The EU’s Different Inflation Problem

Apricitas Economics has a great post titled ‘The EU’s Different Inflation Problem‘. Excerpt:

A Tale of Two Labor Markets

“Switching gears back to aggregate demand, the Eurozone has ended up with the worst of both worlds in terms of growth and inflation. The US has stronger household balance sheets, rising incomes, and rapid real output growth coupled with inflation while the Eurozone has weaker wage and income growth coupled with equally high inflation. The wage data we have is, again, imperfectly comparable but still shows an important distinction—wages in the US are rising rapidly while wage growth has actually slowed down in the Eurozone.

The Eurozone’s economic performance since the late 2000s represents one of the modern world’s largest tragedies. The continent has suffered under more than a decade of extremely weak growth thanks to a long series of macroeconomic failures that left demand, employment, wage growth, and output permanently lower. The current inflation crisis represents another tough challenge for the continent’s economic policymakers—and they cannot afford to make more mistakes.”

Read full post here.

Indian foreign minister sticks it to Europe

EAM S Jaishankar on why Europe’s perspective of world’s problems is flawed.

“Europe has to grow out of mindset that its problems are world’s problems, but world’s problems aren’t Europe’s problems. Today linkages being made between China and India and what’s happening in Ukraine. China and India happened way before Ukraine”

Europe has to grow out of mindset that its problems are world’s problems: Jaishankar.

… Rejecting suggestions that India is a “fence-sitter” on global issues, Jaishankar said on Friday he does not necessarily believe that India has to choose between the two axes represented by the US-Europe and China-Russia. “Look, they are not exclusionary but we are a democracy. We are a market economy. We are a pluralistic society. We have laws and contracts, we have positions on international law and I think that should give you a fair part of the answer.”

Russia’s commodities leverage

Sentences to ponder:

We got a foretaste of commodities leverage when industrial production in the Japanese auto sector plummeted by 40% in 2020, when the auto industry could not secure crucial semiconductor components from Southeast Asia. The degree of this commodities leverage is shown on the first chart on page 12, which shows that $6 billion worth of semis basically drive $400 billion in output in the Japanese car sector – no semis, no production, $400 billion of lost sales…

For Germany, the same type of commodities leverage exists in terms of all the commodities it gets from the G-SIB of commodities – the Russian Federation. For Germany, $27 billion worth of commodity imports (mainly energy imports) supports a whopping $2 trillion worth of economic activity! Commodities leverage can wreak havoc on not just financial and price stability, but also economic stability.

From the perspective of the West, and in particular Europe, commodity exports come from the wrong place (the Russian Federation), commodity inventories exist in the wrong place (China), and leverage, in the form of commodity leverage, exists in the wrong place too – at home. The inflationary impulse from this is BAD.

From Zoltan Pozsar’s Pdf here.

Credit Suisse’s Zoltan Pozsar’s ‘The “G-SIB” of Commodities’

He has a new Pdf out and it is highly recommended to read. This time it is about Russia’s commodity footprint but first about the West’s deluded take on the Ukraine situation.

There is ‘The Danger of Underestimating Russia‘ simply because

“it’s become painfully obvious that in just the same way the West has become hoist on its Russia sanctions petard, so too has it blinded itself with its anti-Russia propaganda. The jingoism and fabrications have become so extreme and relentless that any erstwhile realist has to go to non-mainstream, or at least non-US/non-European MSM sources. And even then, if you don’t buy what Ukraine is spinning, and is being amplified uncritically in the Western media, you must be some sort of turncoat.”

It was only a matter of time for a suggestion bordering on the comical like ‘Energy holiday: German pensioners suggested wintering in Turkey to save gas‘ as if the EU/Germany can sit this out by just saving gas/oil in the private sector. It completely disregards what the EU/Germany economy is based upon, cheap, ultra reliable flow of energy from Russia and this can not be easily replaced.(Do read that post on The Saker) One has to ask ‘Russia Was Prepared to Withstand Sanctions. Why Wasn’t Europe Prepared to Impose Them?‘ as Matthew Klein does and where he states

But Europeans can and should be blamed for becoming even more reliant on Russian fossil fuel exports since the 2014 invasion of Ukraine.

Pozsar and Foley map Russia’s commodity fooprint…

“…which, as the size of the country’s geographic reach would imply, is very big, or, rather, systemic. The first chart shows that the Russian Federation is the single largest exporter of commodities, and the U.S. is a very close second. Saudi Arabia comes third, but they export much less than the U.S. or Russia.

Russia’s dominant position spans many commodities. Similar to how J.P Morgan is a dominant player as a marginal lender (the marginal lender) in the repo, FX swap, and equity funding markets, as well as in Treasury underwriting and trading, Russia is a dominant exporter of energy, grains, metals, and other commodities.

The next set of charts (all in the form of Sankey diagrams) shows Russia’s commodity exports across a range of commodities, starting with energy exports.

In terms of crude oil, Russia is the single largest exporter outside of OPEC, and most of the oil Russia exports goes to Europe. The second biggest market for Russian crude is China, and the re-routing of Russian oil from Europe to China will lead to severe shipping bottlenecks as we discussed in detail here.

In terms of refined oil products (for example, diesel fuel), Russia is the third largest exporter in the world, and sends most of its refined exports to Europe.

In terms of natural gas (gas through pipelines), Russia is the biggest exporter in the world serving primarily Europe: Germany, the Baltics, and Eastern Europe.

In terms of LNG (liquefied gas, seaborne) Russia is not a significant player, but the point about LNG is that it’s much smaller than the piped gas market, and (potential) disruptions to the flow of piped gas is impossible to replace with LNG. Not only in a “spot” sense but also over the medium term. That’s an issue. …”

They wonder

“…all that focus at the Bundesbank over the years on QE and price stability, while no focus on energy security at higher levels of government. Unsinn…

…Gillian Tett’s book (The Silo Effect) should be required reading.”

There is a lot more about various commodities and the EU/Germany’s dependency on those.

Download Zoltan Pozsar’s Pdf here.

The Bucha atrocities and the tilted character of reporting on Ukraine

Flollowing a repost of Thomas Palley. Who is Mr. Palley?

Dr. Thomas Palley is an economist living in Washington DC. He holds a B.A. degree from Oxford University, and a M.A. degree in International Relations and Ph.D. in Economics, both from Yale University.

So he is hardly some pro-Russian nutball. Here his post of a comment on the NYT.

Below is a published on-line comment re The New York Times’ op-ed (Aril 7, 2022) on the Bucha atrocities. The comment speaks to the tilted character of reporting on the Ukraine war. That tilt should be of concern to all who care about aspiration to truth, democracy, and peace.  

“Who committed the Bucha atrocities is still unproven.

(1) There is also a case that this was the doing of the Azov Brigades, killing those who were civil toward or had dealings with Russian troops during the occupation.

(2) There is an online interview with the Mayor of Bucha smiling and happy two days after the Russians left, with no mention of atrocities.

(3) Ukraine has not secured the massacre site and brought in outside forensic (ICC) expertise to identify time of killing, caliber of bullets used, blood spill markings regarding whether the bodies were placed there or not, etc.

(4) The satellite images proving Russia did it are supposedly from March 18. Why were they not exposed back then?

(5) On April 4 the UK (Chair of the UN Security Council) blocked Russia’s request to discuss the Bucha massacre.

(6) In sum, the case is far from closed. However, my reading is that is not how it is being reported, and first impressions stick with the public even if the story is revised later. There is a significant propaganda war accompanying the battlefield war. Every reader needs to be aware of this.”