My thoughts are that Bob got it bang on -
Deckchairs and Titanic come to mind!
I was talking to a money manager recently and he described the UK government as "children playing with matches".
I was reminded of a statement made by the Federal Reserve Bank that went
"The US economy appears to be making a transition from the rapid rate of expansion experienced over the preceding several years to a more sustainable average pace of growth"
That statement was made in February 2007 and already back then the first CDOs and MBSs were struggling to sell and house prices had ceased to rise. Children playing with matches!
So let's look at where the Good Ship Great Britain is right now -
- The prices for things we need to live is increasing rapidly - i.e. inflation.
- At the same time, asset prices are now falling - deflation.
- Gov. debt is partially linked to RPI - debt inflation.
- Real GDP is falling - recession.
- Nominal GDP is steady or even rising - inflation.
- Assets falling leads to collateral falling leads to debt costs rising.
- Falling collateral leads to money markets rehypothecating (pledging the same collateral to multiple creditors).
All that looks like an accident waiting to happen! Grinding stagflation if we are lucky!
We shall know when the real recession starts to bite when unemployment figures start to rise meaningfully. And that would be here and in the US. These things usually start in the US and the contagion spreads East.
This hapless government of schoolchildren has managed to have over 25% of its debts linked to RPI - which means that it can no longer easily inflate its debts away - a process known as financial repression.
If you want to survive the coming downturn and even prosper, have real assets - things that are built, mined, pumped out of the ground, or even the ground itself. You will also need real money (e.g. gold or silver coins) so that you can buy the distressed assets of people who are desperate.
But nobody will want your IP, your online business, your goodwill, your rented corner store, your crummy job as a consultant, or a warehouse full of cheap tat from China.
I think it all boils down to having clarity of purpose, collaboration among stakeholders and a culture that encourages innovation. Having the right processes in place ensures that objectives are achievable and the proper resources are available. It looks like it could be an interesting period ahead!
Those are the kind of platitudes that this Ship of Fools (aka government) has been spouting. What is needed is a government that, instead of whistling Dixie, actually faces reality.
Or as Ayn Rand put it
“You can avoid reality, but you cannot avoid the consequences of avoiding reality.”
