Wednesday, July 16, 2008


Better to be 'Mad with the Truth than Sane with Lies' on the Economy

It all started with some US banks and mortgage providers lending injudicious sums to people who could not afford to pay them back. It progressed with specialists including such debts in financial packages sold worldwide, thus spreading the virus to the whole body of the international economy. In the UK we hoped we would escape lightly as we were allegedly not 'overexposed'. Northern Rock soon collapsed that idea and it has slowly become clear since then that the gflobal economic crisis has some way to get worse before it gets any better.

One sign was the recent lead article in The Economist on Britain's Sinking Economy. Since then all the quality papers from the Times to the Independent, has forecast that recession is looming ine3vitably. The signs are unmistakable that the fifth largest economy in the world is in the process of shrinking. The shares of homebuilders like Taylor Wimpey are in free-fall and sales of blue-chip retailers Marks and Spencers are fast going backwards, or, rather, downwards.

Growth has to shrink for two successive quarters for a recession to be 'official' but at least one national columnist, Ashley Seager, has announced that it is 'already here'.

i) house prices have slumped by 13% since last August and may shed over 30% overall during the downturn; most lenders gave up handing out mortgages some time ago.

ii) City firms have been shedding thousands of staff over te past few months.

iii) the government, desperate to reduce expenditure is reducing public expenditure thus creating more unemployment.

iv)inflation is rising at the rate of some 4%, a 15 year high- some, like John Major, claim the real figure is double that- and soon the Bank of England will have to push up interest rates to cause the recession which is the only sure fire way of beating this persistent of economic beasts back into its cave.

v) economic growth of 0.8% during the first quarter of 2007 has run throughout subsequent quarters at: 0.9, 0.6, 0.6 and, for 2008's first quarter, 0.3. Seager predicts the next two will deliver the reductions to make recession official. During the early 1990s we suffered six quarters of shrinkage and Seager thinks we might cop for this again.

vi) the giant US mortgage providers Freddie Mac and Fannie Mae have had to bed baled out by the US government to head off a crash which could have led to a worldwide banking collapse. This suggests the worst may be yet to come and that Gordon's final period in government will be shrouded in economic gloom and other portents of defeat. Gloomy I know, but, as Bertrand Russell said, 'It's better to be mad with the truth than sane with lies'.

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