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Half A Cheer For Depression's End

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http://www.bbc.co.uk/news/business-28417993

On Friday we will have - depending on how you look at it - either the most symbolically important or the most pointless economic event of recent times.

Namely, official confirmation that the depression caused by the mother of all banking and financial crises is finally over. UK output or GDP has finally exceeded its pre-recession peak (the technical definition of a depression is the period during which GDP remains below that peak).

On the official government stats, GDP fell by 7.2% between its peak in the first quarter of 2008 and its trough in the second quarter of 2009.

Since then recovery has been unusually - some would say lamentably - slow, and national output in the first three months of this year was still 0.6% below that peak.

But that recovery has been picking up considerable momentum over the past year. The UK is now the fastest growing economy of all the world's rich ones.

So in the quarter to the end of June, quarter-on-quarter growth is bound to have been more than 0.6%. The respected National Institute for Economic and Social Research predicts growth of 0.9% in that period.

Which means - hooray hooray hooray - that the depression is officially over, and that we are now once again earning more than we did before the banks got us into our pretty pickle by starving us of credit.

All of which is terribly exciting. And we can expect the Tory chancellor, George Osborne, and his Lib Dem treasury chief secretary, Danny Alexander, to shout from the rooftops that this economic renaissance is all down to their sagacity and tough actions.

Except, as is usually the way with blinkin' economic statistics, it isn't quite as straightforward as that.

For one thing, the Office for National Statistics is in the process of reworking how it calculates GDP. And it has already admitted that the number I gave you above, about how far output fell from its peak between 2008 and 2009, is wrong.

The current officially recorded contraction of GDP exaggerates, a bit, the magnitude of the decline in output. Which implies that the previous peak for output was almost certainly surpassed some time ago - so long, that is, as there aren't significant offsetting revisions to subsequent growth.

Chances are, however, that this terrible depression actually ended some while ago, probably last year. Fingers crossed we will know more about this - I won't say the truth of it (nebulous concept in economics) - in September.

So on Friday we will basically be doing the equivalent of celebrating a World Cup victory that may or may not have actually happened some months earlier.

This could only happen in the wonderful world of economics.

Which brings me to my second and third reasons why you may not need to put out the "Britain is booming again" bunting on Friday.

For one thing, the industrial experience of the past few years has been variegated.

Everyone had better get the champers on ice for celebrating the end of the depression.

No house price correction for most of the country, the banks are safe and growth is all around us. We truly are economically blessed.

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A lot on here still assuming a dip post trough taking us lower than today. If that happens it will be the first time in recorded history, exit from trough usually equals maximum velocity.

However, this is the biggest trough and the highest leveraged recovery so who knows.

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A lot on here still assuming a dip post trough taking us lower than today. If that happens it will be the first time in recorded history, exit from trough usually equals maximum velocity.

However, this is the biggest trough and the highest leveraged recovery so who knows.

There are parallels. IIRC the 70s enjoyed a massive double bubble separated by 8/9 years and punctuated by national disgrace when Dennis Healey was forced borrow 6% of GDP for a year or so. North Sea oil saved our asses, of course.

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A lot on here still assuming a dip post trough taking us lower than today. If that happens it will be the first time in recorded history, exit from trough usually equals maximum velocity.

However, this is the biggest trough and the highest leveraged recovery so who knows.

I'm inclined to think it will just go up-up-up from here, at least for a relatively short time.

There's no sign of the central banks turning off the taps that underpin the 'recovery' and as long as monetary policy is lax and interest rates are repressed, there's a lot of scope for asset prices to increase.

Of course, that recovery is for the insiders. For the general population the crappy situation of uncertain employment, high cost of living and low pay is likely to continue indefinitely.

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Which means - hooray hooray hooray - that the depression is officially over, and that we are now once again earning more than we did before the banks got us into our pretty pickle by starving us of credit.

Without clicking the link, am I right to assume the author of this flaring nonsense is Peston?

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Without clicking the link, am I right to assume the author of this flaring nonsense is Peston?

It's got to be. Who else would use the word "variegated" in the last sentence (or indeed, any sentence) of an article?

Apart from A E Pritchard, who doesn't write for the BBC.

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This is like celebrating the GDP figures recovering because the cost of bread went up 20% a year for a decade.

This one should be under the propaganda thread if you ask me.

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There are parallels. IIRC the 70s enjoyed a massive double bubble separated by 8/9 years and punctuated by national disgrace when Dennis Healey was forced borrow 6% of GDP for a year or so. North Sea oil saved our asses, of course.

Looking at the chart we had around £0.62 trillion inflation adjusted GDP going into the bust of 72 and .70 trillion GDP going into the bust 8 years later....but at no time was the previous trough revisited (72-74) once we exited it...we were still well above in the depths of 82. If we do revisit the GDP levels of the trough we have just exited it would be the first time in modern history. But yes that was probably the closest call.

But many are calling it different this time...a recession within the next couple of years and revisiting trough data would be a first in the history of UK recorded economic data.

http://www.ons.gov.uk/ons/rel/elmr/explaining-economic-statistics/long-term-profile-of-gdp-in-the-uk/sty-long-term-profile-of-gdp.html

Edited by crashmonitor

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All depends how you define GDP and recovery and how that definition has evolved.

Borrowing is increasing as fast as ever, the gap between govt income and outgoing is increasing. This will end at some point.

With default, unless we get a significant change of direction.

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All depends how you define GDP and recovery and how that definition has evolved.

Borrowing is increasing as fast as ever, the gap between govt income and outgoing is increasing. This will end at some point.

With default, unless we get a significant change of direction.

Well I did say that this recovery was leveraged, and indeed it might be different this time. I guess this was the first recession not allowed to run its natural course via market discovery. That indeed makes the possibility of it being different this time possible. Still the point that previous troughs once exited have never been revisited in terms of output is worth a mention.

Those hoping for an imminent dip are wishing for something that has never previously occurred in a hundred years of data.

I always take cycles and past history seriously, on that basis the crash of 2007 was 100% guaranteed....God knows why the City didn't see it.

Edited by crashmonitor

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This is like celebrating the GDP figures recovering because the cost of bread went up 20% a year for a decade.

This one should be under the propaganda thread if you ask me.

Well I did say that this recovery was leveraged, and indeed it might be different this time. I guess this was the first recession not allowed to run its natural course via market discovery. That indeed makes the possibility of it being different this time possible. Still the point that previous troughs once exited have never been revisited in terms of output is worth a mention.

Those hoping for an imminent dip are wishing for something that has never previously occurred in a hundred years of data.

I always take cycles and past history seriously, on that basis the crash of 2007 was 100% guaranteed....God knows why the City didn't see it.

Absolutely. I'm a firm believer in cycles myself. The debt will have to be inflated away and/or written off/defaulted on. Asset prices and current prices have to be brought back into balance. In the 70s it took a double digit stagflationary slump and the discovery of North Sea oil + gas to accomplish. Given the scale of indebtedness this time round it's going to be much, much harder.

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Absolutely. I'm a firm believer in cycles myself. The debt will have to be inflated away and/or written off/defaulted on. Asset prices and current prices have to be brought back into balance. In the 70s it took a double digit stagflationary slump and the discovery of North Sea oil + gas to accomplish. Given the scale of indebtedness this time round it's going to be much, much harder.

You missed one option.

PAID BACK OVER TIME !!!!

That does mean stopping doling out debt now, make real cuts and look to the future..

SOmething the MPs and the British people really dont seem to want to do. However, this is the correct solution to the problem in hand.

If someone can't pay, bankrupt them and sell of their assets.

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If someone can't pay, bankrupt them and sell of their assets.

Apart from maybe some prime London locations does the UK govt actually have any worthwhile assets left? I suppose trendy people would like a flat in Parliament although not sure what you would do with big ben as that might disrupt sleep patterns unless you silence it from say 9pm - 9am.

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You missed one option.

PAID BACK OVER TIME !!!!

That does mean stopping doling out debt now, make real cuts and look to the future..

SOmething the MPs and the British people really dont seem to want to do. However, this is the correct solution to the problem in hand.

If someone can't pay, bankrupt them and sell of their assets.

If you think that the debt is ever going to be paid down, I've got some prime swampland in Florida that I'd like to sell you.

The deficit is massive and structural - the government doesn't have a prayer of even balancing the books in a given year, let alone paying back any of the mountain of accumulated debt. And let's not even get into the 'off the books' debt obligations hidden by PPP or inherent in public sector pension promises.

They won't 'hard' default as there are serious, immediate consequences to doing so. Instead, they'll continue 'soft' defaulting by printing money and stoking inflation.

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