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A Quick Primer On Why Everyone Thinks The Economy Is Headed Into The Toilet Again

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http://www.businessinsider.com/a-quick-primer-on-why-everyone-thinks-the-economy-is-headed-into-the-toilet-again-2010-7#it-all-starts-with-unemployment-which-is-still-close-to-a-post-depression-high-and-the-recent-drop-has-been-helped-by-people-dropping-out-of-the-workforce-1

Three months ago, everyone was jubilant: The economy was headed for a v-shaped recovery, job growth was kicking in, and consumers were about to start spending, spending, spending again.

But now, suddenly, everyone thinks the economy is headed back into the tank.

Aside from noting the obvious--when it comes to economics, the consensus is usually wrong--it's worth reviewing why everyone has suddenly become so pessimistic again.

20 charts at the link.

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IMF raises world growth forecast (Thu 8th July):

BEIJING — The global economy is recovering faster than expected but Europe's debt crisis might stall the rebound and governments need to shore up shaky public confidence, the International Monetary Fund said Thursday.

The IMF raised its 2010 world growth forecast to 4.6 percent from 4.2 percent in April and boosted estimates for the United States and China. But its quarterly World Economic Outlook warned that "risks have risen sharply" and Europe has to quickly resolve debt problems and restore confidence in its banks.

Europe's problems "could spill over to other regions and stall the global recovery," said Jose Vinals, director of the fund's monetary and capital markets department, at a news conference in Hong Kong.

"Further credible and decisive policy action is needed to resume progress on financial stability and keep the economic recovery on track," Vinals said.

Risks so far are limited to financial markets and activity in other fields stabilized at a high level in May, the Washington-based fund said. It said industrial output and trade grew by double digits and there was a modest but steady recovery in developed economies and strong growth in emerging nations.

"The numbers for economic activity have come in strong — in fact, stronger than we have forecast," said Olivier Blanchard, director of the IMF's research department.

The fund raised this year's U.S. growth forecast from 2.7 percent to 3.3 percent. The outlook for Germany and other European nations that use the euro common currency was unchanged at 1 percent.

A global "double dip," or relapse into recession, is "very unlikely," Blanchard said.

Asian economies recovered strongly this year, driven by buoyant exports and stronger domestic demand, the IMF said.

Article continues:

http://www.seacoastonline.com/articles/20100712-BIZ-7120302

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We're in precisely the same place. Personally, corporately and governmentally, we've borrowed to the hilt for the last 10 years. We're now in a difficult position. We could ignore the borrowing, and just carry on. Down that road are big interest rate rises as the lenders start to price in the fact that we're never going to pay it back. Or we can reduce the borrowing, convince the lenders that we have a plausible plan and enjoy the fruits of low rates. Reducing the borrowing implies sucking billions out of the economy because we won't be, er, borrowing the money.

Neither option is going to be fun.

Some figures to chew over. GDP of the UK is of the order of 2000 million dollars (two trillion). Public sector borrowing requirement is of the order of 200 billion dollars (0.2 trillion) per annum. If you strip out the borrowing, then say we grow at a thoroughly unexpected 4% - once the borrowing is removed, we've shrunk by 6%. We'd have to have GDP growth of the order of 11% to see any growth in the economy if we stopped borrowing. And that's just stopping the borrowing, I haven't mentioned paying anything back yet.

How anyone can think we are not heading down the crapper is beyond me.

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Guest Steve Cook

We're in precisely the same place. Personally, corporately and governmentally, we've borrowed to the hilt for the last 10 years. We're now in a difficult position. We could ignore the borrowing, and just carry on. Down that road are big interest rate rises as the lenders start to price in the fact that we're never going to pay it back. Or we can reduce the borrowing, convince the lenders that we have a plausible plan and enjoy the fruits of low rates. Reducing the borrowing implies sucking billions out of the economy because we won't be, er, borrowing the money.

Neither option is going to be fun.

Some figures to chew over. GDP of the UK is of the order of 2000 million dollars (two trillion). Public sector borrowing requirement is of the order of 200 billion dollars (0.2 trillion) per annum. If you strip out the borrowing, then say we grow at a thoroughly unexpected 4% - once the borrowing is removed, we've shrunk by 6%. We'd have to have GDP growth of the order of 11% to see any growth in the economy if we stopped borrowing. And that's just stopping the borrowing, I haven't mentioned paying anything back yet.

How anyone can think we are not heading down the crapper is beyond me.

Good post

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Some figures to chew over. GDP of the UK is of the order of 2000 million dollars (two trillion). Public sector borrowing requirement is of the order of 200 billion dollars (0.2 trillion) per annum.

So PSBR is at 10% of GDP. It was at 7% in the last recession.

Apocalypse not-now ;)

Stand down the beans and shotguns brigade.

edit:

edit removed cos I was confused ;)

Edited by Mal Volio

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So PSBR is at 10% of GDP. It was at 7% in the last recession.

Apocalypse not-now ;)

Stand down the beans and shotguns brigade.

edit:

edit removed cos I was confused ;)

"How anyone can think we are not heading down the crapper is beyond me."

Americans are taught to call it "THE JOHN" or "THE HEAD"!

Edited by erranta

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"How anyone can think we are not heading down the crapper is beyond me."

Americans are taught to call it "THE JOHN" or "THE HEAD"!

How anyone can be so convinced that we are definately going down is baffling to me... it's certainly one option, but it's one of many and by no means nailed on... anyone with any brains could tell you that.

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A timely front page of the Indie brings this one back from the dead. ONS is suggesting that government debt should be £4 trillion when you roll in all of the unfunded liabilities that we have taken on. That's a cool 200% of GDP, a figure only surpassed in 1944 when we happened to be fighting the last stages of a world war. So while the PSBR is only a few percent higher than the last recession, the net debt is far, far higher - hence the concern about whether we have a plan to pay it back.

No doubt some will view PFI and unfunded pension liabilities as nothing to do with national debt, but this is money we have to pay, just as we have to pay the interest on our gilts. It doesn't really matter whether the government defaults on lease payments to Carillion or coupon on a gilt - the effect is the same as services shut down due to lack of cash.

While I do happen to be in possession of both beans and shotguns, I am not of that view economically. It is just that the easy growth of the last 20 years is going to be a lot harder to find, and people's perceptions about increased real earnings and/or promotion will have to be tempered. The last two recessions certainly weren't beans and shotguns events, but they were pretty unpleasant for many people, all the same.

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How anyone can think we are not heading down the crapper is beyond me.

Millions of $

2000

2080

2163.2

2249.7

2339.7

2433.3

2530.6

2631.8

2737.1

2846.6

In 10 years the economy has grown by 42% and 200 million will be about 7% of GDP and thats without a single cut. But as the economy grows the Govn tax take will increase steadily so that deficit will be back down to 4 or 5% by then.

Best thing is to do nothing!

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Because it never got out of the toilet?

Govt borrowing at 12% of GDP and 'growth' of 0.5% or some such tells me that the real economy (ie the one that gets by without the blank cheques from Brown) has been shrinking at around 11.5% all the while.

Not that the BBC ever puts it that way.

Edited by Sadman

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In 10 years the economy has grown by 42% and 200 million will be about 7% of GDP and thats without a single cut. But as the economy grows the Govn tax take will increase steadily so that deficit will be back down to 4 or 5% by then.

You think real GDP is going to grow by 4% per annum for 10 years? We haven't achieved 4% for over 10 years. Average over the last 40 years is about 2.something percent. The problem with PFI and the like is that we've had the growth from these activities already. Now we are left with the payments.

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We're in precisely the same place. Personally, corporately and governmentally, we've borrowed to the hilt for the last 10 years. We're now in a difficult position. We could ignore the borrowing, and just carry on. Down that road are big interest rate rises as the lenders start to price in the fact that we're never going to pay it back. Or we can reduce the borrowing, convince the lenders that we have a plausible plan and enjoy the fruits of low rates. Reducing the borrowing implies sucking billions out of the economy because we won't be, er, borrowing the money.

Neither option is going to be fun.

Some figures to chew over. GDP of the UK is of the order of 2000 million dollars (two trillion). Public sector borrowing requirement is of the order of 200 billion dollars (0.2 trillion) per annum. If you strip out the borrowing, then say we grow at a thoroughly unexpected 4% - once the borrowing is removed, we've shrunk by 6%. We'd have to have GDP growth of the order of 11% to see any growth in the economy if we stopped borrowing. And that's just stopping the borrowing, I haven't mentioned paying anything back yet.

How anyone can think we are not heading down the crapper is beyond me.

Yep, we're screwed. The state is broke, the public is broke. Anyone holding fiat currency 'wealth' is going to wiped out.

The only question that remains is how does one plot a course through the unravelling and preserve as much wealth as possible?

Alternatively ... borrow to the hilt, salt it away in precious metals and then default/do a runner. If you time it right it should be possible to walk away as a rich man when the dust settles and old fiat debts are meaningless.

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Yep, we're screwed. The state is broke, the public is broke. Anyone holding fiat currency 'wealth' is going to wiped out.

The only question that remains is how does one plot a course through the unravelling and preserve as much wealth as possible?

Alternatively ... borrow to the hilt, salt it away in precious metals and then default/do a runner. If you time it right it should be possible to walk away as a rich man when the dust settles and old fiat debts are meaningless.

this looks like a business plan, but who is lending?

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Yep, we're screwed. The state is broke, the public is broke. Anyone holding fiat currency 'wealth' is going to wiped out.

The only question that remains is how does one plot a course through the unravelling and preserve as much wealth as possible?

Alternatively ... borrow to the hilt, salt it away in precious metals and then default/do a runner. If you time it right it should be possible to walk away as a rich man when the dust settles and old fiat debts are meaningless.

I'll stick with fiat for the next few years thanks

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  • 152 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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