1. paul said...

But he's still carping on about reigniting the lending boom when the spark to that one is dead, and the fuel well and truly sodden.

Again, his use of statistics and accompanying reasoning is questionable too:

"the world’s fourth-largest reserve currency isn’t finished"
Since when was the GBP ever a reserve currency?!

"Friday’s figures showed a 1.5% drop in GDP in the fourth quarter."
That's good old fashioned statistical misdirection. The 1.5% drop in GDP was for the fourth quarter alone. That's a 6% annulaized drop!

"When risk aversion rises in markets, sterling gets clobbered."
But he implies that this is irrational, but offers no reason why.

"These things pass. The pound was once a petrocurrency."
A meaningless comment, followed by an irrelevant comment.

But something odd is happening. Recessions are grim but you expect compensations such as quiet roads, empty trains and helpful shop assistants.
What? And what is the reasoning here? No, didn't think there was any.

"This may be a London thing, but to me roads are busier and on train and Tube journeys I get closer to fellow passengers than is comfortable."
Almost as parochial and navel-gazing as the skip index.

As for shops, maybe the retail trade is too miserable, though it is common to find that, when you are ready to buy, the item is not in stock.
That's called stock run down, using a little known discipline called demand-led stock management.

I seriously don't know why this stuff is taken seriously by his sub-editor any more.

3. Mike said...

i agree paul, it is a load of rubbish

5. japanese uncle said...

I seem to start feeling some pity.

7. stillthinking said...

Well, I thought the bit about a lot of the busted banks being foreign quite comforting. Probably we don't have to pay for them.

9. bellwether said...

Apologies for repeating this comment but it just occured to me today and it is not something we see talked about so much.

In the 7 years to 2008, £275billion was withdrawn as debt and secured against residential propery - so called equity released (as if equity even exists until it is realised free of debt) . Without this stimulus the UK would have been in recession since 2001 ie the average of apx 2.6% growth per annum would have been negative.

This recession will blow that froth away (ie apx 17% contraction straight away) but it will be much worse than that as there is a negative feedback loop now in operation and with a global recession in effect we cannot even rely on a weakening currency for exports

Forget about houses dropping by say 30% or more over the next few years that could be the figure for GDP - which would infer up to 10 million unemployed

11. little professor said...

Cheeky of David Smith to criticize Jim Rogers for getting previous predictions wrong. Let's take a look back at some of David Smith's greatest hits:

December 2007: Cheer up, things aren’t that bad

Dresdner Kleinwort thinks that with the latest data there is now a 50:50 chance of a recession next year. That has not happened for 16 years.

Perhaps, however, it is time to take a more optimistic view, this being the season to be cheerful. Gordon Brown and Alistair Darling are as confident in private as they are in public that Britain’s economy is strong enough to pull through this. Britain’s long run of growth, stretching back to April-June of 1992, represents a lot of momentum. Annual growth in the third quarter of 2007 was a buoyant 3.3%, and more if you believe the Bank of England, which thinks the official figures understate it. The brakes may now be on, particularly because of the credit crisis, but this is an economy that will take a bit of stopping.

Related to this, the labour market remains very healthy. Jobs growth will soften soon but will do so from a very strong position.

Another big positive, for me, was last week’s minutes from the MPC and the news of a 9-0 vote to cut Bank rate earlier this month.

I am not pretending everything is rosy. The “twin deficits” – budget and current account – need fixing. Though I shall hazard a guess in two weeks’ time, nobody can tell exactly how the credit crisis will pan out, how long it will last, and how permanent will be the change in lending behaviour.

But too many people use the excuse of the credit crisis to throw the baby out with the bathwater. If you believe there is nothing else to the economic success of the past 15 years than rising debt and a big increase in house prices, fine, but it is hard to substantiate that with serious analysis.

If you believe that a big, 10%-15% fall in house prices (which I don’t expect) would take us back to the negative equity of the early 1990s, and leave banks with dodgy mortgage books, fine, but it is not true.

Loan-to-value ratios have been kept under control, so mortgage books are insulated from quite a big fall in prices.

It is possible, indeed, that the impact of the credit crisis will be beneficial, removing some of the froth and encouraging more responsible behaviour in future.

Until the credit crisis broke, Britain’s quarterly growth rate was 0.8%. Assuming quarterly growth half that rate this year, the arithmetic implies annual growth of 2% [actual 0.7%, with a massive 1.5% contraction in the final quarter]

Unemployment may drift higher but not much, say to 875,000 against 813,000 now. [actual: 1.92million]

I think oil will end 2008 lower than it started, possibly substantially so. [fair enough]

sterling is only a little below its average, measured against a basket of currencies, of the past 11 years. It remains well within that generally stable range, 91 to 107 on the Bank’s index. I would be surprised to see a large-scale sterling sell-off and expect its average value, currently just below 97, to stay within the range of recent years. [actual: 73.9]

For house prices, most likely is a gradual thaw as we move into the spring, helped by lower interest rates. My prediction for house prices remains one of stagnation – broadly flat. [actual: down 16%]

13. bystander said...

UK dependence on financial sector 30%+ of GDP VS German dependence on Financial services 7% of GDP. Oh yes Germany is so like the UK.

15. Crunchy said...

Smith, one of the the many payed shills, in my opinion.

17. guiriduro said...

stillthinking - its true that GDP was mostly debt. All that falling GDP represents is less new debt, says nothing about servicing existing debt however. Actually the ratio of GDP representing "added value" as against the part which was fluffed up by debt is more significant, and that will certainly be the only positive change to note, but only as the start of a long journey back to prosperity. At best it will show that we are no longer digging a hole for ourselves, which is a good and necessary step. But the cavity is already huge, and has caused a deep recession which stops businesses being able to add value, the very thing that will enable us to pay down existing debt and get back to reasonable growth again. It is not a good situation to be in.

19. bellwether said...

ST I wouldn't say that GDP = debt but that debt allowed activity that created growth but that debt at those levels cannot continue for a myriad of reasons unless we want to go down a hyperinflationary rotue which of course solves nothing

I change my view on this alot but feel that the UK can only have the sort of productive inflation that would shrink debt if creditors would allow it and, well, creditors won't becuase UK it is not big or important enough - the outcome for the US in pursuing such a policy is more complex

Incidentally i only say productive inflation as compared to a deflationary spiral like say 1931/32 in the US, I don't see it as being any sort of answer to the structural problems that beset the world economy.

The fear in the market once it suspected financials were bust was incredible, I think we are not only bust but have noway of recovering, except by a long and painful route and even then we are destined to be a smaller poorer and less significant country in world terms.