300+ years of Bank of England data shows that interest rates are typically inflation plus 2.5%. At today’s level, this would imply – US rates would be 3.7% + 2.5% = 6.2%: Japan would be 3.2% + 2.5% = 5.7%: Eurozone rates would be 5.3% + 2.5% = 7.8%; UK rates would be 6.7% + 2.5% = 9.2%
Chemicals and the Economy
Most Americans can’t qualify for a mortgage today with prices and interest rates at generation-highs. Yet housing starts average a post-2007 record of 1.5m/month. Logic therefore suggests the US housing market could be heading for a repeat of the 2008 crisis
Bubbles are great fun while they last. But they are much less fun when they burst. For the past 20 years, central bank stimulus has created some of the largest bubbles ever seen. But now, led by developments in Japan and China, they are bursting
The losses sitting on central bank balance sheets are starting to soar to eye-watering levels. The US Federal Reserve is sitting on a “mark-to-market” loss of $911bn. The UK taxpayer has already handed over £150bn ($192bn) to cover the Bank of England’s losses.
Taylor Swift’s concerts are creating massive short-term demand as people reconnect after lockdowns. But the chemical industry is warning that deflation could be round the corner, due to the over-capacity created by 20 years of stimulus
Central banks have spent 15 years telling us that debt and demographics “don’t matter”. They claimed they could always create demand via stimulus. But now the policy has run out of road. Homeowners and stock traders who thought rates would stay low forever, will be the ones to suffer
The Ukraine war highlights how the real world can often be a very messy place. Issues such as geopolitics and demographics aren’t easy to understand. It can be hard to understand the detail of how key industries and markets are operating.
So it’s no surprise that most policymakers have preferred to stay in the world of theory.
Essentially, China’s move to self-sufficiency, and the need to deal with the issue of plastic waste, means there is no ‘business as usual’ option. Winners and Losers are already starting to emerge, as companies react to the challenges of today’s New Normal world.
The Presidential Cycle is now over. Instead, worries about the recession and the US debt ceiling talks are moving centre-stage. But Asian currency markets are sending a warning signal. A rising US dollar and US interest rates, and a falling yen and yuan, could soon raise the risks of a major Asian debt crisis.
Chemicals are telling us that all the world’s major economies are in a major downturn. And the downturn is starting to accelerate as companies cut back spending and fire people. Real estate, autos and other key areas are already suffering along with the banking system.