Economics Nerd Central

[How bad boy]

Sorry, last one on this, it drives me absolutely nuts.

Headline, borrowing costs rise.

Reality: Sweet fuck all has happened in the bond market, that rise is perfectly normal within a day's trading. Here's the 10 year bond yield over the past 12 months:


Not exactly time to panic is it?

And here's the 30 year:

It's up on 12 months ago, but generally meh.


How they get away with this shit is beyond me.

Incidentally, this is one of the biggest problems with economics...

 

[Bennyton]

Lad those numbers are fucking outrageous though.

 

[How bad boy]

Lad those numbers are fucking outrageous though.

What numbers?

Debt?

Yeah, its too high, and it has been a long running problem, here's the OBR forecasts:

As you can see, the OBR are predicting a current budget surplus from 2028, first time that'd happen since 2002.


That's effectively a fiscal drag on the country's growth, for all the bollocks about austerity and cuts, as you can see, the Tories never actually managed to get a surplus. They did manage to reduce debt to GDP a bit but it really wasn't a substantial drop, see that little dip around 2018. They didn't fix the roof while the weather was good...

Ireland has made great progress on that front, even comparing it to GNI, which is far more representative than GDP:

Of course, it's much, much easier to solve that problem with growth than it is by cutting spending and that's the fundamental problem the UK has faced.

 

[KolaKubes]

It's an awful lot cheaper than moving generally, due to the large price difference between construction costs and housing costs. I have little problem with people extending their current property, it's usually effective at an individual level, barely makes a dent at a macro level.

The more you think about why buildings cost what they do, the less sensible it becomes. As an example, if you build a 200m2 house in Macroom, it is worth €500k, build it in D4, it's worth almost 3x. Construction costs are probably 20-30% higher, so the vast majority of the value of that house is in where it is, not in the building of it.

So who captures that value? Well if it's a developer who has managed to get approval for putting multiple houses in a plot that previously only had one, it's the developer, but enabled by the planning system. Ramp it up a bit, what if it's approval for a small apartment building of 10 units at €1M each? Enormous financial return on that planning decision.

Which is lovely, but seems...off. Why should that decision, made by the government, provide such an enormous difference in return to just the the developer, while any negatives are borne generally by neighbours?

It's a difficult problem to fix, how do you make existing residents benefit from increases in density? That's where NIMBYism comes from, the incentives are all out of skew.

Tbh I think planning is a flawed concept. You should have to build to a basic code but other than that the onus should be on planners to point out why you can’t build what you want.

 

[How bad boy]

Tbh I think planning is a flawed concept. You should have to build to a basic code but other than that the onus should be on planners to point out why you can’t build what you want.

Agreed. It's a very American concept, which has led to the absolute urban disaster that is your typical American city.
That said, there are negative externalises that need to be managed, construction imposes costs on those around it, no matter how well its done.

But the principle of permitted development should be a lot freer than it is. If your construction meets certain criteria around height, etc, the assumption should be it can go ahead, without having to obtain a sign off from some official.

 

[Bennyton]

What numbers?

Debt?

Yeah, its too high, and it has been a long running problem, here's the OBR forecasts:

As you can see, the OBR are predicting a current budget surplus from 2028, first time that'd happen since 2002.


That's effectively a fiscal drag on the country's growth, for all the bollocks about austerity and cuts, as you can see, the Tories never actually managed to get a surplus. They did manage to reduce debt to GDP a bit but it really wasn't a substantial drop, see that little dip around 2018. They didn't fix the roof while the weather was good...

Ireland has made great progress on that front, even comparing it to GNI, which is far more representative than GDP:

Of course, it's much, much easier to solve that problem with growth than it is by cutting spending and that's the fundamental problem the UK has faced.

View attachment 45996

Ireland hasn't reduced it's debt at all.

it's just grown its economy, probably 2.5x GNI since 2010.

 

[KolaKubes]

What numbers?

Debt?

Yeah, its too high, and it has been a long running problem, here's the OBR forecasts:

As you can see, the OBR are predicting a current budget surplus from 2028, first time that'd happen since 2002.


That's effectively a fiscal drag on the country's growth, for all the bollocks about austerity and cuts, as you can see, the Tories never actually managed to get a surplus. They did manage to reduce debt to GDP a bit but it really wasn't a substantial drop, see that little dip around 2018. They didn't fix the roof while the weather was good...

Ireland has made great progress on that front, even comparing it to GNI, which is far more representative than GDP:

Of course, it's much, much easier to solve that problem with growth than it is by cutting spending and that's the fundamental problem the UK has faced.

View attachment 45996

Looks like a disaster of a place.

Have they considered joining the EU?

 

[How bad boy]

Ireland hasn't reduced it's debt at all.

it's just grown its economy, probably 2.5x GNI since 2010.

That's the point, you don't really have to, focusing on cutting is usually a terrible idea, because by cutting spending, you end up hitting growth and making life worse for the populace. At least by focusing on growth and keeping spending relatively steady, you may end up with higher debt, but you're far more likely to have a happier and better off population.

The challenge Britain has ~95% of debt to GDP level is that growth needs to beat any increase in spending at all. With Ireland around about 60% debt to GNI in 2026, it only needs its growth to be 60% higher than the costs for debt to GDP to improve. Means spending with much lower fiscal multipliers is viable.

It can all turn quickly though, small differences can amplify rapidly. Say if magically the UK had 3% growth over the next 4 years, but debt only grew by 1% in that time, they'd be down to 89% debt to GDP by 2029, and if that continued to 2035, it'd be down to 77%.

Looks like a disaster of a place.

Have they considered joining the EU?

It would help GDP growth...


One other way that's important for looking at the debt burden is the household debt and savings level.

Household debt has been declining in the UK for a long time now, which doesn't help the economy in a way. If you're paying off debt, you're not spending it on anything particularly productive:

The savings rate has also ramped up over recent years, the current 10.5% rate is reasonably high by recent standards



Ireland has the UK beaten by both measures:
Lower debt to disposable income, which was incredibly high:


And the savings rate has been consistently higher than the UK for a long time




Either way, both countries are in a hell of a lot better position than they were a decade ago when it comes to the debt burden on the population

 

[How bad boy]

Let's have a look at the US economy.

In theory, growth is fairly decent, inflation appears to be ok, unemployment is alright, the deficit has shrunk a bit, happy days.

However, there are some major flashing red lights.

IMF warns US must tackle its yawning deficit

Fund’s forecasts suggest the country’s debt-to-GDP ratio will be at a record high by the end of the decade

www.ft.com

The US has run a budget deficit of about 7-8% of GDP for the past few years, the monthly figures are significantly reduced, Nov 25's deficit is a mere $193bn vs $367bn in Nov 24. Spending is down $160bn, but that's at least partly due to the shutdown, which will have significant longer term costs. Customs duties brought in $30bn extra.

Those are monthly figures though. They're still running about a $2.5 - 3 trillion annual deficit, between tax cuts and import tariff revenues, they kinda balance out, both making a $4tn impact both ways. The deficit is still pretty damned high and nothing the US government has done to date has really fixed it.

According to the IMF, debt to GDP is due to hit 125% of GDP this year and 143% of GDP by the end of the decade.




10 year treasury notes are pretty stable, nothing panicked at this point, however debt servicing costs are due to hit $1 trillion and as much of that turns over, that cost is only going to rise over coming years. Which makes the deficit much worse.


There are two major threats:
1. GDP growth slows
2. Confidence in the dollar drops


For #1, there's no doubt that AI is fuelling at least a decent chunk of US GDP growth. How much? That's disputed.
If the AI bubble pops, that will undoubtedly negatively impact GDP quite hard.
The fact that the Fed is planning to buy treasury bills now is not going to help #2, it's not a disaster but it's a bit odd and somewhat concerning. The sort of thing a Latin American country would traditionally do, right before their currency drops like a stone...

 

[How bad boy]

A seriously wonkish article that explains why the current narrative of great US growth vs European stagnation is probably a factor of hours worked and some iffy (and difficult) statistics:

Europe's productivity keeps outpacing the US

A closer look at some famous statistics.

sethackerman.substack.com

Here's the final summary:
"And if we use the data to calculate productivity growth (GDP her hour worked), it turns out that, far from lagging the US, Europe is gaining on it: its productivity was 92%, 94%, and 94% of the US level in the early 2010s, late 2010s, and 2020s, respectively — figures that rise to 96%, 97%, and 98% if we use ILO hours data, which are likely more comparable5"

Additionally, I think GDP is getting less and less relevant to European growth due to the focus on sustainability, which makes GDP far less tenable as a measure of growth (taking my favourite example that switching your second car to a bike costs the economy tens of thousands in GDP growth figures in the long run but its a net positive for society...)