So we know that governments that issue in their own currency cannot go bankrupt - see Japan.
And we also now know from Japan and Europe, large debt loads do not necessarily cause inflation (see Japan and Italy for example).
Just devaluing your currency is also not enough to create inflation - see UK.
But when a government gives power to labour, and raises wages, then you get inflation. India has always had inflation, but you also used to see public servant pay rise before every election!
So what I see is that at some point, governments look for rising real wages - which mean raising wages, and running tight monetary policy. This naturally causes debt levels to fall (strong nominal growth, with high real interest rates). The problem is that if you let your wages rise in a world of free capital movement, you are going to see jobs moved overseas, so you need to see tariffs and policies that favour local production implemented - which is what we are seeing.
So to answer your question, soveriegn debt occurs from policy choices, soveriegn debt does not effect policy choices.
I also suspect that pro-labour policies will see fertility rates rise - but lets see.
Structurally I agree with the thesis. However, what we need to keep in mind that post GFC, treasuries have become the basis of the plumbing in the repo markets. So the liquidity is very much the price driver and I think that's what's driving the demand for TLT in the S-T. So the punishment is awaiting fo r those who will not get out after the next liquidity event
Additionally the EU gas crisis, while not completely over, is far less risky with TTF around €60/Mwh and not the economically ruinous €200+ prices we saw 3-4 months ago.
Admittedly core inflation is still elevated and I think that inflation has swept into sticky services sectors. But two of the most powerful inflationary headwinds have now started to normalise.
The big surprise is how little disruption Russia’s invasion of Ukraine has caused to supply of commodities from Ukraine. Even more surprising is that Russian production of oil has held up very well too. On top of that, we were having a very warm winter, so put it all together supply has been better than expected and demand has been a bit weaker.
On the other hand, Chinese corn prices have stayed near all time highs, meaning recent falls in pork prices makes pig farming non-profitable. Also rice prices are rising recently, which is a more Asian based food inflation story
I am taking another look at food inflation to see if things have changed, or if it is buy the dip. Hope to post soon.
Agree that the warm winter has helped Europe. Puzzled at the reaction most had to Russian production though. Russia's oil policy has always been market share focused and they tended to favour volume over value - 2020 when WTI went negative was the sole exception, they were price doves in 2008, 2014 unlike OPEC.
I do think that part of the reason Chinese pork prices have dropped is due to Covid reopening disruptions, but I still see a sharp hike as unlikely. In other words the cyclical trends are now quite disinflationary, especially if you consider 2022 base effects.
Yep the majority of people care about the price of their food shop and that is not going down. Really plays into a potential global food subsidiary policy in the coming quarters. Similar to energy subsidies given over this winter.
From a subscriber: How do you reconcile the trajectory of rates in 70’s vs 2020’s due to debt levels, especially Sovereign debt levels.
my answer:
So we know that governments that issue in their own currency cannot go bankrupt - see Japan.
And we also now know from Japan and Europe, large debt loads do not necessarily cause inflation (see Japan and Italy for example).
Just devaluing your currency is also not enough to create inflation - see UK.
But when a government gives power to labour, and raises wages, then you get inflation. India has always had inflation, but you also used to see public servant pay rise before every election!
So what I see is that at some point, governments look for rising real wages - which mean raising wages, and running tight monetary policy. This naturally causes debt levels to fall (strong nominal growth, with high real interest rates). The problem is that if you let your wages rise in a world of free capital movement, you are going to see jobs moved overseas, so you need to see tariffs and policies that favour local production implemented - which is what we are seeing.
So to answer your question, soveriegn debt occurs from policy choices, soveriegn debt does not effect policy choices.
I also suspect that pro-labour policies will see fertility rates rise - but lets see.
Structurally I agree with the thesis. However, what we need to keep in mind that post GFC, treasuries have become the basis of the plumbing in the repo markets. So the liquidity is very much the price driver and I think that's what's driving the demand for TLT in the S-T. So the punishment is awaiting fo r those who will not get out after the next liquidity event
Russell if you look at Chinese pork prices (Unfortunately I don't have the data handy but you can see here: https://en.macromicro.me/collections/24/cn-price-relative/12773/cn-pork-price-vs-cpi) they do appear to be returning back to their long run average ¥20-25/kg.
Additionally the EU gas crisis, while not completely over, is far less risky with TTF around €60/Mwh and not the economically ruinous €200+ prices we saw 3-4 months ago.
Admittedly core inflation is still elevated and I think that inflation has swept into sticky services sectors. But two of the most powerful inflationary headwinds have now started to normalise.
The big surprise is how little disruption Russia’s invasion of Ukraine has caused to supply of commodities from Ukraine. Even more surprising is that Russian production of oil has held up very well too. On top of that, we were having a very warm winter, so put it all together supply has been better than expected and demand has been a bit weaker.
On the other hand, Chinese corn prices have stayed near all time highs, meaning recent falls in pork prices makes pig farming non-profitable. Also rice prices are rising recently, which is a more Asian based food inflation story
I am taking another look at food inflation to see if things have changed, or if it is buy the dip. Hope to post soon.
Agree that the warm winter has helped Europe. Puzzled at the reaction most had to Russian production though. Russia's oil policy has always been market share focused and they tended to favour volume over value - 2020 when WTI went negative was the sole exception, they were price doves in 2008, 2014 unlike OPEC.
I do think that part of the reason Chinese pork prices have dropped is due to Covid reopening disruptions, but I still see a sharp hike as unlikely. In other words the cyclical trends are now quite disinflationary, especially if you consider 2022 base effects.
Yep the majority of people care about the price of their food shop and that is not going down. Really plays into a potential global food subsidiary policy in the coming quarters. Similar to energy subsidies given over this winter.