Wednesday, Sep 30, 2009

Something you won't be hearing about at the Labour Party Conference

Guardian: Lack of credit and weak banks will harm UK recovery, IMF says

In this depressing report the IMF predicts "bad loans to be particularly heavy this year in commercial real estate and buy-to-let mortgages" and goes on to assert that "the financial sector was only halfway through the writedown process, with American banks further advanced than those in Europe. US banks have recognised 60% of anticipated losses against 40% for banks in Britain and the euro area." So how many of these predicted losses relate to mortgages?

Posted by quiet guy @ 09:11 AM (811 views)
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3 Comments

1. stillthinking said...

Labour go on and on about the need to counterbalance UK savings with deficit spending, a worthy cause. Except that the UK isn't and hasn't been saving, our trading partners have been. All our deficit spending does is to accomodate their persistent desire to save while hobbling us further with debt.
How can we seriously talk of the need for global rebalancing of trade when our position is dependant on somebody somewhere continuing to save and export to the tune of 180 billion? The IMF are talking about our requirements to -continue- being net importers.

Wednesday, September 30, 2009 09:49AM Report Comment
 

2. stillthinking said...

There are a slew of articles on this same report, which I will mix and match paraphrased quotes. Points made are that future "bank earnings are not going to be sufficient to cover their losses" i.e. the government -is- going to end up passing real losses to the taxpayer irrespective of the nest-egg comments (this is for the next 18 months).

Also, that "global credit isn't going to be sufficient for borrowing requirements". This point made so weakly seems a bit crucial. In other words, despite how much the exporting countries save, all the savings of the German, Chinese and Japanese and others are not going to be enough to cover projected public and private credit demand in the debtor countries. This is the crowding out idea again which we are now apparently nearly at. On the plus side that looks like inflation in nominal prices. On the bad side government spending being essentially consumption is going to knock out private investment, the only method we have of growing economic output, meaning inflation in a shrinking economy, which is stagflation.

For all the talk the crisis has passed, IMF opinions like this suggest that the worst is truly to come and where is the exit from the downward spiral? For the UK only brutal Thatcherite reforms over the next decade without the social cushion of North Sea oil revenues...


So unless Labour wakes up and starts cutting pretty swiftly, we are possibly ending up in an inflationary environment without the wherewithal to increase domestic production, quite aside from domestic skills requirements and playing catch up in a brutal already established global market.

Wednesday, September 30, 2009 11:46AM Report Comment
 

3. drewster said...

How do the IMF come up with these figures of 40% and 60%? They can't peek inside the banks' balance sheets. These figures, though plausible, look like have been plucked from thin air.

Wednesday, September 30, 2009 01:10PM Report Comment
 

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