrigo was then shown privately to Steve Jobs and he proceeded to copy every single feature, just like he did with the work coming out of Xerox PARC.

Well I more meant Nokia's burgeoning 5G provisioning, making them theoretical direct competitors of Huawei, and without worry about knee-jerk anti-Chinese sentiment. Well, depending on how long-held and bizarre your anti-Chinese sentiment is.

# ? Nov 18, 2022 00:55

Ghost Leviathan: Mar 2, 2017; Exploration is ill-advised.

Wasn't Nokia undermined and basically destroyed by Microsoft and then used as a branding for their failed Windows Phones?

# ? Nov 18, 2022 02:11

i say swears online: Mar 4, 2005

Ghost Leviathan posted:

Wasn't Nokia undermined and basically destroyed by Microsoft and then used as a branding for their failed Windows Phones?

their consumer line ate poo poo but they're still in the industrial game

# ? Nov 18, 2022 02:23

Cantide: Jun 13, 2001; Pillbug

mobby_6kl posted:

So it's not just the port

https://www.politico.eu/article/report-germany-government-chip-plant-china-despite-secret-service-warning/

It's a pretty small company that I've never heard of, but it could be important in the automotive supply chain. And they'll shut down their own production in favor of purchasing chips, I wonder from where. Oh well, good thing the automotive sector isn't important in Germany!

This article is old
https://www.tagesschau.de/wirtschaft/unternehmen/elmos-china-verkauf-verboten-chip-technologie-101.html

quote:

Status: 11/09/2022 1:28 p.m

The federal government has prohibited the sale of Elmos chip production to China. The cabinet also vetoed another case. Experts also see this as a symbolic decision.

# ? Nov 18, 2022 09:02

His Divine Shadow: Aug 7, 2000; I'm not a fascist. I'm a priest. Fascists dress up in black and tell people what to do.

V. Illych L. posted:

well official alignment towards the USA has been marin's official policy for a good while now, and official US policy has been increasingly antagonistic towards china, so this makes sense.

I think it's generally a good idea to try and move production of strategic industries inside EU borders after both covid and russia showed how fragile the global system is and with the china/us situation developing the way it is, it's even more prudent.

# ? Nov 18, 2022 09:13

mortons stork: Oct 13, 2012

Luckily, Europe's flourishing industry will be able to pick up the slack once we cut our reliance on China, as opposed to having to crawl on our knees and beg the Americans.

Sorry, getting some last-minute info in my earpiece on which country Europe is actually reliant on for tech.

# ? Nov 18, 2022 09:20

Kassad: Nov 12, 2005; It's about time.

His Divine Shadow posted:

I think it's generally a good idea to try and move production of strategic industries inside EU borders after both covid and russia showed how fragile the global system is and with the china/us situation developing the way it is, it's even more prudent.

Just yesterday the French government was saying it's not doable to reshore the production of plush toys for the 2024 Olympic games from China.

# ? Nov 18, 2022 09:46

His Divine Shadow: Aug 7, 2000; I'm not a fascist. I'm a priest. Fascists dress up in black and tell people what to do.

What's your point? That they can't bring back plush toys, so we're not gonna be able to bring back anything else either. Is what I am think you are saying, but I am not sure.

# ? Nov 18, 2022 09:47

Tesseraction: Apr 5, 2009

Kassad posted:

Just yesterday the French government was saying it's not doable to reshore the production of plush toys for the 2024 Olympic games from China.

This is how the west was destroyed.

# ? Nov 18, 2022 09:56

Kassad: Nov 12, 2005; It's about time.

His Divine Shadow posted:

What's your point? That they can't bring back plush toys, so we're not gonna be able to bring back anything else either. Is what I am think you are saying, but I am not sure.

I'm skeptical about the political will needed to actually do it successfully.

# ? Nov 18, 2022 09:59

mortons stork: Oct 13, 2012

I would personally be less skeptical if they ever mentioned, in the same breath as they say we gotta stop relying on China, how we need to develop our own European-controlled AWS or whatever. Just pay lip service to the idea that it is with strategic interests in mind and not because this century's equivalent of the East India company got pissy about something and wants you to stop doing something that may cost it profits.

But no that declaration was literally 'we're gonna win the tech race by working with the US' so yeah, we're totally hosed.

# ? Nov 18, 2022 10:06

V. Illych L.: Apr 11, 2008; ASK ME ABOUT LUMBER

His Divine Shadow posted:

I think it's generally a good idea to try and move production of strategic industries inside EU borders after both covid and russia showed how fragile the global system is and with the china/us situation developing the way it is, it's even more prudent.

i agree, but i don't think that this is what's likely to happen here. if we try to shift away from globalisation, the entire western political consensus is hosed as we face either dramatically increased prices due to the huge effective wage expenditure, or a mass reproletarisation of a large chunk of the european lower classes. there's a reason a lot of manufacturing happens in places where it's legal to expose people to impressive levels of carcinogens and beat them bloody if they try to protest, after all

e: plus, there's quite a lot of very *strategic* raw materials lying around in the poorer countries of the world. globalisation has actually not been that terrible for these countries since they could just let whichever company extract it in relative peace, but if it becomes a geopolitical necessity to keep control of these resources, the old jakarta method is probably getting dusted off again

V. Illych L. fucked around with this message at 13:38 on Nov 18, 2022

# ? Nov 18, 2022 13:31

Charlz Guybon: Nov 16, 2010

https://twitter.com/LBC/status/1593933254230700033

# ? Nov 19, 2022 14:11

Tesseraction: Apr 5, 2009

There's a reason she's "former" - she resigned from the party in protest of Brexit.

# ? Nov 19, 2022 17:20

Sereri: Sep 30, 2008; awwwrigami

Does she know what Brexit means?

It means Brexit

# ? Nov 19, 2022 18:51

i say swears online: Mar 4, 2005

Sereri posted:

Does she know what Brexit means?

It means Brexit

unfamiliar with this definition tbh

# ? Nov 19, 2022 19:02

BlankSystemDaemon: Mar 13, 2009

It's very Tory to talk about Brexit as if it had anything to do with the economy, when it was very nakedly about immigration.

# ? Nov 19, 2022 19:06

Blut: Sep 11, 2009; if someone is in the bottom 10%~ of a guillotine

Carbon tariffs will do a pretty decent job of on-shoring some production back to the EU when they're implemented, and rapidly increased, in the near-ish future. They're popular/a very easy sell to the public and benefit EU businesses so theres a lot pushing in their favour.

# ? Nov 19, 2022 19:17

Nonsense: Jan 26, 2007

Charlz Guybon posted:

https://twitter.com/LBC/status/1593933254230700033

Won't happen in our lifetimes.

# ? Nov 19, 2022 19:34

Charlz Guybon: Nov 16, 2010

I think they could come crawling back sooner then you'd think, though I imagine joining back up would be neither quick, nor easy.

# ? Nov 20, 2022 00:09

Blut: Sep 11, 2009; if someone is in the bottom 10%~ of a guillotine

Nonsense posted:

Won't happen in our lifetimes.

Give it 20-25 years and most of the old people who voted for Brexit will have died off.

That and a couple of decades of more punishing austerity will probably convince a fair chunk of the remaining Brexiters about the "economic benefits" of Brexit.

Its going to be great fun having them crawling back and having to agree to no special rebate, and to join the Euro.

# ? Nov 20, 2022 00:43

Charlz Guybon: Nov 16, 2010

Yikes
https://twitter.com/HeerJeet/status/1594005872232910848

# ? Nov 20, 2022 04:20

A Buttery Pastry: Sep 4, 2011; Delicious and Informative!

Charlz Guybon posted:

Yikes
https://twitter.com/HeerJeet/status/1594005872232910848

It's time to revoke German independence before they get the ball rolling again.

# ? Nov 20, 2022 06:55

SlowBloke: Aug 14, 2017

mortons stork posted:

I would personally be less skeptical if they ever mentioned, in the same breath as they say we gotta stop relying on China, how we need to develop our own European-controlled AWS or whatever. Just pay lip service to the idea that it is with strategic interests in mind and not because this century's equivalent of the East India company got pissy about something and wants you to stop doing something that may cost it profits.

But no that declaration was literally 'we're gonna win the tech race by working with the US' so yeah, we're totally hosed.

Lol they do but their initiative (GaiaX) is such a poo poo show that nobody sane would jump on it.

# ? Nov 20, 2022 10:24

Torrannor: Apr 27, 2013; ---FAGNER---
TEAM-MATE

Do we actually want the Brits back though? They blocked a lot of poo poo that would have improved the EU somewhat.

# ? Nov 20, 2022 11:04

Gort: Aug 18, 2003; Good day what ho cup of tea

Torrannor posted:

Do we actually want the Brits back though? They blocked a lot of poo poo that would have improved the EU somewhat.

Is that stuff happening now that they're gone?

# ? Nov 20, 2022 11:15

Dawncloack: Nov 26, 2007; ECKS DEE!; Nap Ghost

Britain was the Joe Manchin of the EU. With them gone...

*holds earpiece* hold on, I am getting breaking news, the competition to see which country wins the "Krysten Sinema" award has taken a turn with two new entries...

# ? Nov 20, 2022 14:29

nimby: Nov 4, 2009; The pinnacle of cloud computing.

Torrannor posted:

Do we actually want the Brits back though? They blocked a lot of poo poo that would have improved the EU somewhat.

I imagine that in a future where the UK decided to rejoin the EU, they'll be a lot more willing to cooperate. They'd likely also have a lot less leeway in not following the overall rules and regulations, because I doubt Europe would want to let the UK pretend nothing really happened during the Brexit years.

# ? Nov 20, 2022 19:39

Antifa Poltergeist: Jun 3, 2004; "We're not laughing with you, we're laughing at you"

How can you look at the uk, and assume they'll get less insane in the future?

And they'll have to meet the copenhagen criteria, which, im gonna real with you all, im not sure they can.

# ? Nov 20, 2022 22:18

Gort: Aug 18, 2003; Good day what ho cup of tea

I don't think the UK returning to the EU is something to seriously worry about.

It'll take a long time before they're even able to apply for membership (there's a shitload of political inertia to turn around - the UK's newspapers have been shilling Brexit and the evils of the EU for years and years now), and at that point the EU can stipulate any entry requirements it likes.

# ? Nov 21, 2022 16:51

Herman Merman: Jul 6, 2008

Thatcher's legacy, in ruins. :britain:

# ? Nov 21, 2022 22:23

His Divine Shadow: Aug 7, 2000; I'm not a fascist. I'm a priest. Fascists dress up in black and tell people what to do.

This was published in my local paper. It's google translated so might sound a bit off.

quote:

After the last world war, a war that, to put it mildly, Germany was not completely innocent of, the country received so-called Marshall aid to build up its industry while getting off extremely lightly in terms of war reparations.

In 1953, in London, their debts from the war were written off. This had been forgotten when in 2010, in order to save German banks, ignoring the banks' corporate risk, the payment of the loans was transferred to Greece. At the time, this attracted a lot of attention and criticism in many quarters, and Angela Merkel was mocked in Greece. They had also forgotten how in 1942 they pressured the central bank of Greece to grant Germany loans to finance its ongoing war.

NATO has, among other things, given Germany protection during the post-war period, but as is known for many years, it has not fully paid its two percent share of the costs.

For Germany, the euro was valued 25�30 percent lower than if it had kept the German D-mark, and the export industry therefore became very competitive. This led to Germany having the largest export surplus for many years both in absolute and relative terms in a global perspective. In a currency union, it's easy for one person's surplus to become another's person's deficit.

The Commission and many countries within the currency union therefore demanded that Germany should, among other things, stimulate its domestic consumption through fiscal policy measures, which would economically benefit the other countries within the currency union. This was not agreed to and the imbalance between the economies within the currency union continued to increase with the consequence that many countries within the eurozone are completely over-indebted today.

This has led to Germany today being able to consider a mega-aid of 200 billion euros to those affected by the energy crisis. The aid would further weaken the competitive position of other euro countries, which cannot afford similar aid, and has led to much criticism from these countries. If Germany had not received the currency advantage that the euro gave it at the expense of other countries, we would not have today the great economic inequality between the countries.

The Baltic states and the United States have strongly criticized Germany's dependence on Russian energy and especially the conclusion of the Nordstream 2 agreement, but Germany has referred to economic aspects. Criticism did not help and stinginess deceived wisdom.

The annexation of Crimea took place in 2014. Germany then concluded the Nordstream 2 agreement as if nothing had happened, which made many wonder whether the Russians then considered it free to go with Ukraine as well. If Germany had heeded the warnings from the West and not entered into Nordstream 2 with regard to Crimea, the situation today might have been different as far as Ukraine is concerned.

In any case, it has been Germany's unilateral economic interests that have dictated its Russia policy, which affects other European countries today. China is an important export country for Germany, but it also has a large production of passenger cars located in China. It has attracted a lot of criticism in Europe that, in order to benefit its China trade, part of the port of Hamburg was sold to China. Germany has been accused of going it alone instead of negotiating with China at the EU level.

An illustrative example of this is how Germany opposes raising the import tax on cars imported from China in Europe to the same level as the corresponding import tax in China. As mentioned, Germany has a large car production in China and it is feared that consumers in China would react to such an increase. In China, consumers and the state are known to be closely related. French car manufacturers have strongly reacted to this, for understandable reasons.

Inflation is very high in Europe and particularly high in Germany due to the fact that energy prices there have risen sharply due to a failed Eastern policy and the shutdown of nuclear power and due to the undervalued euro for Germany.

Now Germany has demanded large interest rate increases within the eurozone, forgetting that many completely over-indebted eurozone countries would not be able to handle these; countries that became over-indebted in part due to Germany's refusal to stimulate its domestic demand.

International economics is no place for solidarity, as Germany's progress shows. It has been unfortunate for Europe that Germany, which is otherwise the strongest economic power, also gained an economic advantage through the euro, which contributed to the devastating economic inequality and associated crisis we have within the eurozone. Instead of a coordinated policy, Germany has prioritized its surplus policy.

Geopolitical reasons mean that trade policy is currently undergoing major global changes. In order for Europe to keep up with this development and to avoid going solo, Europe should be able to conclude trade agreements with a qualified majority.

The new geopolitical situation means that in Europe and the US it is important that China is not allowed to play them off against each other. Therefore, it is important that Europe stands united and does not allow solo riding on the part of Germany. Europe has a trade deficit with China but a large export surplus with the US � facts not to be forgotten. As you know, China has completely different values and a different political system and unabashedly favors its own industry in many ways, meaning that competition does not take place on equal, fair terms. This policy has been accentuated in recent years.

# ? Nov 23, 2022 12:42

His Divine Shadow: Aug 7, 2000; I'm not a fascist. I'm a priest. Fascists dress up in black and tell people what to do.

This isn't strictly EU centered but it does include the EU
https://themarket.ch/interview/russell-napier-the-world-will-experience-a-capex-boom-ld.7606

quote:

�We Will See the Return of Capital Investment on a Massive Scale�
Market strategist and historian Russell Napier warns of a 15- to 20-year phase of structurally elevated inflation and financial repression. He shares his views on how investors should prepare for this new world.

Russell Napier has never been one of the eternal inflation warners. On the contrary: The market strategist and historian, who experienced the Asian Financial Crisis 25 years ago at first hand at the brokerage house CLSA in Hong Kong, wrote for years about the deflationary power of the globalised world economy.

Two years ago, the tide turned and Napier warned of a vicious return of inflation � and he hit the mark. In an in-depth conversation with The Market NZZ, which was lightly edited for clarity, he explains why most developed economies are undergoing a fundamental shift and why the system most investors have become accustomed to over the past 40 years is no longer valid.

According to Napier, financial repression will be the leitmotif for the next 15 to 20 years. But this environment will also bring opportunities for investors. �We will see a boom in capital investment and a reindustrialisation of Western economies,� says Napier. Many people will like it at first, before years of badly misallocated capital will lead to stagflation.

In summer of 2020, you predicted that inflation was coming back and that we were looking at a prolonged period of financial repression. We currently experience 8+% inflation in Europe and the US. What�s your assessment today?

My forecast is unchanged: This is structural in nature, not cyclical. We are experiencing a fundamental shift in the inner workings of most Western economies. In the past four decades, we have become used to the idea that our economies are guided by free markets. But we are in the process of moving to a system where a large part of the allocation of resources is not left to markets anymore. Mind you, I�m not talking about a command economy or about Marxism, but about an economy where the government plays a significant role in the allocation of capital. The French would call this system �dirigiste�. This is nothing new, as it was the system that prevailed from 1939 to 1979. We have just forgotten how it works, because most economists are trained in free market economics, not in history.

Why is this shift happening?

The main reason is that our debt levels have simply grown too high. Total private and public sector debt in the US is at 290% of GDP. It�s at a whopping 371% in France and above 250% in many other Western economies, including Japan. The Great Recession of 2008 has already made clear to us that this level of debt was way too high.

How so?

Back in 2008, the world economy came to the brink of a deflationary debt liquidation, where the entire system was at risk crashing down. We�ve known that for years. We can�t stand normal, necessary recessions anymore without fearing a collapse of the system. So the level of debt � private and public � to GDP has to come down, and the easiest way to do that is by increasing the growth rate of nominal GDP. That was the way it was done in the decades after World War II.

What has triggered this process now?

My structural argument is that the power to control the creation of money has moved from central banks to governments. By issuing state guarantees on bank credit during the Covid crisis, governments have effectively taken over the levers to control the creation of money. Of course, the pushback to my prediction was that this was only a temporary emergency measure to combat the effects of the pandemic. But now we have another emergency, with the war in Ukraine and the energy crisis that comes with it.

You mean there is always going to be another emergency?

Exactly, which means governments won�t retreat from these policies. Just to give you some statistics on bank loans to corporates within the European Union since February 2020: Out of all the new loans in Germany, 40% are guaranteed by the government. In France, it�s 70% of all new loans, and in Italy it�s over 100%, because they migrate old maturing credit to new, government-guaranteed schemes. Just recently, Germany has come up with a huge new guarantee scheme to cover the effects of the energy crisis. This is the new normal. For the government, credit guarantees are like the magic money tree: the closest thing to free money. They don�t have to issue more government debt, they don�t need to raise taxes, they just issue credit guarantees to the commercial banks.

And by controlling the growth of credit, governments gain an easy way to control and steer the economy?

It�s easy for them in the way that credit guarantees are only a contingent liability on the balance sheet of the state. By telling banks how and where to grant guaranteed loans, governments can direct investment where they want it to, be it energy, projects aimed at reducing inequality, or general investments to combat climate change. By guiding the growth of credit and therefore the growth of money, they can control the nominal growth of the economy.

And given that nominal growth consists of real growth plus inflation, the easiest way to do this is through higher inflation?

Yes. Engineering a higher nominal GDP growth through a higher structural level of inflation is a proven way to get rid of high levels of debt. That�s exactly how many countries, including the US and the UK, got rid of their debt after World War II. Of course nobody will ever say this officially, and most politicians are probably not even aware of this, but pushing nominal growth through a higher dose of inflation is the desired outcome here. Don�t forget that in many Western economies, total debt to GDP is considerably higher today than it was even after World War II.

What level of inflation would do the trick?

I think we�ll see consumer price inflation settling into a range between 4 and 6%. Without the energy shock, we would probably be there now. Why 4 to 6%? Because it has to be a level that the government can get away with. Financial repression means stealing money from savers and old people slowly. The slow part is important in order for the pain not to become too apparent. We�re already seeing respected economists and central bankers arguing that inflation should indeed be allowed at a higher level than the 2% target they set in the past. Our frame of reference is already shifting up.

Yet at the same time, central banks have turned very hawkish in their fight against inflation. How does that square?

We today have a disconnect between the hawkish rhetorics of central banks and the actions of governments. Monetary policy is trying to hit the brakes hard, while fiscal policy tries to mitigate the effects of rising prices through vast payouts. An example: When the German government introduced a �200 bn scheme to protect households and industry from rising energy prices, they�re creating a fiscal stimulus at the same time as the ECB is trying to rein in their monetary policy.

Who wins?

The government. Did Berlin ask the ECB whether they can create a rescue package? Did any other government ask? No. This is considered emergency finance. No government is asking for permission from the central bank to introduce loan guarantees. They just do it.

You�re saying that central banks are powerless?

They�re impotent. This is a shift of power that cannot be underestimated. Our whole economic system of the past 40 years was built on the assumption that the growth of credit and therefore broad money in the economy was controlled through the level of interest rates � and that central banks controlled interest rates. But now, when governments take control of private credit creation through the banking system by guaranteeing loans, central banks are pushed out of their role. There�s another way of looking at today�s loud, hawkish rhetoric by central banks: Teddy Roosevelt once said that, in terms of foreign policy, one should speak softly and carry a big stick. What does it tell you when central banks speak loudly? Perhaps that they�re not carrying a big stick anymore.

Would that apply to all Western central banks?

Certainly to the ECB and definitely to the Bank of England and the Bank of Japan. These countries are already well on their path to financial repression. It will happen in the US, too, but we have a lag there � which is why the dollar is rising so sharply. Investment money flows from Europe and Japan towards America. But there will come a point where it will be too much for the US as well. Watch the level of bond yields. There is a level of bond yields that is just unacceptable for the US, because it would hurt the economy too much. My argument for the past two years was that Europe can�t let rates go up, not even from current levels. The private sector debt service ratio in France is 20%, in Belgium and the Netherlands it�s even higher. It�s 11% in Germany and about 13% in the US. With rising interest rates, it won�t take long until there will be serious pain. So it�s just a matter of time before we all get there, but Europe is at the forefront.

Walk us through how this will play out.

First, governments directly interfere in the banking sector. By issuing credit guarantees, they effectively take control of the creation of broad money and steer investment where they want it to. Then, the government would aim for a consistently high growth rate of money, but not too high. Again, history shows us the pattern: The UK had five big banks after World War II, and at the beginning of each year the government would tell them by what percentage rate their balance sheet should grow that year. By doing this, you can set the growth rate of broad money and nominal GDP. And if you know that your economy is capable of, say, 2% real growth, you know the rest would be filled by inflation. As a third prerequisite you need a domestic investor base that is captured by the regulatory framework and has to buy your government bonds, regardless of their yield. This way, you prevent bond yields from rising above the rate of inflation. All this is in place today, as many insurance companies and pension funds have no choice but to buy government bonds.

You make it sound easy: The government just has to engineer a level of nominal growth and of inflation that is consistently somewhat higher than interest rates in order to shrink the debt to GDP ratio.

Again, this is how it was done after World War II. The crucial thing is that we are moving from a mechanism where bank credit is controlled by interest rates to a quantitative mechanism that is politicised. This is the politicisation of credit.

What tells you that this is in fact happening today?

When I see that we are headed into a significant growth slowdown, even a recession, and bank credit is still growing. The classic definition of a banker used to be that he lends you an umbrella but would take it away at the first sight of rain. Not this time. Banks keep lending, they even reduce their provisions for bad debt. The CFO of Commerzbank was asked about this fact in July, and she said that the government would not allow large debtors to fail. That, to me, was a transformational statement. If you are a banker who believes in private sector credit risk, you stop lending when the economy is headed into a recession. But if you are a banker who believes in government guarantees, you keep lending. This is happening today. Banks keep lending, and nominal GDP will keep growing. That�s why, in nominal terms, we won�t see an economic contraction.

Won�t there come a point where the famed bond market vigilantes would step in and demand significantly higher yields on government bonds?

I doubt it. First, we already have a captured investor base that just has to buy government bonds. And if push comes to shove, the central bank would step in and prevent yields from rising higher, with the ultimate policy being overt or covert yield curve control.

What if central banks don�t want to play along and try to regain control over the creation of money?

They could, but in order to do that, they would really have to go to war with their own government. This will be very hard, because the politicians in government will say they are elected to pursue these policies. They are elected to keep energy prices down, elected to fight climate change, elected to invest in defence and to reduce inequality. Arthur Burns, who was the Fed chairman during the Seventies, explained in a speech in 1979 why he lost control of inflation. There was an elected government, he said, elected to fight a war in Vietnam, elected to reduce inequality through Lyndon B. Johnson�s Great Society programs. Burns said it wasn�t his job to stop the war or the Great Society programs. These were political choices.

And you say it�s similar today?

Yes. People are screaming for energy relief, they want defence from Putin, they want to do something against climate change. People want that, and elected governments claim to follow the will of the people. No central banker will oppose that. After all, many of the things that are associated with financial repression will be quite popular.

How do you mean that?

Remember I said that financial repression means engineering an inflation rate in the area of 4 to 6% and thereby achieving a nominal GDP growth rate of, say, 6 to 8%, while interest rates are kept at a lower level. Savers won�t like it, but debtors and young people will. People�s wages will rise. Financial repression moves wealth from savers to debtors, and from old to young people. It will allow a lot of investment directed into things that people care about. Just imagine what will happen when we decide to break free from our one-sided addiction of having pretty much everything we consume produced in China. This will mean a huge homeshoring or friendshoring boom, capital investment on a massive scale into the reindustrialisation of our own economies. Well, maybe not so much in Switzerland, but a lot of production could move back to Europe, to Mexico, to the US, even to the UK. We have not had a capex boom since 1994, when China devalued its currency.

So we�re only at the start of this process?

Absolutely. I think we�ll need at least 15 years of government-directed investment and financial repression. Average total debt to GDP is at 300% today. You�ll want to see it down to 200% or less.

What�s the endgame of this process, then?

We saw the endgame before, and that was the stagflation of the 1970s, when we had high inflation in combination with high unemployment.

People are already talking about stagflation today.

That�s utter nonsense. They see high inflation and a slowing economy and think that�s stagflation. This is wrong. Stagflation is the combination of high inflation and high unemployment. That�s not what we have today, as we have record low unemployment. You get stagflation after years of badly misallocated capital, which tends to happen when the government interferes for too long in the allocation of capital. When the UK government did this in the 1950s and 60s, they allocated a lot of capital into coal mining, automobile production and the Concorde. It turned out that the UK didn�t have a future in any of those industries, so it was wasted and we ended up with high unemployment.

So the endgame will be a 1970s style stagflation, but we�re not there yet?

No, not by a long shot. First comes the seemingly benign part, which is driven by a boom in capital investment and high growth in nominal GDP. Many people will like that. Only much later, when we get high inflation and high unemployment, when the scale of misallocated capital manifests itself in a high misery index, will people vote to change the system again. In 1979 and 1980 they voted for Thatcher and Reagan, and they accepted the hard monetary policy of Paul Volcker. But there is a journey to be travelled to get to that point. And don�t forget, by the time Thatcher and Reagan came in, debt to GDP had already come down to new lows. That enabled them to introduce their free market policies, which would probably not have been possible if debt to GDP were much higher. So that�s why we�re in for a long social and political journey. What you have learned in market economics in the past forty years will be useless in the new world. For the next twenty years, you need to get familiar with the concepts of political economy.

What would have to happen for you to conclude that we'll avoid this path?

If governments went out of interfering with the banking system, reinstated private sector credit risk and handed back control over the growth of money to central bankers. Also, if we had a huge productivity revolution that would make real GDP grow at 4%. This would allow us to keep inflation at 2% in order to get nominal growth of 6%. We can�t forecast productivity, and I never want to underestimate human ingenuity, so we�ll see about that. A third possibility would be voters telling their governments to stop these policies by voting them out of office. But this is not likely because, as mentioned, most people will like this environment at first.

What will this new world mean for investors?

First of all: avoid government bonds. Investors in government debt are the ones who will be robbed slowly. Within equities, there are sectors that will do very well. The great problems we have � energy, climate change, defence, inequality, our dependence on production from China � will all be solved by massive investment. This capex boom could last for a long time. Companies that are geared to this renaissance of capital spending will do well. Gold will do well once people realise that inflation won�t come down to pre-2020 levels but will settle between 4 and 6%. The disappointing performance of gold this year is somewhat clouded by the strong dollar. In yen, euro or sterling, gold has done pretty well already.

What about countries that don�t follow the path of financial repression?

That�s going to be tricky. Switzerland, for example, will probably stay away from these policies, but it will see continued inflows of capital, creating upward pressure on the franc. Sooner or later, Switzerland will have to bring back some forms of capital controls. That will be a feature worldwide. We have gotten used to sitting in Zurich or London and investing money in the US, in China, in Malaysia or Mexico. There are some emerging markets that are attractive today, as they have low levels of debt. But in a world where large parts of the global economy are in a system of financial repression, there will be all sorts of capital controls. That means that as an investor, you best invest in jurisdictions where you plan to spend your retirement. To me, that means I don�t want to be invested in China at all, for example. The risks of getting stuck there are way too high, as the example of Russia has shown. Many investors today still pretend that we�re in the system that we had from 1980 to 2020. We�re not. We�re going through fundamental, lasting changes on many levels.

It's an interesting prediction for the future, not entirely unappealing either even if it has to come with another crash. But IMO I feel that's his least objectively motivated reasoning in the article. He just seems to thinks government interfereing in capital = bad and goes from there to justify it. I don't see it as that certain. History isn't a loop after all.

# ? Dec 1, 2022 11:44

Dawncloack: Nov 26, 2007; ECKS DEE!; Nap Ghost

Plus his insistance that debt is the problem makes me think even more that he has ideological blinders.

VVVVV this!

Dawncloack fucked around with this message at 12:07 on Dec 1, 2022

# ? Dec 1, 2022 11:53

BlankSystemDaemon: Mar 13, 2009

It reads, to me, almost like the person who wrote that has as much faith in capitalism as religious people have in their god.

# ? Dec 1, 2022 11:55

mortons stork: Oct 13, 2012

I think he is overstating the impact on CB power by governments issuing credit guarantees, and at the same time understating how hard financial markets have constrained, and still will constrain in the future the same goverments' ability to effectively implement any focused infrastructural investment policy. If energy prices continue to stay this high we'll be having to borrow just to keep the lights on, let alone spend on necessary infrastructure. I do not see this fundamental shift on the horizon, frankly. Hell, looking at the UK, which he brings up, it's what they are already doing while further slashing a public sector that's been already bled dry.

Also his complaining that the people want relief from energy costs as if it were some unconscionable demand really gives away his game. Plus his whining that now the investors are gonna be drained, instead of the unworthy poors and youngs. Ugh.

# ? Dec 1, 2022 12:44

Blut: Sep 11, 2009; if someone is in the bottom 10%~ of a guillotine

His Divine Shadow posted:

This isn't strictly EU centered but it does include the EU
https://themarket.ch/interview/russell-napier-the-world-will-experience-a-capex-boom-ld.7606

It's an interesting prediction for the future, not entirely unappealing either even if it has to come with another crash. But IMO I feel that's his least objectively motivated reasoning in the article. He just seems to thinks government interfereing in capital = bad and goes from there to justify it. I don't see it as that certain. History isn't a loop after all.

A new normal of consistent inflation for years at 5%~ is the only way European countries like Italy are going to be able to get a hold on their mountains of debt with shrinking/aging populations and tepid GDP growth. Its quietly becoming accepted as being a policy goal.

Like for all the talk of the "aggressive" interest rate rises this year we're still sitting at an ECB rate of 2%, despite inflation being at 10%. The ECB is doing the absolute bare minimum of interest rate increasing it can because the heavily indebted economies like Italy won't be able to afford their debt otherwise. The ECB is absolutely not going to be jacking up rates to the 6%+ which would be required to bring inflation back under 2%.

# ? Dec 1, 2022 14:05

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# ? May 25, 2024 04:13

oscarthewilde: May 16, 2012; I would often go there
To the tiny church there

Blut posted:

A new normal of consistent inflation for years at 5%~ is the only way European countries like Italy are going to be able to get a hold on their mountains of debt with shrinking/aging populations and tepid GDP growth. Its quietly becoming accepted as being a policy goal.

Like for all the talk of the "aggressive" interest rate rises this year we're still sitting at an ECB rate of 2%, despite inflation being at 10%. The ECB is doing the absolute bare minimum of interest rate increasing it can because the heavily indebted economies like Italy won't be able to afford their debt otherwise. The ECB is absolutely not going to be jacking up rates to the 6%+ which would be required to bring inflation back under 2%.

If the ECB were to raise interest rates that high, that would probably light a fuse under the European real estate markets and the tech/stock bubbles that couldn't be put out. As it is, we're rushing towards a huge recession anyway, but a move like that might lead to the collapse of the entire European economy. The ECB might be uncaring, overly rationalistic, 'unideological' bureaucrats, but you'd hope they'd have enough common sense not to do something like that.

# ? Dec 1, 2022 15:24

The Something Awful Forums > Discussion > Debate & Discussion > EU Politics: I miss Renaults(don't make fun of me)

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