Ask HN: Why are energy prices soaring in Europe?
52 comments
A lot of energy was imported from Russia via Nord Stream 1 & 2 pipeline. Since the Ukraine war, Russia has been placed under embargo and itself reduced gas deliveries to Europe.
https://en.wikipedia.org/wiki/Nord_Stream
Direct from this article: https://foreignpolicy.com/2022/08/26/europe-energy-crisis-na...
Normally, Europe can refill its gas storage during the summer and coast in the winter, when usage is higher. Now, with colder months looming and Russia’s tightening chokehold on natural gas flows, Europe has been locked in a race against time to fill its tanks, which leaders have stocked by paying eye-watering prices. So far, experts said, European nations have been largely on track with their plans—but that doesn’t mean that they will be out of the woods come winter.
In the winter, Europe typically “uses a lot of what it has in storage while, at the same time, importing lots of gas from other sources,” Munton said. “It needs both. But as we think about this winter, there is a very real threat that there won’t be any Russian gas at all.” In normal times, Russian gas supplies about 40 percent of European imports.
Without Russia’s supply in the winter, Munton added, European nations will be forced to rely on imports of liquefied natural gas (LNG) even more from suppliers such as the United States. The problem is that Asia—a larger LNG market—is also vying for the same supplies, which means prices are always going to be higher than old piped gas from the East.
“That’s really the crisis that Europe and the world confronts,” he added.
As Europe abandons Moscow’s energy supply, many leaders have rushed to secure alternative deals and supplies with other countries. Italy has secured more gas from Algeria while other nations have turned to Azerbaijan, Norway, and Qatar. Germany has also expressed its hopes for a new LNG deal with Canada, which in turn has been considerably less optimistic. Others have invested considerably more into LNG infrastructure, with Germany racing to build five floating LNG terminals and the Netherlands, Finland, and Italy all preparing for more floating units to import gas.
https://en.wikipedia.org/wiki/Nord_Stream
Direct from this article: https://foreignpolicy.com/2022/08/26/europe-energy-crisis-na...
Normally, Europe can refill its gas storage during the summer and coast in the winter, when usage is higher. Now, with colder months looming and Russia’s tightening chokehold on natural gas flows, Europe has been locked in a race against time to fill its tanks, which leaders have stocked by paying eye-watering prices. So far, experts said, European nations have been largely on track with their plans—but that doesn’t mean that they will be out of the woods come winter.
In the winter, Europe typically “uses a lot of what it has in storage while, at the same time, importing lots of gas from other sources,” Munton said. “It needs both. But as we think about this winter, there is a very real threat that there won’t be any Russian gas at all.” In normal times, Russian gas supplies about 40 percent of European imports.
Without Russia’s supply in the winter, Munton added, European nations will be forced to rely on imports of liquefied natural gas (LNG) even more from suppliers such as the United States. The problem is that Asia—a larger LNG market—is also vying for the same supplies, which means prices are always going to be higher than old piped gas from the East.
“That’s really the crisis that Europe and the world confronts,” he added.
As Europe abandons Moscow’s energy supply, many leaders have rushed to secure alternative deals and supplies with other countries. Italy has secured more gas from Algeria while other nations have turned to Azerbaijan, Norway, and Qatar. Germany has also expressed its hopes for a new LNG deal with Canada, which in turn has been considerably less optimistic. Others have invested considerably more into LNG infrastructure, with Germany racing to build five floating LNG terminals and the Netherlands, Finland, and Italy all preparing for more floating units to import gas.
>A lot of energy was imported from Russia via Nord Stream 1 & 2 pipeline
Nord Stream 2 was never in operation.
Nord Stream 2 was never in operation.
importing LNG by ship? that seems like an incredibly expensive and unsustainable solution.
Thanks.
The question is, why didn't Europe secure energy supply before inflicting self-sanctions?
When Europe sanctions Russia, they're literally sanctioning themselves.
Why not limit their energy sanctions initially, supply arms to Ukraine, and then plan to get off Russian gas completely over the next 5 years for example?
The need to appease the public immediately seems to have done just as much pain to EU as Russia.
The question is, why didn't Europe secure energy supply before inflicting self-sanctions?
When Europe sanctions Russia, they're literally sanctioning themselves.
Why not limit their energy sanctions initially, supply arms to Ukraine, and then plan to get off Russian gas completely over the next 5 years for example?
The need to appease the public immediately seems to have done just as much pain to EU as Russia.
>>> The need to appease the public immediately seems to have done just as much pain to EU as Russia.
Interesting way to frame the issue. FWIW, I would have gone with "the need to inflict actual repercussions on Russia for invading a neighbor and slaughtering civilians."
Not hard to believe the European public takes issue with that, so close to home.
Interesting way to frame the issue. FWIW, I would have gone with "the need to inflict actual repercussions on Russia for invading a neighbor and slaughtering civilians."
Not hard to believe the European public takes issue with that, so close to home.
senttoschool(3)
Europe did not introduced energy sanctions, both gas and pipeline-transferred oil were exempt from sanctions.
But even before the war, there were gas shortages. Part of gas was delivered based on long-term contracts, part based on spot contracts, and while Russia delivered enough gas to satisfy long-term contracts, it offered less gas to the market so spot price risen.
After the war, there were some interruptions or limitations of gas delivery from the Russian side (blamed on not having enough spare parts to maintain gas pipelines).
But even before the war, there were gas shortages. Part of gas was delivered based on long-term contracts, part based on spot contracts, and while Russia delivered enough gas to satisfy long-term contracts, it offered less gas to the market so spot price risen.
After the war, there were some interruptions or limitations of gas delivery from the Russian side (blamed on not having enough spare parts to maintain gas pipelines).
> The need to appease the public immediately seems to have done just as much pain to EU as Russia.
This is not entirely correct - the sanctions hurt EU incomparably more than it hurt Russia. Russia still sells it's natural gas and oil without any issues. Business got it's skyrocketing profits, populace in EU got their excuse why they should pay more and suffer in winter, corrupted EU politicians got a scapegoat for their corrupted and irresponsible monetary policies.
Nothing to see here, happened many times over course of history.
This is not entirely correct - the sanctions hurt EU incomparably more than it hurt Russia. Russia still sells it's natural gas and oil without any issues. Business got it's skyrocketing profits, populace in EU got their excuse why they should pay more and suffer in winter, corrupted EU politicians got a scapegoat for their corrupted and irresponsible monetary policies.
Nothing to see here, happened many times over course of history.
> EU politicians got a scapegoat for their corrupted and irresponsible monetary policies.
EU politicians do not set monetary policy. Central bankers do.
EU politicians do not set monetary policy. Central bankers do.
You are suggesting politicians do not indirectly affect monetary policies?
You are right - monetary policies are set by ECB but that's beyond the point of my comment
You are right - monetary policies are set by ECB but that's beyond the point of my comment
This has nothing to do with Ukraine, that's just the cherry on top. At the end of last year - when prices were already at record levels - I remember reading an article about gas storage levels in Europe being unusually low.
It estimated that given the rate at which gas was being imported, a cold winter could easily use up all gas in storage. Fortunately last winter was rather mild.
It estimated that given the rate at which gas was being imported, a cold winter could easily use up all gas in storage. Fortunately last winter was rather mild.
It has everything to do with Ukraine. The low gas storage levels were engineered to create additional leverage over European countries during the upcoming invasion.
"The International Energy Agency (IEA) estimated that 50 percent of the deficit in European storages was due to the depletion of Gazprom-owned storages, despite the fact that Gazprom only owned 10 percent of European storages. This rapid draining of storages left European gas storage dangerously low at the height of winter, increased market panic, and further inflated gas prices."
https://www.atlanticcouncil.org/blogs/energysource/gazprom-s...
"The International Energy Agency (IEA) estimated that 50 percent of the deficit in European storages was due to the depletion of Gazprom-owned storages, despite the fact that Gazprom only owned 10 percent of European storages. This rapid draining of storages left European gas storage dangerously low at the height of winter, increased market panic, and further inflated gas prices."
https://www.atlanticcouncil.org/blogs/energysource/gazprom-s...
Poor planning and backed into a corner with policy
https://youtu.be/OXqZf72pAhk
https://youtu.be/OXqZf72pAhk
because politicians care about pet projects and winning votes and not about solving problems. solving problems is hard and does not win you votes.
Hubris. Queue up the videos of Trump pointing that out to laughter.
In general it seems that energy market is rather finely balanced thing. A covid lockdowns pushed it into other direction. Thus prices going really low or in rare cases even negative. Then with recovery they recovered, but there isn't too much slack on global scale and supply I think was even somewhat scaled back.
Now next stop of getting supply from rather large player with post covid recovery pushed the price massively to other direction. And do to how electricity markets work not much was needed. Now combine this with very dry summer resulting less hydro and even nuclear shutdowns. And we are really approaching perfect storm.
Now next stop of getting supply from rather large player with post covid recovery pushed the price massively to other direction. And do to how electricity markets work not much was needed. Now combine this with very dry summer resulting less hydro and even nuclear shutdowns. And we are really approaching perfect storm.
Beacuse they're charging more and using war as an excuse, pocketing the profits.
BP, Shell, etc all making record profits this year.
https://www.reuters.com/business/energy/bp-records-highest-p...
https://www.reuters.com/business/energy/shell-reports-record...
BP, Shell, etc all making record profits this year.
https://www.reuters.com/business/energy/bp-records-highest-p...
https://www.reuters.com/business/energy/shell-reports-record...
Could the British government not take control of their energy resources from BP, Shell? i.e. North Sea gas
Because previous political leaders of important countries made very unserious decisions to become dependent on energy from Putin. Some of these leaders got cushy jobs at Putins pet companies after leaving office.
On top of that they also decided to make a big transition in energy, but on the cheap. They made a bet that they could move to intermittent energy sources without breaking the bank, and by ignoring fundamental power engineering. A key part of this strategy was to fill in for what intermittent sources could not supply by increasing energy reliance on energy from Putin (more natural gas and coal). So these countries started turning off nuke and coal plants.
This was a really bad bet, and they were told very publicly that it was a bad bet, because it was highly unlikely that Putin would not take advantage of the situation.
In 2014, Putin took advantage of the situation. Putin shot down an airliner, took over Crimea, and killed a lot of people. These important countries doubled down on their bet on Putin and appeased Putin with a nice settlement - Putin got eastern Ukraine and Crimea. And they agreed to become more dependent on energy from Putin.
This year, figuring he had everyone whupped good and proper, Putin went for broke and decided to take over all of Ukraine, starting by killing the leader of Ukraine. Despite many attempts, this has failed, and these important countries have suddenly realized what others had been telling them for years.
The cost of disentangling from Putin is now very high, and you're seeing that in energy costs.
On top of that they also decided to make a big transition in energy, but on the cheap. They made a bet that they could move to intermittent energy sources without breaking the bank, and by ignoring fundamental power engineering. A key part of this strategy was to fill in for what intermittent sources could not supply by increasing energy reliance on energy from Putin (more natural gas and coal). So these countries started turning off nuke and coal plants.
This was a really bad bet, and they were told very publicly that it was a bad bet, because it was highly unlikely that Putin would not take advantage of the situation.
In 2014, Putin took advantage of the situation. Putin shot down an airliner, took over Crimea, and killed a lot of people. These important countries doubled down on their bet on Putin and appeased Putin with a nice settlement - Putin got eastern Ukraine and Crimea. And they agreed to become more dependent on energy from Putin.
This year, figuring he had everyone whupped good and proper, Putin went for broke and decided to take over all of Ukraine, starting by killing the leader of Ukraine. Despite many attempts, this has failed, and these important countries have suddenly realized what others had been telling them for years.
The cost of disentangling from Putin is now very high, and you're seeing that in energy costs.
> Doesn’t Europe also have coal, nuclear and renewables; and import of oil from Middle Eastern countries?
The European electricity market is regulated in such a way that all energy is priced at the production price of the most expensive plant running. If I understood correctly, this is done so that no plant will operate at a loss (and risk closing, which could lead to energy shortages).
In particular, this means prices of energy follow those of gaz, even though there are cheaper alternatives
The European electricity market is regulated in such a way that all energy is priced at the production price of the most expensive plant running. If I understood correctly, this is done so that no plant will operate at a loss (and risk closing, which could lead to energy shortages).
In particular, this means prices of energy follow those of gaz, even though there are cheaper alternatives
Not exactly. The spot market and the long term contracts & futures are complementary. The spot market does tend to follow the anomalously high marginal price closely but there are lots of years long contracts which do not.
See eg https://fsr.eui.eu/electricity-markets-in-the-eu/
Dumb policies mainly. Most of Europe deliberately refused long-term contracts for gas which would have locked in a lower price of gas and thought they'd get a better deal by throwing themselves on the mercies of the spot-price gas market.
Unfortunately for them, the price of gas on the spot-market has risen many-fold because of sanctions on Russia which reduced the amount of available gas, and caused 'Ye Olde Supply and Demand' price increases.
Hungary, on the other hand, continued buying gas from Russia on a long-term contract and they continue laughing all the way to the bank while their other European neighbors are screaming at the high prices of spot-market gas.
Of course, those countries screaming for gas could have benefited by opening up the NordStream 2 pipeline at any time previously. But they'd better open it up soon, because Russia has said that if NordStream 2 is not opened up soon, the gas currently allocated for it will be allocated elsewhere. Meaning there wouldn't be any gas in the pipeline any more, even if the Germans suddenly decided to finally open it up.
Dumb is as dumb deserves to be.
Unfortunately for them, the price of gas on the spot-market has risen many-fold because of sanctions on Russia which reduced the amount of available gas, and caused 'Ye Olde Supply and Demand' price increases.
Hungary, on the other hand, continued buying gas from Russia on a long-term contract and they continue laughing all the way to the bank while their other European neighbors are screaming at the high prices of spot-market gas.
Of course, those countries screaming for gas could have benefited by opening up the NordStream 2 pipeline at any time previously. But they'd better open it up soon, because Russia has said that if NordStream 2 is not opened up soon, the gas currently allocated for it will be allocated elsewhere. Meaning there wouldn't be any gas in the pipeline any more, even if the Germans suddenly decided to finally open it up.
Dumb is as dumb deserves to be.
So don’t sanction the aggressor that the world is trying to sanction? Brilliant, why didn’t anyone else think of that.
So don’t sanction the aggressor that the world is trying to sanction?
You mean this world? https://pbs.twimg.com/media/FOFo3TaagAEYvUa?format=jpg&name=...
The West is not the World. The West is merely one-eighth the population of the World. Or, as is said, 'The Golden Billion' who are no longer nearly as important as they think they are.
We in the West are long past due for a very big head-kicking. It's coming up very soon, and we won't be liking it one little bit.
You mean this world? https://pbs.twimg.com/media/FOFo3TaagAEYvUa?format=jpg&name=...
The West is not the World. The West is merely one-eighth the population of the World. Or, as is said, 'The Golden Billion' who are no longer nearly as important as they think they are.
We in the West are long past due for a very big head-kicking. It's coming up very soon, and we won't be liking it one little bit.
There are a few different aspects.
One is that Europe -- and in particular, some of the richest parts of Europe -- gets a material fraction of its energy from Russia. Sanctions from Europe eliminated some of this supply, and retaliation from Russia eliminated more of it.
The timing coincides with a period when Europe was already going to have significant energy shortages, as Germany has been aggressively decommissioning its nuclear generation capacity and Europe generally has been trying to "decarbonize" its energy markets in a manner that removes carbon-intensive capacity much faster than it builds out new renewable capacity (thereby reducing the total amount of energy produced).
On top of that, European populations are growing (a little), which produces (a little) more energy demand.
Europe does produce coal, but it's been producing less and less over time, due to the decarbonization efforts I mentioned above, and also because some of the mines are quite old and getting somewhat mined out. (Poland, for example, still produces lots of coal, but the cost to produce it keeps going up as they have to dig further and further to get to more -- new mines are not opening)
In addition, (very realistic) fears of a shortage coming in the winter have led to people trying to purchase now as much as possible the energy that they will need in the winter, which is why prices are skyrocketing now rather than waiting until the shortage actually happens. (You can see this most acutely in Poland, where people are literally waiting in their personal vehicles in a three-day-long line outside the local coal mine to purchase their winter allocation of heating coal. (The government in Poland has already begun to ration coal, allowing each household to only purchase their fixed allocation from the mines).
Some energy demand is highly "elastic" -- that is, if the price goes up, the demand falls. If you use energy to make stuff, if the cost of the energy goes above the value of the stuff, you stop making the stuff. But a lot of the demand is pretty inelastic -- a family in a place with a cold winter will probably buy enough energy to heat their home at least to about 55F at almost any price that isn't totally ruinous, and will continue to buy energy to heat to at least about 50F even at ruinous prices.
That means that when there's a shortage, prices will move up gradually to a point, and then suddenly they'll spike very high very fast. That's because at first, as prices go up, demand falls -- people and companies stop using as much energy and start both being more efficient and also foregoing energy-intensive activities -- but after a certain point, higher prices don't drive out that much more demand, because all of the uses of energy that people are willing to curtail have already been curtailed. At this point, prices spike very high very fast, as each new increase in price only reduces demand very slightly, and so the shortage remains.
If prices stay this high for an extended period, people can take drastic actions to reduce their use (for example, multiple families could move into houses, so that there were fewer homes to heat, or they could, as one German minister suggested, only heat a single room per house and sleep all in one room at night in the winter -- but they won't do these things unless they have no choice, and in some cases they can't do them quickly anyway.
One is that Europe -- and in particular, some of the richest parts of Europe -- gets a material fraction of its energy from Russia. Sanctions from Europe eliminated some of this supply, and retaliation from Russia eliminated more of it.
The timing coincides with a period when Europe was already going to have significant energy shortages, as Germany has been aggressively decommissioning its nuclear generation capacity and Europe generally has been trying to "decarbonize" its energy markets in a manner that removes carbon-intensive capacity much faster than it builds out new renewable capacity (thereby reducing the total amount of energy produced).
On top of that, European populations are growing (a little), which produces (a little) more energy demand.
Europe does produce coal, but it's been producing less and less over time, due to the decarbonization efforts I mentioned above, and also because some of the mines are quite old and getting somewhat mined out. (Poland, for example, still produces lots of coal, but the cost to produce it keeps going up as they have to dig further and further to get to more -- new mines are not opening)
In addition, (very realistic) fears of a shortage coming in the winter have led to people trying to purchase now as much as possible the energy that they will need in the winter, which is why prices are skyrocketing now rather than waiting until the shortage actually happens. (You can see this most acutely in Poland, where people are literally waiting in their personal vehicles in a three-day-long line outside the local coal mine to purchase their winter allocation of heating coal. (The government in Poland has already begun to ration coal, allowing each household to only purchase their fixed allocation from the mines).
Some energy demand is highly "elastic" -- that is, if the price goes up, the demand falls. If you use energy to make stuff, if the cost of the energy goes above the value of the stuff, you stop making the stuff. But a lot of the demand is pretty inelastic -- a family in a place with a cold winter will probably buy enough energy to heat their home at least to about 55F at almost any price that isn't totally ruinous, and will continue to buy energy to heat to at least about 50F even at ruinous prices.
That means that when there's a shortage, prices will move up gradually to a point, and then suddenly they'll spike very high very fast. That's because at first, as prices go up, demand falls -- people and companies stop using as much energy and start both being more efficient and also foregoing energy-intensive activities -- but after a certain point, higher prices don't drive out that much more demand, because all of the uses of energy that people are willing to curtail have already been curtailed. At this point, prices spike very high very fast, as each new increase in price only reduces demand very slightly, and so the shortage remains.
If prices stay this high for an extended period, people can take drastic actions to reduce their use (for example, multiple families could move into houses, so that there were fewer homes to heat, or they could, as one German minister suggested, only heat a single room per house and sleep all in one room at night in the winter -- but they won't do these things unless they have no choice, and in some cases they can't do them quickly anyway.
> Germany has been aggressively decommissioning its nuclear generation capacity
When did Germany decommissioned its inexistent nuclear generation capacity? or are you talking about the US Dep. of Energy?
When did Germany decommissioned its inexistent nuclear generation capacity? or are you talking about the US Dep. of Energy?
Germany has been aggressively decommissioning its nuclear generation for a while now.
Three plants were shuttered in January of this year (among other shutdowns and phase-outs): https://abcnews.go.com/International/wireStory/correction-ge...
Three plants were shuttered in January of this year (among other shutdowns and phase-outs): https://abcnews.go.com/International/wireStory/correction-ge...
Is there a link with OTAN?
throwaway because "we have free speech in the west!" but God knows what I'll have to endure by goldfishes.
> This is maybe a dumb question. But I need to ask it.
Judging by the answers you're getting, the question looks anything but dumb.
> Energy prices go up in a really crazy way. Why?
Because Europe decided to commit suicide. Literally.
> Is it just the conflict in Ukraine? Why would that make the prices go so up; isn’t it mostly natural gas from there?
Look at the data. Prices were going up since 2020. Russian cheap gas was the only deterrent, but now we need to "free Ukraine" ... well that freedom will cost every EU government the ability to rule, because if there's one thing a population won't allow is turning poor rapidly. I'm very concerned about Italy tbh.
> Doesn’t Europe also have coal, nuclear and renewables;
No, not enough for the next 5-10 years. There are also political problems: global warming and fear of nuclear disaster.
> and import of oil from Middle Eastern countries?
The OPEC countries did not bring the oil prices down. That tells all you need to know about how they're seeing the world: unipolar or multi-polar? Not picking a side, is a new thing. No one would go against the NATO in 2005, but now countries are not willing to pick a side - this helps Russia in this conflict. Russia is not as isolated as the mainstream make them to be, unfortunately.
> This is maybe a dumb question. But I need to ask it.
Judging by the answers you're getting, the question looks anything but dumb.
> Energy prices go up in a really crazy way. Why?
Because Europe decided to commit suicide. Literally.
> Is it just the conflict in Ukraine? Why would that make the prices go so up; isn’t it mostly natural gas from there?
Look at the data. Prices were going up since 2020. Russian cheap gas was the only deterrent, but now we need to "free Ukraine" ... well that freedom will cost every EU government the ability to rule, because if there's one thing a population won't allow is turning poor rapidly. I'm very concerned about Italy tbh.
> Doesn’t Europe also have coal, nuclear and renewables;
No, not enough for the next 5-10 years. There are also political problems: global warming and fear of nuclear disaster.
> and import of oil from Middle Eastern countries?
The OPEC countries did not bring the oil prices down. That tells all you need to know about how they're seeing the world: unipolar or multi-polar? Not picking a side, is a new thing. No one would go against the NATO in 2005, but now countries are not willing to pick a side - this helps Russia in this conflict. Russia is not as isolated as the mainstream make them to be, unfortunately.
The elephant in the room: The ECB creating > 2 trillion euros out of thin air for COVID response (As did the BoE, the Fed etc), whilst simultaneously suspending half their economies so that productive output dropped significantly.
It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion. It is largely ignored by modern "economists" (particularly the modern monetary theorists, who hold the idea that we can just keep creating money at no cost).
Energy price increases are not just unique to Europe, but they are occurring globally for the same reasons. This trend began well before the Russian invasion, but clearly after the 2020 response to COVID.
From most-impactful to least-impactful on the price of energy (and everything else), you have 1: Reckless monetary policy. 2: Reckless green agenda. 3. RUS/UKR conflict.
#3 certainly provides a convenient excuse for those in power though, who are directly responsible for #1 and #2.
It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion. It is largely ignored by modern "economists" (particularly the modern monetary theorists, who hold the idea that we can just keep creating money at no cost).
Energy price increases are not just unique to Europe, but they are occurring globally for the same reasons. This trend began well before the Russian invasion, but clearly after the 2020 response to COVID.
From most-impactful to least-impactful on the price of energy (and everything else), you have 1: Reckless monetary policy. 2: Reckless green agenda. 3. RUS/UKR conflict.
#3 certainly provides a convenient excuse for those in power though, who are directly responsible for #1 and #2.
"It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion."
There isn't at all that doesn't end up being comparing apples and pears, or curve fitting to a belief.
Because there is no mechanism for £100 in a drawer or kept in a bank account to cause inflation. Which are the only two ways that money will show up for you to complain about it.
Moreover money was not created by QE. All that happened was existing money was swapped for a different type of money. In physical terms the duration and interest rate was different which altered the yield curve. That's it.
But it didn't work. We've had a decade of interest rate jiggling and none of it has caused price rises to stay in bounds in either direction. There comes a point when we have to reject the hypothesis.
"Creating" base money didn't cause price rises for a decade (and still aren't in Japan), and changing interest rates or threatening to change interest rates didn't stop price rises breaking out.
It's time to reject the 'adjusting interest rates and money stock controls the economy' hypothesis, and shift to something far more direct.
Monetary policy is at best hopelessly ineffective and at worst doesn't work at all.
There isn't at all that doesn't end up being comparing apples and pears, or curve fitting to a belief.
Because there is no mechanism for £100 in a drawer or kept in a bank account to cause inflation. Which are the only two ways that money will show up for you to complain about it.
Moreover money was not created by QE. All that happened was existing money was swapped for a different type of money. In physical terms the duration and interest rate was different which altered the yield curve. That's it.
But it didn't work. We've had a decade of interest rate jiggling and none of it has caused price rises to stay in bounds in either direction. There comes a point when we have to reject the hypothesis.
"Creating" base money didn't cause price rises for a decade (and still aren't in Japan), and changing interest rates or threatening to change interest rates didn't stop price rises breaking out.
It's time to reject the 'adjusting interest rates and money stock controls the economy' hypothesis, and shift to something far more direct.
Monetary policy is at best hopelessly ineffective and at worst doesn't work at all.
Doesn't fully answer the question. Increases in monetary mass inflate the prices mostly uniformly. European markets have seen prices of energy rise way more than the others.
Also, you are calling the covid policies "reckless". I believe they were fully measured and calculated. Of course the economies are in a bad state after being put under perfusion for a year. But nobody thought it would be otherwise, it was just the less bad option
Also, you are calling the covid policies "reckless". I believe they were fully measured and calculated. Of course the economies are in a bad state after being put under perfusion for a year. But nobody thought it would be otherwise, it was just the less bad option
> Increases in monetary mass inflate the prices mostly uniformly.
I've heard this argument against QTM several times, but it is not entirely what is predicted by QTM. If we take Cantillon's explanation for how increases in the quantity of money affect prices[1], he suggests something completely different - the things which go up in price first are luxuries and stocks (things purchased by those who have early access to the new money, who are by large, already wealthy) - then it is the providers of those luxuries who are next to access the new money, and the goods they purchase are next to become inflated. The inflation does not happen over night, or uniformly, but is gradual. It might be the case that prices rises become uniform eventually, but as the process is on-going there are some commodities which are affected before others.
Energy in particular impacts every industry, so there is no doubt that any rise in energy prices will be similarly met with price rises in all goods sold by any company which now must have additional energy expenditures. They will increase the price of the goods they sell to compensate. So while energy prices might be way ahead of other price rises now, it won't be long until the price of everything else follows. It's going to get much worse yet.
The usual argument against QTM is that it is monetary velocity, not money supply, which is the leading factor in inflation. However, as evidenced by Lyn Alden[2], there is no long-term correlation between inflation and monetary velocity. There is a very difficult to miss correlation between money supply and inflation though.
> I believe they were fully measured and calculated
Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. These are just a few select headlines, but you can get the picture without me providing an exhaustive list.
- "Our best view is that the effect on inflation will be neither particularly large nor persistent."[3] (Jerome Powell)
- "I doubt we are going to see an inflationary cycle." [4] (Janet Yellen)
- "Experts Agree: Inflation is Transitory, Manageable"[5]
- "It’s official – inflation is no longer transitory"[6]
- "Why Did Almost Nobody See Inflation Coming?"[7]
- Inflation is a good thing![8]
OTOH, this armchair economist here predicted what would happen over 2 years ago, and unsurprisingly, it happened (is happening)[9] (May 1, 2020)
---
[1]:https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.... (Part 2, Chapter 6)
[2]:https://www.lynalden.com/inflation/#supply
[3]:https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to...
[4]:https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will...
[5]:https://groundworkcollaborative.org/news/experts-agree-infla...
[6]:https://moneyweek.com/economy/inflation/604181/transitory-in...
[7]:https://www.project-syndicate.org/commentary/2021-us-inflati...
[8]:https://edition.cnn.com/2021/12/01/economy/inflation-good-ba...
[9]:https://news.ycombinator.com/item?id=23040832
I've heard this argument against QTM several times, but it is not entirely what is predicted by QTM. If we take Cantillon's explanation for how increases in the quantity of money affect prices[1], he suggests something completely different - the things which go up in price first are luxuries and stocks (things purchased by those who have early access to the new money, who are by large, already wealthy) - then it is the providers of those luxuries who are next to access the new money, and the goods they purchase are next to become inflated. The inflation does not happen over night, or uniformly, but is gradual. It might be the case that prices rises become uniform eventually, but as the process is on-going there are some commodities which are affected before others.
Energy in particular impacts every industry, so there is no doubt that any rise in energy prices will be similarly met with price rises in all goods sold by any company which now must have additional energy expenditures. They will increase the price of the goods they sell to compensate. So while energy prices might be way ahead of other price rises now, it won't be long until the price of everything else follows. It's going to get much worse yet.
The usual argument against QTM is that it is monetary velocity, not money supply, which is the leading factor in inflation. However, as evidenced by Lyn Alden[2], there is no long-term correlation between inflation and monetary velocity. There is a very difficult to miss correlation between money supply and inflation though.
> I believe they were fully measured and calculated
Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. These are just a few select headlines, but you can get the picture without me providing an exhaustive list.
- "Our best view is that the effect on inflation will be neither particularly large nor persistent."[3] (Jerome Powell)
- "I doubt we are going to see an inflationary cycle." [4] (Janet Yellen)
- "Experts Agree: Inflation is Transitory, Manageable"[5]
- "It’s official – inflation is no longer transitory"[6]
- "Why Did Almost Nobody See Inflation Coming?"[7]
- Inflation is a good thing![8]
OTOH, this armchair economist here predicted what would happen over 2 years ago, and unsurprisingly, it happened (is happening)[9] (May 1, 2020)
---
[1]:https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.... (Part 2, Chapter 6)
[2]:https://www.lynalden.com/inflation/#supply
[3]:https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to...
[4]:https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will...
[5]:https://groundworkcollaborative.org/news/experts-agree-infla...
[6]:https://moneyweek.com/economy/inflation/604181/transitory-in...
[7]:https://www.project-syndicate.org/commentary/2021-us-inflati...
[8]:https://edition.cnn.com/2021/12/01/economy/inflation-good-ba...
[9]:https://news.ycombinator.com/item?id=23040832
"There is a very difficult to miss correlation between money supply and inflation though."
What's the money supply and inflation in Japan?
You can't see the 'money supply' unless it is stationary. If it moves, then it gets taxed away.
There is no correlation between what some people call money supply and what some people call velocity - largely because the proposed mechanism for decomposing GDP into those two values (the MV bit) is unscientific nonsense.
You can prove that if you have ever held a balance in a bank account for any length of time, held any monetary savings in currency or bank account form, or ever not immediately spent money the instant you get it. It has zero velocity.
What you perhaps have overlooked is the opposite correlation - that too much inflation causes money. If you have higher prices then to maintain the same transaction levels at the same speed we need a greater quantity of money in flow.
Which is what happens. People start borrowing to pay the higher prices, which creates money.
This current set of price rises is a supply side hiccup caused by lockdown and an opportunistic Russia and OPEC, who we have given excess power by closing down the carbon economy before we had properly built out the green one.
What's the money supply and inflation in Japan?
You can't see the 'money supply' unless it is stationary. If it moves, then it gets taxed away.
There is no correlation between what some people call money supply and what some people call velocity - largely because the proposed mechanism for decomposing GDP into those two values (the MV bit) is unscientific nonsense.
You can prove that if you have ever held a balance in a bank account for any length of time, held any monetary savings in currency or bank account form, or ever not immediately spent money the instant you get it. It has zero velocity.
What you perhaps have overlooked is the opposite correlation - that too much inflation causes money. If you have higher prices then to maintain the same transaction levels at the same speed we need a greater quantity of money in flow.
Which is what happens. People start borrowing to pay the higher prices, which creates money.
This current set of price rises is a supply side hiccup caused by lockdown and an opportunistic Russia and OPEC, who we have given excess power by closing down the carbon economy before we had properly built out the green one.
> Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period.
Ok maybe I sound like a conspiracy theorist, but if I worked at a central bank or at a government, and predicted a spike in inflation, the last thing I'd do is tell the press. Instead I'd have the media push the "everything's fine" narrative to keep the wheel turning and avoid any kind of panic
Ok maybe I sound like a conspiracy theorist, but if I worked at a central bank or at a government, and predicted a spike in inflation, the last thing I'd do is tell the press. Instead I'd have the media push the "everything's fine" narrative to keep the wheel turning and avoid any kind of panic
Energy prices go up in a really crazy way. Why?
Is it just the conflict in Ukraine? Why would that make the prices go so up; isn’t it mostly natural gas from there?
Doesn’t Europe also have coal, nuclear and renewables; and import of oil from Middle Eastern countries?