Economic Woes Spiral Ever Downwards

swall101

Well-known Member

sidicks

Banned
sharger said:
Hands up who thinks plan A is working? Gideon please do the honourable thing and fall on your sword......

BBC News - Bank cuts growth forecast close to zero
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:
 

BISHI

Well-known Member
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 ..
 

Steven

Senior Moderator
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.
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
 

sidicks

Banned
Steven said:
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
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
 

domtheone

Distinguished Member
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.
 

karkus30

Banned
sidicks said:
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
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.
 

Steven

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

Dave

Distinguished Member
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.
 

RMCF

Distinguished Member
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?
 
D

Deleted member 13294

Guest
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
So... it isn't given to the banks?
 

damo_in_sale

Well-known Member
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

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.
 
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damo_in_sale

Well-known Member
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 ..
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.
 
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MikeTV

Well-known Member
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?
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.
 

damo_in_sale

Well-known Member
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.
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.
 

sidicks

Banned
karkus30 said:
That's a bit simplistic, but is true as far as it goes, but surely you accept that it extends further.
Indeed, but it is NOT money given to banks.

karkus30 said:
Bonds are exchanged for QE thus raising the bond prices and reducing returns to zero which affects savers and pension holders.
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!

karkus30 said:
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 ).
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.

karkus30 said:
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.
Except of course the actual cuts to public spending are minimal in comparison to the overspend, do this argument does not follow.

karkus30 said:
There are also stores of Toxic assets within the nationalised banks which may well result in further losses.
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
 
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sidicks

Banned
Steven said:
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
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
 
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Trollslayer

Distinguished Member
Hands up who thinks plan A is working? Gideon please do the honourable thing and fall on your sword......

BBC News - Bank cuts growth forecast close to zero
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.
 

MikeTV

Well-known Member
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.
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.
 

MikeTV

Well-known Member
I do because the UK is keeping it's AAA rating where other countries who should do well are getting downgraded.
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.
 

EarthRod

Distinguished Member
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.
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.
 

karkus30

Banned
sidicks said:
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
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.
 

karkus30

Banned
damo_in_sale said:
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.
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.
 

domtheone

Distinguished Member
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.
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.


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.
:D

Perfect summary.
 

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