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Uk Going Into Double Dip - Albert Edwards, Socgen

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http://www.citywire.co.uk/wealth-manager/investment-line-we-are-walking-on-deflationary-quicksand/a410283?ref=wealth-manager-latest-news-list

Edwards slams the years of lax monetary policy, saying that although the transferral of private debt to the public sector is not unusual, the sheer scale of the current situation is what makes the outlook so bleak. He even goes as far to accuse the likes of Alan Greenspan, Ben Bernanke and Mervyn King of being ‘criminally negligent’ for the current ‘stinking fiscal mess’.

Taking financials out of the equation, Edwards says that there has not yet been any deleveraging. On the consumer level the same rings true with US house prices having slid for six months in a row even before the housing incentives ended in April.

‘A renewal of house price deflation will of course add more volume to the already audible sucking noise of an economy sliding into recession,’ he adds,

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http://www.citywire.co.uk/wealth-manager/investment-line-we-are-walking-on-deflationary-quicksand/a410283?ref=wealth-manager-latest-news-list

Edwards slams the years of lax monetary policy, saying that although the transferral of private debt to the public sector is not unusual, the sheer scale of the current situation is what makes the outlook so bleak. He even goes as far to accuse the likes of Alan Greenspan, Ben Bernanke and Mervyn King of being ‘criminally negligent’ for the current ‘stinking fiscal mess’.

Taking financials out of the equation, Edwards says that there has not yet been any deleveraging. On the consumer level the same rings true with US house prices having slid for six months in a row even before the housing incentives ended in April.

‘A renewal of house price deflation will of course add more volume to the already audible sucking noise of an economy sliding into recession,’ he adds,

Of course! What on earth were we doing having interest rates at 3.5% a few years ago when we had rampant house price inflation? Oh, yes, we took houses out of the inflation figures! Why did we allow derivative markets that were bound to cause a loose credit mega bubble? Oh yes, Greenspan thought the tech bubble needed a cure, so on he went.

He is right. The deleveraging is just beginning. Our HPC is just warming up. It will be the mother of all corections once it gets going. People have forgotten that in aperiod of otherwise very low inflation, houses rose about 4 x from 1995 to 2007. If you deduct the general inflation, then there is no higher period of house price inflation over 12 years in history.

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Roger Bootle was so bearish in his latest Sunday column that it didn't evenb regrister with me - you know when something is so off the scale (well in his terms which are usually very level headed) that you just overlook it?

big extract:

If there is to be a recovery then someone has to spend more. But who? In the wake of the banking collapse, it was right that the public sector should initially play a large role. But heavily indebted governments cannot do this ad infinitum. That road leads to default or runaway inflation, or both.

So it is right that the Government should have made a bold start in putting its own finances in order.

But doing this alone will not bring recovery. If governments cannot spend more who can? There are three answers: consumers, businesses and foreigners.

British consumers over-extended themselves in the boom and they need to repair their balance sheets. Yet that does not necessarily mean hairshirts all round. Not all consumers are cash-strapped.

Moreover, even over-borrowed consumers can seek to return to balance-sheet health steadily rather than immediately.

On the whole, business balance sheets have come through the recession pretty well. How can businesses be encouraged to invest more? Although short-term interest rates cannot be cut much further, long-term rates could fall a bit more. Yet this is unlikely to achieve much.

There are three other things that the Government could plausibly do. First, it could lay down the intended future

shape of both government spending and tax policy. Stating in the Budget the Government's intentions with regard to corporation tax was a good start. Doing the same for personal tax would also help.

When the Spending Review comes out in the autumn it should reveal, not just the departmental spending totals, but also the underlying philosophy governing public spending.

The cutback of the public sector will create some opportunities for the private sector. It would assist the

build-up of investment if companies could clearly see what is coming.

Second, the Government should do all that is possible to remove any restraints on the supply of bank lending. Third, the Bank of England could expand its programme of Quantitative Easing.

All that is worth doing but it still doesn't exactly sound like a magic bullet. Getting foreigners to buy more is the obvious big solution for Britain, and we have tried to encourage it by letting the pound fall.

Yet there are limits here, especially when our main markets on the Continent are so weak.

Moreover, you will have noticed that against the euro the pound has recovered strongly. And anyway, a weak currency still presents no solution for the world as a whole. That requires someone to spend more. Again, who?

There are umpteen countries which are running huge current account surpluses: last year, China's surplus was 6pc of GDP, Taiwan's 11pc, Malaysia's 17pc and Singapore's 19pc. The oil producers also ran huge surpluses – 5pc in Saudi Arabia (down from a massive 28pc the year before), 16pc in Libya and Qatar, and 26pc in Kuwait. Within Europe our two big oil producers, Russia and Norway, ran surpluses of 4pc and 14pc respectively.

Among non-oil producers in Europe, Germany and Holland ran surpluses of 5pc, and Switzerland 9pc. Moreover, these countries are in general sitting on huge international reserves. This is where the money is and it is where demand should expand.

China remains the key to Asia. The Chinese government cleverly changed the exchange rate regime governing the renminbi just before the G20 summit. However, this was nothing more than a cosmetic move designed to head off criticism. The consequent rise of the currency will be minimal.

Anyway, the more important issue is the willingness of the Chinese to rebalance the economy towards consumers and away from reliance on exports.

Mr Cameron apparently believes that meetings such as the G20 are a waste of time – and with some justification. But if he thinks that austerity alone – or even austerity together – will get us out of this crisis he is very much mistaken.

What the world needs is increased demand. Mr Cameron and the leaders of other over-borrowed Western countries need to press the leaders of the surplus countries to deliver it.

If they don't, then the world is heading for a catastrophe – however much we lop off public spending

.

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http://www.citywire.co.uk/wealth-manager/investment-line-we-are-walking-on-deflationary-quicksand/a410283?ref=wealth-manager-latest-news-list

Edwards slams the years of lax monetary policy, saying that although the transferral of private debt to the public sector is not unusual, the sheer scale of the current situation is what makes the outlook so bleak. He even goes as far to accuse the likes of Alan Greenspan, Ben Bernanke and Mervyn King of being ‘criminally negligent’ for the current ‘stinking fiscal mess’.

So does he think there's a class action lawsuit against these muppets then?

Hopefully the heat will soon be on the central bankers for this mess. So far they have managed to deflect attention away from themselves.

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Guest Steve Cook

Roger Bootle was so bearish in his latest Sunday column that it didn't evenb regrister with me - you know when something is so off the scale (well in his terms which are usually very level headed) that you just overlook it?

big extract:

.

The world financial system very nearly disintegrates. Governments around the world borrow from future production via monetary policies to keep it afloat.

World governments begin to realise that in order to avoid a Weimar scenareo they have to start pulling some of the money back in via taxes and reduced public spending. It is hoped that renewed economic growth will allow the pulling back of the money to not be as severe as it might be. This is because renewed growth will allow some of the new money to have a new home to go to and so not need to be pulled back in.

However, for reasons of resource constraints, there will be no new growth producing one of two outcomes:

Inflationary collapse because governments don't pull all of the new money back in

Deflationary collapse if they do pull it back in.

F*cked if they do, f*cked if they don't.

Read my sig.

Edited by Steve Cook

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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