Recession, what recession? Don’t panic!

Latest: From the G8 summit in Japan, Gordon Brown said he still believed he was the best man to steer the country though the current troubled economic times. “I think if we look at the experience I have of dealing with the economic agenda, our ability to talk with world leaders at this difficult time, it is very important,” he added. “The test of leadership is to take people through difficult times.” And Brown crony Baroness Vadera a Business minister pronounces: “”I do not agree that there will be a recession.” Do we feel assured?

What is it about people in NI, that they get engrossed in every twist and turn of the sectarian debate but seem to shrug off the state of the economy? Is it fatalism or feather- bedding? Yet this could be the week when all of us in these islands finally woke up to the prospect of hard times ahead. This from the Mail, never knowingly understated. As bank shares tumble, could Bradford and Bingley, whose shares are feared “worthless” become another Northern Rock?
A recession by the way is three consecutive quarters of what is quaintly called “negative growth” UK public spending is likely to take a new hit, if the forecast of a £7.5 billion black hole, exclusive to the Independent, is correct.

Things are getting really bad, when Polly Toynbee, the keeper of Labour’s conscience, lays it on the line so starkly in the Guardian..

the signs are ominous. Contrary to assertions, Britain may not be better equipped to weather a storm that looks darker with every day. Advertising in newspapers and television is falling off a cliff, always an early warning, as shares go south. Job losses cascade in thousands from vulnerable sectors – the City, estate agents, shops and media. Unemployment points upwards: figures will swell artificially as incapacity claimants and lone parents are diverted on to unemployed lists. This is an oddly still moment, contemplating a crash that so far has hit few badly. High food and fuel prices are here to stay, house prices will go on falling, interest rates may rise in fear of stagflation, and some predict a 1930s depression worsened by climate change and rivalry for scarcer oil and water.

Telling people to eat their leftovers ranks with Edwina Currie telling old people in cold houses to wear woolly hats. Wise – but impertinent from politicians. Labour needs new answers if anything half as bad as predicted descends, requiring screeching U-turns in economic policy. That is near impossible for the man in charge for 11 years, when Tory party political broadcasts will be playing Brown saying “No more boom and bust” on an echoing loop.

Prospects are no better in the Republic. as the Irish Times reports an 8-10% fall in the banking stocks in the first hour of trading this morning, while the cabinet meets to plan big public spending cuts – well ahead of the British.

Although the property bubble has burst, the NI Executive meanwhile, are still sticking with a note of cautious optimism, according to the latest statement I can find. Time for an update, Nigel?

  • billie-Joe Remarkable

    The over-long, unedited, rambling diatribes and history lessons that pass as posts on here would suggest that this site is as “engrossed in every twist and turn of the sectarian debate” as anyone on Talkback or those lovely rioters at the Ardoyne shops each 12th.

  • willowfield

    Sure any fool would know we’re into a recession.

    This is us for the long term until we end our reliance on fossil fuels.

  • slug

    Brian

    Thank goodness we have you to post on economics.

    The one brighs spot is the low value of the pound. That doesn’t just help our retailers with the southern customers, it helps export oriented manufacturing. Agrifoods are doing well with the food price rise globally as well as the low vale of the point (commodities like butter get a better price for both reasons).

    So in my native Ballymena – an export-manufacturing and agrifoods economy – things are actually not too bad.

    Wright Brothers, the indiginous bus manufacturer is growing rapidly with orders in Dublin, London and Hong Kong. Michelin Ballymena actually exports tyres to China(!) and is investing in the plant, Gallaher is holding up, as well as the various agrifoods and agricultural sectors that are strong here.

    In Belfast the move to financial services sector is ripe for growth and a good idea (the two universities churn out people with finance oriented degrees) but will be hit by the credit crunch. Despite this Citigroup yesterday announced more financial sector jobs. But the downturn does affect this.

    Tourism is also hugely underdeveloped here in NI and this is an area for potential growth. And the low value of sterling helps too.

  • Isn’t the ROI already in recession?

  • mnob

    slug – the financial services sector here is lower cost than in Edinburgh and London, therefore in a perverse way a downturn may accelerate the movement of jobs here.

  • Brian Walker

    A recession by the way is three consecutive quarters of what is quaintly called “negative growth”

    That is probably not true, unless you know of some definition thaat most economists are unaware of.

    Most economists consider that a recession occurs when real growth is negative for two or more successive quarters of a year.

  • willowfield

    slug

    Tourism is also hugely underdeveloped here in NI and this is an area for potential growth. And the low value of sterling helps too.

    Tourism growth is dependent on cheap travel, which will soon be a thing of the past.

  • Brian Walker

    Horseman, I stand corrected – two or more quarters. Slip of the finger more than the brain, believe me won’t you?

  • kensei

    Horseman

    Most economists consider that a recession occurs when real growth is negative for two or more successive quarters of a year.

    Though economists being economists, even that definition is disputed 🙂

  • kensei,

    Though economists being economists, even that definition is disputed 🙂

    We economists love nothing better than a good dispute!

  • slug

    Horseman is former poster “Stephen Copeland”.

  • slug

    Willow

    “Tourism growth is dependent on cheap travel, which will soon be a thing of the past. ”

    True for overall tourism but bigger share of a declining (but very large) overall tourism market still possible, I’d say, given the beauty of a lot of NI scenery.

  • Comrade Stalin

    I’m glad that people are selling off and driving down the price in sound and secure blue-chip businesses, this has enabled me to significantly increase my holding in HBOS shares, along with shares in BT. Sure, HBOS could go bust, but if that ever happens I’m pretty sure that the economy will be in such a state that my cash deposits will approach worthlessness anyway.

    I remember the recessions of the relatively recent past; people would talk in the way that dear old Polly is talking now, as if the world would shudder to a stop. I don’t see it as ever being that bad. We’ve all lived through a technical recession (2003, where the FTSE100 fell about 2000 points below where it is now) and many of us will remember the early 1990s recession well. We all lived through it and came out the other side relatively unscathed. Chances are, we’ll all make it through this one in one piece.

  • Steve

    Willow

    “Tourism growth is dependent on cheap travel, which will soon be a thing of the past. “

    Not true at all the higher international air fares climb the more likely the people of the western european archipeligo are to choose to holiday with in its borders. And knowing nothing about england frankly Cavan and Monahan or anywhere west of the Bann sounds more entertaining than Finchley. Of course being Canadian I hate crowds and crowded places so the relatively depopulated hinterlands of nIreland will always be more attractive than London or Dublin to me

  • Damian O’Loan

    I would strongly recommend this article to anyone interested in the crisis:

    http://www.prospect-magazine.co.uk/article_details.php?id=10254

    It is a conversation featuring economists including Anatole Kaletsky and Martin Wolf, John Gieve from the Bank of England and George Soros.

    It touches on the very interesting point that the systematic problems and abuses, widely recognised a year ago, could have justified the introduction of clawback legislation to protect the public purse from some of the exposure it has been left with. This option was, without exception, rejected. To me, this shows the unhealthy and undemocratic relationship between governments and financial behemoths. The article, among others, is damning of the role of the FSA.

    For me, the role of the FSA in this crisis merits Brown’s resignation, and for Blair’s legacy to be further disgraced. And yet I can’t imagine any improvement under a Tory regime.

    Surely this inevitable recession, to last four years globally according to some reports, is the time for analysis and re-adjustment of the power balance, on an international level, between governments and private and corporate enterprise?

  • ulsterfan

    As one door closes another opens by way of hope. Surely the economy of China can play a significant role as their demand for goods and services from the West is insatiable and will continue to grow.
    Unfortunately this also drives up the cost of energy and other natural resources (iron ore etc).
    If Eastern economies develop that gives us opportunities for greater trade.
    Huge financial investment is needed for renewable energy sources and entirely new industries formed to deal with conservation and efficiencies in energy.
    We will enter a new industrial age where there are winners and losers.
    The nuclear debate suddenly takes on a greater urgency and at least 1000 power stations built world wide.

  • The Raven

    Damian hits on an interesting point, and I am desperately searching for a recent article which discussion the redistribution, as opposed to the creation of wealth.

    Willow, local tourism will not suffer as a result of this recession. That’s pretty obvious. I work with some local micro-businesses who are involved in tourism, as well as some start-ups. They feel pretty positive about the potential for tourism from *within* these isles to increase. That’s their target market for the next year, and if they get some international visitors – fine. A nice bonus.

    By the way, are people aware that the largest visitor attractions in Northern Ireland are the country/forest parks? In 2006 (last available figures) 39% of the 10.7m visits made to participating attractions in the survey went to forest/country parks.

    W5 attracted around 236,000 people in 2006. One country park in the North West attracted 300,000. Don’t hear about that when the politicos waffle on about tourism. (Actually, most of them know feck-all squared about tourism, and I encourage all of you, should you be in proximity of a politician when they utter the word “tourism” to hit them very hard indeed with the nearest NITB annual report.)

    We have the natural resources. We need to conserve them. We need to protect them. (Sammy, for the love of God, listen to that bit.) And we need to realise that the catalyst for growth surrounds us.

    Comrade Stalin is indeed, in part, correct. I was coming out of uni and into the job market at the arse end of the last recession – work wasn’t that hard to find. This is belt-tightening territory we’re heading into.

    I do have one observation, on a purely whimsical basis only, though. Polly Toynbee’s piece notes: “Job losses cascade in thousands from vulnerable sectors – the City, estate agents, shops and media.” When I go into my local shop in the morning, I am sick, sore and tired of front page articles screaming day after day of recession, job losses and so on. I’m not suggesting that the stories be swept under the carpet; but who the hell would WANT to buy papers when the same mantra is repeated on a daily basis?

    Talk up a recession, one local financial dealer said to me today, and a recession you will have.

  • Comrade Stalin

    Raven,

    Exactly. The talk of a recession is going to do more damage than the actual recession proper. We have nothing to fear, but fear itself.

    These are the same people who talked up the property boom.

    At the minute there is a distinct lack of a “feelgood factor”, the bane of the Major administration if I remember correctly.

  • Damian O’Loan

    CS,

    In this case, that’s not quite true.

    The problems with valuations of assets, and the contribution this has made to the greater crisis is without precedent, and means that this is more than a trough. There will, of course, be an upturn, but there are several painful steps that, in particular, the US and EU economies will have to undergo before there is any possibility of it. Consumer confidence and price adjustments would not allow a return to the old order, as has been the case in other recessions.

    What is needed is, at least, a rethinking of the roles of the various players in the macro-economic system. I would contend that this requires supra-national (but democratic) governmental consensus, argumentation and delivery. We can see from the article I linked to what approach the likes of George Soros are likely to come to such a negotiation with. The argument is that minor tweaks to the valuation agencies will suffice, and perhaps greater requirements to maintain stable holdings. All the signs are that the major governments would be content with this.

    This ignores the problems that are the result of excessive concentration of interests. The distribution of wealth referred to by Raven may more accurately be referred to as the distribution of debt. If this is to be respected, the hold of private enterprise will grow at an unprecedented rate, to the point at which national government will become almost irrelevant, as almost all policy will have to be amended to respect the growing obligations.

    Referring and responding to this as a typical recession will allow further undermining of national sovereignty, and indeed EU powers. There are a very few making enormous profits in the present situation, using unprecedented techniques that are, it is agreed, the outworking of the free market. Viewed more accurately as a new phase, steps can be taken to progress towards a phase that benefits more than a miniscule percentage of the global population. This demands a level of leadership that is difficult to imagine. Certainly a postive attitude is not enough.

    Finally, I’d suggest, if your conscience would allow it, that your money might be safer in American private security firms.

  • Comrade Stalin

    Damian,

    People are always saying “there’s never been anything like this before”. I certainly do not think that the work of reforming and protecting ourselves against the whims of world financial markets is not necessary, but on the other hand, people always predict the end of the world. We hear the same old arguments – we’re not going back to the “old order” (whatever that is), things will never be the same again, etc.

    The rise in food and oil prices is too sudden and dramatic to be attributable to people in developing countries demanding more of it. It’s more complicated than that; there’s tricky financial betting on commodities going on, and I’d be fairly willing to bet that these bets will eventually collapse, along with the prices of the commodities in question.

    If this is to be respected, the hold of private enterprise will grow at an unprecedented rate, to the point at which national government will become almost irrelevant, as almost all policy will have to be amended to respect the growing obligations.

    Where do you get this whacky stuff from ?

    Finally, I’d suggest, if your conscience would allow it, that your money might be safer in American private security firms.

    Expose myself to exchange rate volatility ? Not likely.

  • willowfield

    While it’s true that people will be more inclined to take short-haul holidays rather than long-haul, they will also be less inclined to take short city-breaks. It seems to me that most of the tourism industry in Belfast (especially the hotels) is dependent on these breaks.

  • Damian O’Loan

    CS,

    We now have the Federal Reserve (owned by private bankers) encouraging all US banks to reset mortgages, and place them on a longer-term footing, and CNN encouraging people to apply for credit union credit cards. This is to ensure a greater commitment to longer-term debt, and to consolidate the position of the creditors. The number of lenders will most likely reduce in the present crisis, and certainly beyond. We will see the US in unprecedented debt, beyond what it now faces. This will then mean that labour law will have to be reformed to ensure the few manufacturing jobs can be sustained, and indeed the increasingly at risk white-collar sector. Crime will inevitably increase, and any government would use this to increase the scope and powers of the judiciary and police. Education will have to be further tailored to a narrow vision of short-term economic compatibility (like McA Levels). Health insurance will be out of reach for many, but there will be no coffers to improve regulation because corporate taxation will have to bend to the need to maintain corporate seats within the country. Defence budgets and the war economy will grow.

    These ideas may seem whacky to you, but I hope you can see my logic, and the fact that these phenomena are not new; rather they will be exacerbated by the acceptance of a trough that does not have the same logical peak to follow, as hedge-fund capitalism does not allow all players the chance to participate in a self-equilibriating system (if that ever existed).

    I know that there are always dramatic arguments to describe troughs as fatal. But there are strong arguments to say that the peaks which follow this one will be peaks favouring far, far fewer. The influence of that few over governments will necessarily increase accordingly, and against the public interest. It’s like hedge-fund politics in the end, in my opinion – though I realise not many would share it.

  • Comrade Stalin

    Damian,

    Your theories are unbelievably whacky, being as they are based largely in speculation and the fanciful interpretation of opinion as fact. You’ve forgotten that there’s a thing called bankruptcy (or foreclosure, in the USA). It’s where your debts get wiped out and your assets, where reasonable, are sold to settle up what can be settled. Sure, you can’t access credit for several years, but the liability is transferred as red ink on the bank’s books. Ultimately this is a problem for the bank’s shareholders, who are having to add money to the books (via rights issues) but I don’t see how it leads to this crazy stuff about governments being overthrown.

    I keep hearing “x .. therefore why .. therefore z” arguments like yours which suggest that the global economy and the human race operate according to fixed rules. I’ve got news for you – they don’t. Nobody can predict how long this problem is going to go on for, or how deep it will be. However, the likelihood of a Great Depression is extremely remote; it’s globalization that has been driving our economy, not just cheap credit, and that’s what’s going to make things more resilient. But remember that all of the major banking insitutions in the USA and UK predate the Great Depression by many years. They’ve survived massive amounts of red ink in the past and there’s no reason to believe that they’ll fail this time around.

    There will be casualties; there will be consolidation among financial institutions, and there will be problems for amateur buy to let investors. I don’t think house prices will go into complete meltdown; they will fall to the point where they represent a good yield on investment.

  • Greenflag

    Damien O’Loan,

    ‘There are a very few making enormous profits in the present situation, using unprecedented techniques that are, it is agreed, the outworking of the free market.’

    Yes but in addition large corporations have been making huge profits over the past 15 years since the onset of the global economy. The impact of new internet technology has increased productivity enormously over the same time frame but actual wages and salaries for the bottom 80% of the working population have barely kept pace with inflation (USA) . Thus the impact of the housing property bubble and the credit crunch has come at a time when the people who are affected the most will be least able to pay -thus 2.7 million forclosures are estimated this year for the USA . There are many reasons for this implosion but chief amongst them is ‘greed’ mainly from the financial sector but buttressed also by a free for all sparked off by deregulation of financial services . There is no such thing as a free market . The latter presupposes that everybody makes choices based on perfect or near information etc . They don’t .

    ‘Viewed more accurately as a new phase, steps can be taken to progress towards a phase that benefits more than a miniscule percentage of the global population.’

    The ‘free market ‘ drives up the price of oil . The high proce of oil encourages farmers to sell their grain to ethanol producers instead of to the food markets . The price of food increases thus putting millions of people worldwide in the path of starvation . We in Ireland should be particularly sensitive to this issue given our first hand experience of how the ‘free market’ works when global interests take first precedence over feeding the population.

    ‘This demands a level of leadership that is difficult to imagine. ‘

    Indeed and looking at the USA’s election I don’t see any sign that either candidate knows where to start never mind what to do . The EU is similarly ‘prepared’

    ‘ Certainly a positive attitude is not enough.’

    While a positive attitude is always good – this particular world wide crisis will not be solved by sloganising. Nor will the Chinese be able to drag the ‘west’ out of recession . In fact given the likely drop in demand for their goods they’ll also be in the firing line .

    IMO the USA and EU need to get tough get with the financial services /banking /insurance /large corporations . But will they ? I would’nt bet on it . Democracy is now virtually in the hands of the big corporations . Almost half the USA population will not even bother to vote in November.

    ‘The influence of that few over governments will necessarily increase accordingly, and against the public interest. ‘

    With few exceptions this has been a trend in the developed western countries for the better part of two decades . What we’re seeing is the outcome of the neo con revolution of the 1980’s which itself was a reaction to the ‘nanny state’ big government policies of the 60’s and 70’s or at least that’s what we were led to believe ?

    Is the political will there to do what ‘s necesary or will the western world sit back and watch another few million of the world’s poor die from starvation while we put up or adjust to higher petrol/gas prices longer term ?. My bet is on sitting and watching the ‘ bony children show’ soon coming to you on youtube no doubt 🙁

    As we can see from the 19 course dinner for the leaders of the G8 in Hokkaido tucking in to some well ‘deserved’ nosh and the British are told by their Gordy ‘Antoinette’ to stop eating too much cake and put the bread heels in the fridge .

    Remind me again how did the French and Russian Revolutions start ?

  • Greenflag

    Comrade Stalin ,

    ”Nobody can predict how long this problem is going to go on for, or how deep it will be.’

    True but it won’t be over this year or 2009 .

    ‘the likelihood of a Great Depression is extremely remote’

    I’d have said ‘remote’ but left out the ‘extremely ‘ The real impact of vastly higher oil prices have yet to work their way through the economies of most nations.

  • Damian O’Loan

    CS,

    Refute my points one by one if they are so crazy (and if you have nothing better to do.) Foreclosure, defaulting on a mortgage, at its present and future rates may lead to a concentration of assets that would favour just the kind of process I mentioned.

    As I see it, I’ve made more coherent arguments than yourself, who have merely said there are plenty of precedents without justifying the claim.

    Greenflag,

    You might not wish to hear it, but I see some similarity in our views. Will respond later.