Byretorial- I predict five shillings saved!

Discussion in 'Time Out' started by The Byre, Oct 13, 2018.

  1. The Byre

    The Byre UKBF Ace Free Member

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    Business economics can have some pretty funky expressions - we talk about things like a dead-cat-bounce, moonies, funny-money and boiled frogs - this piece is about boiled frogs. And when I say boiled frogs, I mean you and me and anybody else who happens to live in the United Kingdom.

    The most important story of the year didn't make the headlines. All we seem to get is Brexit, Brexit, and more Brexit. The media is obsessed! And because they are all obsessed with anything and everything Brexit, fretting over turning every motorway in Kent into a lorry-park, the effect on cheese production, doggy passports and air-traffic, far more important stories are getting lost in the noise.

    But when Brexit fails to happen, this story will still be with us. And the national media will continue to ignore it. They will ignore it because it doesn't involve orange people from Essex, Royals, or Twitter. Worse still, the government will continue to ignore it - and they will do so, because it is a problem that they and the various governments before them have created. It is a problem so great, that the IMF issued a special warning about the UK economy and this time, it has little to do with Brexit. It goes far deeper than that.

    The International Monetary Fund studied the net worth of 31 advanced economies and some emerging economies, to provide a "comprehensive picture of public wealth". The report concluded that Britain's finances are the worst of any major economy and are deteriorating faster than any other.

    And by implication, the report accuses the UK government of cooking the books, of lying to the people.

    The IMF did what any good company accountant does for his or her employer. It drew up a balance sheet. It ignored the cooked books, i.e. the debt-to-GDP figure that countries like to hide behind and looked at the real figures - assets against liabilities. Assets included land and energy resources, liabilities included public sector pensions and of course our old friend, the national dept, which, after ten years of austerity, has gone from c.a. £800bn to c.a. £1.8 trillion.

    Using these new figures, the IMF team found that only Portugal has a lower net worth, but that the UK's net worth is deteriorating faster. Most countries they looked at had a positive balance sheet. They own more than they owe. The UK has a negative balance sheet.

    Like a company trading at a loss, the UK government has been shedding assets to cover the shortfall. It has sold the family silver, reduced the quality of public services and damaged the infrastructure of the nation and debt is spiralling out of control. The risk, says the IMF, of an inflation-fuelled recession is increasing rapidly.

    Inflation is when I pay £15 for the £10 haircut I used to get for five shillings, back in the days when I had hair. Inflation is when you just earn enough today to make the down-payment on a house twenty years ago. Inflation is when money loses its value. Inflation is when the government prints money to pay for its debts. Quantitative easing is accelerated inflation at some time in the future - the question is just when!

    The study found that the UK is severely exposed to inflationary pressures, because most government debt is either directly index-linked (e.g. pensions) or is indirectly index linked, such as public sector pay settlements. Quantitative easing has shortened debt maturity, leading to a far great susceptibility to rises in interest rates.

    So what will happen? I don't know! I don't even know when what it is that I don't know will happen!

    As an economist (of sorts!) I tell people I can predict anything, absolutely anything - except of course the future. Nobody can predict the future and only a fool would try!

    But economists can point to dangers. A recession could be triggered by a sudden Brexit, or a downturn in World trade, or a rise in interest rates or it could be triggered by something we haven't even thought about, like diseases, storms, war, or just an unlucky combination of things.

    Either that, or the UK gets a sweet deal from the EU, Trump comes to his senses, the Middle East calms down, Saudi Arabia says sorry and "I won't do it again!" Putin retires, the DUP drops its blood-red lines, the US does something about its colossal public sector deficit, interest rates stay low and the present government actually starts tackling poverty and our crumbling infrastructure. And Whistler's Mother wins the two-thirty at Newmarket.

    One thing I can predict with certainty - I won't need a haircut, so that's five shillings saved!
     
    Posted: Oct 13, 2018 By: The Byre Member since: Aug 13, 2013
    #1
  2. MBE2017

    MBE2017 UKBF Regular Free Member

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    I reckon two years before the next hard recession, but I could be wrong.
     
    Posted: Oct 13, 2018 By: MBE2017 Member since: Feb 16, 2017
    #2
  3. Newchodge

    Newchodge UKBF Big Shot Free Member

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    Globally or nationally?
     
    Posted: Oct 13, 2018 By: Newchodge Member since: Nov 8, 2012
    #3
  4. MBE2017

    MBE2017 UKBF Regular Free Member

    491 102
    Globally, and reckon it will be really bad.
     
    Posted: Oct 14, 2018 By: MBE2017 Member since: Feb 16, 2017
    #4
  5. Mark T Jones

    Mark T Jones UKBF Enthusiast Free Member

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    It would be kind of interesting to see a link to that report. I qualified that because it does beg the question of whether one could make any constructive use of it

    In my view, recession predictions are stopped clocks - sometimes they are right, but the information is still worthless. Now we are confronted with a minority of remoaners who are frankly desperate for a recession, just so they can chant ‘we told you so’.

    I guess success, be it personal, commercial or national lies in a fine balance between being positive and optimistic whilst making some concessions to the likelihood of a downturn at some point
     
    Posted: Oct 14, 2018 By: Mark T Jones Member since: Nov 4, 2015
    #5
  6. Mr D

    Mr D UKBF Legend Free Member

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    Cannot say you will be much wrong if at all.
     
    Posted: Oct 14, 2018 By: Mr D Member since: Feb 12, 2017
    #6
  7. Blaby Loyal

    Blaby Loyal UKBF Regular Free Member

    441 95
    "I predict five shillings saved!"

    Sounds like something Mr Micawber might say!
     
    Posted: Oct 14, 2018 By: Blaby Loyal Member since: Jun 12, 2018
    #7
  8. The Byre

    The Byre UKBF Ace Free Member

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    What I am trying to say is that the CDO (Collateralised Debt Obligation - for those of you playing 'The Home Game') collapse of 2007-8 was when the banks fell for their own Ponzi scheme.

    What the UK government is doing, is building a far bigger Ponzi scheme and when that blows up in their faces, the consequences will be far more severe.
     
    Posted: Oct 15, 2018 By: The Byre Member since: Aug 13, 2013
    #8
  9. Alan

    Alan UKBF Legend Full Member - Verified Business

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    What I can tell from your overlong post is the Government is selling assets to try and reduce debt but failing, is that what you are saying?

    So what is causing the increase of debt? Too low taxes versus too high social costs?

    From my limited understanding, the OBR think our current tax rates are pretty much on the summit of the Laffer curve, which means that increasing them may reduce tax take.

    So what to do? Let pensioners starve, reduce health care so more unproductive people die quicker?

    Maybe go to war and seize assets from asset rich countries, was a nice plan for an economically bankrupt Germany but that didn't really work out.

    What is your solution?
     
    Posted: Oct 15, 2018 By: Alan Member since: Aug 16, 2011
    #9
  10. ffox

    ffox UKBF Regular Free Member

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    Posted: Oct 15, 2018 By: ffox Member since: Mar 11, 2004
    #10
  11. The Byre

    The Byre UKBF Ace Free Member

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    No, trillion. Or as the OBR puts it - "General government gross debt was £1,763.8 billion at the end of the financial year ending March 2018, equivalent to 85.8% of gross domestic product (GDP), 25.8 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure."
    That's like asking a Highlander how to get to Drumnadrochit - "Well, I wouldn'ey start from here!"

    Exactly ten years ago, the UK government bailed out the UK banks. The Queen asked the simple question "Didn't anyone see this coming?" an the simple answer to that simple question is YES!

    In the Spring of 2007, the first CDOs ('Collateralised Debt Obligations' - big bundles of mixed debt put together into c.a. $1bn funds and sold on the open market) were starting to fail. Derivatives of CDOs known as Synthetic CDOs could not find buyers. By August of 2007, banks were calling in the risk assessors and alarm bells were ringing at full volume.

    A multi trillion dollar black hole was opening up under the US and UK's banking systems and that annoying yellow light on the dashboard had been blinking on and off for several years. Unsecured private debt had spread like a virulent disease and many financial journalists commented that it could not go on like that.

    The banks poo-poo'ed those warnings as scare-mongering!

    This is a far, far bigger black hole and it is opening up right under the US and UK governments. 2008 was just the overture.
     
    Posted: Oct 15, 2018 By: The Byre Member since: Aug 13, 2013
    #11
  12. Alan

    Alan UKBF Legend Full Member - Verified Business

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    You remind me of Fraser in Dad's army - we're doomed
     
    Posted: Oct 15, 2018 By: Alan Member since: Aug 16, 2011
    #12