Reply to: UK economy will be back in growth by late 2009

[Gonzo]

The man who bought that country to its knees. It took Maggie years to repair the damage.

There are some who argue that it was the imposition of the controls that were a condition of the 1976 IMF loan that allowed the economy to start to readjust. He didn't like it at the time, but perhaps Denis Healey should be credited with saving the UK economy last time that Labour fliped it up.

As Radice rightly argues, there are various explanations for the causes of the IMF crisis. But however it began, the result was a dramatic reduction in international confidence and the fear that sterling would collapse. It was generally believed that the situation could be redeemed only by an international loan that required the government to make certain economic "adjustments", to convince the IMF that the loan would not be squandered. Denis Healey, by then Chancellor of the Exchequer, thought the price had to be paid. Tony Crosland, the foreign secretary, did not. Neither did I.

Radice rightly reports that, in the cabinet, I alone "backed Crosland to the end, but later conceded that after all, Healey had been correct". In fact, I was eventually convinced of Healey's view, graphically expressed at the time by Gavyn Davies, then economic adviser to the prime minister. The "markets wanted blood", and had to be propitiated by an unreasonable sacrifice. As we now know, the markets based their demands on Treasury statistics that turned out to be categorically wrong. The sacrifice for which they called was a reduction in the public sector borrowing - a result achieved partly by cuts in social services. In fact, it turned out that the Treasury had grossly overestimated the size of the public sector borrowing requirement. The cuts were unnecessary.

Yet Healey was right. At that moment, in 1976, survival required the government to pay the market's price, which amounted to providing proof that it would abandon socialism in favour of stability.

OK, these are comments by Roy Hattersley on a book by Giles Radice but that's no reason to discount them. They were there at the time and now have the benefit of a load of hindsight with which to adjust their viewpoints.

[Pickle2]

One difference between Japan and the UK is that Japan are a nation of savers. Wheras we are a nation of spenders.

But you are in danger of letting the tail wag the dog. The Japanese are a nation of savers because of the bursting of the debt bubble and the resulting deflation.

You will see a rush in the UK and US for people to pay down debts and save money. Ineed, the US savings rate just hit a 14 year high as reported here. Doesnt sound too inflationary does it?

http://www.marketwatch.com/news/stor...64}&dist=msr_4

[Bagpuss]

You might think like that : but there are millions of chavs who will disagree. First chance they get they will be spending like it is 2007 again.

Admitedly they wont get a chance this year.....

I don't think like that, I am pointing out how herd mentality and expectations drives recessions or booms, just as much as the restriction/increase of cheap credit.

For every person (myself included) pointling out the inevibility of the housing bubble bursting, there were 3 times as many thinking it was sustainable and fuelling the boom even further.

With recessions this operates in reverse, with a popular view that things will can only get worse and hence a lack of commitment to making large purchases becoming ever more widespread.

[Fred Bloggs]

End result: inflation, another boom in credit and a temporary feel good factor that does nothing to solve the real crisis in the British economy -which is that it doesn't make enough.

I'm emigrating.

I agree and I share your thoughts.

However, I don't see anywhere to emigrate to at the moment that is so much better than the UK? The whole world is *****d at the moment.

[BrilloPad]

were

slumps are driven by expections and herd mentality, just as booms are.

Boom= House prices will rise for ever, it's different this time, I'll but a new holiday/car/widescreen etc. with my credit card

Doom= House prices will fall 40%, I might lose my job, I can't afford a new car/holiday etc.

You might think like that : but there are millions of chavs who will disagree. First chance they get they will be spending like it is 2007 again.

Admitedly they wont get a chance this year.....

[BrilloPad]

In the Labour party conference of 1978. Jim Callahan (PM of the time) said we cannot buy our way out of recession .. well do we ever learn ...

The man who bought that country to its knees. It took Maggie years to repair the damage.

[BrilloPad]

Not growing, probably bumping around at the bottom. And ok maybe 2009 is a bit optimistic.
My point is it will be sooner rather than later.

9 months is soon? when does soon end?

personally I think Q409 and Q1 10 will be flat : growth in Q2 10 following the next election. but I consider that medium term and obviously alot can happen between now and then

[DocP]

Doom - Peak Oil

The stimulus package will result in hyperinflation. This is when the govt will reduce it's debt by making your money and investments worthless. That's their solution to the debt problem.

World oil production has peaked and supply constraints are responsible for the current financial crash.

1. Oil Prices are rising again
2. There won't be enough oil to support food production
3. Oil for transport will be prohibitive
4. Oil price inflation will push up the price of everything

Cheap oil has allowed us to overpopulate the planet, but not for very much longer.

In the great depression, those in rural areas were not too badly affected as they could grow their own food. However as we have a much larger urban population now it's going to get really nasty.

The last great depression was caused by a loss of confidence. This one is caused by real physical shortages. The depression will not end until these things are brought in to balance.

Happy days indeed.

[Green Mango]

In the Labour party conference of 1978. Jim Callahan (PM of the time) said we cannot buy our way out of recession .. well do we ever learn ...

[Bagpuss]

One difference between Japan and the UK is that Japan are a nation of savers. Wheras we are a nation of spenders.

were

slumps are driven by expections and herd mentality, just as booms are.

Boom= House prices will rise for ever, it's different this time, I'll but a new holiday/car/widescreen etc. with my credit card

Doom= House prices will fall 40%, I might lose my job, I can't afford a new car/holiday etc.

[sasguru]

I agree with all that : but why does it mean we will be growing by late 2009?

Not growing, probably bumping around at the bottom. And ok maybe 2009 is a bit optimistic.
My point is it will be sooner rather than later.

[sasguru]

One difference between Japan and the UK is that Japan are a nation of savers. Wheras we are a nation of spenders.

Indeed, cultural behaviour is often, wrongly, ignored in economic theory.

[BrilloPad]

Sas, look at what happend in Japan after their QE efforts. What makes you think the goverment will get this one right? QE is designed to create inflation, but it will fail. There is no way we will print fast enough to replace all the credit that is being destroyed.

And who wants to borrow in the environment? The new money will just sit hoarded in banks.

Inflation is a red herring. Dont believe the hype.

One difference between Japan and the UK is that Japan are a nation of savers. Wheras we are a nation of spenders.

[ace00]

I'm emigrating.

Yeh - well don't come here. We're full mate, can't help. Try Scotland, they'll take anyone.

[Pickle2]

Never in the history of past recessions has such a stimulus been applied, so no one knows what will happen.

Eventually the quantitative easing will kick in with a wallop.

End result: inflation

Sas, look at what happend in Japan after their QE efforts. What makes you think the goverment will get this one right? QE is designed to create inflation, but it will fail. There is no way we will print fast enough to replace all the credit that is being destroyed.

And who wants to borrow in the environment? The new money will just sit hoarded in banks.

Inflation is a red herring. Dont believe the hype.