Tuomas Malinen Profile picture
PhD econ. CEO of GnS Economics. Adj. Professor of Economics @ Uni Helsinki. Economic growth, economic crises, monetary unions and central banks.
Liberal Patriot Profile picture Nelson Profile picture Paul Claireaux Profile picture πŸ‡¨πŸ‡¦Mr. Prairie Fire πŸ‡¨πŸ‡¦ Profile picture Victor Koh Profile picture 17 added to My Authors
9 Sep
A short thread of the non-recovery of the global #economy.

Let's start on the PMI -fallacy.

With the PMI:s all figures above 50 signal overall increase, compared to previous month, while figures below 50 signal a decrease. 1/10
During the lockdowns, PMIs crashed to range of 20 to 40, signalling a massive decrease in expectations and production.

Now, the PMIs are mostly in a range from 50 to 60. What does this imply?

The easiest way is to consider PMIs in terms of percentage changes. 2/
So, when index dives to 30, it signals a decrease of (roughly) 40 percent.

How long does it take for the underlying series (production, sales, new orders, etc.) to recover to the level it was at before the decline?

Note: All percent changes are relative. 3/
Read 10 tweets
22 Aug
A lot of talk about our calls on the #StockMarket .

To give a picture of how we forecasted the market and the economy to proceed, here's a thread going through our most important warnings for 2020.

Most can be found here. 1/18
From the end of January.

"The ability of the novel coronavirus to spread very easily (before symptoms and through droplet infection) implies that it is likely to have already spread wide across the globe, and that there's a potential for exponential growth in infections." 2/
"This, combined with the aim of the Fed to taper its term repo -operations starting from February (30 -day repo ops have already been tapered), greatly increases the likelihood of a serious correction or a crash in global asset markets in February and March." 3/
Read 18 tweets
28 Jul
A thread on how to fix the #Eurozone (and the #EU).

With the #RecoveryFund , the #EU has arrived to a pivotal point. Accepting the Fund would take us into a federation, while declining would, very likely, lead to euro-exits.

So, which option to choose? 1/20
The #EU was established to end the wars and create political stability and prosperity across Europe.

Before the creation of the euro, it looked to accomplish just that. Europe started to grow together.

Unfortunately, euro has now reversed basically all that progress. 2/
After the Global Financial Crisis, the euro became, not the symbol of prosperity, but a symbol of poverty and human suffering.

Many member countries are now poorer than before the euro and some, like Finland, have never recovered from the GFC.

Moreover,... 3/
Read 20 tweets
17 Jul
Now is probably a good time to explain, why I did, quite recently, turn an EU-skeptic.

While the #EU failed to heed the lessons of #Brexit, the #recoveryfund is even bigger issue. Economic arguments for it make no sense.

A thread on 'stealth' federalization of the #EU. 1/25
Monetary unions are fragile creatures. They are held together by political will alone.

A national #economy develops through a complex set of political, cultural and economic norms and laws. Generally, the longer the history of a nation, the more complex the mix. 2/
This leads to a highly heterogeneous development of productivity and competitiveness across nations.

The function of a foreign exchange rate is to reflect and stabilize these differences between nations. When it is removed in a currency union, economic differences remain... 3/
Read 25 tweets
22 Jun
A financial crisis is probably the most feared economic event known to man.

I've done (mostly acad.) research on them for over 10 years.

As we are likely closing in on one, a thread on the anatomy of a financial crisis.

The #coronavirus is just a'trigger'.1/16
Financial crisis are born of some shock (smaller or larger) to the banking system.

The #coronavirus pandemic has been a rather massive trigger for a latent and overdue banking crisis.

If a banking system is sound and robust, it can usually withstand financial and... 2/
...economic shocks. But a banking system may be fragile.

Usually this is due to high leverage levels, where banks have either lent aggressively or carry risky financial investments on their balance sheetsβ€”usually both.

Banks can also have a weak financial position,... 3/
Read 16 tweets
12 Jun
There's a massive and utterly ill-conceived discussion on "why government debt does not matter".

I and Dr. Olli Ropponen from @EtlaNews used some five years of analyzing economic crises, debt defaults and economic growth.

A thread why government debt DOES matter. 1/18
The line of reasoning of the #MMT crowd goes something like this:

Because government can issue her own currency, she can never go broke (because she can print all the money she needs).

We analyzed 340 default (year/country) episodes of sovereign nations between 1952... 2/
...and 2010 (36 countries).

So, why did these nations resort to sovereign defaults? Why did they not just print the currency they needed?

Well, many tried.

In the dataset, we had 534 observations on inflation crises, with the annual inflation rate 20 percent or higher. 3/
Read 18 tweets
5 Jun
I think it's time for this now.

A thread on leaving of the euro.

Over the years, I have turned to a full-blown euro-skeptic. If one figure could be used to describe my transformation, it would be this. πŸ‘‡

Simply put, euro has been an economic menace. 1/24
But, how to leave from it?

As everything starts with the legal/political arguments, for the euro-exit, there are three:

1. National emergency
2. Other force majeure
3. A change or violation of the Acts of the Treaties and/or principles of the Eurozone.

In the case of a national emergency (wars, epidemics, econ crises), a country may temporarily bypass all treaties and pursue actions needed to overcome the emergency.

Other force majeure refer to events that are abnormal, unforeseeable and beyond the control... 3/
Read 25 tweets
4 Jun
I guess now is a good time to remind ourselves, why further debt and monetary stimulus is a bad idea.

I understand the desperation, but the fact is that the #economy is not something you can manage from above. Thread.

Let's start with a familiar chart. 1/14
I've been doing empirical research on economic growth for 18 years, and the above is the strangest thing I've ever seen.

There's absolutely no reason, why the productivity should fall, globally, in an expansion. It's an aberration. 2/
Some Post-Keynesians have made up different imaginative explanations, as they often do, but the fact is that, e.g., not wages nor the commodity cycle drive productivity.

Productivity grows through profitable investments, which drive wage growth. Investments... 3/
Read 14 tweets
29 May
A lot of fuzz about the potential recovery of #China.

But, is her #economy really going to recover? A thread.

Sometimes, one picture says more than the thousand words. IMHO, this is one of those. πŸ‘‡ 1/8
#depression2020 #recession2020 #coronavirus
Thus, China responded to the economic shock caused by the #COVID19 and 'draconian' lock-downs with 'draconian' stimulus, setting the stage for other nations to follow.

The only word to describe this is: Desperation.

Remember. πŸ‘‡ 2/
The small decline in the share of non-financial sector debt to GDP will explode in Q1 and Q2 2020.

And, the shadow banking sector has grown to a "beast". πŸ‘‡

Chinese economy is massively leveraged. 3/
Read 9 tweets
12 May
A thread, why the breakup of the #Eurozone is a near certainty.

The unfortunate fact is that the EZ has been an ill-conceived political project from the beginning.

And that's why it will fail. 1/21
@CNBCJulianna @iainmartin1 @GnSEconomics
The key questions, the EZ now faces, are:

1) Will the ECB be able to provide support for sovereign bond markets through QE?
2) Will national authorities accept the terms associated with possible bailout loans?
3) Will national political leaders continue to support the euro?
The decision of Germany's Constitutional Court (CC) basically crushed all hopes of debt monetization and 'helicopter drops' of money in the EZ.

But, it did do more than that. In its statement, the CC ruled that: 3/
Read 24 tweets
5 May
I think it would be a good time to remind everyone, where economic prosperity of nations arise.

So, a (long) thread to economic success, for nations.

I guess the easiest way to start this, is to describe what does NOT work.

First lesson is depicted here. πŸ‘‡ 1/21
What the experience of Japan, with her handling of the early 1990's financial crisis, taught us, is that you NEVER EVER enact a national bailout of banks and corporations.

It's the surest way to prolonged economic malaise.

Japan "fixed" this, with massive increase in debt. 2/
What we need to understand is that productivity growth is everything that matters, economically.

In simplified terms, it's a process that increases the productivity of a human worker thus increasing his wage and making products cheaper.

This is driven by technological... 3/
Read 21 tweets
26 Apr
So, would Sunday be a good day for another attempt to explain the fragility of the global #economy?

Thought so. πŸ˜‰

So, here goes. A thread explaining, why our economies are so fragile and what should be done.

A natural starting point is this. πŸ‘‡ 1/
I consider the above to be the most important figure of the 2010s, in addition to the global CB balance sheet.

What the figure implies is that the global productivity growth stagnated in 2012.

This is something that should not happen outside economic crises, so what gives? 2/
Long-term economic growth is driven by technical innovations, like the spinning-jenny, which improve the productivity, that is, the efficiency of production.

Effectively, they increase the productivity of a human worker, which increases his wage and makes products cheaper. 3/
Read 18 tweets
23 Apr
Many seem to be unwilling or unable to grasp the dire economic consequences of the #COVID19 pandemic.

In this thread I try, based on the evolution of our thinking, to explain, why we are heading to a deep and prolonged depression.

First, an intro and a reminder. πŸ‘‡1/17
The situation in the world #economy would not be so alarming without this. πŸ‘‡

We have lived in unprecedented economic expansion with stagnated productivity growth!

I cannot stress enough, how strange and troubling this is. 2/
We analyzed its implications thoroughly in the March 2019 issue of our Q-Review.

"Because zombie companies can fail at any time, ..., they create a huge risk for both private investors and the global asset markets." 3/
Read 17 tweets
6 Apr
This is something I've planned to do for a long time. There are wide-spread misconceptions on #centralbanks that need to be set straight.

So, a (long) thread on why Central bankers are not "superheroes".

Let's start with a cheerful poll. 😊 1/26
#Fed #ECB #economics
It seems that majority of my followers are both insightful and wise πŸ‘.

The results also lead to the conclusion, which I now try to elaborate a bit more. 2/
@Amdalleq @CNBCJulianna @KellyCNBC @DiMartinoBooth @KatriKulmuni @bondstrategist @BradHuston
First, few words on QE.

The purchases of assets in QE-programs are done through commercial banks.

Banks buy the securities from other banks, investors and households and the central bank credits the reserve balances to the accounts of banks to balance their balance sheet. 3/
Read 27 tweets
13 Mar
I want to re-iterate one point.

It's UTTERLY useless to fight the global economic crisis put in motion by the #CoronavirusOutbreak .

Here's why. Thread.

First, as we know, #COVID19 hits the supply-chains. No amount of fiscal stimulus will fix them.

And, #China leads. πŸ‘‡ 1/
As insightfully noted by Z. Pozsar and J. Sweeney, β€œsupply-chain is a payment-chain in reverse”. This is the part that governments can do something.

But, gov. support for households and students, will NOT fix payment issues of corporations caused by supply chain problems. 2/
Most importantly, no amount of money will cure fear and quarantines, which seriously dampen consumption.

This is NOT a short-term issue.

So, any fiscal stimulus enacted now, will just add to the burden of highly indebted governments WITHOUT fixing the underlying issues. 3/
Read 9 tweets
28 Feb
Many are calling for a rate cut on the #Fed, but there's very little central banks can do at this point.

A thread on, why #centralbanks will be unable to stop any repercussions from the #CoronavirusOutbreak .

We naturally start with the balance sheets. πŸ‘‡1/12
Which are just massive.

The very role of any easing (quantitative or normal) is to push interest rates down.

In addition, it was the purpose of QE -programs to also create a "wealth effect", by increasing the values of financial assets and making people feel "rich". 2/
We detailed the channels of effects of QE programs in the Q-Review 1/2018. πŸ‘‰gnseconomics.com/wp-content/upl…

Even today, the effects are not understood by all, but they depend heavily on the ability of the programs to push down (converge) the yields of bonds in different classes. πŸ‘‡ 2/
Read 13 tweets
20 Feb
This is a topic we raised in September 2017, but I haven't commented this for a while.

Thus, I think it's good time to remind all, why we have experienced so nascent recovery from the GFC.

A thread on why global growth has waned.

We, naturally, start with this. πŸ‘‡ 1/
Global productivity growth stagnated in 2012. This is something that should not happen outside major crises, as shown in the figure above.

So, what's going on?

We dealt with the topic extensively in the March 2019 issue of our Q-Review. πŸ‘‡2/
Already in June 2013, we warned that:

"It is possible that the banking sector and the world economy were saved by using too strong methods in 2008. As a consequence of this, it is also possible that the world economy is more like zombie economy, where... 3/
Read 17 tweets
19 Feb
It seems like a good time to remind everyone, why we are heading into an economic crisis.

A thread on the fragility of the global #economy.

There, naturally, is no other place to start than this.πŸ‘‡ 1/
@CNBCJulianna @KellyCNBC @SaraEisen @GeoffCutmore
Yet, everything begins from the GFC.

Like we noted in a blog published on the 10th anniversary of the failure of Lehman Brothers, very little has actually been fixed in the global financial system.πŸ‘‡ 2/
While the US banks are now bigger than before 2008 crisis, the biggest problems lay in Europe.

The European banks remained under-capitalized and filled with toxic assets, and the policies of the #ECB made everything worse. πŸ‘‡ 3/
Read 14 tweets
17 Feb
A lot of talk about the economic effects of the #COVID_19 . There are still those hoping for a quick (V-type) recovery.

In this thread, I'll try to be as detailed as a macroeconomist can be in explaining, why this is very unlikely.

But first, please remember this. πŸ‘‡ 1/
Second thing to note is:

"In this situation, it won't be feasible to adopt a proactive fiscal policy by expanding the fiscal expenditure scale."

By Finance Minister Liu Kun. 2/
The above statements should not be disregarded lightly.

Similar statements, given at the start of the Chinese deleveraging in early fall 2017, indicated that the deleveraging had truly started. πŸ‘‡ 3/
Read 12 tweets
12 Feb
There are some deep misconceptions about the ability of #China to recover from the economic fallout of #coronavirus relatively quickly.

In this thread, I explain why this is unlikely, and why it's not China we should be truly worried about.

Let's start with the facts. 1/
It has been obvious for a while that China's economic growth lays in unsustainable ground.

If we deduct the growth of debt on the growth of GDP, we get an estimate on the 'organic' growth rate for Chinese #economy.

Which has been negative since 2011 (till 2017). 2/
This, unsurprisingly, has led to another pressing problem. China's productivity growth turned negative in 2012.

This, quite simply, means that China has been accumulating vast amounts of unprofitable investments, at least since 2011. 3/
Read 12 tweets
16 Jan
I know it's difficult to grasp of what's about to hit with the #StockMarket constantly reaching all time highs, but so it did, e.g., in 1929.

Here are some of our latest works to explain, why 2020 is the year when we fall into the next crisis.
Thread 1/
In August, we detailed, why central banks have become a threat to the #economy .

"The exceptional measures of central banks were crucial in the acute phase of the crisis, but [...], they turned into a serious and dangerous drag on the global economy."
In September, we explained why the turn to massive monetary easing is unlikely to reinvigorate the real #economy.

"the [...] economic downturn did not start as a result of trade issues, but rather from the diminution of massive Chinese debt-stimulus." 3/
Read 12 tweets