Thursday, 17 November 2011

Four more years

The Bank of England are forecasting a sharp downturn in economic growth next year.

After four years of negative interest rates, double digit fiscal deficits, quantitative easing, a 25 percent exchange rate depreciation, and massive bank bailouts, the UK economy is heading for another recession.

The Bank of England's response to the crisis isn't the solution, it is the problem.


Jim said...

I said at the beginning of this crisis that the best result we could home for was a Japanese style lost decade (or more) of low or no growth, but stable social conditions.

The alternatives were deflationary depression (with mass unemployment, societal chaos etc) or hyperinflationary bust (with very similar consequences).

So far so good.

dearieme said...

@Jim: yep, I'd settle for the lesser evil - though with our Continental friends trying to keep their great folly afloat, we'll be lucky to be even stagnant. Still, a good government could use the decade for some very useful reforms. But we have Cameron and Clegg - a huge improvement over Blair and Brown, to be sure, but probably inferior to M Mouse and D Duck.

Jim said...

Apologies for typo - should say 'best result we could hope for' of course.

I think we (as in everyone - media, public, politicians, the Occupy crowd) need to realise what we have is as good as its going to get for the foreseeable future. There's no good thinking growth of 3-4% (or even 2-3%) is going to come along and whisk us away to the sunlit uplands. Not going to happen. We only managed that sort of growth when on the debt fuelled sleigh ride of the Noughties.

Unless someone invents some new off the wall technology that revolutionises our entire way of living (free fusion energy for example) we are stuck in the low/no growth rut for a good length of time yet.

Stevie b. said...

So Alice, what's your solution now?

Stevie b. said...

Well I guess you answered my question a few posts ago:

"There is only one way that the UK can recover from this crisis. Tighten monetary policy to restore positive real interest rates. Balance the budget and pay off government debt. Reduce the size of the government and generate space for permanent reductions in taxes for working families. Reform the benefits system to create incentives for work rather than unemployment. Break up monopolies, and downsize and privatize state owned banks."

Given the very fragile nature of the global economy, over what sort of time-scale would you envisage the above? I suppose if the Germans ride to the rescue at the last millisecond, some of it could work - but if they don't?

davidb said...

Stevie, that is the right prescription.

The banks wont lend because they know house prices are 20% overvalued. Whole chains of house movement are at a standstill. So housebuilders wont build, and a big chunk of the workforce becomes underused. Meanwhile interest rates for savers are pitiful so those who spend their interest, ie the retired, are beggared to keep house prices artificially high. Its all unintended consequences.

We are doomed if we dont grasp the nettle. New Zealand style. What does the state really need to provide. Everything else, out of. And that includes foreign military adventures and aid to nuclear powers with bigger navies than ours and space programs.

Anonymous said...

Ah but Mervyn's little secret plan of inducing inflation and blaming the world market 'No it's not my fault nothing I did caused this inflation' by his love of QE to devalue the pound. This inflation if left to run for say 10 years will half the debt to income ratio and so houses are reasonably priced and most people have sensible debt levels. Shame about the pensioners and savers though they will be broke and left to live off benefits, which will continue to be the last resort. Those of us of a certain age have seen this happen before to our grandparents now it's coming our way and we don't like it.