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Bruce Banner

The Economy's Been In Recovery For A Year

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"The economy's been in recovery for a year."

That seems to be the current sound bite being used by Labour politicians in television interviews.

Can anyone remember how long we were in recession? I remember the boom, but can only remember a few weeks when the then government admitted that we were in recession before heralding the recovery.

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A recession is defined to be a period of two quarters of negative GDP growth

recession ended 26 jan 2010

I seem to recall those figures being fudged, being revised down months later.

That plus the QE surging into the system.

And then there's the inflation, was it real term growth ?

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A recession is defined to be a period of two quarters of negative GDP growth

recession ended 26 jan 2010

http://www.ukrecession.com/2010/01/uk-recession-over-2/

Thats why politicians love GDP so much.

Inflation = Growth, so long as you fudge the reported rate of inflation.

Hopefully, one day, the absurd idea that GDP=the Economy will be consigned to the history books.

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Would be interesting to see how Labour define this.

If its based on GDP then, I would say strip out the inelastic costs like food, fuel and heating that have all been hit with double digit inflation and one will see the rest of the economy has shrunk, backed up by profit warnings and reduce sales being reported by retailers and other businesses including teh latest survey that says 1 in 8 small businesses are planning to lay off staff.

Well, given GDP 'growth' is 1-2%, delivered by borrowing 13-14%, Its clear the private sector isnt recovering at all. Its still shrinking by well over 10% pa.

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....

And then there's the inflation, was it real term growth ?

This revolves around the definition of "inflation". If you take rising prices to be inflation as most ordinary people do (ie not "economists") and you ignore house price fluctuations as most people do then its clear to see that RPI is at a higher figure than GDP growth. So the economy is contracting in real terms. To get a better picture you really need to map this onto population since a rising population increased GDP by virtue of increased transactions. If, therefore, you think population is increasing (50-50 IMO) the downturn is even worse.

Sadly if you take these kinds of things into account most of what we know about history is much less accurate than presumed. If anyone has a RELIABLE source for GDP per capita, RPI adjusted that has not been "messed about" by changes to the measures at some point for political reasons I would love to know.

Also its clear to me that compared to RPI property is falling in value even in places like London where it is increasing a little in nominal value. Add in the interest on mortgages and its very hard to see why anyone wants to buy right now.

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Well, given GDP 'growth' is 1-2%, delivered by borrowing 13-14%, Its clear the private sector isnt recovering at all. Its still shrinking by well over 10% pa.

Exactly. For example, on an individual basis, if your job starts paying slightly less each year, it's no good getting a new job with a guaranteed 2% annual pay increase (= GDP growth) if you had to take out hundreds of thousands of pounds worth of loans to buy the suit and car to craft the image to get you the job (= stimulus measures and deficit spending). At the end of the day you are much worse off. Unless of course you unexpectedly get another stellar promotion a few months down the line and increase you salary by 50% (=fantastical government expectations of Kenynesian-inspired growth to come shortly to pay off all the masses of debt).

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This revolves around the definition of "inflation". If you take rising prices to be inflation as most ordinary people do (ie not "economists") and you ignore house price fluctuations as most people do then its clear to see that RPI is at a higher figure than GDP growth. So the economy is contracting in real terms. To get a better picture you really need to map this onto population since a rising population increased GDP by virtue of increased transactions. If, therefore, you think population is increasing (50-50 IMO) the downturn is even worse.

Sadly if you take these kinds of things into account most of what we know about history is much less accurate than presumed. If anyone has a RELIABLE source for GDP per capita, RPI adjusted that has not been "messed about" by changes to the measures at some point for political reasons I would love to know.

Also its clear to me that compared to RPI property is falling in value even in places like London where it is increasing a little in nominal value. Add in the interest on mortgages and its very hard to see why anyone wants to buy right now.

What about currency devaluation? If you were measuring our GDP in sterling converted to say Canadian dollars it's miles worse.

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What about currency devaluation? If you were measuring our GDP in sterling converted to say Canadian dollars it's miles worse.

I watch the Yen pretty closely and they're in a worse state than us if anything. But wait, why has the Yen gone from 150 to 130 over the past year?

Reading about the Weimar situation leads me to believe that many will ignore the fact that we're getting poorer in forex terms until it's too late

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What about currency devaluation? If you were measuring our GDP in sterling converted to say Canadian dollars it's miles worse.

Fair point. This is why I am so dismissive of economics and economic theory. Its very hard to say what, if anything, accurately measures the overall economy if your aim is to improve the living standards of the populace. Furthermore one person's improvement is another's irrelevance, half price tellies are not of any importance if you don't watch one.

I think there is broad agreement here that the "recovery" is at best a dead cat bounce, at worse a falsehood. (We have another thread running to that effect).

Assuming that it actually wanted to (I don't think it does) the UK government would struggle to balance the books within 10 years. To do so means big tax increases - anathema to the Tories and massive spending cuts - anathema to Labour. Assuming, as seems likely, the cuts p1ss enough people off and Labour win the next election the five years of cuts will be followed by five years of tax hikes. Even if some other scenario comes to pass it doesn't really matter, the numbers are too big. The Tories save a million here and a million there and a few hundred million off the NHS to the annoyance of their supporters in the Mail and Telegraph, pushing their luck right to the edge. So what? We're borrowing 20 billion a month. Milliband (if he's still there - I doubt it) will shove up tax for top earners a few pence and collect a few million. So what? The massive increase in pensioners that is going to happen in the next five years could suck up a 5p rise in the basic rate and still leave us in the same position we are today.

Compared to Ireland though the UK is well off. I can't see a way out for them ever. Greece is pretty close to that and many other countries are in bother as are we here in France. The UK's problem is personal debt. That is the issue going forward that will make or break the British economy IMHO. The Tories fantasy island political strategy relies on increasing tax take as the economy grows. But spare cash will end paying off debt not growing the economy at the shop till. Debt redemption will not grow the economy. The BoE know that and are doing their best to keep IR low to persuade folk to spend not to save. The free market loons are bellowing on about IR needing to go up and inflation due to a p1ss in the ocean QE program that has not, in truth, printed a single pound. Higher IR will see more debt paid off and more saving - less spending. Run the program the other way and keep the ZIRP and misinvestment in non productive asset speculation like property will continue or even get worse. What else is there to do with a few million you have hanging around after all?

I can't see an answer. No government or government policy is enough to deal with the issues of the UK's massive consumer debt. The government can ignore reality for much longer than ordinary people. However, if the government bails people out reality will come to it too. Likewise the banks. In Ireland property developers are being "forgiven" 25% of their capital if they change banks. Will that trickle down to the average mortgage payer? Will the over indebted have some or most of their debts written off by the tax payer. I think its likely. It will annoy many (esp on here) but delight others. That transfers the problem to the government who can then force the problem onto the pension funds and so do what governments have done since the war - put off reality until the next generation has to deal with it.

The "recovery" if there is one is a recovery of spending. Some folk are, after all, still very rich. Those with a decent job and a tracker mortgage are doing OK. As long as reality doesn't rear its ugly head they will spend. This may be enough that Toff and Toffer get close enough to halving the deficit that some suckers think they have done a decent job. I'm sure Dave is working on his speech as to why they didn't "quite" make it right now. Probably invites Ed round for a nice meal and a chat about where to go from there :D

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  • 312 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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