It is Obvious

Chris Rick has got altogether too much to say

Trigger pulled?

Posted by chrisrick13 on January 25, 2011

It is obvious: don’t just do something

For people such as myself with a, to say the least, pessimistic view on the economy of this country, the GDP figures are an “I told you so” moment.  It is too early though.  There is plenty of bad news out there, but it is too uncertain to say that it is yet the beginning of the end.  I find it amusing that a bit of snow might be the trigger that I have been talking about though.

The spin is out on these figures.  They will be revised.  That is true.  Does not happen a lot but down is an option.  One month of bad weather will not cause a change in economic policy – quite right.  What happens if we have two?  February has had more bad snow than December over many years.  The most problematic part of the numbers is that the consensus was for GDP to go up by 0.5%.  So all the ‘experts’, in the full knowledge of the snow and its effects, with many retailers reporting already, were out by 1% in their estimates.  I suspect Paul the octopus could do better (RIP).

I find I am repeating myself a lot no matter where I start from.  I will not apologise for that and will issue two repeats here.  First is house prices.

The GDP number, if ignored for what it is but looked at for its unexpected nature, has made all economic forecasts more uncertain.  It has added uncertainty that will further mitigate against house price rises.  Taken for its actual value it will have made another group of people unwilling to commit to a mortgage thus reducing demand from where it was just yesterday.  It will also cause another group to act further to reduce its risk from mortgage lending: the banks.  Expect borrowing on a mortgage to get more expensive and more difficult to do.

I am repeating more than BBC1 and Dad’s Army with my second point.  The rule of 70.  All economics is based on running economies with growth.  We are relying on cuts, increased taxes and growth to get us out of our economic mess.  The IMF has predicted 4.4% global growth for this year.  Chinese growth at over 8% is considered too high. A shrinking economy is not good.  Something like 2% is considered optimal.  With growth at 8% an economy will be doing twice what it is doing now in a little over 8 years.  China will not manage that.  But what of 2% growth?  This is something we aspire to.  Were we to achieve it then in a little over 8 years the economy would be close to 25% bigger than it is now.  Tell me what is going to happen for us to be doing 25% more of anything in 8 years time.  It simply cannot happen.  Push out to 18 years for a 50% increase.  Simply, it cannot happen.  We have to get used to 1) a period of economic pain while the nation’s spending is cut to the point where the nation can reduce its debt burden 2) living in an economy that has low or no growth 3) finding a way to manage a zero growth economy.  The best answer that I can think of is that we improve the efficiency of everything we do rather than just trying to do more.  That needs the whole population to change the way it thinks.  Given that the evidence is that not many of us are thinking at all, that might be tricky.

How about a revision to 0.1% shrinkage and then GDP for the next quarter coming in below zero?  In case you didn’t realise, that is a double-dip recession.  We are half way there.  Start reading the words of people who have been predicting double-dip.  Then get yourself some strong sleeping tablets.

It is obvious: don’t just do something – sit there…

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: