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BalancedBear

Lots Of Positive News, But What Is Going To Drive Things In The Medium Term?

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In the last few weeks there has been lots of poisitive news, and it is all being used to show that the recession is about to end and growth will return. However very few people telling this news ever seem to be able to explain what is going to drive the recovery? At this point in time I just see those people who have not been affected too much by the recession getting bored of it and spending some of their money, after holding off a few months. However once these people have made their few delayed purchases, there is nothing in place to create lots of new jobs, or reduce the taxation burden. The current low interest rates will again have to increase at sometime. The finacial services sector is still on life support. Property is still over-priced meaning it is not affordable. Wages are still deflating. The government has tax increases planned. Once the summer is over the bull trap will come to an end, unless the mechanics of the recovery can be explained, and shown to work.

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In the last few weeks there has been lots of poisitive news, and it is all being used to show that the recession is about to end and growth will return. However very few people telling this news ever seem to be able to explain what is going to drive the recovery? At this point in time I just see those people who have not been affected too much by the recession getting bored of it and spending some of their money, after holding off a few months. However once these people have made their few delayed purchases, there is nothing in place to create lots of new jobs, or reduce the taxation burden. The current low interest rates will again have to increase at sometime. The finacial services sector is still on life support. Property is still over-priced meaning it is not affordable. Wages are still deflating. The government has tax increases planned. Once the summer is over the bull trap will come to an end, unless the mechanics of the recovery can be explained, and shown to work.

Don't forget that this recovery has been fuelled by the UK monitizing it's own debt.

Most people wouldn't really call that a path to success. Look at the Uk's industrial output versus consumer debt ratio.

Remember that big fact and you will see where we are going.

090408e.JPG206.gif

I think that once you look at the scary charts, you may have a bit more level headed thinking. There are a lot of raving lunatics on here with agendas beyond spreading information.

EDIT: Let me reiterate that these charts are showing no signs of a positive economy. If manufacturing was up, you would expect there to be some surplus money. If consumer debt was down, you would expect there to be some surplus money. Where is this money that is supporting this spring bounce coming from?

Edited by cashinmattress

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Guest vicmac64

ah ha - the awakening begins - people are waking up to the fact that the markets are about to run out of steam BIG TIME

In the last few weeks there has been lots of poisitive news, and it is all being used to show that the recession is about to end and growth will return. However very few people telling this news ever seem to be able to explain what is going to drive the recovery? At this point in time I just see those people who have not been affected too much by the recession getting bored of it and spending some of their money, after holding off a few months. However once these people have made their few delayed purchases, there is nothing in place to create lots of new jobs, or reduce the taxation burden. The current low interest rates will again have to increase at sometime. The finacial services sector is still on life support. Property is still over-priced meaning it is not affordable. Wages are still deflating. The government has tax increases planned. Once the summer is over the bull trap will come to an end, unless the mechanics of the recovery can be explained, and shown to work.

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Don't forget that this recovery has been fuelled by the UK monitizing it's own debt.

Most people wouldn't really call that a path to success. Look at the Uk's industrial output versus consumer debt ratio.

Remember that big fact and you will see where we are going.

090408e.JPG206.gif

I think that once you look at the scary charts, you may have a bit more level headed thinking. There are a lot of raving lunatics on here with agendas beyond spreading information.

EDIT: Let me reiterate that these charts are showing no signs of a positive economy. If manufacturing was up, you would expect there to be some surplus money. If consumer debt was down, you would expect there to be some surplus money. Where is this money that is supporting this spring bounce coming from?

You make some good points. What happens to the current debt burden when QE has to be unwound? It will probably fail to be unwound. What will all the people who have now gone for BOE +2.X tracker mortgages do if rates go back to even 3 or 4%?

I can only see long term pain for the economy once all the government fixes wear off.

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ah ha - the awakening begins - people are waking up to the fact that the markets are about to run out of steam BIG TIME

I also see none of the resident bulls on this forum have made any contributions on this thread either, so I guess they too have no ideas on how a recovery will actually occur!

Edited by BalancedBear

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From the Spectator Coffee House blog:

Public spending is currently accelerating at an unprecedented pace — more swiftly, even, that during the total loss of control during the 1970s. Spending is due to rise £120bn, 20%, in just three years from 2007/8 to 2010/11, taking it from 41% of GDP to above 50% — a much more rapid rise than in other parts of the world, lifting us from well below the EU average to well above. The considerable majority of this rise is not the automatic result of the recession (extra unemployment benefits, etc.) – only 38% takes this form. Neither is it any kind of “public works†programme – only 6% is extra capital spending. Instead, the vast majority is extra consumption spending. Many economists might support increasing spending during a recession. Few would support increasing spending for this.
So, raising spending by 10% of GDP would be expected to reduce the growth rate of the economy by 1.2-1.3% - halving it from its previous level of around 2.6% per year down to more like 1.3%. At this much slower growth rate, tax revenues would grow much more slowly and the government would struggle to repay the debts it is currently accumulating.

Our grandchildren will still be paying for this megalomaniac madness.

Read the whole thing, as they say.

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There won't be any sort of recovery back to 2006/2007 levels; there was a demand bubble in that period which will not return for a generation, and what we are seeing now is a revertion to normality, by way of a sharp overshoot in demand drops, to be exacerbated by the planned (and necessary) tax rises and the "unplanned" (well, plans not disclosed yet) angle grinder to be taken to the edifice of the public sector. This will be followed by a slower return to normal levels of demand as old capital equipment whose replacement cycle has been extended becomes unusable and is replaced.

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It does seem that UK PLC is a broke model, and the relative success we saw between 1997 and 2007 was all pretty much built on a lie and unsustainable house prices and borrowing. I struggle to see how in the long term things will improve, surely the emerging markets mean it's only going to get worse.

If the UK was a company surely it would have folded by now. No real way of making money and huge, ever increasing, debts. Except a company can't start printing it's own money.

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Don't forget that this recovery has been fuelled by the UK monitizing it's own debt.

Most people wouldn't really call that a path to success. Look at the Uk's industrial output versus consumer debt ratio.

Remember that big fact and you will see where we are going.

Nice graphs there. I'm surprised by the one on the right.

I had no idea the extent of financial intervention. Teach me to believe people here with Vested Interests.

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How long will other nations want to sell us goods in exchange for money which is not being earned, but merely printed?

Who cares? We'll just print some more!!

Anyway, we should be due some leeway. After all, Gordon did save the world

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Who cares? We'll just print some more!!

Anyway, we should be due some leeway. After all, Gordon did save the world

Well what will we do if we get to a stage where nobody wants pounds at all, no matter how many we give them? If it worked, poor African countries could lift themselves out of poverty by printing loads of money?

Edited by BalancedBear

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How long will other nations want to sell us goods in exchange for money which is not being earned, but merely printed?

As opposed to the money we've paid them since the start of the 18th century?

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I also see none of the resident bulls on this forum have made any contributions on this thread either, so I guess they too have no ideas on how a recovery will actually occur!

I tried to push some of the bulls on where long term funding was coming from to support a return to peak prices.

All I really got was "it will be fine because RMBS will pick up again and in the mean time the BoE will just keep printing to cover the cracks"

It was a shame that I couldn't get any more depth from them.. if there is really good evidence to suggest funding is going to return to the way it was in 2007 then it would be good to see it presented.

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