Wednesday, January 28, 2009

FT turns über-bear: the west’s decline is imminent and inevitable

Why I fear the west’s luck has run out

Previous assumptions simply do not apply. Homeowners should forget about houses going up in value – all that is history. They are places to live in. So cut back on your outgoings. Pay rises are off the agenda. Wholesale pay cuts may yet become common. Put some cash aside if you possibly can; you might lose your job. I fear most citizens’ plans for the future must be put on hold. This is not something happening to other people – we are all in trouble. Plenty of observers, including me, have criticised the media for being too gloomy. I am now beginning to believe that they have not been gloomy enough. Expect years of negligible growth, permanent high unemployment, declining property prices, higher taxes, crumbling currencies and falling living standards.

Posted by drewster @ 02:03 AM (2444 views)
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43 thoughts on “FT turns über-bear: the west’s decline is imminent and inevitable

  • To read this article in open-access, enter via Google. Or just buy the FT 🙂

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  • The other way is simply to delete the Financial Time’s cookie on your system! (Look for FT.com)

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  • Freewheelin' Franklin says:

    That’s not the FT turning Uber bear – that’s Luke Johnson turning uber bear – he’s not an FT writer, the paper just published an article by him. Full stop.

    I do wish people posting things like this, which make strong and interesting cases in themselves, would stop overselling what they’re posting. If you can’t distinguish between a leader in the FT and an outside columnist then read up about the media.

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  • Sounds good but then he somehow manages to conclude
    that welfare spending is the root of the crisis.

    Not bankers getting rich by bankrupting the nation.

    Time to cancel welfare/bailouts to the banking sector.

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  • Gordon Massey says:

    Thanks for the link drewster, i’m always frustrated when i can’t read the ft articles without registering or subscribing.

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  • All good news for the environment with no money we will use our cars less, produce less C02 heating our homes.
    And best of all next time I am down the council tip I will not see piles of perfectly good furniture, bikes, and lawn mowers that just need a little work.

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  • Having spent a lot of time in China and Taiwan recently I fear he is spot-on. There is no reason at all short of inertia why the West should be able continue to consume at current levels – or indeed fund consumption by a feckless, workshy underclass.

    The Chinese view this transition as the re-establishment of a historic equilibrium (until the industrial revolution Chinese GDP per head was comparable to Europe and for the entire period from 500-1500AD, considerably ahead of ours), a return to mean.

    It’s already too late to deliver on the Lisbon agenda of education + innovation = competitiveness, we have fallen so far behind it’s a joke.

    I fear this article is quite prescient.

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  • “Previous assumptions simply do not apply. Homeowners should forget about houses going up in value – all that is history.”

    Really? The man’s a genius – I thought house prices would go up forever.

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  • mken,
    He isn’t blaming welfare for anything. He’s simply pointing out that it will become increasingly unaffordable in a globalised world where we have to compete with developing countries.

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  • @phdinbubbles

    He’s talking about a historic shift … even the worst bear here expects a U-shape sometime, an upturn in three, six, eight years … what he is talking about is the beggaring of western society. I think this is plausible.

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  • This is the crux of the problem “It is clear that as a society we must learn something painful and radical – how to live within our means”
    It is going to be very hard indeed for some people to accept this.

    I can understand short term loans or bridging loans if for example you need money for an emergency and you are sure that you can pay it back, but how can you borrow for luxuries, if you can’t afford to even save up for something how are you going to be able to afford to pay the credit off ?

    It went mad circa 1997, new cars, clothes, holidays, the whole lot, anyone remember saner times before that ? I do. It will just be a return to normal for me.

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  • Unfortunately agree completely with everything montesquieu has said.

    Time to pay for the debt binge, it’s going to be painful for a long, long time.

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  • japanese uncle says:

    ‘We shall have to cancel all the self-indulgence of endless welfare spending’ is an utter deception. Crash has wasted billions of taxpayers money hiring welfare & healthcare fat cats, literally giving away precious public assets to the financiers in the name of PFI, indeed. But the benefits of welfare & healthcare hardly reach those genuinely in need. If millions of people at the bottom can really secure money through good welfare system, there will always be sound amount of consumption that supports the economy in time of recession.

    Thus drastic redistribution of wealth is the only way out. Seizure of private assets in excess of say 30 million, which can be used for the national projects as seen in New Deals in the US in the 30s, creating millions of employment. The money can be repaid to the original owners @0.3% IR for 100 years. Otherwise those assets will remain dormant, to be of no use to the society, which is the underlying cause of the economic depression.

    Make no mistakes. Depression is always associated with the following procedure:

    (i) Relaxation of tax for the wealthy at the cost of the poor (income tax reduction for the rich to be made up for by the increase in VAT, etc), while relaxation of regulations on speculations (aka investments) under the beautiful names of deregulation and free enterprise, under a scholastic façade, such as Chicago School, or Supply-side Economics

    (ii) Cheer up the ignorant millions into participating in a lunatic speculation and consumption based on a borrowing binge (financed by the huge surplus money generated in (i) above), by creating similar silly catch phrases for the then targeted economy, such as ‘Japan as Number One’ (even a namesake book was written by a charlatan called Ezra Vogel in the late 70s)’ , ‘Asian Tigers’, ‘Cool Britania’, ‘Celtic Tiger’, ‘BRICs’, etc. in coordination with the rigging of the respective stock market. In the meantime, gigantic amount of surplus money generated from the (i) above will go nowhere (as it is far beyond the possible scale of consumption (and reasonable investment) even by the richest), but to the purely speculative assets markets, not least property market. This process is developed by the fully coordinated campaign jointly promoted by the media and financial institutions as we have just witnessed for the past whole decade.

    (iii) Investment (speculation) gains will be channeled back to the speculative markets, to further fuel the now full-blown assets bubbles boosting at an alarmingly accelerated pace.

    (iv) Those who engineered everything pick a top and get away before the inevitable spectacular collapse of the bubble, as we are witnessing now.

    (v) The media start to push ‘repentance’ to the general public, saying ‘We all have been equally stupid thus must equally share the stigma and loss’, for the express purpose to further devour the public purse.

    So clearly obvious to anyone with minimumly functioning brain.

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  • At last! An article in the public domain that ‘gets it’. The last 50 years have been a debt fuelled binge for the UK, probably as a result of the Second World War. We just about bankrupted ourselves then and I think that has lead to a a feeling that the world owes us a living as a thankyou. Its not just welfare, but the whole govt spending machine. Vast swathes of govt spending are totally unproductive, if not actively disrupting production elsewhere. Welfare must be cut, bureaucracy must be cut. We cannot afford the masses of town hall pen pushers who do nothing but produce reams of documents about racial awareness, and social inclusion. Genuinely productive areas of the State (education for example) must be allowed to function more efficiently. Discipline must be reintroduced to schools. The days of letting illiterate 16 year olds out of schools must end. Restrictions on productive sectors of the economy must be reduced. All of this must be done, otherwise we face a descent into anarchy when the money gets turned off, which eventually happens to all unreformed debtors.

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  • Missingteddybear says:

    All I want are the basics: a decent home, food, basic clothing, books and a quality education for my children (when I get round to having them)! That’s all we had growing up plus a few small inexpensive presents at Christmas and a UK seaside holiday for a few days.

    I live in social housing (and have saved enough to buy when this crash is through), have a stable job and a modest small business that’s doing well and have built up a library of over 2,000 books from charity shops and jumble sales. The greatest problem in my eyes is the declining academic standards in our schools. A decline in living standards can, in my opinion only be a good thing. I used to feel utterly nauseous when my welfare dependant relatives used to go on annual Caribbean holidays.

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  • JU
    Well said.

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  • @JU

    Well said indeed.
    Do you mind if i copy your comment and paste them into an email, and email everyone still deluded in thinking that everything will return to normal soon.
    PS wanna stand for parliament mate, you’d get my vote

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  • japanese uncle says:

    tudorian

    No problem at all.

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  • sold 2 rent 1 says:

    At last the Spengler Winter has arrived.

    Oswald Spengler wrote the book “The Decline of the West” after WW1 as he saw the civilisation “The “West”, which had emerged around 500AD, on a downward spiral to collapse. As is happens what he was just seeing was the begining of the end and not the actual end.

    It was the creation of the Federal Reserve in 1913 that signalled the beginning of the end that we are now seeing.

    We are not just seeing the end of a 60 year debt K-wave, or the end 250 years industrial expansion (Bob Prechter’s outlook), but a 1500 year civilisation cycle on the verge of collapse.

    And for the Elliott wave guys, we are in the 5th wave of civilisations since the written word was invented 5,000 years ago

    Egyptian civilisation 3200BD – 1500BC
    Greek-Roman civilisation 1500BC – 500AD
    The West civilisation 500AD – now

    And if you look even further back the cycles just keep getting bigger and bigger and bigger…and they are all finishing right here right now.

    Stare into the abyss and you might see something positive through the carnage.

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  • s2r1,

    With all due respect, even a stopped clock is right twice a day. Nothing lasts forever – even a newborn child lasts only 80 years – but a lot of important things happen in-between! Spengler might as well have toured maternity wards pointing out that everyone is going to die. Nul points for his prediction.

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  • japanese uncle says:

    Any empire will be finished when the leaders lose the spirit of noblesse oblige. Remember the elites of this nation during the WWI, and to a lesser degree WWII (as seen in the bravery of the spitfire fighter pilots), when the so called elites at least showed certain element of noblesse oblige, as demonstrated by the number of casualties among officers many of whom came from OX-Bridge and public schools. Look at the elites today. Spoilt and rotten to the core by drugs and drinks. Can anyone in his right mind possibly show respect to the prime BTLer who happened to have been a prime minister for his sideline with free tenancy (which he and his wife must have loved dearly) at 10 Downing St, with his enthusiasm solely dedicated to his career and revenue after retirement at an investment bank, even at the cost of 100+ lives of the servicemen, for whom he could not have cared less.

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  • sold 2 rent 1 says:

    drewster,

    Nul points for your analysis of cycles, history and Elliott wave theory.
    Don’t disregard it because you don’t understand it.

    There are massive overlaps between Kondratieff and Spengler cycles and the price of gold.

    Kondratieff Cycle
    Spring 1949-1966
    Summer 1966-1982
    Autumn 1982-2000
    Winter 2000-now

    Spengler cycle
    Spring 500AD-1000AD
    Summer 1000AD- 1500AD
    Autumn1500AD-1918AD
    Winter 1918AD-now

    The autumn period is the glorious period in both cycles. This is the final boom before the collapse.
    Gold also falls in this period.
    Gold fell from 1980 to 2001 and has been rising ever since.
    Gold also fell in real terms from 1492-1918 and has been rising ever since.

    Many K-theorists were expecting a depression after the 2000 bubble burst in stocks but reflation was managed with a housing bubble. The K-autumn was extended at the expense of the final collapse being bigger.

    The same happened after the Federal Reserve was created in 1913. The West civilisation “autumn period” was extended for another 90 years at the expensive of the final collapse being much bigger. Money printing and debt growth has been the main economic driver since 1913.

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  • I think I read somewhere that the personality required to succeed in industry & politics is technically psychopathic. Could explain a few things.

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  • Yay GO JU!

    I like (v):

    “(v) The media start to push ‘repentance’ to the general public, saying ‘We all have been equally stupid thus must equally share the stigma and loss’, for the express purpose to further devour the public purse.”

    We’re being fed this right now.

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  • A very impressive post ju @ 8

    Reference these points:-

    (iii) Investment (speculation) gains will be channeled back to the speculative markets, to further fuel the now full-blown assets bubbles boosting at an alarmingly accelerated pace.

    (iv) Those who engineered everything pick a top and get away before the inevitable spectacular collapse of the bubble, as we are witnessing now.

    How are you currently protecting your savings ?

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  • voiceofreason says:

    I think personal responsibility will be the big new watch-phrase.

    I think 80% of the people are responsible. But 20% defo are not, and need to learn.

    Case in point: Mate of mine, one house in home counties, £410K mortgage, one holiday home in SWest, £140K mortgage. Both worked until Oct. One unemployed now.

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  • japanese uncle says:

    str2007

    I can only rely on the financial compensation scheme. If I am rich enough I might wish to go for gold, though.

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  • This is what really gets me that the media are pushing the idea that it’s all our fault because we’ve all been living a posh & becks lifestyle for the last ten years not working in some dull job trying to make ends meet which is the reality for most.

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  • charlie brooker says:

    @JU #15:

    I think Dave Spart was addressing this issue recently in a generic sense : namely examing the negative consequences of when power is held in the hands of the incompetent, the criminal of the down right megalomaniacal, in particular the wasting of human potential and the damage to the planet.

    As an aside, I surely can’t be the only one to have noticed that the crisis has struck first and hardest in countries where Murdoch has a significant share of the media.

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  • Thank you JU.

    Cash is King then – until the presses get up to full speed at least !

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  • japanese uncle says:

    charlie brooker

    Re: rupert murdoch factor

    I cannot agree more. Look at the outright degredation of the Times! whose quality has obviously been readjusted in line with the tabloids under his empire. I remember the Japanese broadsheet the Asahi Shinbun also remarkably degenerated after RM acquired its stake. The man is a plague. Coincidentally hardened soldiers & NCOs in the army here call useless spoilt officers Ruperts (according to Andy McNab).

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  • japanese uncle says:

    mrmickey said…

    I think I read somewhere that the personality required to succeed in industry & politics is technically psychopathic. Could explain a few things.
    ———————-

    Again I cannot agree more. Look at ‘Sir’ Freddy from Elm Street. In times of bubbles, the more you stupid and mad, the more you can be successful, particularly in large corporations, in which technocrats are generally more conservative.

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  • Ironic that the boss of a private equity outfit, arch asset strippers and debt burdeners of companies, should write an article like this. Why indeed should Asians earn so little, or come to that low paid workers anywhere in the world? One reason to date has been people like him who have benefited so well from huge increases in income, unjustly generous tax regimes and so on.

    Taxes should certainly be higher – especially for the very wealthy. But the stuff about self indulgent welfare and work ethic is typical of the new rich, who think they are rich because they work so hard and that the poor are poor because they are lazy. Welfare is an important part of a civilised society and has nothing to do with the present economic state, which is more a product of the highly paid financiers. Without welfare the poor would be an even worse state; look to America for an example. I would argue that public spending should be higher, along with a more equitable distribution of wealth. No doubt living standards will fall, for a while at least, but we still have a population that can produce goods and services; it is the people at the top of society – managers, govt, successful entrepreneurs, etc – who are supposed to harness these resources to create a prosperous and fair country. They have spectacularly failed.

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  • Light is often brighter from the East.

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  • JU,
    Whilst very impressed with your earlier post (8), I’m going to take issue with the idea of Noblesse Oblige amongst the ruling classes in the world wars (15). What about the likes of Kitchener?
    a) The man who got a lordship for the battle of Omdurman where he slaughtered 10000 dervishes using machine guns and artillery with the loss of 47 lives.
    b) The man that gave the world concentration camps in South Africa in 1899 in which a third of the civilian internees died
    c) The man that in 1902 signed the death warrants of men sentenced by court martial for following his own orders to take no prisoners
    d) The only man in the cabinet that in 1914 thought that the war would plumb the depths of manpower “to the last million.” and hence started recruiting en masse and ordered 2 million rifles from the US for them to use. From wikipedia: “Only 480 of these rifles had arrived in the UK by 4 June 1916. The numbers of shells supplied were no less paltry. Kitchener explained the efforts he had made in order to secure alternative supplies. He received a resounding vote of thanks from the 200+ Members of Parliament who had arrived to question him, both for his candour and for his efforts to keep the troops armed; Sir Ivor Herbert, who, a week before, had introduced the failed vote of censure in the House of Commons against Kitchener’s running of the War Department, personally seconded the motion.” Unbelievable. (Incompetence almost always goes hand in hand with lack of conscience, the inability to own up to mistakes, the ability to blame others, take credit for others work, etc)

    When Kitchener died in July 1916 he was held in very high regard by the public and his death was seen as a blow to the war effort! ?

    What about Haig and the other generals who never went near the front, but were perfectly happy to order every man over the top on the first day of the Somme to advance at walking pace in an orderly fashion because they assumed all the german machine guns would be out of action from the bombardment and because they held their own recruits in such contempt that they shouldn’t be trusted with doing anything other than walking – resulting in the loss of 20000 men – when the objectives weren’t met, some of the generals then blamed the men for not showing fighting spirit.

    What about Churchill?
    War office minutes 1919: “I am strongly in favour of using poisoned gas against uncivilised tribes. The moral effect should be so good that the loss of life should be reduced to a minimum. It is not necessary to use only the most deadly gasses: gasses can be used which cause great inconvenience and would spread a lively terror and yet would leave no serious permanent effects on most of those affected”
    This was also the man that suggested machine-gunning the miners during the 1926 general strike.
    Dresden.

    Don’t we always elect sociopaths to rule us? Isn’t Blair just the most recent? It’s part of being human – amongst our packs or tribes we expect others to conform to the social rules but we are happy to put the biggest bully in charge to protect us from other tribes. When we needed someone to talk the talk against Hitler in 1940 Churchill was the man. Everything else he did was a disaster from the Dardanelles campaign to the deluded idea that the british empire would last a thousand years (well I suppose he did say IF the british empire lasts a thousand years), when in reality it lasted three years longer than the thousand year Reich.

    You might have a point about the upper levels of the middle classes (I’m british – i’ve got to split hairs about class definitions) fighting alongside the tommies and the battle of britain fighter pilots, etc., but as for the ruling elite……….

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  • JU
    “I think I read somewhere that the personality required to succeed in industry & politics is technically psychopathic. Could explain a few things.
    ———————-

    Again I cannot agree more.”

    Ok, I think I’m probably agreeing with you from your later post!

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  • Spot on JU and letthemfall. All wealth is the result of the creativity and work of the majority, combined with the natural resources that are our birthright.
    Through the generations the rich and powerful few have robbed us of this wealth under their ‘economic systems’, state or privately run, little difference.
    Essentially we are fed with the crumbs from their table with the promise that the crumbs will get bigger, the harder we work. Then when things go awry we pay for the privelege to keep working for them, and they keep their riches and power.
    The idea that we live in a society of equality of opportunity is a joke when the cards are stacked against you when you were born.

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  • A start would be a system that redestributes the wealth in the land and resources that are the right and the product of us all, so we all start on an even playing field. Land value tax?

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  • What utter tripe this is! I’ve been following this site for 2 years just to keep an eye on and get a different perspective on the UK house market but it’s just becoming a total joke. Why don’t you all go out with plackards saying “The end is neigh” or something instead of kissing each other’s fat arses on a web site?

    1. The market is cyclic, usually in a kind of fibonacci style 5 good years 2-3 bad years. The years that are good get too optimistic until things crash and the years that are bad are too pessimistic causing way too drastic measures. Taking it a little easier and slower in both cycles would lessen the impact and make for a better society.

    2. None of you believe in what you say, none of you. If you did you would already have sold what assets you have, disconnected the Internet and headed to a better place to be. Put you f-ing money where your mouths are instead of whinging over some tax increases, bank bail outs and temporary job cuts. The West is still in the best position by far. Yes the Chinese and rest of Asia have become serious contenders but guess what, they’ll also start demanding welfare systems, better schools, nice cars, holidays to exotic places like Liverpool. All of a sudden there’s a MASSIVE market opening for export.

    3. Uk specific. I’m not from this island so it’s not hard for me to see what’s wrong. The whole country has been run by the big engine called London. All of London has been driven by the big engine called the financial industry with London being Europes financial centre. With very little manufacturing left there’s little to soften the blow the financial crash has caused. BUT…this country is still a good place for entrepreneurs and inventors. Britons are skilled in trading and for example Vodafone didn’t go from nothing to the worlds largest telecom operator by luck. Even with all the lay offs and busted companies, have a look outside for Chist’s sake! Do the motorways look busy? Yup. Do most people have a job??? Yup.

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  • japanese uncle says:

    phd in bubble

    For Kitchener, Haig and Churchill, I know generally how cruel and selfish they were. Nevertheless elites as a class collectively were clearly prepared to sacrifice their own lives for the public (apart from the question that the two wars were really just; personally I believe they were totally unnecessary as is always the case, just to serve the profits of war mongers and death merchants)

    Churchill in particular, was an egent of the House, one of the executive mastermind of WWII, including the Pacific theatre ultimately responsible for engineering Pearl Harbour, its a public knowledge.

    It may have been inappropriate to cite the casualties of the elites in the two world wars.

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  • I think I am in love with Japanese Uncle.

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  • Luminosity can have that effect.

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  • Japanese Uncle – are you Japanese? Are you suggesting Churchill ‘masterminded’ Pearl Harbour? That’s nonsense.

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