Brace Yourself For The Hurricane

[Timm]

http://www.newstatesman.com/economy/2010/09/construction-growth-recovery

(...)

The recovery is clearly slowing in the UK, where the housing market seems to be turning down again. Nationwide reported that house prices had fallen by almost 1 per cent in August, and poor lending data suggests more house-price drops are on the way...

President Obama is likely to announce further stimulus measures shortly, but Britain's Chancellor, George Osborne, is doing the opposite. This is a giant risk, without historical precedent.

On 2 September, Martin Wolf argued in the FT: "If the government were wrong on its gamble on recovery through retrenchment, the result would be a disaster for the country, not to mention the coalition." Even Boris Johnson has expressed worries about a double dip. The data suggests that a rough economic hurricane is barrelling down on the British Isles. And the chances are this isn't going to be a sideswipe. It's heading straight for the coast. Watch out.

['Bart']

This is a giant risk, without historical precedent.

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover—falsely characterized as a supporter of laissez-faire economics—urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” 2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.

LINK

[Alan B'Stard MP]

http://www.newstatesman.com/economy/2010/09/construction-growth-recovery

Is your test-tube half full or half empty?

[the_duke_of_hazzard]

Isn't the 1980s monetarism a historical precedent? Hmmm, didn't spending actually go up under la Thatch, tho, despite rhetoric?

[Timm]

Is your test-tube half full or half empty?

I'm not sure, it's hard to tell.

It seems to be full of bubbles...

[Alan B'Stard MP]

I'm not sure, it's hard to tell.

It seems to be full of bubbles...

That will be the copper sulphate - or the resultant of Jim Jenkins shoving it down his underpants.

Edit: Oh yeah "bubble" - now I get it !

Edited September 9, 2010 by Alan B'Stard MP

[Si1]

there is still this slly view that falling house prices cannot persist alongside a growing economy - 1992 to1996 exhibited falling house prices, whils the economy recovered from recession

[tomwatkins]

there is still this slly view that falling house prices cannot persist alongside a growing economy - 1992 to1996 exhibited falling house prices, whils the economy recovered from recession

Well they would say that wouldn't they?

[Fromage Frais]

LINK

Sounds logical

If the business that I am looking at no drop 30 I will buy one 1-2x takings rather 3-6 (at the moment most business I look at do not make financial sense nor could they pay the finance needed for a 50/60 percent loan).

If houses fall less than rental cost I will buy one.

If houses fall so that you get 8-10 percent yield maybe I will buy some of those also and maybe pay some guys to fix them up.

Everything has a price for every asset there is a potential purchaser its just at what level.

What is illogical is taking my money I have from not getting into the shit on propping up prices that I cannot afford..... asset squatting

[Bloo Loo]

there is still this slly view that falling house prices cannot persist alongside a growing economy - 1992 to1996 exhibited falling house prices, whils the economy recovered from recession

Its not silly if you are a banker...as Blanchflower is...but bankers think the world revolves around them...it doesnt.

[SarahBell]

I don't think we could spend out way of out it either...

This idea they've chosen the "wrong way" when every direction is stuffed ... is just media-blather.

[interestrateripoff]

Isn't the 1980s monetarism a historical precedent? Hmmm, didn't spending actually go up under la Thatch, tho, despite rhetoric?

And Reagan decided to go on a huge spending spree in the mid 80's as well and set the whole ball rolling for the current position we find ourselves in.

[plummet expert]

LINK

That's the truth that dare not speak its name - the opposite of Keynesian economics. In fact the only one that works. The USA will fare far worse by more bail outs than just getting and facing the consequences of the debt encrusted truth. The UK will have a vile 2011-13, but then emerge in much better shape by 2014, so long as they do not take fright and want to inflate on printed money. Your link is very interesting Bart!

Edited September 9, 2010 by plummet expert

[efdemin]

Isn't the 1980s monetarism a historical precedent? Hmmm, didn't spending actually go up under la Thatch, tho, despite rhetoric?

Wasn't that largely the windfall from the north sea oil & gas though? It's easy to spend free money.

[dances with sheeple]

The idea that economies can keep growing seems silly to me, finite planet? something has to give sooner or later? "The drowned world" by J G Ballard keeps popping into my mind.

[the_duke_of_hazzard]

I suspect this is one of those nice little stories that gain currency on the internet - without a thought as to whether the spending was in nominal or real terms.

Remember they were trying to bear down on inflation at the time.

I suspect the figures which gave gave birth to this nice but possibly misleading story, are indeed NOMINAL.

You're wrong.

During Margaret Thatcher’s premiership public spending grew in real terms by an average of 1.1% a year, while during John Major’s premiership it grew by an average of 2.4% a year.

It dropped only 85-6 and 88-9, presumably because a booming economy meant that the welfare bill had dropped.

[LJAR]

The idea that economies can keep growing seems silly to me, finite planet? something has to give sooner or later? "The drowned world" by J G Ballard keeps popping into my mind.

economic growth in developed economies mainly comes from increased efficiency eg the use of machinery on farms. this frees up people to do other things such as offer more services or manufacture other goods.

The planet and its resources are finite, but we have an almost infinite source of energy in the sun, and we are not even close to harnessing everything out there yet.

Also an economy with a declining population doesn't need to grow, it is only the increases in population over the last centuries that have made economic growth an imperative, provided that we don't want living standards to decline.

[interestrateripoff]

The idea that economies can keep growing seems silly to me, finite planet? something has to give sooner or later? "The drowned world" by J G Ballard keeps popping into my mind.

Exponential growth, I mean what can possible go wrong?

[cockrobin]

And Reagan decided to go on a huge spending spree in the mid 80's as well and set the whole ball rolling for the current position we find ourselves in.

Yeah, everyone's fault but Gordon's!!

[bajista]

The idea that economies can keep growing seems silly to me,

In real terms per capita they mostly don't grow. The very rare period of technological change aside ( most periods of tech change actually just speed up the use of finite natural resources - co chnage to overlal wealth just to allocation and timing of use of it).

But nominal growth is essential to delude the masses they are getting richer when in fact they are getting relatively poorer vs. the elite.

[Bloo Loo]

economic growth in developed economies mainly comes from increased efficiency eg the use of machinery on farms. this frees up people to do other things such as offer more services or manufacture other goods.

The planet and its resources are finite, but we have an almost infinite source of energy in the sun, and we are not even close to harnessing everything out there yet.

Also an economy with a declining population doesn't need to grow, it is only the increases in population over the last centuries that have made economic growth an imperative, provided that we don't want living standards to decline.

good points but entirely wrong conclusion.

money makes nothing in itself.

GDP is the base measure for economies...it measures money.

GDP only needs to grow for those that handle money...thatll be the banks. its the ONLY way they can make honest money....everything else they do is able to go infinite...because like infinity...its impossible except in the mind.