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Five Signs That The Global Economic Recovery May Be An Illusion

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http://www.theguardian.com/business/economics-blog/2014/apr/06/global-economic-recovery-warning-signs-imf

The global economy seemed to be on the mend when the International Monetary Fund met for its spring meeting in Washington 10 years ago. Alan Greenspan had cut official interest rates in the US to 1% after the collapse of the dotcom boom and the world's biggest economy had responded to the treatment. Gordon Brown was chancellor of the exchequer and the UK was in its 12th year of uninterrupted growth.

Companies in the west were flocking to China now that it was part of the World Trade Organisation. The talk was of offshoring, just-in-time global supply chains and integrated capital markets. The expectation was that the good times would last for ever. No serious thought was given to the notion that total system failure was just around the corner. Faith in the self-correcting properties of open markets was absolute.

When the crash duly came, a self-flagellating IMF confessed that it had been guilty of groupthink. It had either ignored the signs of trouble or played down their significance when it did spot them. The fund has learned some hard lessons from this experience. Downside risks to the forecasts in its half-yearly World Economic Outlook (WEO) are now exhaustively catalogued.

The world of 2014 is not dissimilar to that of 2004. The boost provided by cheap money has got the global economy moving. Inflation as measured by the cost of goods and services is low but asset prices are starting to hum. Financial markets have got their mojo back. Deals are being done, big bonuses paid. The received wisdom is that the worst is over and that the prospects for the global economy will strengthen as the remaining problems are ironed out.

Some analysts believe that the Great Moderation – the period of low inflation and continual expansion – has returned after the hiatus caused by the crash.

..

The remaining problem is debt, which from the last bust still hasn't been fixed as there needs to be bankruptcies and zombies removed. However they have just been propped up with cheap money allowing the party to continue.

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Intellectual imposters acclaim the return of the Great Moderation? :lol:

The Bank for International Settlements (BIS) reports that global debt has risen 40% since mid-2007, from $70 trillion to $100 trillion. Marketable U.S. government debt outstanding has popped from $4.5 trillion to $12 trillion. Global corporate issuance has increased more than $21 trillion. In direct contradiction to the history of the world, more quantity has produced better quality: Bond yields, across the spectrum, have fallen from 4.8% to 2%. In an open market, bond investors handicap their purchases according to a calculated risk. This is a rigged market, though. The rising quantity has produced worse quality, but central planners disguise that fact.

http://aucontrarian.blogspot.co.uk/2014/04/march-2014-one-month-closer.html

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Inflation as measured by the cost of goods and services is low but asset prices are starting to hum.

hum

Smell unpleasant: when the wind drops this stuff really hums

They might have a point.

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Colin Campbell predicts credit crunch due to peak oil 2005

From one of the comments below the article.

He also makes some relevant points about bankers attitudes to the problems. Politicians have pretty much the same attitudes and they would except they need votes.

Attitudes that mean that in future most economic recoveries will be hyped up phony recoveries but will take place just before elections - like now. After elections there'll be a return to recession reality until the next elections. It's always been a bit like that in the past but now it's more blatant and more obvious.

Edited by billybong

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Guest spp

Whats the illusion ? More cars being sold, more houses being sold, house prices are up, inflation is down, low interest rate ? So where is the doom ?

D E B T!

edit - Those low interest rates have just been buying time for the system/politicians. What would the change in trend do to interest rates? If they happen to stay low...how long before the new threshold of sustainable debt repayments is met?

Edited by spp

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Whats the illusion ? More cars being sold, more houses being sold, house prices are up, inflation is down, low interest rate ? So where is the doom ?

UK consolidated debt has risen to around 530% of GDP. It was something like 470% five years ago. A further £100+bn is due to be added to this figure in September.

UK households are even more indebted than they were in 2007.

pg-1-debt-graphic.jpg

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Guest spp

UK consolidated debt has risen to around 530% of GDP. It was something like 470% five years ago. A further £100+bn is due to be added to this figure in September.

UK households are even more indebted than they were in 2007.

Compare this chart UK's total energy production

Quite a frightening correlation. You got put the Government debt along side that and I'm sure it would paint a similar picture. Not only is the DEBT piling up...it has been going into unproductive areas. + those areas were bailed...the show goes on. Recessions happen for a reason...this one was just pumped full of steroids.

:huh:

edit: Shocked every time I look at that energy chart...a national security issue?

Edited by spp

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Whats the illusion ? More cars being sold, more houses being sold, house prices are up, inflation is down, low interest rate ? So where is the doom ?

If you have a credit card with a high spending limit you could live really well- but for how long? And interest rates are not simply low they are virtually zero- lower than they have ever been in the 300 hundred year history of the bank of England- why?

Inflation is low despite the fact that Both the Bank of England and the US Fed have pumped billions into the system via QE and other less obvious methods- how is that possible?

What looks like stability is in reality the outcome of two powerful forces cancelling each other out- the first being QE ect and the second debt deleveraging and writedowns- so an inflationary force meets a deflationary force and a degree of 'stability' appears to arise- just as in a tug of war there are moments when the two teams seem to barely move as they pull in opposite directions- but the endgame is not a gradual move in one direction or the other- it's usually a sudden and violent shift as one side wins the contest and the other side collapses in defeat.

The doom is being on the wrong side.

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If you have a credit card with a high spending limit you could live really well- but for how long? And interest rates are not simply low they are virtually zero- lower than they have ever been in the 300 hundred year history of the bank of England- why?

Inflation is low despite the fact that Both the Bank of England and the US Fed have pumped billions into the system via QE and other less obvious methods- how is that possible?

What looks like stability is in reality the outcome of two powerful forces cancelling each other out- the first being QE ect and the second debt deleveraging and writedowns- so an inflationary force meets a deflationary force and a degree of 'stability' appears to arise- just as in a tug of war there are moments when the two teams seem to barely move as they pull in opposite directions- but the endgame is not a gradual move in one direction or the other- it's usually a sudden and violent shift as one side wins the contest and the other side collapses in defeat.

The doom is being on the wrong side.

good post and analogy ...what are the chances that inflation and debtors have a sudden win over savers and deflation ?

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Whats the illusion ? More cars being sold, more houses being sold, house prices are up, inflation is down, low interest rate ? So where is the doom ?

Welcome back smyth.

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edit: Shocked every time I look at that energy chart...a national security issue?

Hey, it's not like one of our major energy suppliers has just decided to start invading it's neighbours, funded entirely by energy exports.. or another one has been investing surplus cash in training Islamic fundamentalists.

And our political class is reacting to these developments with all the foresight of a rabbit trying to out-stare some approaching headlights.

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Whats the illusion ? More cars being sold, more houses being sold, house prices are up, inflation is down, low interest rate ? So where is the doom ?

Check your bank account balance before posting.

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Interesting that some tech stocks in US fell very sharply I think a day ago. Not sure of the reasons but rreported Nasdaq drop was most for a few years. It may have bounced back.

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good post and analogy ...what are the chances that inflation and debtors have a sudden win over savers and deflation ?

Suspect that the suppression of wage growth and other work force marginalisation programs (mass immigration, zero contract hours, no unions etc) are defeating that particular 1970's style outcome.

What we have going on by design is the massive swing to capital which no one on our side has waken up to yet. How many economists are making that the central issue? or anywhere in the media? A big but open conspiracy if one is prepared to look deeply enough and the population stops watching and reading pure fluff for 5 mins.

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Interesting that some tech stocks in US fell very sharply I think a day ago. Not sure of the reasons but rreported Nasdaq drop was most for a few years. It may have bounced back.

QE driven bubble. Biodreck stocks are up 300% over 5 years, Internet stocks something like 400%. Everything's traded on margin i.e. with borrowed money. The Taper means there's less free cash around every month for the banksters and hedgetarians to hold the crap up.

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This stuff is complicated-go back to sleep.

It can't be that complicated surely ? I have 4 properties in London 3 rented with lifetime base rate trackers +1.89% that earn substantial yields and asset values have gone through the roof ? What can be so complicated ? And I barely make more than £35,000 ...

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Compare this chart

.....

Quite a frightening correlation. You got put the Government debt along side that and I'm sure it would paint a similar picture. Not only is the DEBT piling up...it has been going into unproductive areas. + those areas were bailed...the show goes on. Recessions happen for a reason...this one was just pumped full of steroids.

:huh:

edit: Shocked every time I look at that energy chart...a national security issue?

and by 2020 according to the ONS there'll be another 3 or 4 million people in the UK (compared to 2014). They'll be helping to consume the rapid increases in the amounts of imported energy - and after wrecking Britain's economy MPs and Ministers will be leaving Parliament to take up top jobs in what remains of Britain's companies and in a few foreign companies as well. There should be a law against it.

Edited by billybong

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