Thursday, July 1, 2010

Adam Posen yesterday said that the economy could be at a tipping point

Borrowers warned of mortgage crunch

Bank of England interest-rate setter Adam Posen yesterday said that the economy could be at a tipping point. Mr Posen commented in a speech that he had "laid awake for a number of nights" worrying about the state of the economy. He said: "The UK economy is potentially switching between two states a recovery, which we are now in, albeit perhaps an initially weak one ... and the renewal of a severe recession if not outright deflation."

Posted by mark @ 12:52 PM (2731 views)
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7 thoughts on “Adam Posen yesterday said that the economy could be at a tipping point

  • Strong words…..

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  • Elsewhere today i made a link to a post from the forum (its quite long but i think very interesting). Its dated March 2008, but the interesting thing is this:

    http://www.housepricecrash.co.uk/forum/index.php?showtopic=124082&st=0&p=2111955&hl=ftse%20correlation&fromsearch=1&#entry2111955.

    “Also as the outsourcing of labour to Asia increased so did global wage arbitrage. This led to an influx of cheap goods from Asia which we binged on using excessive credit growth. The errors of our policy makers were that they focused on prices and therefor the CPI as a measure of inflation and completely ignored credit growth. However, there was dowward pressure on the CPI due to the above mentioned wage arbitrage and outsourcing of labour, not to mention that a stealth commodity bullmarket was also underway, so this did not feed into prices on the CPI until post 2005. So the BOE and government made the grave error of treating inflation as a price phenomenon rather than a monetary one: Inflation is the growth of money and credit,not whether or not your imported dishwasher is going up in price or not. Yet at the recent BOE testimony they have not learned a sinle thing. They are still focusing on the CPI as a measure of inflation. in 2003-2007, instead credit growth continued to grow to epic proportions until we reached the point where for every £ of real GDP growth we had over £3.50 of debt to achieve this. Even as interest rates started to rise they still did not slow down credit growth, if anything it only increased. ”

    The point is on the way up we ignored credit growth as a measure and to me it seems that this argument can be put forward in reverse. However as i have said, my position fwiw is clear on this issue but i may of course be wrong. So perhaps that explains why people are relaxed about or even encouraging inflationary pressures, measured solely by CPI?

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  • Asian are now refusing to be enslaved and cheap labour no longer applicable…………they fight for their labour rights.

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  • easybetman says:

    Yes CPI only measures price level (and also a hedonically adjusted one) and it is flawed. If the egg of price is down by 10% and the sales are up by 20%, then it is all ok but CPI will be -ve and central banker will panic. If price level is the only measure then Tesco would have gone bust when they started this ‘pile it high and sell it cheap’ businss model…

    Central banker won’t let overpriced asset and wages adjust then we will have a Japan style experience (less pain but long), not end of the world though.

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  • happy mondays says:

    @ 2, When will the british refuse to be enslaved by debt? & fairplay to the Asians!

    RC Debt Monkeys

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  • mark wadsworth says:

    Re what Techie says, it is also important to distinguish between UK domesitc wage inflation (i.e. cost of services) which was 4% to 5% for the past decade and inflation with imported goods which was negative 2% to 0% in the same period. So there’s always more than meets the eye.

    As to the topic of the post, if we assume that Pesto’s figures are correct (see earlier post) there ain’t going to be much bank lending for the foreseeable future.

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  • mark wadsworth says:

    Re what Happy Mondays says, we will stop enslaving ourselves with debt once we accept that house prices DON’T always go up and that they DON’T make us richer even if they do (in fact rising prices make us poorer at the same time we feel richer) ESPECIALLY if they are only going up due to ever more borrowing and ONCE the banks stop lending like topsy (which is almost bound to happen sooner or later) and AS SOON AS The Home-Owner-Ist brainwashing stops (which will be never, actually – and we can’t do anything about because of the Poor Widows In Mansions).

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