William White: Die Treiber der Inflation sind strukturell

William White, der frühere Chefvolkswirt der Bank for International Settlements hat früh vor der Finanzkrise gewarnt. Zwei Mal war er so nett, mit mir in meinem Podcast zu sprechen. Hier äußert er sich im Gespräch mit The Market NZZ zur Lage:

  • White does not think much of the hope currently prevailing in the markets that inflation will quickly evaporate. A series of supply and demand shocks suggest that structural inflationary pressures remain high. ‚Interest rates would have to rise‘, White says in an in-depth interview with The Market NZZ, but the big question is whether central banks could allow that to happen at all.“ – bto: Natürlich ist das angesichts Rekordverschuldung und Vermögenspreisblasen ein Problem.
  • The stakes are high, he warns. ‚What if all of a sudden citizens become convinced that the government is not delivering on its promises? Where does that lead in terms of democracy and faith in the system? These are dangerous things. We have to get this right.‘“ – bto: Gerade in Deutschland verstehen die Akteure nicht, was passiert. Das macht es besonders gefährlich.
  • I think that markets are far too optimistic about disinflation: Certainly what we are seeing is that the worst aspects of the supply constraints seen during the pandemic are winding off. Goods and transportation prices have come down a lot. But when you look through that, it’s hard to see how you can get further disinflation everywhere without some kind of a real demand side impetus.“ – bto: Mir leuchtet das ein. Aber wir können solch eine Drückung der Nachfrage politisch schwer verkraften, schon gar nicht in der Eurozone.
  • You need something like a recession or a sharp slowdown in profitability, one or the other, to get further disinflation. I just don’t see how to get back to 2% without any kind of real demand side destruction to force it to happen. There is a presumption for an immaculate disinflation, without messy side effects. I can understand the hope for this, people want to have a nice, soft landing, with no price to pay. After so many years of low inflation rates, people may think that this is the normal state of things. But hope doesn’t mean it’s going to happen. I worry that a number of inflationary forces will remain in place for a long time.“ – bto: Das ist eine spannende Frage. Wir haben doch bereits eine monetäre Bremsung, vor allem in den USA. Genügt diese nicht?
  • We can distinguish between supply shocks from past policy and future supply shocks. First, we can establish that there was an excess stimulus of demand during the pandemic, and the system is still working through that. Plus, all downturns have hysteretic effects on supply, you never totally recover. And I think the Covid pandemic has the potential to leave even more scarring, especially in the workforce. In the short term, we have the issue of the reopening of China, and we can’t say yet what the implications of that will be. On the one hand, you can say China is back in terms of production, but I think what’s more likely is that China is back in terms of more consumption, particularly for commodities. The other thing that worries me about supply side problems from the past is the gigantic resource misallocation that was associated with easy moneyover such a long time period: There are oodles of unprofitable companies, zombies, kept alive by easy money. These zombies tended to keep prices down because of extra production capacity, but now with tightening monetary policy, many zombies will get wrung out of the system. Those are the supply shocks from the past. More important are the ones that lie ahead, though.“ – bto: Bevor wir zu denen kommen. Die Zombies sollen jetzt unter Druck geraten. Das mag sein, ich selbst hätte vermutlich auch so argumentiert. Wenn ich es jetzt lese, frage ich mich, ob nicht der Realzins bedeutsam ist. Denn auch die Zombies können die Preise erhöhen und wir wissen, dass viele Branchen die Margen ausgeweitet haben. Das hilft allen Unternehmen.
  • In terms of future supply shocks, you could point to at least four things: The labor force, climate change, commodities, and problems to do with a decoupling of production. As to the labor force, Charles Goodhart and Manoj Pradhan wrote an excellent book on the demographic reversal. The world economy has seen a tremendous demographic boost with the baby boomers, the return of China, and the fall of the Soviet Union. But now it’s all going into reverse. (…) From an abundance of workers we are facing a shortage of workers.“ – bto: Das macht übrigens vorhandene Dinge wertvoller, die Opportunitätskosten gehen hoch. Man könnte natürlich auf Migration setzen, um das zu ändern. Aber wir wissen, es geht um die Qualität, nicht die Quantität.
  • There are basically two ways to deal with climate change: mitigation or adaptation. The thing is that both ways are very costly. Mitigation requires the stranding of previously available fossil fuels. The initial manifestation of course is that energy prices have gone way up, because the supply of renewables has not yet increased to the point where it could totally replace fossil fuels, while the demand for energy has not come down. And what exactly does adaptation mean? It means more extreme weather, hurricanes, ports being blown away, all of that stuff. So any way you turn it, dealing with climate change will be costly.“ – bto: Umso mehr spricht dafür, mit den Ressourcen umsichtig umzugehen.
  • We tend to think that the Russian invasion of Ukraine is what drove prices up. But energy prices were heading north well before that. Longer term, energy will be in short supply for quite some time. Probably the most important field is metals. To achieve the electric transformation, we’re moving from a world that was fossil fuel based to a world that is going to be metals based. Lithium, cobalt, copper, all of that. It takes ten years from the time you discover a deep mine, before you get production. You can see the upward pressure on all that stuff as well.“ – bto: … was alles teurer macht und damit vor allem für die Armen ein Problem ist.
  • „(…) the threat of decoupling between China and the US is real. (…) As you think about how the global supply system has evolved over the course of the past three decades, each little part ended up being made by the most efficient producer of that part. How are you going to get out of this system, diversifying it, when the whole trend has been towards consolidation? We should not underestimate the systemic difficulties and the costs associated with that.“ – bto: So, auch das ist ein bekannter und zutreffender Punkt.
  • In the Seventies, we had a shock in energy prices, but there was an element of self-correction embedded into that. When people had to pay more for energy, they had less money to spend on other things. But here it’s a bit of a different story, because a lot of the things I have just mentioned, the character of the supply shocks, cry out for more capital investment. If you don’t have enough workers, you need to invest into more capital equipment.“ – bto: Damit wäre die Geschichte des Ersparnisüberhangs vorbei.
  • Climate change, both mitigation and adaptation, means more investment. Electric transformation means more metals, and more metals means more investment. Then you have to add the fact that given geopolitical tensions, everybody will get sucked into more military spending. So not only are we going to see negative supply shocks, but at the same time we’ll have positive demand shocks. You put the two together, it seems to me it’s a recipe for higher inflation and higher real interest rates.“ – bto: Höhere Inflation glaube ich, höhere Realzinsen nicht. Die Notenbanken werden sie unter der Inflationsrate halten.
  • „(There) are two impediments to central banks being willing to allow rates to move up the amount that they should: The potential for financial system instability and the potential for fiscal instability. (…) We’ve had ultra easy money for decades, which in a nutshell has encouraged people to take out debt to do dumb things. If you look at aggregate debt numbers of corporates, households and governments, debt ratios have been going up and up and up. As per the Institute of International Finance, total debt to world GDP was 250% in 2008, and then it went to about 320% just before the pandemic, and subsequently peaked at about 360%. These are numbers that we have never seen before in peacetime. On top of this, there has been a decade-long deterioration of the quality of this debt. Closely related, a fascinating recent study by the McKinsey Global Institute showed that up until about the year 2000, broad measures of wealth basically tracked income or GDP. But since then, there’s been a huge discrepancy, with wealth rising much faster than GDP. But if the production hasn’t gone up, while the wealth has, the conclusion you can come to is that it’s not really wealth. It was merely a rise in the prices measuring that wealth. I wrote a rather prescient paper about this, at the BIS in 2006, called ‚Real Wealth, Measured Wealth and the Illusion of Saving‘.“ – bto: Wir kennen diese Argumentation und teilen sie auf diesen Seiten sicherlich. Es ist eine durch Leverage geschaffene Vermögensillusion.
  • There was an article in the Financial Times on 14 December 2022, by Tom Hoenig, the former President of the Kansas City Fed. He’s a very sensible guy, and he was saying that with some of the recent changes in regulatory rulings in the US, that the tangible capital ratios of the eight largest banks were now back to where they were pre-GFC. So the banks may be well enough capitalized, maybe not. The other important thing was a massive movement out of bank credit into credit extended elsewhere; non-bank financial institutions, leveraged loans, private debt, you name it. Non-bank financial institutions are now bigger than the regulated banks, and we don’t have the transparency and information to know what’s going on there in terms of systemic risks. Don’t forget that the economy and financial markets are what I call complex, adaptive systems. They don’t follow linear, deterministic paths. There are tipping points. These systems can be stable for a long period of time, and then suddenly become unstable. One more thing I need to mention on the topic of financial instability is that we see repeated examples of malfunctioning markets.“ – bto: Es ist in der Tat ein Problem, dass wir eine Explosion der intransparenten Aktivitäten gesehen haben.
  • In the past years, we’ve also had flash crashes and sustained pricing anomalies here and there. Even the US Treasury market has repeatedly been under stress. If Treasuries behave badly, all the global markets dependent on it might end up behaving badly.“ – bto: Und das ist eine spannende Frage, auch mit Blick auf die Folgen eines möglichen Kapitalabzugs aus Japan.
  • What if the bond market just forces an upward move in nominal interest rates? That could happen. All of a sudden markets could get a terrible reckoning when they realize that the underlying inflationary pressures are much stronger than they anticipated. But then that brings you back to the Gilt market: What happens when we get a repricing, greater than what people anticipated? Where will the fallout be? The answer is we don’t know. This worries me. And then once again it will be up to central banks to rescue the financial system.“ – bto: Wir bekämen einen wahren Liquiditäts-Tsunami.
  • Moreover, at some point, markets will start to question not only financial stability but also the fiscal stability of governments. (…) Again, back to the Gilts shock: The thing that set it all off was a reaction by financial markets to these unfunded tax cuts. It had struck the markets as just being imprudent, not just in substance, but also in style. And so the Gilts market exploded. And that is a worry in itself, because it basically says that markets thought that a major country was flirting with debt unsustainability. Remember that wonderful line by the former BoE Governor Mark Carney about the UK trade deficit, that the UK was living on the kindness of strangers? That’s the way it’s been on the fiscal side, too. Markets give you the benefit of the doubt, but that doesn’t mean that they give it to you forever.“ – bto: Das haben wir im Podcast besprochen, als den großen Unterschied zwischen Japan und UK. Wobei auch in Japan ein Punkt kommen wird, an dem es nicht mehr geht.
  • „(…) when you look at the fiscal positions, including all the intergenerational liabilities, we all know that many states have been technically insolvent for years already. Interest rates have been ratcheting down for decades, while government debt has been ratcheting up for decades. We’re all living on the kindness of strangers. So even though fiscal sustainability does not currently seem to be on the agenda of the markets, that doesn’t mean it never will be. When you look back in history on how you get big inflations, it always begins on the fiscal side. The tricky point arrives when a rise in interest rates feeds into the debt servicing cost of the state and starts to cast even more doubts on fiscal sustainability and the capacity to resist inflation.“ – bto: Die Theorie ist interessant, dass die Inflation letztlich die Folge der fehlenden staatlichen Solvenz ist.
  • Exactly, as was pointed out by Sargent and Wallace in a seminal paper in 1981, titled ‚Some Unpleasant Monetarist Arithmetic‘. So you have a world in which policy makers are in a bind: If the fiscal situation is bad enough, and if the central bank doesn’t let interest rates go up, then they lose inflation credibility. But if they do let interest rates go up, and it feeds back into the government deficit, then they risk losing their credibility as well.“ – bto: Packen wir dazu noch die steigenden Ausgaben für Militär und Supply-Chain-Umbau, sehen wir, dass die Solvenz nicht mehr gewährleistet ist.  
  • Since the GFC, the increase in the size of central banks balance sheets has been roughly the same as the increase in the government debt stock. So there is your prima facie case of print it and spend it! Now of course it wasn’t done with that explicit aim, it just sort of happened, but the optics of it are bad. The other thing that worries me is the optics of central banks starting to lose so much money as a consequence of their policy. Of course, they have to make sure the system functions, I totally agree with it, but still, it adds an element to the bad optics. The Federal Reserve is a trillion dollars under water. Even in Switzerland, last year’s loss by the Swiss National Bank, in market value terms, added up to 18% of Swiss GDP. Now you guys have been prudent at the fiscal level, so this will not derail people’s expectations about a prudent future of Switzerland’s financial situation. But for a lot of other people the worry is that this is the poison icing on the already poisoned cake.“ – bto: Wir hatten das Thema der Notenbankverluste bzw. des fehlenden Eigenkapitals. In der Tat müssten die Notenbanken von den bankrotten Staaten rekapitalisiert werden. Das wird schwer.
  • „(…) there are only hard choices left, but there is still the lure of easy options. Over the past years the easy option was always to push the previous strategy a bit further. The problem is that the prevailing macro framework behind that thinking is essentially a kind of linear deterministic thinking. It has worked in the past, so it will work again. But to those of us who believe that the world is non-linear, there is always the possibility of the straw that breaks the camel’s back. (…) The next thing to watch out for, in my view, is this policy of yield curve control in Japan. They’ve kept rates down for such a long time, what if all of a sudden markets really do press in and force rates to rise? What does that mean for government debt service? Also, if all of a sudden Japanese investors all start to head back home because the yields are higher in Yen, there will be huge implications worldwide. It will be a litmus test in a sense.“ – bto: In der Tat scheint in Japan ein durchaus relevantes Risiko zu liegen.
  • „(…) perhaps for the first time, markets are becoming concerned about the sustainability of the fiscal finances of large, advanced countries. But granted, it may be just rationalization on my part, saying that this time is different. All I do know is that each time you do have another crisis, it gets more difficult to crawl out of it. This whole kicking the can down the road thing, as the problem becomes more difficult, the solutions you have to offer become less effective.“ – bto: Das stimmt zweifellos. Auch ich bin überrascht, wie lange es gutgegangen ist.
  • I think the answer, not the best answer but the most likely, might well be an attempt at financial repression. Governments can keep interest rates down by forcing investors to own their bonds. This is what happened after World War II, both in the US and the UK. You pass laws that force investors to hold your debt, and at the same time you allow inflation to go up to a level that is just tolerable, say, a level of 5 to 7%, thereby allowing nominal growth to be significantly higher than interest rates. That way, after a number of years, the debt problem will have magically gone away. I’m not sure though if and how this would work in today’s world of much freer capital markets. And even if it can and does work, it has a cost because inflation is a tax. Many people who thought they had wealth will realize that a sizable part of it was just an illusion of wealth.“ –bto: Diese Illusion wird aber so oder so enden, es ist nur eine Frage des “Wie”.
  • What else could policy makers do? Orderly processes to restructure debt. Prudent fiscal policy. Given the need for higher investment expenditures, lower private consumption could square the circle. But of course this will be very unpopular among consumers. In terms of taxes, I see a need for higher taxes for energy and higher taxes for property. More targeting in government expenditures, targeting the more vulnerable. That of course means the less vulnerable will have to pay for that. That’s what a humane society has to work out. But you know, we really have to get this right. Because what if all of a sudden citizens become convinced that the government is not delivering on its promises? Where does that lead in terms of democracy and faith in the system? The system screwed me, so screw you? These are dangerous things. My worry is that citizens, the powerful and politicians will again choose the easy answer: Continue to just spend and print. That would be denial. We have to get this right.“ – bto: Das hat White auch in meinem Podcast gesagt (in der ersten der beiden Episoden mit ihm als Gast, #053). Es ist klar, dass wir uns in einem zunehmend manipulierten System befinden.

→ themarket.ch (Anmeldung erforderlich): „A Number of Inflationary Forces Will Remain in Place For a Long Time“, 23. Februar 2023