Double Dipping

Posted

Sadly for those with a crude mind, I am talking economics not something else.

You may be aware that we re-entered recession in the last quarter for the second time in recent years, hence the term ‘double dip recession’.

I have to admit that I thought we would escape such a scenario with very minor growth of along the lines of 0.1%.  But instead we shrunk by 0.2%.

It is far from the end of the world, it is more of a technical recession than anything anyone will notice, but it will reduce confidence and sentiment which are important for economic recovery (remember what you used to feel like around 8 years ago when you could get cheap credit?).

I shall tackle two questions.  Firstly, who’s fault is it?  Secondly, what can be done about it?

As you know, the country is massively indebted as you are probably aware.  This is hugely the responsibility of the previous Labour government, both in terms of building up a huge public sector, huge spending as if there was no possibility of a rainy day (remember Gordon telling you he had abolished boom and bust?  Ahem), encouragement of the financial sector which is not a bad thing but pretty much at the expense of all other sectors (and terrible regulation), the minimum wage, the culture of dependency and not letting the banks go bankrupt.  The list could go on.

That is the background.

Over the last two years the Coalition government has done various good things which should bear fruit in the long term like cutting corporation tax and reforming planning laws.  However government spending has continued to increase – it hasn’t gone down, all this talk of cuts is quite fanciful.  I am only willing to give the government a rating of 5/10 so far.

The main thing is that I just fundamentally believe that the credit boom and erosion of society and the general well-being of the country, and our place in the world was destroyed to such a great extent that we cannot just get over it like that.  We are arguably in a worse place than we were before the recession.

We need to expand our export markets badly.  The government has made only a half-hearted effort in helping.  Do you know we export more to Ireland than China, India, Brazil and Russia put together?  Ireland is really in the shit economically – the other countries have GDP increases of roughly 4% to 10%.  We need to sell to them!

One only needs to look at Japan – a country that arguably had a larger financial sector boom and bust than we did, back in the late 1980’s and is still suffering for it now – in and out of recession, interest rates at 0.  Very limp growth when not in recession.  But the country survives.  Though Japan does have other things holding it’s economy back, such as a rather older population and very minimal immigration.

Companies that were badly placed to survive the recession or what were on their dying legs such as Woolworths – went bankrupt.  Corporate world is much healthier and I think I am correct in saying that corporations have more cash to spend than ever in real terms (you might want to check that though).

So why won’t they spend?

The question is who is going to buy any extra products that extra staff produce?  The government cannot afford it.  And banks cannot lend any more money to consumers.  And consumers have maxed out their credit cards – and others are saving just in case they lose their jobs.

It is hard to say this but people need to pay for their errors.  Companies paid for their errors.  The Labour Party have paid as they are no longer in government.

But banks didn’t pay for their errors.  We paid for them.  Stupid, absolutely stupid and reckless decision by Gordon Brown and the Labour Party.  Yes, I know it would probably have deepened the recession in the short-term and there may have been some contagion throughout other banks especially in Europe but it isn’t exactly as if Europe is doing any better than us right now – 3 quarters of negative growth now for them – worse than the UK.

And the consumers haven’t paid for their reckless indebtedness.  I know it is easy for Mr don’t even use an overdraft to say but I didn’t contribute to this mess, neither did those who borrowed sensibly, for example mortgages at 3x your earnings.

But those who took out mortgages at reckless levels, yes encouraged by your banks but still your own sodding decision are almost holding the UK economy and savers to gunpoint by having to have interest rates at 0.5%.  Because if interest rates go to 5% or something, then there will be a load of repossessions and this is political hell for the government.  So interest rates will stay very low.  After all the governors of the Bank of England who decide, probably have mortgages to pay too.

But why should I and all the other sensible people, both savers and sensible borrowers pay for the reckless borrowers?  If I had known that reckless decision making would pay, then I would have made reckless decisions.

But I and everyone else now knows that being reckless pays.  Cheers – I’m off to get totally wrecked whilst you all pay off your credit cards, ho ho ho!!

(actually I cannot afford to get wrecked)