Economy, Carney, future outlook

[Lordship 516]

Now we have an end of local political uncertainty - the internal squabbles in the conservative party may bubble on a little but there is a certain hand at the helm & the Labour Party issues won?t affect the progress of the Brexit resolution too much.

However, there are great risks ahead & none of them can be assessed or consequences measured so we have only economic uncertainty ahead. However, the greatest uncertainty ahead of us are the unknown uncertainties - everything is immeasurable, the current understandings are set aside, the timing of everything is unknown as is the sequence of events [Article 50/negotiation first, Scotland veto] & there is no precedence even on which to base any possibilities.

The pound is still down against the $ & Euro [-9%] & likely to fall further by the end of the year. Price inflation is inevitable - only the number has to be established - say 4% to 7%.

Salaries & wages will stagnate again so everyone will be worse off.

Commercial property values are in shock as is liquidity in the market & the vulture funds are hovering - values of pension funds will suffer.

Residential property values are down or questionable, lenders are reticent, valuers have nothing to base their assessments on, builders are reluctant to build & borrowers are also reluctant to buy/borrow.

Carney has released the main banks from ?5.9billion of capital requirements that theoretically could release ?150billion capacity to lend but the borrowing demand is likely to be weak & this will be unlikely to have much effect to stimulate the real economy. In fact the release of capital requirements may well be offset by a rush by many to pay down debt so the liquidity effect is likely to be neutral for the real economy.

Tomorrow the MPC are likely to reduce the interest rate to 0.25% [0% ?] & possibly to 0% by early next year but the rates are already very low so this will have little effect in stimulating the real economy but can have a negative effect on annuities - it will help the city pests feel better about the outlook.

Carney is also projecting that the BoE will engage in more QE - he is suggesting this as he is running out of options to further reduce interest rates - but the last rounds of QE resulted in increases in bond & share prices & a very small boost in stimulus in the real economy. The effect of releasing ?100 in QE results in only about ?7.50 entering the real economy & most of the effect of QE benefits the already well off people by inflating bond & share prices with QE relying on the trickledown effect to boost the real economy - a very inefficient hope. The reality is that QE is seriously inefficient way of solving the core problem as well as causing artificial asset inflation in the housing & other markets.

It would be better to apply the QE amounts towards the creation of Public Money [instead of bond purchases or Funding for Lending whereby the banks hoarded much of the cheap funds] that would be lent from the BoE to the government and this money used for productive purposes in the real economy such as building new houses, hospitals, prisons, schools & infrastructure projects solving employment, the housing crisis & other critical issues in the process. The balance sheet of the BoE will be no worse off & the sovereign debt issue won?t breach any EU strictures as the UK is free to run its own show from now on . Productive borrowing at very low interest rates is a healthy economic activity & can be structured off balance sheet through use of SPVs. Why give this money to commercial banks & the already wealthy when it is badly needed within the overall community where it can also boost the real economy & provide much needed resources, including housing, for the future that would be self financing.

The tools currently available to the BoE are limited. What Carney is really doing is political, trying to create confidence, using only words to stabilize the markets, preparing everyone for the downturn ahead, with some analysts predicting a fall in GDP of about 3% to 5% [but the effect should fade from about 2020] which would cause a recession - how bad or how long it will be for no one knows for sure - I suggest it would also begin to recede from 2020. For the rest of the EU the overall effect will be negligible except for a few countries like Ireland, Poland & Portugal.

May?s future - recession - 4 tough years followed by 5 years of [Labour ?] rebuilding with stable economy by about 2030.

[Angelina]

"For the rest of the EU the overall effect will be negligible".........so EU did not benefit from UK being a member?

[Lordship 516]

Angelina Wrote:

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> "For the rest of the EU the overall effect will be

> negligible".........so EU did not benefit from UK

> being a member?

The expected fall in overall GDP for the remaining 27 is less than 0.1%

It is inconceivable that a trade deal will not be done with both the UK

& the EU maintaining much of their exports. However, only the UK will

experience the uncertainty from the Brexit result. Individual countries

such as Ireland, Poland, Portugal & Spain will suffer a bit more but if

a trade deal is made the impact will be negligible.

[TwoScoops]

Sorry Lordship but I find your posts high on opinion/ emotion but low on balance/facts.

[rendelharris]

TwoScoops Wrote:

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> Sorry Lordship but I find your posts high on

> opinion/ emotion but low on balance/facts.

Seems to me s/he has a lot more hard facts in his/her posts than either you or I, to be fair. Anyway, what's wrong with opinion and emotion, isn't that what fuels debate? Or shall we just confine this forum to the exchange of undeniable facts? Going to get a bit sterile, isn't it?

[Lordship 516]

TwoScoops Wrote:

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> Sorry Lordship but I find your posts high on

> opinion/ emotion but low on balance/facts.

It's a free country [so far] & we are both entitled to our respective opinions.

As I wrote above - "everything is immeasurable, the current understandings are set aside, the timing of everything is unknown as is the sequence of events [Article 50/negotiation first, Scotland veto] & there is no precedence even on which to base any possibilities."

Only certain areas of the EU 27 will be affected - some would have been in trouble no matter what the Brexit decision was [italy] & others due to trade uncertainty but overall the effect on the EU 27 GDP will be small.

I merely share my opinion with others insofar as I can - no emotion

[TwoScoops]

I count 2 hard facts, both of which are quickly followed by assertions or opinion that are masquerading as facts. The rest is just the latter.

Yes each to their own opinion, was just making mine. I just prefer balance that's all.

Your take is obviously very negative and my guess is it would read as fact to the layman which I wanted to pull you up on that's all

No offence meant. It's an interesting subject area and it's good to see people talking about it on here

[Robert Poste's Child]

Do we need two separate threads on this at the same time? It would be much, much easier to follow and discuss if you could combine them, rather than having one per point of view, as it were.

[TwoScoops]

Agree. Prefer the other one as it starts with facts ( from which opinions will surely flow) but maybe that's just me

[????]

I think your view (and forecasts )on Europe are very, very rosy indeed in my opinion. Italy, the obvious example, which you acknowledge slightly, is right on the edge, all its banks teetering - and we (in the UK) employ about 100,000 young Italians so if we see stagnation then a lot of this 'unemployment' will get exported (see also Spain) back. France is in a right mess with all of its badly needed structural reforms rejected by militant unions. The EU economy is in a pretty poor state, was trending downwards earlier and Brexit isn't going to help. Even Germans performance is below par (and we are responsible for a HUGE % of their trade surplus with the world)

I agree with you on both the lending (in terms of demand) and the relatively impotency of interest cuts...I'd like some helicopter money :)

A Labour government in 5 years.......looks very unlikely (and I suspect some wishful thinking)

"A fall in GDP would cause a recession"...er, a fall in GDP (for 2/4) defines a recession, strange turn of words?

I don't get your logic how the trade deal works out well for Europe and at the same time not us?

Also, you seem to be contradicting your line on both precedent and measureability in your thread the other day with this, which I think was my line of argument/challenge back then:

As I wrote above - "everything is immeasurable, the current understandings are set aside, the timing of everything is unknown as is the sequence of events [Article 50/negotiation first, Scotland veto] & there is no precedence even on which to base any possibilities."

[Lordship 516]

TwoScoops Wrote:

-------------------------------------------------------

> I count 2 hard facts, both of which are quickly

> followed by assertions or opinion that are

> masquerading as facts. The rest is just the

> latter.

> Yes each to their own opinion, was just making

> mine. I just prefer balance that's all.

> Your take is obviously very negative and my guess

> is it would read as fact to the layman which I

> wanted to pull you up on that's all

> No offence meant. It's an interesting subject area

> and it's good to see people talking about it on

> here

The ? is down and the markets expect it to go lower [feedback received from more than one trader].

The analysis on QE is a hard fact & well known.

It only benefits the participating institutions [mostly banks] & wealthy people.

The trickledown effect is small & as a tool it is not effective except in macro terms.

People's Money is a concept that is being seriously considered elsewhere including the US

- it would stimulate the economy directly & the benefits would accrue to the whole population.

My comments on property are reported widely by others.

The issue of interest rate reduction is measurable & its effect will be economically negligible but will possibly give confidence to a narrow group of investors.

Making funds available from banks will only be effective if companies & people borrow - its unlikely they will in an uncertain environment.

Sorry about the second post - I wasn't aware of the other one.

The MPC members agree that they have very few tools at their disposal in this scenario & Carney indicated likewise - all he has at the moment is talk, giving confidence through his reputation etc.

[Lordship 516]

???? Wrote:

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> I think your view (and forecasts )on Europe are

> very, very rosy indeed in my opinion. Italy, the

> obvious example, which you acknowledge slightly,

> is right on the edge, all its banks teetering -

> and we (in the UK) employ about 100,000 young

> Italians so if we see stagnation then a lot of

> this 'unemployment' will get exported (see also

> Spain) back. France is in a right mess with all of

> its badly needed structural reforms rejected by

> militant unions. The EU economy is in a pretty

> poor state, was trending downwards earlier and

> Brexit isn't going to help. Even Germans

> performance is below par (and we are responsible

> for a HUGE % of their trade surplus with the

> world)

>

> I agree with you on both the lending (in terms of

> demand) and the relatively impotency of interest

> cuts...I'd like some helicopter money :)

>

> A Labour government in 5 years.......looks very

> unlikely (and I suspect some wishful thinking)

>

> "A fall in GDP would cause a recession"...er, a

> fall in GDP (for 2/4) defines a recession, strange

> turn of words?

>

> I don't get your logic how the trade deal works

> out well for Europe and at the same time not us?

>

> Also, you seem to be contradicting your line on

> both precedent and measureability in your thread

> the other day with this, which I think was my line

> of argument/challenge back then:

>

>

> As I wrote above - "everything is immeasurable,

> the current understandings are set aside, the

> timing of everything is unknown as is the sequence

> of events & there is no precedence even on which

> to base any possibilities."

The Labour government had a ? after it - it would be premised on the electorate being tired of the difficult times ahead until 2020 - tongue in cheek but stranger things have happened.

I am assuming that a trade deal will be achieved but the difference for the UK is the uncertainty - the uncertainty for the EU 27 will have less effect except for those countries that I mentioned.

With regard to the matter of recession - I am still of the opinion that stagflation will happen but that it will be of a shorter duration than previous stagflation events. I believe [from interpolations I have done] that it will hit during the middle of 2017 & continue through 2020 & will begin to recede slowly over 5 years or so.

I'm not so rosy about Europe but France is not so bad as you might think - they have structural problems in the labour market but they also have some growth. Greece is still a basket case, as is Italy, which has hidden their problems since 2007 but these are now coming home to roost. Spain & Portugal are in slight recovery but not out of the woods. Only Ireland is improving [GDP is a skewed figure - 26.3% - due to FDI, aircraft leasing & corporate transfers] GNP is up a measured 17.6% up but this is also a skewed figure with the real GNP being closer to about 7.5% up - still a good number. Ireland carries a huge exposure to Brexit & also has the only land border with the UK.

[DaveR]

The dismal scientist returns

[????]

Current Update -

Employment at record high this morning (and in July it went up against forecasts)

Earnings up

FTSE (250 and 100) both way above pre-Brexit

Several big companies now saying no material effect from Brexit experienced yet

London Retail sales booming

although inflation is up and the ? still lower

....of course it's early days massive uncertainty ahead, but Armageddon it's not thus far is it

Come on Lordship - how are we doing?

[????]

plus this from Germany's EU Affairs Minister...

"Given Britain's size, significance and its long membership of the European Union, there will probably be a special status which only bears limited comparison to that of countries that have never belonged to the European Union," he said.

[JohnL]

I always thought that QE is the modern equivalent of printing money.

So should be of no cost to the BOE ?

I thought cost is in inflation etc.

[DovertheRoad]

???? Wrote:

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> Current Update -

>

> Employment at record high this morning (and in

> July it went up against forecasts)

> Earnings up

> FTSE (250 and 100) both way above pre-Brexit

>

> Several big companies now saying no material

> effect from Brexit experienced yet

> London Retail sales booming

> although inflation is up and the ? still lower

>

> ....of course it's early days massive uncertainty

> ahead, but Armageddon it's not thus far is it

>

> Come on Lordship - how are we doing?

To be fair. Whilst all of this is true, Lordships OP above also holds true. It might look alright on the surface (bounce!) but an ill wind blows beneath. QE is having increasingly little affect and Carney has run out of options.

[Loz]

JohnL Wrote:

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> I always thought that QE is the modern equivalent of printing money.

It is. Sort of.

> So should be of no cost to the BOE ?

Like any creation of money (e.g. by banks) it is a debit on the balance sheet and must be 'uncreated' at some time. So at some stage in the future, the BOE will destroy the money it created, usually by selling the bonds it originally purchased with the created money.

> I thought cost is in inflation etc.

It is inflationary and must be carefully used.

[????]

Today, Retail Sales up significantly up on Forecasts yr on yr & crucially in July (post-Brexit); both way above expectations. Armageddon postponed until next month....

[DovertheRoad]

???? - what's your theory as to why that is? Just curious.

[????]

Weird 2 weeks after Brexit plus Project fear made everyone think the wheels were coming off - and this coincided with two big business/economic surveys (PMI and GfK's Consumer Confidence) - which both got massive press, but fieldwork was largely in that weird space..... but a month plus on the sky hasn't fallen in and worst fears not materialised (yet anyway) - don't get me wrong, I think we'd had been moving into boom territory without the Brexit vote the economy was starting to motor, will now be more subdued but hopefully no recession....

[red devil]

Immediately after the vote people assumed that we'd leave Europe straight away, we didn't, and not likely to until next year at the earliest. I'm sure in the meantime a lot of people are hoping that 'something will happen' and the button won't be pressed, and are just carrying on as normal. Also retail sales are notoriously seasonal and dependent on good weather. Despite it not being a particularly sunny summer, it has been dry, the 'D word' was even mentioned in a news item I read the other day. So again, I think people are just getting on with life...

[DovertheRoad]

???? - agree economy was improving but far from boom time. Certainly Financial Services and here in the City generally it has and still does feel like recession. FS is not doing well at all. Banks have shrunk or relocating departments overseas (Credit Suisse, Deutsche). It will reform and strengthen again here post Brexit...but not for a while yet IMO.

Would be good to see some good news for manufacturing / retail. We were arguably too FS weighted as an economy.