Monday, 9 May 2022

The cost of living crisis to come

 to come you say?

YES.

You see what we have today is just the foothills unfortunately, baked into the pipeline are some rather big nasties.

A - Diesel  is now $600 a ton, up from $200. Diesel fuels everything, tractors, ships, trucks. All the real stuff, even a decent percentage of cars. It is 3x more expensive that it was a few months ago. Russian crude was very good for making diesel and so their refineries were experts and pumped it out by the millions tons a day. Now we are not playing with them, they are not doing that. Worse, the Western refiners that made diesel used Russian crude. Now that is not available to them either, though they are giant things, oil refineries are calibrated carefully to the right API for fuel and other key factors - typically they are supplied from the same wells for years and years and forever in Saudi! With Diesel at this price the costs of globalisation, farming and much else are not coming back to earth anytime soon. 

B - China, has gone nearly as mental as Russia, only this time on its internal population. Life has stopped in many major cities, the factories are closed and the ports are full. This is a huge dislocation in the global economy and it was exactly this kind of thing that started the inflation super-cycle in 2020 when the pandemic hit. 

C - Market crashes - as the markets catch-up with the factors in the real economy, investment will drop. In the medium-term this is a good thing as it stops money supply growing so fast (investment is matched with bank created fiat money everywhere), but it also leads to lower productivity and output. Right when the economy is short of supply rather than demand. 

I remember writing how fearful I was of stagflation in 2011/12 after the great recession. Inflation did peak but the commodity prices crashed and China was much less effected so continued to supply the goods which kept supply and demand matched. 

This time there is no counter-balance that I can see. The only one will be a huge reduction in demand - job losses, high taxes, much higher poverty etc, the creation of scarcity. 

The Tories won't survive this it needs to be said, no Government would, in the same way Labour could not escape 2008. People will need someone to blame for the misfortune of an unstable world and perhaps more rightly for some poor policy choices that may have helped around the edges. However, what will a new Government do faced with the same situation. Only printing money will arise as a solution with inflation at 10%+....

18 comments:

Don Cox said...

We can't foresee the details, but it's clear that the next few years will be tough going. But it's unlikely to be as bad as the late 1940s, when bread was rationed and power cuts were frequent. And we survived that.

Maybe people will stop fretting about their mental well-being when there are real problems.

Don








Nick Drew said...

what will a new Government do ..?

and who will lead it? Can Starmer survive?

Sobers said...

"But it's unlikely to be as bad as the late 1940s, when bread was rationed and power cuts were frequent. And we survived that."

Something tells me that the generation that survived 1947 (and the preceding 40 years) was just a teensy weensy bit more stoical and able to knuckle down than the current ones. Not being able to afford the latest iPhone will be seen as a grievous breach of human rights these days.

Sh*t is going to get real in the next few years and entire generations who have never experienced anything approaching deprivation will have to face it for the first time. We haven't had a 'real' recession in the UK since the early 90s. Yes the GFC was bad, but the worst effects of it on individuals were smoothed over by the State effectively printing money and hosing it into the economy via government spending. This time thats not an option, and we are going to have to face the music. Can kicking has finally run out of road.

E-K said...

The West should not have done lockdown.

Focused shielding.

So. Sweden didn't do too badly after all. Better than a lot of lockdown countries. We weren't nearly as bad as the BBC was saying either.

How to get out of it ?

Get fracking. Ditch green. Cut taxes, especially car taxes. Free up the roads of cycle lanes and shit. Sort out the NIP and break free of the EU properly. Stop giving billions to Ukraine to fight nuclear armed Russians so they can join the EU while the rag tag IRA intimidates us into staying in it. Reform the NHS ....and automate the bloody trains and get the public sector back in the bloody office.

Alas the UK establishment wants none of this.

decnine said...

The Job Centre is the office I'd like to see much of the Public Sector entering.

klu01dbt said...

So many people have no idea of what's happening and coming due to the dislocations of the past few years.

I've been recommending people read Jurassic Park as it is a surprisingly good primer on complex systems failure.

John in Cheshire said...

In my opinion, the first thing to do on the road back to sanity is for the populace of Western countries to recognise that the bad actor in the Ukraine situation is not Russia; it is the West, especially the USA and the UK.
And concurrently, our lot of low grade public servants should authorise the refurbishing of any existing coal fired power stations and the construction of new ones. And, new gas fired power stations, the resumption of fracking and reconstitution of our nuclear energy industry to design and construct modern nuclear power stations.
Of course, this can only be done if the Miliband/Labour party Climate Change Act is repealed.

jim said...

Everyone is on the food/fertiliser/petroleum price bandwagon. There may be trouble ahead. Shortages in Tunisia, Egypt, Lebanon will be added to Europe. Food shortages usually lead to public unrest - we shall see. But Cui Bono, theoretically Russia, but her silos are bottled up by closed ports and sanctions. But Uncle Sam is definitely on the winning side, no shortage of food/fertiliser/petroleum there. Which means Putin can be squeezed at will - forever. On the other hand Putin can stir up trouble in Syria, Egypt, Lebanon - where ever there is a food shortage. A nice little canal closure might suit him nicely.

Just to add to the fun those little insects do not seem to be doing their stuff. Dying like flies they are and not flitting from tree and stalk to tree and stalk. Those who measure such things see a big downturn. Taking a look at my own little patch I don't hear the busy hum of bees. Still, I can cut the trees for firewood and use the stumps to prop up solar panels.

Cue dig for victory - have you ever tried feeding a family from a plot of land! Very hard work and time consuming and not at all easy to get continuity. That is before all the cabbage whites and the beetles have eaten it all. Waste of time, take over a small country or fly stuff in from Rwanda on the return leg. Blow stocking loo paper, flour and pasta are the things. Traditionally we bumkins tore up newspaper and threaded a string through one corner and hung on a nail.

E-K said...

Jim

Growing your own is highly water intensive and inefficient.

Of insects. I have a theory about that. The region I drive through at night used to be pitch black. Now everywhere seems to have high intensity outdoor LEDs on all night long.

Nick Drew said...

Jim - newspaper ... - what's that?

Stoic said...

Could be worse, I suppose. We could have a bumbling idiot for a PM.

dustybloke said...

I know what you mean Nick.

My iPad is highly unabsorbent and very messy…

Elby the Beserk said...

And with all the above in mind, all I can say is...

https://www.youtube.com/watch?v=aVpH0FgRXCE

dearieme said...

"... for the populace of Western countries to recognise that the bad actor in the Ukraine situation is ..."

Good God, do you think there's only one bad actor?

E-K said...

Dearieme

"Good God, do you think there's only one bad actor ?"

No.

There can be no peace brokering until all sides admit they are at fault. From the BBC in particular you wouldn't think America was culpable at all.

visc said...

re: dig for victory - most people don't actually have any land to grow things on, even before we get onto the fact they do not have the skill.

Worse coming down the road absolutely, any way out - no, and still no even if we had a competent administration.

We are not a coherent society anymore, so blitz spirit yadda yadda - can't see it happening.

dearieme said...

People sometimes compare the yields of fixed interest gilts and index-linked gilts and announce something to the effect of "the markets expect xyz% inflation over the next ten years".

What do the markets forecast at the mo'? A short burst of trouble or a decade's worth?

Anonymous said...

John in Cheshire: "populace of Western countries to recognise that the bad actor in the Ukraine situation is not Russia; it is the West, especially the USA and the UK."

Won't happen I'm afraid. The UK population has been conditioned to hate Russia. Just recall the hysteria about the 'Scripal affair', and consider that if 'Putin' had wanted to kill Skripal, he could have just enticed him to one of the darker ghettos of Birmingham and had him knifed. Or shot in the East end of London. There are locations in every city in the UK these days, where a knifing or a shooting is part of the normal day to day experience.

But no, the deep state organised a huge theatriatical production. And the gormless British public gobbled it up like another episode of East enders. It's pathetic.

John in Cheshire: "it is the West, especially the USA and the UK"

Yes.

ND: "China, has gone nearly as mental as Russia"

China has always been mental. Have you forgotten the Uyghurs? The Tibetians?

Secondly, "what's coming" Is the collapse of the fiat economy that the West has employed, and that has contributed to the hollowing out of our economy, the offshoring of industry to the cheapest international sweatshop, the idea ( popular among the financiers ) that all an economy needs, is the ability to print money faster.

Well, good. Its a rotten paradyme and the sooner we start ajusting to real economics, the better for us.