Are we entering the biggest recession since the 1930s ?

[Justin Smith]

Many of us have thought we were going to get a massive recession after shutting down much of the economy for months on end during the pandemic, and also huge inflation (15% or more is perfectly possible) from the many billions pumped into at at the same time. But I reckon it's going to be even worse than many originally thought, partly because of the war in Ukraine, but also because many people (esp in their 50s and 60s) have dropped out of the labour market. They were at home off work getting used to not doing much with their money (because they couldn't) and basically got out of the habit of working. This was exacerbated by the recent relaxation in the rules as to what people can do with their pension pots (taking it our as cash rather than having to invest in an annuity). This is one of the main reasons for low unemployment at the moment, and because there is no longer free movement of labour, we cannot compensate for it like we could before. Even worse, those 50 and 60 somethings are, because of their experience, some of the most productive in the economy, so the effect on the economy will be even more significant.

But it could get even worse because many of these early retirees will find their money does not last as well as they thought (esp with high inflation) so they will be re-entering the labour market, possibly whilst we are in a serious recession.

I am really worried, hold on to your hats, this is going to hurt, and possibly for years and years.

Can anyone reassure me otherwise ?

 

[Picture Bute]

If only the UK could join some massive trading block, buy and sell goods freely with them and share a flexible workforce. Oh, I know, a trade deal for chocolate bars with Australia.....that'll fix it.

 

[MBE2017]

If only the UK could join some massive trading block, buy and sell goods freely with them and share a flexible workforce. Oh, I know, a trade deal for chocolate bars with Australia.....that'll fix it.

Here we go again. Some people just cannot move forward.

As to the question from the OP, no one can say how deep any recession or depression will be for sure, it’s a self fulfilling prophecy, sooner or later one will come along.

Things look like they could be hard for many people, but as supposed business people, you either sit back and do nothing, or do your best to take advantage of the opportunities, because there will be plenty.

There could be more wealth created in a downturn than any other time economically speaking, for those that have a plan.

 

[Casually made]

Ridiculously disproportionate economic measures to combat what quickly transpired to be a mild flu virus has certainly placed us in a sticky situation

The BOE now has two choices.....

1) ramp up interest rates and end cheap credit and mortgage rates throwing millions of over exposed brits into further cost of living chaos

2) Leave inflation run and run the risk of devaluing GBP whilst also likely inciting nationwide riots and looting due to price of everything being ridiculous

Certainly fun times ahead

i Began preparing for this a year ago because i could see it coming and pulled everything out of stocks and put it into commodities this has worked as a fair defence strategy

Next year once the media starts going crazy over recession headlines it should spike the price of precious metals then i am planning on going cash heavy to begin picking up the deals


Also starting to think about bus models to start during

Insolvency and repossession are going to do very well

 

[Newchodge]

The BOE now has two choices.....

1) ramp up interest rates and end cheap credit and mortgage rates throwing millions of over exposed brits into further cost of living chaos

2) Leave inflation run and run the risk of devaluing GBP whilst also likely inciting nationwide riots and looting due to price of everything being ridiculous

Are you suggesting that these 2 options are alternatives? Please could you explain the mechanism by which ramping up interest rates will control inflation when that inflation is not caused by excess money supply?

 

[Casually made]

It is caused by excess money supply

They pumped half a trillion they didn't even have into the British economy which should never have been there

Increasing the base rate won't control inflation but it will slow it by stopping idiots spending money they don't have on crap they don't need

 

[Newchodge]

It is caused by excess money supply

They pumped half a trillion they didn't even have into the British economy which should never have been there

Increasing the base rate won't control inflation but it will slow it by stopping idiots spending money they don't have on crap they don't need

I thought the current inflation had been caused by the increased cost of gas, electricity and road fuels, plus supply issues cause by Covid and teh war in Ukraine? Do you mean they have had no effect?

 

[WaveJumper]

I thought the current inflation had been caused by the increased cost of gas, electricity and road fuels, plus supply issues cause by Covid and teh war in Ukraine? Do you mean they have had no effect?

Add to that list the supply issues from China and its the perfect storm

 

[MBE2017]

The UK would have taken a serious hit no matter what.

Italy, Spain and France are all near bankrupt, France wants to become the EU nations banker. This time, I doubt even the Germans will be able to help too much, the Euro could be at the start of the end for its short life.

The USA is adding a trillion dollars a month of debt, to it already enormous national debt, and many other nations are following similar economic paths. China has its own enormous problems, hard to be accurate regarding their economy since much of its debt is off its books.

The world is too entwined for ANY nation not to be hurt by downturns elsewhere, all we can hop is the UK comes out of the downturn faster, leaner, and with a bit of common sense.

At least until next time.

 

[NickGrogan]

If only the UK could join some massive trading block, buy and sell goods freely with them and share a flexible workforce. Oh, I know, a trade deal for chocolate bars with Australia.....that'll fix it.

So there were no recessions from 1972 until 2020 and the EU isn't in a recession right now? That's good news.

 

[NickGrogan]

Can anyone reassure me otherwise ?

No

 

[WaveJumper]

Interesting read on Chinese debt albeit this is from my archives but the situation will not have improved:

Could China’s Massive Public Debt Torpedo the Global Economy?

China might be the creditor to the world, but it is also riddled with debt. Between public and corporate debt, China is one of the most indebted large

warontherocks.com

 

[The Byre]

I thought the current inflation had been caused by the increased cost of gas, electricity and road fuels, plus supply issues cause by Covid and teh war in Ukraine? Do you mean they have had no effect?

Not much - with the notable exception of the hysterical overreaction to C19. Instead of telling people to carry on working, but take certain precautions, the government told everybody to stay at home and be paid furlough payments by the government, thanks to yet more QE.

We've had expensive oil before, we've had war before. These things do not help, but they didn't give us 11% inflation.

The mechanics of runaway inflation go like this -

Step 1 - the crisis that triggers a recession. Expanding base money and recapitalising the banking system doesn’t translate into inflation right away. The decade after a financial crisis becomes a time of oversupply of goods and commodities, drawing down of debt and lower demand for goods and services. Money in the real economy remains steady, even though the central bank balance sheet is high. The result is disinflationary.

Step 2 - stimulation. After years of grinding through that slow-growth environment, working off the oversupplied capacity, politicians usually turn to fiscal stimulus (QE and low interest rates) and that’s when things eventually start to get inflationary in terms of broad money supply and prices.

Step 3 - print and spend. Politicians print and spend too much fiat currency, creating huge public spending deficits and that can cause runaway inflation. So, when inflation is measured and found to be low or even negative due to excessive debt in the system, they aggressively print and spend.

Step 4 - the overshoot. Invariably, they do far too much print-and-spend but the consequences come much later and all that extra currency feels good for quite a while.

 

[Newchodge]

Not much - with the notable exception of the hysterical overreaction to C19. Instead of telling people to carry on working, but take certain precautions, the government told everybody to stay at home and be paid furlough payments by the government, thanks to yet more QE.

We've had expensive oil before, we've had war before. These things do not help, but they didn't give us 11% inflation.

The mechanics of runaway inflation go like this -

Step 1 - the crisis that triggers a recession. Expanding base money and recapitalising the banking system doesn’t translate into inflation right away. The decade after a financial crisis becomes a time of oversupply of goods and commodities, drawing down of debt and lower demand for goods and services. Money in the real economy remains steady, even though the central bank balance sheet is high. The result is disinflationary.

Step 2 - stimulation. After years of grinding through that slow-growth environment, working off the oversupplied capacity, politicians usually turn to fiscal stimulus (QE and low interest rates) and that’s when things eventually start to get inflationary in terms of broad money supply and prices.

Step 3 - print and spend. Politicians print and spend too much fiat currency, creating huge public spending deficits and that can cause runaway inflation. So, when inflation is measured and found to be low or even negative due to excessive debt in the system, they aggressively print and spend.

Step 4 - the overshoot. Invariably, they do far too much print-and-spend but the consequences come much later and all that extra currency feels good for quite a while.

You are talking theory. I prefer reality.

Gas and electricity pricess and road fuel prices. Yes the price of oil has previously been as high, but the profit margins of the suppliers were much lower. Current prices are not justified by costs, and are causing massive inflation. Why is that happening?

 

[The Byre]

You are talking theory. I prefer reality.

Reality is born of theory!

Gas and electricity pricess and road fuel prices. Yes the price of oil has previously been as high, but the profit margins of the suppliers were much lower. Current prices are not justified by costs, and are causing massive inflation. Why is that happening?

Oil, gas, grain, sausages, bread, cheese, houses and aardvarks have not changed in value, currency has.

If there are two shares in my company and my company is worth £1m, each share represents £500k of purchasing power. If I issue another three shares, each share will represent just £200k of purchasing power. The company does not become five times larger or more valuable, all that happens is that each share is worth two-fifths of the former value.

ALSO - Because Derrick glued his stupid face to the M25 and governments everywhere take their marching orders from an eccentric 16-year-old schoolgirl, we have deliberately restricted the supply of oil-based products - and that is everything! Especially food!

There is no price-gouging. The oil giants are admittedly making some more profit, but they often go years suffering losses. The price on the forecourts has been matching the oil price as a percentage at all price levels.

But if nitwit politicians prevent new refineries from being built and refuse to allow new pipelines and do not license new drilling operations, then when there is a shortfall caused by Russia going to war, we are out of options and bidding battles break out.

The time to go green was in the 70s when we of the green movement warned you what was going to happen. It's too late now to start whining and moaning about running out of resources.

You were warned back then - don't print money, stay on the gold standard and live sustainably. But no! Everybody had to go off in an orgy of buying things they didn't need with money they didn't have!

The party is over.

 

[simon field]

I thought the current inflation had been caused by the increased cost of gas, electricity and road fuels, plus supply issues cause by Covid and teh war in Ukraine? Do you mean they have had no effect?

Not to forget gross profiteering!

 

[Newchodge]

Not to forget gross profiteering!

Well yes, that as well, obviously.

 

[Justin Smith]

I thought the current inflation had been caused by the increased cost of gas, electricity and road fuels, plus supply issues cause by Covid and teh war in Ukraine? Do you mean they have had no effect?

They are contributory factors to the main cause. Suppressing the economy (to a greater or lesser extent) for nearly two years and at the same time pumping Billions and Billions of pounds into it. Even worse they spent many many Billions on unproductive stuff like test and trace (wasn't it £37 Billion ! ), money that has gone for ever with nothing to show for it, at least HS2 would have left a shiny new railway...... Whatever people my think about if it was needed or not, you cannot get away from the fact that economic suppression will cause a massive economic problem, in fact I can remember, back on the 11th March 2020, seeing Italy shutting down the north of the country and I was literally shouting at the TV "you cannot do that, have you any idea how much trouble that will cause !".
Increasing the interest rate significantly would affect demand in a whole load of ways, just one off the top of my head, people must be thinking what is the point in saving if it is effectively losing 10% a year ? I may as well spend it now.

 

[IanSuth]

Increasing the interest rate significantly would affect demand in a whole load of ways, just one off the top of my head, people must be thinking what is the point in saving if it is effectively losing 10% a year ? I may as well spend it now.

That works in theory BUT for it to counter recessionary pressures it relies upon consumers having spare disposable income to be able to make a choice with.

If Consumer A was taking home £2.5k post tax paying £1400 to a mortgage/council tax, £300 on food, £250 on a car lease, £100 petrol, £100 on their energy dd and £50 on a phone contract then they had £200 spare to save or spend on discretionary items.

If they are now still earning £2.5k (or even a small rise to £2.6k) but now are spending £1400, £350, £250, £150, £250, £50 (through just the rise in energy and food with the inability to escape car leases and phone contracts) they now have £50 (or maybe £150) before that rise in interest rates hits their mortgage.

So do you think they are more or less likely to spend their excess earnings even with higher inflation than interest rates or will they think "I am close to break even monthly, i need to at least put some away in case of an emergency/future price rises."

The elasticity of consumer demand is hard to measure/predict as it relies on peoples "gut feel"

 

[The Byre]

You two are arguing at cross purposes because one is going macro and the other is going micro.

The elasticity of consumer demand is hard to measure/predict as it relies on peoples "gut feel"

Apart from this, the example you site deviates from what actually happens as low-income families have a greater multiplier effect because they will spend any extra income immediately on consumables. (They have to - they are hungry!) It is the wealthy that put funds aside or buy gold coins for a rainy day. It therefore pays for a government seeking to boost an economy to give lower-income families additional funds.

Having experienced grinding poverty, I can assure you that as I counted the coins in the tin ear-marked for bread, the last thing we could have done is saved for a rainy day. When you are poor, every day is rainy!

But the elasticity of consumer demand is actually pretty easy to calculate and monitor. Where things fall down is when we make major changes suddenly. Then perception by consumers (public sentiment) plays a role - and there are no calculations for that!

 

[Newchodge]

people must be thinking what is the point in saving if it is effectively losing 10% a year ? I may as well spend it now.

That assumes that people have money about which to chose to spend or save. Many don't.

 

[IanSuth]

on BBC today https://www.bbc.co.uk/news/business-61879194

Asda has been tracking disposable income since the financial crisis in 2008 and is all too aware of the squeeze on consumers.
Its latest data shows households had, on average, £44 less a week in discretionary income in May compared with a year ago - a fall of nearly 18%. This is the amount of money left over after taxes and essential bills have been deducted and it is the third month in a row where disposable incomes have dropped to record levels

 

[The Byre]

Its latest data shows households had, on average, £44 less a week in discretionary income in May compared with a year ago - a fall of nearly 18%. This is the amount of money left over after taxes and essential bills have been deducted and it is the third month in a row where disposable incomes have dropped to record levels

This is a true reflection of what RPI really is right now and not the 11.7% claimed by the ONS. It ties in with similar stats measured in other countries. Getting a handle on RPI 'as it happens' is to try to hit a moving target of course. By the time you've measured it, it is somewhere else!

As people are being pushed to the brink of their existence, people who previously were able to make ends meet, albeit with little to spare, now find themselves falling behind on their rents, their car payments, utilities and everything else.

It is what happens when a government combines QE with fiscal irresponsibility. Where the fault lies is as plain as the nose on your face - but what puzzles me is why the opposition fails to point this out? (I can imagine why because their plans are as daft and as wasteful as the government's idiotic policies. Neither side's policies could survive arithmetic scrutiny at any level!)

Even old Mervyn King (former BoE chair) came out of hibernation to warn of exactly this. Other old-school economists have been doing the same and not just recently.

The media continue to ignore these warnings, preferring instead to air silly vox-pop pieces about struggling single mothers. The parallels with central Europe in the late 1920s are truly alarming!

 

[UKSBD]

It is what happens when a government combines QE with fiscal irresponsibility. Where the fault lies is as plain as the nose on your face - but what puzzles me is why the opposition fails to point this out? (I can imagine why because their plans are as daft and as wasteful as the government's idiotic policies. Neither side's policies could survive arithmetic scrutiny at any level!)

Probably because the only real thing Labour can do if they gain power is spend 5 years blaming everything on the previous government. Just like Conservatives did in 2010 - 2015

 

[MBE2017]

It is what happens when a government combines QE with fiscal irresponsibility. Where the fault lies is as plain as the nose on your face - but what puzzles me is why the opposition fails to point this out? (I can imagine why because their plans are as daft and as wasteful as the government's idiotic policies. Neither side's policies could survive arithmetic scrutiny at any level!)

I agree the reason why Labour fail to bring this up is, there plans were just as daft, but not as generous. They also had called for plenty of help for everyone believing the Tories would offer very little, only to find the Tories have moved almost as far to the left as they have.

Add to that, any political party trying to solve this problem will want everything possible at its disposal, kicking the can down the road is the UK’s favourite game after all, politically speaking.

July 4th will ram home how bad things are in the USA, it will cause a seismic shock when all those Americans rush to the stores, and realise they are unable to over eat this year. Instead of several trolleys of tat and low quality food, plus several trolleys of beer, they will have to reduce the amount quite severely this year.

 

[Bob Morgan]

Q: What did people in the UK use to light their homes before candles?
A: Electricity!

 

[Casually made]

It is comical that educated people in this forum genuinely believe the inflation is caused by the price of fuel and energy.

Fuel and energy demand was at a record low during the "pandemic" there would have been mass stockpiles hence why we mysteriously had that national "fuel shortage" about 6 months ago.

Then as soon as the Covid playbook draws to an end all of a sudden Putin decides its time to invade Ukraine and just like that we are told it's because of this the global economy is thrown into chaos ?.

Never mind governments like the UK had just spent 18 months wantonly pissing billions away on dodgy bounce back loans , baffling nationwide furlough schemes and sorting all their mates out with dodgy PPE and track and trace admin contracts.

I'm sorry to break it to some of you but you have been played.

Your government , your banks and your media outlets have taken you for an absolute ride

Now as usual the working class public are left to deal with the aftermath these people have caused.

 

[MOIC]

It is comical that educated people in this forum genuinely believe the inflation is caused by the price of fuel and energy.

Why do you think they're educated?

 

[The Byre]

July 4th will ram home how bad things are in the USA, it will cause a seismic shock when all those Americans rush to the stores, and realise they are unable to over eat this year. Instead of several trolleys of tat and low quality food, plus several trolleys of beer, they will have to reduce the amount quite severely this year.

Interestingly enough, you are not the first to point to this date as the day America wakes up to reality!

I looked at prices in the US last week and was shocked - in the country that always prided itself on cheap food and an abundance of fresh vegetables (produce, as they call it) is now shelf after shelf of processed gunk at eye-watering prices. Even Aldi had four sausages - perfectly ordinary, bog-standard sausages and nothing special - for $7.99. That's eight bucks - two dollars a sausage! WTF is going on over there? Lidl was sporting three steaks for $14.99 - total weight 15oz. A five-ounze steak? Two bites and the poor, wee, timorous beastie is gone!

I'm sorry to break it to some of you but you have been played.
Your government , your banks and your media outlets have taken you for an absolute ride

THIS!

And I have the proof. Week after week, crimes committed by major financial institutions are brought to light. And not just here, but especially on Wall Street and indeed everywhere. Yet another whistleblower from the Deutscher Bank mysteriously decides to kill themselves. Yet another record fine against a bank, yet more fixing of the LIBOR, more back-handers paid for by Koch Industries, yet more ****** money pours into the pockets of politicians who then fail to regulate cryptos, more blatant market manipulation ignored.

I could list at least one hundred such instances - and they all have one thing in common.

The media carefully ignored them all!

 

[simon field]

It is comical that educated people in this forum genuinely believe the inflation is caused by the price of fuel and energy.

Fuel and energy demand was at a record low during the "pandemic" there would have been mass stockpiles hence why we mysteriously had that national "fuel shortage" about 6 months ago.

Then as soon as the Covid playbook draws to an end all of a sudden Putin decides its time to invade Ukraine and just like that we are told it's because of this the global economy is thrown into chaos ?.

Never mind governments like the UK had just spent 18 months wantonly pissing billions away on dodgy bounce back loans , baffling nationwide furlough schemes and sorting all their mates out with dodgy PPE and track and trace admin contracts.

I'm sorry to break it to some of you but you have been played.

Your government , your banks and your media outlets have taken you for an absolute ride

Now as usual the working class public are left to deal with the aftermath these people have caused.

Where you gonna store all that ‘lectricity boy?

 

[UKSBD]

Where you gonna store all that ‘lectricity boy?

There was a time when you would order in an extra pickup full of logs and keep them stored for a bad winter, they encouraged everyone to rip out their fireplaces and replace them with electric fires that look like open fires though

 

[IanSuth]

There was a time when you would order in an extra pickup full of logs and keep them stored for a bad winter, they encouraged everyone to rip out their fireplaces and replace them with electric fires that look like open fires though

Except in Bristol where all the hipsters have bought wood fired stoves which are polluting the air worse than vehicles with very small pm 2.5 particulates

Claims wood burners are causing an increase in air pollution

The levels of air pollution have been above WHO recommendations for the last week

www.bristolpost.co.uk

 

[UKSBD]

Except in Bristol where all the hipsters have bought wood fired stoves which are polluting the air worse than vehicles with very small pm 2.5 particulates

Claims wood burners are causing an increase in air pollution

The levels of air pollution have been above WHO recommendations for the last week

www.bristolpost.co.uk

After cutting all the hedges, tidying up fallen trees, thinning out spinneys, etc. we had dozens of bonfires burning in the fields round us this year.

In the past people would have got there 1st with their chainsaws and pickups

It's still being burnt and creating the particulates, just in the fields rather than fireplaces

They should just make it a smoke free zone if it's causing problems there, makes no difference to us out in the sticks.

 

[IanSuth]

After cutting all the hedges, tidying up fallen trees, thinning out spinneys, etc. we had dozens of bonfires burning in the fields round us this year.

In the past people would have got there 1st with their chainsaws and pickups

It's still being burnt and creating the particulates, just in the fields rather than fireplaces

They should just make it a smoke free zone if it's causing problems there, makes no difference to us out in the sticks.

It is a smoke free zone - it is just people don't realise

Smoke control

To reduce air pollution, Bristol is covered by a smoke control order. Under the Clean Air Act of 1993, all of Bristol is covered by a smoke control order.

www.bristol.gov.uk

As an aside when i was young (still primary school age) we would be sent out unsupervised with a box of matches to burn the stubble. I still remember my late step brother trying to control the direction of the burn by weeing on it when the wind changed direction (he failed and a hedge got rather singed)

 

[estwig]

As an aside when i was young (still primary school age) we would be sent out unsupervised with a box of matches to burn the stubble. I still remember my late step brother trying to control the direction of the burn by weeing on it when the wind changed direction (he failed and a hedge got rather singed)

Brings a whole new angle to..................

P*ss*ing in the breeze!

 

[Jeff FV]

. I still remember my late step brother trying to control the direction of the burn by weeing on it when the wind changed direction (he failed and a hedge got rather singed)

Is that a euphemism?!

 

[SillyBill]

The new word for the government ministers to use is so obviously "global". Rishi can't go a sentence without mentioning it. It means they can brush under the carpet the ruinous, cataclysmic damage of their own lockdowns on their own economy. There is a reason inflation is tepid in Japan and crippling in the US (who printed the most incidentally), shortly followed by us and Europe. America is tightening quickest because the scale of their reaction to it demands it. Literally posting cheques to people in lieu of working and producing. And we don't think every single fundamental of how an economy should work is trashed in that process? And there will be no consequences apart from a bit more debt on the balance sheet? The supply demand imbalances have been appalling ever since; it could take a decade to fix out the mess and havoc wreaked on sensitive supply chains IMO. We allowed demand to continue by printing it effectively at the same as mandating supply to shut down, the level of money printed has been insane and the attitude of people to work in this country, already abysmal, is now even worse. We've come out of lockdown not with a mentality to pull our collective sleeves up and sort out our atrocious and embarrassing productivity levels but with a sense of entitlement to more "work life balance". I didn't expect the carnage to be so quick, that is the only surprise to me. I thought it'd be a slow tortuous process of reality hitting. It looks like this is coming down the track like an out-of-control locomotive though.

 

[Karimbo]

The BOE now has two choices.....

1) ramp up interest rates and end cheap credit and mortgage rates throwing millions of over exposed brits into further cost of living chaos

2) Leave inflation run and run the risk of devaluing GBP whilst also likely inciting nationwide riots and looting due to price of everything being ridiculous

Certainly fun times ahead

Except their hands are tied with respect to the fix. The UK has so much borrowing that they can't increase interest rate nowhere near the amount they need because it would make the debt obligation too high.

 

[Justin Smith]

That assumes that people have money about which to chose to spend or save. Many don't.

in answer to :
people must be thinking what is the point in saving if it is effectively losing 10% a year ? I may as well spend it now.

Many people have a shed load of money after the pandemic because they were unable to spend it on many of the things they normally would do, most obviously holidays. Many still aren't going on foreign holidays, partly because the travel industry still isn't back to normal after its massive disruption and partly because, surprisingly, many countries still have anti Covid measures in place and most people just don't want all that when they're supposed to be relaxing and forgetting about their troubles.

 

[Justin Smith]

Then as soon as the Covid playbook draws to an end all of a sudden Putin decides its time to invade Ukraine and just like that we are told it's because of this the global economy is thrown into chaos ?.

I do think the response to Covid by the democracies is part of the reason Putin invaded the Ukraine. He must have been looking at us and thinking if they go that far to try and limit deaths they won't do anything about Ukraine that puts any of them in any danger. And he was right about that, and for the same reason I do not think we would fight a Falklands war again (even if we had big enough armed forces to do so, which we do not anyway).
Unfortunately for him, he misjudged how strongly Ukraine would resist, thus giving them time for the West to supply Ukraine with massive amounts of weaponry (but no men, so no British have to die....).
So he has dropped the biggest bollock since, ironically, Hitler invaded Russia in 1941.