Economic Woes Spiral Ever Downwards

Discussion in 'Politics & The Economy' started by swall101, Aug 8, 2012.

  1. swall101

    swall101
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  2. sidicks

    sidicks
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    Oh, so we're back to referring to the Chancellor as 'Gideon' are we?
    :facepalm:

    Remind us what your plan is - presumably spending lots of money we don't have - threatening our credit rating, risking our cost of debt spiralling out of control and deferring actually addressing the debt problem into the future.

    In the meantime we get a meaningless, temporary and artificial higher GDP number...
    :suicide:
     
  3. BISHI

    BISHI
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    What we need is economic growth and that won't happen till the euro zone sorts itself out. Plan b will be just as ineffective as plan a because we have no influence over the events that are / would scupper both ..
     
  4. Steven

    Steven
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    The markets would likely punish such an approach yes, but equally it is apparent that giving cheap taxpayer's money to the banks to hoard is not working. The BoE might as well give it directly to the people
     
  5. sidicks

    sidicks
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    Why do we keep having to correct this nonsense? How many more times?

    The money is NOT 'given' to banks.

    QE money is used to purchase government bonds from banks, pension funds, insurance companies and asset managers holding these assets on behalf of individuals and companies.

    Bonds are exchanged for cash.

    Giving money directly to the people would be very different (and costly)!!!
    :nono:
    Sidicks
     
  6. domtheone

    domtheone
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    A decade it may take to correct the wrongs of the last lot. 0% growth (give or take a %) aint too bad all things considered.

    Shame that the government is too scared to actually seriously cut spending and use the funds saved for something more worthwhile.
     
  7. EarthRod

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    If you had put the question cleanly without the 'fall on your sword' stuff I would have answered.

    As it is I have nothing else to do...




    ... So my hand goes up.
     
  8. karkus30

    karkus30
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    That's a bit simplistic, but is true as far as it goes, but surely you accept that it extends further.

    Bonds are exchanged for QE thus raising the bond prices and reducing returns to zero which affects savers and pension holders.
    QE creates inflation and drives prices of necessities up which is happening at the rate of around 3% per annum ( ie fixed wage earners have lost around 12% from their wages ).

    Also the taxpayer bailed the banks directly. While they tell us that the ROI will pay the taxpayer back I'm highly sceptical because of inflation and of course the lost use of that money which has resulted in greater cuts than perhaps would be necessary within direct public services. There are also stores of Toxic assets within the nationalised banks which may well result in further losses.
     
  9. Steven

    Steven
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    I was referring to the cheap money given to banks to lend to British businesses which evidently is not happening. Ask before making assumptions. How many more times indeed
     
  10. Dave

    Dave
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    Perhaps pertinent and perhaps not but I have just spent a week working all around London in both the richest (the City, Westminster etc) and the poorest (Brixton, Lambeth etc) areas.

    I'm pretty much a stranger to London but what struck me is that everywhere you go in the UK the effects of the economic crisis are incredibly apparent, very little building, empty shops, derelict buildings. The only place where this isn't apparent is in the City of London. It's clearly one of the most prosperous areas I've ever seen. There are no empty buildings, indeed some areas are packed with cranes building more.

    Strange really considering it's a financial crisis we are suffering because the finance capital of the UK and Europe doesn't really appear to be experiencing much of a crisis at all where as the rest of the country is being hammered.

    I realise that the Euro crisis isn't helping matters but really, growth is essential to the economic recovery and the government are consistently under delivering on their promises. Combined with the financial industry pretty much giving the middle finger to every tax payer by still making vast profits (not incidentally a bad thing except from a PR point of view) and giving nice fat bonuses to it's workers (yes I know banking is not all investment and bonus laden before sidicks tears my arms off) it all adds up to a total mess.

    Confidence in a free market economy is an absolute imperative for success and as things currently stand it's totally lacking. Osbourne can come out with all the guff he likes, he's failing to instil the essential ingredient for growth and failing massively with every economic forecast and analysis.

    The banks are essential to the recovery but so are the people, perhaps the government are putting the cart before the horse to the detriment of us all.
     
  11. RMCF

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    I watched news reports of this today and again its more bad news for the UK, to add to the woes of the Eurozone.

    I don't understand a lot of the technicalities of macroeconomics (despite having an 'A' Level in Economics) but a thought popped into my head. "So what if a country has a couple of years of zero growth?".

    Surely countries don't have to grow every single year? Do they?

    I know that its a fine line to negative growth and recession but if a country can stop from going into decline, even if it means zero growth for a short period, is that not acceptable? Countries have been around for many many centuries, do 2 years of zero growth really have such significance?
     
  12. Squiffy

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    So... it isn't given to the banks?
     
  13. damo_in_sale

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    Of course it is correct that money is not 'given' to banks.

    However, gilt yields are piledriven drown by QE as currently enacted, and as such the value of gilts shoots up. This benefits...

    1) those who hold existing Gilts. This will include banks, Pension funds, asset managers holding real folks money etc.
    2) those who want to sell new Gilts, ie government.
    3) those who buy Gilts when their value subsequently increases.
    4) I am sure many other groups.

    But it does represent a massive distortion of the market by government and represents a tremendous mispricing of assets and risk. And I am of the view that we've had far too much of this in the last ten years or so, and we are suffering the result.

    When buying government Gilts is so attractive, and the supply of those Gilts is so abundant, even an economist might start to wonder whether this might negatively effect the amount of funds that might otherwise have been directed at the real economy?

    Until the market clears organically I think we are screwed mate, and that will take a long time.
     
    Last edited: Aug 9, 2012
  14. damo_in_sale

    damo_in_sale
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    I think it wont happen until ordinary folk feel much more comfortable with their level of debt. So another five years at best, ten in total since 2007, is my best guess, but could be much longer.
     
    Last edited: Aug 9, 2012
  15. MikeTV

    MikeTV
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    Well, it's a measure of a government's economic success or failure, isn't it? I think that's the main reason for people's concern. From a long-term perspective, obviously a couple of years of zero growth followed by massive growth, wouldn't be any concern at all! But how likely is that? It's been 5 years since the financial crisis, so you have to ask yourself why haven't we started to see signs of a recovery? Could it be that the politicians haven't got a clue what they are doing? (that's a rhetorical question)

    From a technical perspective, growth is important because we are borrowers - or to put it another way, we are spending money that we don't yet have, and without any growth, that is the road to ruin. So long-term growth is an economic imperative.
     
  16. damo_in_sale

    damo_in_sale
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    I think the politicians are big part of the problem Mike. They distort markets, they did so before the bust by inducing a whopper of a boom, and now we are suffering from the market correction.

    Right now, regarding growth, there is little the politicians can do that time cannot do better, at least that's what I think.
     
  17. sidicks

    sidicks
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    Indeed, but it is NOT money given to banks.

    Well savers who have matched assets and liabilities are unaffected - it is only those who have invested 'short' but with long liabilities who lose out.

    Those who bought into bonds when yields were much higher will still receive those same yields if they hold bonds until maturity!

    Except that inflation of 3% per annum would be considered low by historical averages (when QE wasn't being used), so to blame QE for a 12% real loss in earning power is highly misleading.

    The current impact of QE on inflation is small, although clearly that could change in the future.

    Except of course the actual cuts to public spending are minimal in comparison to the overspend, do this argument does not follow.

    The 'toxic assets' are highly unlikely to cost us anything - the banks incur a vast first loss piece before the taxpayer is at risk and even then there are significant assets to offset against those liabilities.

    Further the banks are paying the taxpayer handsomely for ultimate guaranteeing the risk, resulting in a profit for the taxpayer.

    As market conditions stabilise, the vast majority of those 'toxic assets' are being shown to be anything but toxic, as a number of us explained they would.

    Sidicks
     
    Last edited: Aug 9, 2012
  18. sidicks

    sidicks
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    Steven
    :blush:
    Sincere apologies, I was assuming that you were referring to QE when your post clearly made no reference to it.

    I was clearly jumping the gun, for which I apologise.

    However, the second point in my earlier post still stands - this is money lent, not given to the banks on which they pay interest, albeit at a low rate.

    This is very different than giving the population the money to pay down debts etc.

    Sidicks
     
    Last edited: Aug 9, 2012
  19. Trollslayer

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    I do because the UK is keeping it's AAA rating where other countries who should do well are getting downgraded.
    The OP seems to think the the UK economy is affected only by events inside the UK.
    Could ther be a better chancellor? Perhaps but it's going to be a matter of riding out the storm for quite a long time yet.
     
  20. MikeTV

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    The government is far from benign. They are effectively using taxpayer's money to subsidise bank lending (and the banks then go and award themselves massive salaries and bonuses). QE is a stealth tax that benefits borrowers - and the majority of borrowers in our economy are the banks, and the government itself. Higher taxation and reduced public spending depress the economy, whilst wealthy bankers get richer and richer. That's why the current policies are so economically damaging.

    We did have a whopper of a property boom - but that wasn't what caused the financial crisis. It was reckless overseas lending by our banks. But it is UK taxpayers that are paying the cost of their recklessness and criminality. This is not a crisis of "our" making, but one made entirely by the banks. There may be a "market correction" in house prices, but that has little to do with our current economic woes. People aren't defaulting on their mortgages, generally speaking. Our economic problems are caused by the global financial meltdown, and the government's policies (ie. propping up the bank's balance sheets and cheap lending) are not helping the economy.
     
  21. MikeTV

    MikeTV
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    We only kept our rating because we seem to have no qualms about printing more money (which we can always use to pay off our debts). So nothing to do with our economic success/failure.
     
  22. EarthRod

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    Are we paying off our massive debts?

    Or are we struggling to pay off only the interest by printing more money?

    As I see it the government is deferring the problem for future generations because it does not have the ability to reduce the massive debt. No industry, huge population and too many imports.
     
  23. karkus30

    karkus30
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    Yes we agree on the first point academically.

    Not sure which savers have matched asset and liabilities ? If interest rates are rock bottom and inflation is higher than interest rates then you are making a loss.

    No, you are definitely wrong on the inflation. Although there are always market price differentials they fluctuate up and down. Bank lending has dried up and GDP is stagnant. That should result in natural deflation, but the expanding money supply is causing inflation in opposition. The only expansion of the money supply I can currently see is QE. This is the problem when you interfere with natural order. Peoples wages are not going up, in fact many wage earners have been forced to take a decrease.

    I agree they are minimal, but they still have a value. If you were waiting for a hip replacement then you might find it has been cancelled. Although its not a monetary loss directly, it is a value reduction. That has been the case in other areas.

    The housing market and the interest rate are artificially pegged at the moment. I don't have a crystal ball, but I do know that artificially low interest rates, stagnant GDP and more unemployment are time bombs. The central bank does not dare move the interest rate higher, while on the other hand it is piling in QE which creates artificial stability in the stock market. It's a very difficult tight rope to walk. If any of those start to show significant trending it could result in another more serious crash. All the assets might become toxic, we just don't know, but this artificial stability cannot be a sign of health. I hope you are right about.

    Banks are giving with one hand and taking away with the other. I understand we are getting an ROR but public investment has been at an ongoing cost and will never be recoverable. Tax is dynamic, the public are not investors in banks, we did not have ready capital, instead we incurred long term debt and a diversion of resources. I'm not sure if straight returns ever catch up with the destruction wrought. The plain truth is that the public should never have to bail out the banks, they are private businesses and should have been treated that way.
     
  24. karkus30

    karkus30
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    I don't think this is well understood, because politicians have spun their version of the truth to the public. The Politicians are suddenly seen as the all seeing protectorate as they hold their enquiries and promise ferocious crack downs, while they are the cause of all the problems. Over spending and meddling in the natural order of things for their own popularity.

    As the video goes. Some fools borrowed too much, some idiots lent it to them and some sucker has to pay it back. The Government being the fools, the idiots being the banks and the suckers being the tax payer. They let the banks allow ridiculous amounts of risky borrowing and hid their heads in the sand, they fuelled it by promising banks total immunity from bankruptcy.
     
  25. domtheone

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    I don't see any government taking real steps to address these issues. They know it'll cause real hardship for a great many and that'll ultimately lose them the next election. Most of the political elite are only interested in bribing the electorate for 4 years to ensure they get another term.


    :D

    Perfect summary.
     
  26. MikeTV

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    Except the financial crisis wasn't caused by the government borrowing. It was caused by reckless lending by the banks to subprime borrowers in the USA.

    I agree that the idiots that lent to them were indeed the banks. And that governments did encourage them - under the banner of libertarianism - they reduced the restrictions. And the suckers - well, we agree about that too.
     
  27. karkus30

    karkus30
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    It was direct and indirect lending, Government encouraged economic growth by encouraging increased lending to consumers fuelling the housing bubble, the effect was a debt fuelled GDP increase ( Gross Dept Product ) Under the banner of Neo Liberalism they reduced the restrictions. Libertarians would never countenance the current banking system anyway, you can't just pick and choose the bits you want to apply in a libertarian economic manifesto.
     
  28. sidicks

    sidicks
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    Pensioners holding annuities and DB schemes which are well matched would be immune to changes in interest rates.

    Other savers have chosen to invest in short term savings products rather than lock-in long-term rates.

    That is not what the Bank of England said. On a range of different metrics, they estimated QE had impacted CPI by less than 1%.

    Toxic assets is just a misnomer - the vast majority of these potential liabilities are unpaid mortgages backed by property.

    To suggest that 'all the assets might become 'toxic' is a stupid statement, unless you think that the housing market will crash so that houses are worth zero.
     
  29. MikeTV

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    The point is it's not government borrowing or spending, despite what the bankers and tory cronies would have us believe. It was consumer borrowing, and reckless bank lending.
    Well, there are plenty of non-libertarians who have no respect for the current banking system either!
     
    Last edited: Aug 9, 2012
  30. blackrod

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    While it may be true that government borrowing or spending didn't cause the crash - it is certainly a major reason why it will take a hell of a long time to recover from it!
     

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