Wednesday, Aug 26, 2009
The silly season draws to an end
The Telegraph: Britain is sleepwalking towards a decade of economic misery
The recession is over. The stock market is powering ahead, business confidence is rising and – joy of joys – house prices are looking up. Sit back, relax and bask in the late summer sunshine. The UK is about to enjoy a spectacular V-shaped recovery.
Worried about your debts? Fear not, we'll have ultra-low interest rates for years to come. The world's leading central bankers just said so. No need to save, then – we Brits can borrow and spend our way out of trouble. Again.
I'm not, by nature, pessimistic. I'd really like to say the economy is out of the woods. If I could see signs of genuine growth, I'd shout about them from the rooftops. But I can't honestly say I do. Instead, I see lots of stockbrokers, estate agents and other vested interests talking up "imminent recovery" ...
21 Comments
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1. titaniccaptain said...
Good find Devo.........
2. Waitingtobuy said...
Thanks Devo----- restored my confidence in HPC!
3. quiet guy said...
Yes, good find Devo but how much is there in the article that hasn't already been said on HPC? I'm not criticizing you but I have to say that similar logical arguments posted on the blog over the years have proved to be at premature, at best. Logically, it seems that we should have a crash but the same could have been said a few years ago. Somehow Bernanke and his ilk keep the plates spinning ...
Just my contrarian $0.02.
4. growler said...
I see it the same. I think the stock market rally is the product of institutional investors looking to make money they've received via QE that they are dead scared to lend to people and the real economy. I know that link is tenuous - but so dire are the finances at many a financial institution, than the equity market is about the only place that offers returns. IR rates are almost zero, loans to people and property are risky, commercial loans are not much better... if your traders are telling you (and delivering) good returns in the equities market, you're goign to exploit it.
Where will it end? Back in the real economy. Companies are there to deliver goods and services to people. If they are not buying, no amount of hype cam cover this for ever.
5. mrflibble said...
A recovery can only come after a crash, but since Brown has burnt up all of our money trying to prevent it we are now screwed.
If the gilt auctions start to fail and we print more and more money to cover this up the currency will ultimately collapse.
Brown's plan to spend our way out of recession hasn't worked, it was never going to, it's like trying to put out a fire by throwing petrol over it.
A lost decade for Britain is now looking like our best case scenario. If the currency goes bang then interest rates will hit double digits to support the currency and the housing market will be toast. Although I'd like to see the housing market crash this isn't the route we want to take.
6. uncle tom said...
We have a phoney war at the moment; the BoE is creating vast amounts of money, yet nothing bad has happened. Yet..
Despite the debasement of Sterling, it is not depreciating on the exchanges because the currencies against which it is compared also have problems, or have a tendency to track the major currencies, for good or ill..
The proper way to judge the value of a currency is to establish it's value against a broad basket of commodities and common products at current prices, each weighted to take account of annual global consumption.
Whilst there are a whole raft of commodity indexes published, none gets any serious media attention, and I've never found the time to study their construction...
7. alan said...
I tend to agree with Mr Flibble.
A good point from the article was...
"That's despite the fact that CPI grossly understates inflation anyway. And had VAT not been cut last December, even the CPI would still be above 3 per cent – with the Bank writing public letters explaining why it's so high".
Personally, I see other tax revenues remaining low. Perhaps the taxes on those juicy bonuses, stamp duties and high interest rates will return when Britain "recovers". Not for a while yet, I suspect.
8. japanese uncle said...
"I think the stock market rally is the product of institutional investors looking to make money they've received via QE that they are dead scared to lend to people and the real economy. " says it all.
Again Telegraph seems to be the only newspaper that can present candidly fair analysis of where the economy is really going. Look at those rubbish in the Guardian and the Times apparently intended to lure the less informed/educated or suckers more precisely, into the stock/housing speculation game that is doomed for all but those who stage it.
9. crash n burn said...
I missed out last time with buying an inverted ftse tracker. I don't want to make the same mistake again. Will look to accrue slowly.
10. uncle tom said...
Now here's a question:
Do VAT changes cause sudden changes to the CPI index - or are they factored out?
The inflation indices took a dive when VAT was reduced, and this article assumes that to be the cause; but I can't recall anyone at the time discussing the VAT change in terms of its inflation impact.
Was it the VAT change - or coincidence?
11. nomad said...
In the comments after the article, at 0752 John Leavers wrote:
If we are printing more money then surely we are racking up LESS debt than we would otherwise do,all the gilts bought can simply be cancelled,no need to pay the coupon on them either,its mildly inflationary at about 14% of GDP given the strong deflationary forces in play.
To me, this looks like a good counter argument. Is it as simple as it sounds? Or am I, again, exposing my own limited understanding?
12. crunchy said...
3. growler , Spot on!
Tenuous? LOL. Negative growth? yes, but only for the majority.
13. mark wadsworth said...
Heh heh! Good find.
@ Nomad, "money" and "debt" are the same thing. When a government prints money it is the same as borrowing money. There are of course subtle marginal differences in the short term impact on inflation and money supply but it all comes to the same thing in the end.
You could, for example, "print" your own money by paying all your creditors with IOUs, saying "Nomad promises to pay the bearer £x on such-and-such a date". Have your debts gone away as a result? Nope.
14. happy mondays said...
Not silly season, stupid humans ! watch http://www.youtube.com/watch?v=KZeiSKnhOBc
15. monty032 said...
One telling comment from Liam Halligan: "That's our dirty secret: without the prop of QE, we'd already have seen repeated gilt auction failures, with the UK unable to roll over its debts." What's the betting that the gilt buyback scheme will continue until shortly before next June's general election, thus avoiding any embarrassment for Labour. After all, four of the nine members of the MPC are the Chancellor's direct representatives, and the rest are all appointed directly or indirectly by the government too. It takes all these five to vote together to vote down the Chancellor's wishes.
16. will said...
If we are in a recovery, then why are interest rates at nearly zero? During previous recoveries the bank has started to increase rates at the first sign of green shoots.
Stock markets are about to fall off a cliff together with house prices.
17. nomad said...
@12. Thanks Mark W, So the original debt remains.
18. 51ck-6-51x said...
will said, "If we are in a recovery, then why are interest rates at nearly zero"
- Good question ;p
They answer: Because this time it's different
Heh, no it's not!
It's the same as ever, the business cycle clicked past that ultimate tooth as it always does ( self-organised criticality is unavoidable ), just this time the debt burden was higher due to the circumstances that existed ( due to distortions of various markets ) for the past decades ( throughout recessions too! ), now the recovery must be as powerful as possible, so keep rates low and pump up the money supply, that way debts are inflated away.
The ultimate problem with the central banking monopoly and state backed money is that the only competition is that between sovereign states, which implies that the current situation ( when there is global recession and a large inter-sovereign savings imbalance ) encourages one of two outcomes: herding of said states in respect of economic policy; or war. The probable outcome of the former is, at some point, an uprising. The solution in my opinion is to free up the market of monetary issuance and to separate it from state backing ( i.e. constructive rather than destructive competition ).
19. growler said...
@11: thanks Crunchy
I work in mass-market manufacturing and when the bullsh@@ isn't being met with the brawn in the factories - you know there is going to be trouble ahead.
I simply do not see any evidence of substance. Just hot air.
I expect to see huge amounts of "outsourcing" decisions going backwards as underworked executives discover that contractors aren't needed and payroll staff have capacity and can do the work instead. At first sight, the outcome is subcontractors out of work as corporations stuggle to validate headcount based on savings from not renewing contracts. In reality: the company is too big for the demand.
To take a popular analogy and apply it: It isn't a question of seeing the world as a glass half full or half empty - of bulls and bears or whatever.
The froth has died down, and there is simply too much glass for the amount of water. This reality is yet to hit us - but will.
20. who stole my pension? said...
why only 10 years? Japan is now nearly 20 years.
21. crunchy said...
18. growler
The decade of the agency worker is truely upon us, In years gone by there was another term for this.
A symptom of the bail out fits and starts of a misfiring dysfunctional propped up economy.
All the best.