Monday, Aug 24, 2009
Back to life, back to reality, back from a fantasy
BBC News: Recession in Britain 'at an end'
great news
Posted by smiling @ 11:05 AM (2607 views) Add Comment
32 Comments
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1. uncle tom said...
A survey of chartered accountants - probably the most blinkered profesion of them all..
2. bluebeach said...
The game's up fellow HPC's.... this guy is just too smart for us and mark my words.... will still be in power come June. He will run rings around the Blue classes. You just watch the surge in voters once the confidence returns in floods.... I have never voted Labour and never will, but fair play to the guy... You've beaten me...Now I will get back on the ladder soon before my cash pot turns to inflation induced dust...
3. Smiling said...
post2- you are dead right
the game's up!
4. wdbeast said...
bluebeach - there is a part of me that hopes you are right about Labour being re-elected, I hate Brown so much that I think he deserves to be in charge for the next five years of cr4p.
However, back in the real world, he stands no chance of winning (he may not even be PM at the election).
Stay strong, Lbour can only delay the inevitable house price correction until after the election.
5. Smiling said...
@1
HPC dude uses 'blinkered' to describe someone else -this is priceless. pot-kettle-black!
6. andrew said...
"IT was the most optimistic sector"
Well I can safely say that IT is the least optimistic sector, who actually writes these articles ?
7. flashman said...
I seriously hope the recession does end and that the banks are made safe. Once we have reached a state of relative stability, we can dispense with QE and other interventions.
Then we can get on with the HPC because a recovery will consist of higher taxes, higher interest rates, and drastic cuts in public sector employment and expenditure.
A recovery but not as we know it
8. bluebeach said...
I understand what you are saying Wdbeast, but every time it starts to take its normal course, he comes in with more and more moves to support the market... and what I am seeing on the ground, he is going to get away with it and build on his underhanded success..
9. refusetobuy said...
Full report here
And the spreadsheet for the geeks amongst us.
10. refusetobuy said...
Chart 44 and 100 points to few more planned job losses.
Finance (chart 10) and Property (chart 11) were, unsurprisingly, the best estimators of the credit crunch in Q3/4 2007
Everyone is seeing the green shoots now though.
11. will said...
So 'propoganda BBC' is telling us we may just possibly be out of the recession.
12. mountain goat said...
Flashman @5 do you think it is possible to come out of a recession and continue with a HPC?
IMO the HPC is the cause of this recession because it is destroying the solvency of banks and so many people with mortgages.
13. shining wit said...
Flashman @ 5 is right...
It is impossible for the madness to continue. Only fantasists believe that the resumption in HPI will start very soon. The banks have only just about saved themselves. They have no ability to lend at 2007 levels. The international money markets have contricted to such an extent that it will take 10 years for them to recover.
Mountain goat....
The HPC isn't the cause it is the symptom. The cause was easy credit and debt, this allowed ridiculous rises in property values which are (still) unsustainable.
Flashman's scenario of higher taxes, higher interest rates, and drastic cuts in public sector employment and expenditure are the obvious reasons why the pparty cant continue. The 'creative' accounting that the incument governemnt have resorted too will not carry anyone through another parliament! The game is up and the long protracted HPC is here.
Someone calculated recently that 65p in the £1 of some towns incomes is generated by government spending......Oh deary, deary me....... The fat lady hasn't even reached the stage yet!
14. flashman said...
mountaingoat: Yes I think it is. A technical recovery means that anaemic growth has fleetingly returned. It does not mean that lost GDP has been recovered, so this recovery will certainly not feel like one. As an aside, I think it’s bizarre that we need several months of contraction to call a recession bit only one month to call a recovery.
Every recession is different but in this case, the government’s priority has been to stabilise the banks. Stabilised banks do not technically constitute a recovery but in this case, it is fair to use stabilised banks as a proxy for 'recovery'
Once this 'recovery' has taken place, the banks will not jeopardise their newfound stability by encouraging liar loans and silly multiples of salary. Higher taxation, higher interest rates and stricter mortgage underwriting will therefore frame this ‘recovery’. In fact this stricter underwriting will be compounded by lower disposable incomes, so there’s only one way for house prices to go once we escape crisis mode
15. bluebeach said...
Oh Flashman @12.... You make me feel oh so much better about how things will turn out... may I have a signed picture please for my bedroom wall?
16. wdbeast said...
flashman@12 - all that you say seems eminently sensible, but wont the “post banking stability” economics serve to put us back into recession?
17. flashman said...
wdbeast: not necessarily, because we have just enough residual economic activity to sustain the economy at 95% of its original size. Even if we end up shrinking a few more points, our freshly re-capitalised banks have theoretically been designed to take it, so there’ll be no need to revert to QE et all. At some point they'll have to think about inflation (imagine commodity prices if the world economy kicks up a gear) so QE will be permanently off the table
18. stillthinking said...
it won't be a recovery it will be more like getting the wonky cr*p wall you spent years pottering about on being kicked down and told to start again and do it seriously. it will be like a famous cranky chef p*ssing in your soup before tipping it over your head and kicking you off to the vegetable peeling corner.
why on earth do the media keep going on and on and on about IT being some kind of boom sector ! I talk to IT recruitment agencies sometimes, they don't have enough jobs and when the next government wields the axe an obvious target is IT waste of time projects.
19. uncle tom said...
When GDP dips, it usually does so because of a degree of caution borne of uncertainty, of hunkering down - orders are deferred, non-essential spending put on hold, commercial inventories reduced.
Even without an underlying improvement, this tends to be followed by a rebound; as the deferred orders are placed, usually because they can't be deferred any longer, and inventories cannot be further reduced.
So it would not be surprising if after five quarters of contraction, we now get a positive GDP figure.
But this does mean that we are on the road to recovery
The underlying economic problems demand a far greater GDP contraction than has been seen, (in all, around 20% is needed) so it is to be expected that after this rebound, we will return to negative GDP, as the economy settles into a pattern of steady contraction.
20. uncle tom said...
Whoops..
Should have said:
But this does NOT mean that we are on the road to recovery
21. flashman said...
uncle tom: The updated version of Okun's law says that for every 1% of economic growth/contraction there is a 0.5% change in employment (the original was a 1:3 ratio but a certain Mr Bernanke changed it).
Your 20% economic contraction would therefore equate to an eventual unemployment total of about 4.6 million. I'm not passing any sort of judgement on it … but I though it would be fun to apply some macroeconomic theory to your 20% number.
22. uncle tom said...
Flashman,
My computation was an estimate of the extent to which debt and trade imbalance has unsustainably propelled UK GDP.
I don't really buy the argument that GDP and unemployment are relative to the extent that one may be used to predict the other, especially since the definition of unemployment has been so comprehensively fudged over the years.
Real GDP growth - the extent to which we are able to achieve more per hour than previously - has been slowing and is very small now, probably well below 1% p.a.
23. flashman said...
uncle tom: OK, so what is the data you used for your computation? You wont find an economist or analyst in the land, who agrees with your estimate, so I am genuinely interested in your method. Or is it just a gut feeling?
Okun's law is a dammed good rule of thumb and it (and its' revisions) have proved to be reliable over the last three or four decades. You might not buy it but it is one of the most accurate and trusted tools used by the fed and treasury depts worldwide.
24. mrflibble said...
I'll believe it when the currency pulls up, but since the fundamentals are diabolic then that is not likely to happen anytime soon.
Besides isn't this the 16th time the recession has ended?
25. This comment has been removed as it was found to be in breach of our Blog Policies.
26. house said...
For what it is worth, is this not a case of yes, the recession as so defined may be coming to an end but many people out there think that things are going to be the way it was before the crash and expecting the prices of property to start rising. Number of times I have heard on the BBC things will get back to normal without defining what normal is. The decade long in the credit boom has made people feel that they should be allowed to spend as they like on credit without considering how I am going to pay back the deb was not normal but irresponsible. Now IMO people will have learn to save before spending as borrowing is going to be difficult but not impossible.
Also I heard yesterday from somebody that they went to their bank and asked for a top on their mortgage and was told that as long as the borrowing is less £50000, then the rate charged will 0.75% over base rate and the arrangement fee would be £250, and the best part of it he is going use to buy a BTL property. The money from bank will act as a deposit and the balance from another BTL lender. Can anybody let me know whether they have come across this, if so surely this business model cannot work in the long run.
Any comments.
27. house said...
Oh! yes Flashman your comments are very re-assuring. Please carry on the good work.
28. uncle tom said...
Flashman,
It's not gut feeling or anything very magical that other economists can't figure for themselves.
I simply calculated how much of UK GDP was a product of unsustainable factors in the economy (above inflation debt growth and trade imbalances)
I tried approaching the calculation in various ways, as GDP calculation is something of a dark art; and from some angles it looked a lot worse than 20%. What is clear is that excess (unsustainable) cash entering the economy has been a very potent stimulus, and that when removed, the 'cold turkey' element could feed on itself in a vicious contractive spiral.
However, I settled for -20% as the likely outcome, making the assumption that government would do its best to head off economic meltdown.
However, attempts by government to maintain a GDP level that is unsustainable could easily result in a currency crisis and runaway inflation. That in turn could render the government impotent, and unable to prevent an acute depression.
29. James said...
Even if GDP grows, it doesn't mean that there won't be any more job losses. Big public sector cuts to come.
30. Dunkindogdo said...
In response to Bluebeach@2,
Crash Gordon is not nearly smart enough to defy the current crisis i.e. more debt to solve the existing debt is a temporary, unsustainable crutch, and is most probably only delaying, as well as worsening, the inevitable correction.
It is not "different this time", and we are no smarter now, than we were in every other previous financial crisis in history.
Also, ignore the recent stock market rally, it's a bear rally, no doubt about it.
If we look at history, it took 3.5 years for the S&P to finally hit rock bottom after the initial 1929 stock market crash.
The fall was not linear, and happened in several stages (imagine the profile of the corresponding graph, as a descending, but jaggedy flight of stairs), with crashes, followed by not insignificant bear rallies (a 50% gain from the trough), followed by further crashes (taking the index to new lows), and so on, falling further with each crash, for what must have been a truely bewildering 3.5 years.
I'm sure if you could find some archive news from the 1930s, the newspapers and politicians were probably espousing the exact same hopelessly specious rhetoric, with regard to the economic situation, as we are now (It is only the distance of time that allows us to impartially evaluate that particular period in history).
I'm pretty sure that the exact same sequence of events is playing out at the moment, and we're about to start on the next iteration of this sequence.
31. wiltshire said...
"Gentleman, you have come sixty days too late. The depression is over."
Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930.
Not entirely related and it's well known but I'll add it here anyway, it was a full 25 YEARS before the US Stock Market returned to the level it had reached prior to the 1929 crash.
The bottom line for me is that Gordon Brown is NOT smart enough to re-write economic history, especially when all he's actually done is allow the biggest credit bubble in history to occur.
32. uncle tom said...
"The bottom line for me is that Gordon Brown is NOT smart enough to re-write economic history"
100% agree. The guy is an arrogant tw*t