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maverick73

Stagnation

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As the UK approaches stagnation, its effects maybe similar to the experiences of the lost decade in Japan.

In 1989 the Nikkel 225 Index peaked around 39,000. By 1990, the Nikkel index fell by 39%, and bouncing of lower highs around the 17,400 mark.

Between 1987 - 1991 Japans economy was considered an bubble, characterised by extreme in consumption of luxury brands, cars, handbags, jewellery and land prices tripled, with a significant increase in borrowing to finance home purchases.

The major cause of stagnation was consumer appetite. House disposable income declined, household wealth declined, and, coupled with future uncertainty, resulted in low confidence in prospects of wealth growth.

When confidence is low, consumers tend to save more, making it difficult for governments to stimulate growth using traditional methods like interest rates..

Does the UK economy stagnate or crash?

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45 minutes ago, maverick73 said:

When confidence is low, consumers tend to save more, making it difficult for governments to stimulate growth using traditional methods like interest rates..

Does the UK economy stagnate or crash?

I think the UK economy will stagnate. The governments of the past 20 years seem adept not to cause any sudden upsets.

V Sorry, couldn't resist. :)

 

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5 hours ago, maverick73 said:

Does the UK economy stagnate or crash?

If you removed the stimulus currently in place the UK would be in recession immediately. The stimulus may continue, but the the returns on it are diminishing, nobody knows how to end it and in an environment of imported inflation, it's harder to justify.

The UK also doesn't have reserves or room for manoeuvre in policy to withstand shocks, much like most other economies who decided to bet the farm on services and asset bubbles, QE and low rates. It's taken international accords like at Shanghai to delay the inevitable, but it looks like political deals will be more difficult in future, and there's no shortage of potential shocks emanating from QE-based asset bubbles on the very near horizon.

Fortunately you can't lose with an index fund and some leveraged property, so everything is fine.

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Btw, I was in japan from 1989 till 2004. It was painful but we`re still living off money saved at that time.

Wouldn`t change places with any Japanese or British young people for all the tea in China.

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Well the CAPE ratio on the Nikkei index in 1990 was 120 it has corrected to 30. The CAPE ratio on the FTSE 100 is about 15 currently, so parallels are not quite there.

We have two major asset classes  Equity and Property in this country. Over the last eighteen years both have had the utility of income. Property, a place to live or rent out; Equity, dividends. Quid pro quo I would say. Property has tripled, Equity beyond the dividend is barely changed. Granted the latter would have just about beaten cash.

 

Edited by crashmonitor

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Normally when interest rates are low, everyone invests in the stocks. When interest rates are high everyone shifts into savings.

The double whammy unfolds, less people, less borrowers, less investors, less tax payers. I'm presuming our countries next step is to become a tax haven for the Americas, as we've burnt the bridges across Europe.

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