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Our Hopes Of Recovery Are Shrinking Fast

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http://business.timesonline.co.uk/tol/busi...icle6813006.ece

Those seeking explanations on why the UK economy shrank by 0.8 per cent between April and June — a figure that scarcely seemed credible when first published — now have an answer.

Apart from a one-off blip four years ago due to a statistical quirk, investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985, the year Sir Clive Sinclair unveiled his C5 battery-powered three-wheeler.

That invention, though, looks positively dynamic next to these figures. On a year-on-year basis, the data has never been so bad.

Admittedly, business investment figures are not regarded as top-rank data and are frequently revised, but nonetheless they were enough to send sterling to its lowest level against the euro and the dollar for more than two months. They may also be the reason why, later today, the second-quarter GDP figures could even be revised lower.

Normally sober economists, such as Michael Saunders of Citi, reached for the history books as they pointed out that, in terms of total investment, the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.

Judging from these numbers, businesses are simply not spending enough to haul the UK out of recession. Nor, as the figures in the CBI’s distributive trades survey, published yesterday, suggest, can consumers be relied upon to achieve this.

Apart from the immediate, shocking impact on current economic growth, a fall in business investment on this scale is likely to have a longer-lasting effect. It means, for instance, that the UK’s capital stock has been reduced to the extent that even when the recovery finally arrives, it will not be in any way sustainable — paving the way for the dreaded “double dipâ€. Another consequence is that productivity in the coming years is likely to be much worse than expected, pointing to lower economic growth in the medium term — something that will be especially unhelpful to future Chancellors as they seek to repair the nation’s battered balance sheet.

Interestingly, in another set of figures published yesterday, there was a further clue as to why UK economic growth is being curtailed. The Office for National Statistics revealed that net migration to the UK fell, during the first half of the year, at its fastest rate since the likes of Poland and Hungary were admitted to the EU five years ago.

As business cut back on investment, Eastern European workers living in Britain were among the first to feel the pinch.

On this evidence, it may be some time before they return.

Written before the GDP figures were released and the massive 0.1% improvement, but a very bearish article highlighting the structural problems in the economy.

Viva jobless recovery

Viva negative recovery

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http://www.telegraph.co.uk/finance/economi...le-at-risk.html

Everyone wants economic growth, but in the UK and the US the desire is closer to a necessity.

Both countries’ extraordinary government deficits are gambles on a quick return to fast growth – and are unaffordable for long without it. The US has a better chance of surviving its bet.

Recovery UK? The Bank of England seems intent on demonstrating its lack of confidence. Not only did it decide this month to print a further £50bn, betraying its lack of faith, but three members of the Monetary Policy Committee – including Mervyn King, the central bank’s governor – wanted even more.

Fiscally, meanwhile, the omens are ominous. Corporate revenues normally guarantee a substantial surplus in July, but corporations are struggling. The tax take last month was 15pc lower than in the previous year and the government ran a £8bn deficit. For the first four months of the fiscal year, the tax revenue drop from last year has been close to 12pc, well above the government’s forecasted 7.5pc.

If UK growth remains weak, a fiscal deficit predicted to be a colossal £175bn could balloon to £200bn or more, with no prospect of a swift improvement in the next tax year – unless there are swingeing cutbacks. As UK public debt spirals, who is going to buy it? At present the BoE is – in enormous quantities. But it cannot keep increasing its own quantitative-easing gamble. If investors lose confidence in the UK’s finances, yields on UK government debt could rise, despite the BoE’s efforts.

How is it that the US may get away with its gamble while the UK fails? The difference is not so much one of policy as of timing. The US’s housing bubble burst before the UK’s, and the correction looks close to complete. The UK is a year or two behind the US. Notwithstanding recent increases, UK house prices are likely to fall further, and UK consumers are set to cut back further. They won’t rescue the fiscal accounts anytime soon, leaving the UK at risk of a financing panic.

That’s the trouble with gambling – a bit of bad luck means you lose. Prudent governments would do better to avoid it.

The happy clappy pills haven't reached everyone it seems.

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luckily, government spending and reduced imports are helping the figures give a smile to the labour candidates.

all we nned is the banks to hand over some QE to foreigners and those "invisible" earnings will kick in nicely.

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a lot of the business chatter with regards to the stock market is that insiders are not buying stocks.

no directors buying, no corporates buying, for all the talk about businesses doing well, the businesses themselves are not investing in this bounce.

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a lot of the business chatter with regards to the stock market is that insiders are not buying stocks.

no directors buying, no corporates buying, for all the talk about businesses doing well, the businesses themselves are not investing in this bounce.

The insiders started getting out about 3 months ago and it was widely reported on CNBC etc at the time. The volumes are so low that current levels are meaningless.

Watch what happens in the next few weeks as they come back from holiday. ;)

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but but but it was 0.1% less shrinkage than expected !

green shoots, recovereh, worst behind us, bottomed out, restarting growth, unemployment slowing, signs of an upturn, property prices turning up, gazumping returning, buyers fighting like mad dogs at high noon, husbands offering their wives as sex slaves so as to be chosen as the lucky buyers of a 2 bed terrace in park royal, mortgagors sleeping with independent financial advisors to hurry along their applications, estate agents insisting buyer applicants become their bitch before even granting a viewing...

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Viva jobless recovery

Viva negative recovery

Agree with you that things are set to go from bad to worse, but unemployment is a lagging indicator - people don't hire ahead of a recovery they hire once the recovery is in full swing.

So don't expect a recovery now, but DO expect a recovery long before unemployment falls.

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Agree with you that things are set to go from bad to worse, but unemployment is a lagging indicator - people don't hire ahead of a recovery they hire once the recovery is in full swing.

So don't expect a recovery now, but DO expect a recovery long before unemployment falls.

No. Unemployment is only a lagging indicator during manufacturing inventory recessions (i.e. overproduction leads to layoffs that are re-hired after inventory clearance)

In credit-driven recessions, unemployment is a coincident indicator i.e.

no job > no credit > no consumption > no retail sales > no production > no job

etc.

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The insiders started getting out about 3 months ago and it was widely reported on CNBC etc at the time. The volumes are so low that current levels are meaningless.

Watch what happens in the next few weeks as they come back from holiday. ;)

im pretty much of the same thinking... which is why i have short positions running on the dow and the ftse ;)

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No. Unemployment is only a lagging indicator during manufacturing inventory recessions (i.e. overproduction leads to layoffs that are re-hired after inventory clearance)

In credit-driven recessions, unemployment is a coincident indicator i.e.

no job > no credit > no consumption > no retail sales > no production > no job

etc.

It's even worse than a credit-driven recession; it is a balance sheet recession coincident with a banking crisis (which is clearly ongoing). Of course, we will be back to positive growth after a massive 2 quarters of negative growth.

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It's even worse than a credit-driven recession; it is a balance sheet recession coincident with a banking crisis (which is clearly ongoing). Of course, we will be back to positive growth after a massive 2 quarters of negative growth.

...caused by the imbalances built up in the early 00's being compounded by the sacrifice of our economies by the CBs to keep the music playing in '05

god only knows what the fall-out from our current "life support" will be :ph34r:

rotten to the core... futile oops sorry I mean fertile ground for the recovereh green shoots to grow!

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This cannot be right, it's just scaremongering.

That nice Mr Brown said, 'No more boom and bust' and I distinctly remembering him saying that 'The underlying fundamentals are sound.' and that Britain was 'Uniquely placed to weather the economic storm.'

So there.

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Holy cannelloni.

I'm off for a drink.

Back from a drink (or many.)

Off for some more,

What's the point of having been right if the outcome is outrageously bad?

Wibble.

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http://www.telegraph.co.uk/finance/economi...r-position.html

A breakdown showed that the second quarter would have been worse without a 0.8pc rise in Government spending, and a positive contribution from net trade as imports fell more sharply than exports

The data suggested that the "cash for bangers" schemes both in the UK and Europe were helping to drive sales of British made cars after a difficult period for the company.

So without the government stimulus the figures for the second quarter would have been a lot worse? What is even more telling is that despite government stimulus the drop was considerable. Once the (borrowed) money runs dry and the stimulus runs out the figures will get very interesting.

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history rhymes

http://lynncoins.com/fiat-money-france.htm

I have now presented this history in its chronological order—the order of events: let me, in conclusion, sum it up, briefly, in its logical order,--the order of cause and effect.

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; “self-regulating†schemes, “interconverting†schemes—all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “_law of accelerating issue and depreciation._†It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France-a prostration from which only a Napoleon could raise it.

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No. Unemployment is only a lagging indicator during manufacturing inventory recessions (i.e. overproduction leads to layoffs that are re-hired after inventory clearance)

In credit-driven recessions, unemployment is a coincident indicator i.e.

no job > no credit > no consumption > no retail sales > no production > no job

etc.

Hmm..perhaps you have a point there, although the logic seems a bit chicken-and-egg: "jobs lost due to low consumption, low consumption due to jobs lost"

I see it more that the credit boom has led to structural unemployment - the loose credit caused everyone to ship jobs abroad and just fill the UK with finance and service jobs. Now it has become clear that in a world of sustainable credit, we do not need bankers and luxury-yacht-polishers, we need more of the jobs we shipped away. They will come back - but only gradually.

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