US finds the economic gas, and reaches for the end of crisis
29 Aug 2008 [0 Comments | 238 views]
Did you hear that? Was that the sound of the fat lady singing? Is it over? Has the great economic crisis of the late noughties turned out to be nothing more than the mild blip of 2008? Yesterday saw the release of revised official data on US economic growth. And the data says the US expanded at an annualised rate of 3.3 per cent in the second quarter. This compares with the original estimate of 1.9 per cent expansion. And the markets loved it; the Dow soared 212 points and at close of play yesterday stood 500 points up on the August low. To put these latest figures in perspective, anything between 2.5 and 3.5 per cent is considered to be on par with the historical trend – so actually it appears that the second quarter saw growth at the upper end of what is considered to be sustainable.
So the bulls come out to play, and the optimists look smug and say “told you” everything was fine really, but maybe the real lesson from this announcement and the way it was so warmly received is that the markets still haven’t got it. Their heads remained buried in the sand, oblivious to the deeper forces at work.
Wishful thinking, weights on shoulders, and heads in sand
29 Aug 2008 [1 Comment | 221 views]
Spare a thought for poor old David (Danny) Blanchflower, arch dove at the Bank of England Monetary Policy Committee. "I feel a weight on my shoulders," he said when talking to Reuters, yesterday. Poor old Danny Boy, he reckons he has failed to convince the rest of his interest rate-setting chums how serious things are and is rather taking it all personally, as if somehow the economic crisis is all his fault.
And while you are in the mood for being sympathetic, spare a thought for Britain’s retailers. They would rather forget the summer just gone, said the CBI yesterday. The employers' organization released its latest survey on the state of the High Street on Thursday, and boy, it was really awful.
But then again, maybe it is the Office for National Statistics who should be getting our sympathy. It is receiving no end of flak. Recently the ONS reported another set of healthy figures for the High Street. "This can not be," said our retailers and those who apply common sense to their economic reckoning. The CBI report just gave these critics of the ONS even more ammunition.
Come to think of it, maybe the ONS doesn’t deserve our sympathy after all. Don’t forget, its data has been used by the optimists to help them avoid the vision of reality.
Mr Blanchflower is worried. "I feel that things I have been fearful about have come to pass and I have actually been pretty accurate in what's coming and I have failed to convince the others of what is appropriate.
European inflation may have peaked – is it in time?
29 Aug 2008 [0 Comments | 193 views]
The Eurozone and its neighbours seem to have caught a nasty dollop of US misery. Economic woe is spreading, but at last good news, real good news, seems to have emerged on inflation. Maybe the Eurozone can shake off the jitters of mid-2008, and get back on track?
The circle rotates – Japan prepares to spend its way forward
29 Aug 2008 [0 Comments | 234 views]
It’s funny how these things work. The US and UK economies expanded rapidly on debt – it was unsustainable – but years of good times was the result. In Japan, misery was the order of the day – the economy lurched from one crisis to another – it became known as the lost decade. Yet, in some ways, Japanese businesses and consumers were doing what many argue US and UK businesses and consumers should have been doing. They were saving.
But now, everything seems to have flipped. While the UK, US, Australia, Spain and several Scandinavian economies seem hamstrung by a legacy of too much spending, Japan is sitting pretty.
According to Bloomberg, Japanese companies now have cash equating to 11 per cent of their assets...
Keynes famously argued that in times of a recession, the last thing you should do is save – it may make sense for individuals, but for the economy as a whole this is a disaster.
The snag is, though, there is a danger that Keynesian economics can lead to an ever growing mountain of debt, as each crisis is avoided by getting people spending.
UK to contract next year, warns economics group
28 Aug 2008 [0 Comments | 212 views]
The most damning assessment yet was published on the prospects for the UK economy by the economics consultancy Capital Economics this morning. Their central projection is for the UK economy to contract modestly next year – and recover only very gradually in 2010. But their report also hints at the possibility of a much more serious economic slowdown than that.
House prices down again, says Nationwide – it’s the biggest fall ever recorded
28 Aug 2008 [0 Comments | 175 views]
Can anyone be surprised to learn house prices fell again in August? The fall may have been entirely predictable, but it is still worth looking taking a closer look, if only so that we can tut-tut and nod sagaciously with a little more gusto.
Average price was down 1.9 per cent in August, according to the latest report from the Nationwide. That was the second biggest monthly fall announced so far in this year of big drops. But how does this compare with big falls seen in the past?
Capitalist Russia is subject to the same economic concerns as the rest of us
28 Aug 2008 [0 Comments | 199 views]
As David Milliband said this morning on the Today programme, when the Soviet Union invaded Hungary in 1956 or Czechoslovakia in 1968, no one questioned how the Russian stock market might be affected. It seems unlikely Khrushchev gave two hoots about the stock price of companies in 1956, other than he may have been quite pleased to note any sell off in the West. In 1968 Leonid Brezhnev was probably equally indifferent on the fate of the global stock markets.
It is not like that today. The Russian stock market has fallen by 18 per cent since the beginning of the month. Investors are nervous. And no doubt Dmitry Medvedev really is bothered by it all.
Earlier this week
Three million working-age households still not working
28 Aug 2008 [0 Comments | 192 views]
If you want to know what really needs fixing in the UK it is this. According to data released by the Office of National Statistics this week, there are no less than 3.06 million working age households in which no one over the age of 16 is working.
As recession bites, what lessons can we learn?
27 Aug 2008 [0 Comments | 202 views]
So the UK may have already entered recession. If not, it is at least tottering on the brink. Even the official figures now confirm this.
But where were the forecasters when the seeds to this economic crisis were being sown? Those who based their economic judgement on common sense saw this coming. Those who based their forecasts on data, turned out to have got it completely wrong.
So what lesson can we draw from this?
Why recessions can be good
27 Aug 2008 [0 Comments | 183 views]
Recessions are nasty, but is it possible they are also necessary. It is a cliché, but is it not the case that medicine can be very unpleasant.
It seems there are two theories about recession. One idea sees a recession as a wasted opportunity. If the economy has the potential to expand by, say, 2 per cent a year, then if it fails to expand one year, then the economy will always be 2 per cent smaller than it would otherwise have been.
And so recession must be avoided – the cost of recession will last forever.
The truth is, however, that this idea is quite absurd.
During a boom, inefficiencies creep in. Silly ideas get adopted and magnified. Inefficient businesses thrive, some business can thrive even though the fundamental premiss upon which they were based was false.
Only a recession can put an end to these bad practices.
