Reasons to expect a Nike Swoosh recovery
A failure of trust in global financial markets lies at the heart not just of the current recession but prospects for a sustained recovery in spending and jobs. Whilst journalists play the game of alphabet soup to describe the likely shape of the economic cycle, we might be better off thinking in terms of a Nike Swoosh. World growth is responding to an unprecedented policy stimulus but there is a real danger that the rebound inactivity will be constrained by a set of negative forces pushing down on growth. This was the message from Paul Donovan, Managing Director of Global Economics for UBS in his presentation to the Eton College Keynes Society last night.
Rated: 
(5/5), based on 1 review
Gloomy summary
Here is a summary of four reports posted on the Business and Economics sections of the BBC News website over the last few days. Be warned - none of them are particularly hopeful, the green shoots of summer giving way to autumn mists.
Debt repayment - a virtue or a curse?
This useful article from the BBC looks at debt, repayments and savings for individuals in the UK. In July UK households actually paid back more debt than they took out for the first time since the Bank of England started recording this data 16 years ago in 1993. At the end of that month total household savings amounted to £1.1 trillion, and total outstanding lending to individuals stood at £1.46 trillion (which is almost a trillion more than in 1993). Of this, £1.23 trillion was mortgage debt and £231m was other forms of consumer credit. Households are now starting to get the message about repaying that debt, with the average individual paying back £10 more than they borrowed in July – but the average personal debt standing at £24,000 is going to take an awful long time to pay back at £10 a month.
read more...»The Year that Shook the World
Today is the first anniversary of the start of the economic whirlwind which, by October half term, had left us all gasping as the financial crash thudded around us, and the roots of the recession took hold.
Last year on 7th September the US government rescued Fannie Mae and Freddie Mac – responsible for nearly half of the outstanding mortgage debt in the US – in the biggest ever bail-out in the US. US Treasury Secretary Henry Paulson said that the two firms’ debt levels posed a “systemic risk” to financial stability and that, without action, the situation would get worse. In spite of their action, it did get worse anyway, and the rest, as they say, is history.
The BBC is taking the opportunity to launch an Aftershock season, with a series of radio and TV programmes and online resources investigating what happened and the long term impact around the world. The Year that Shook the World is a page summarising the programmes and presentations, but appears to have a number of links that are not working – so also try this Global Recession: Aftershock page for more live links to a number of the resources described on the first page.
Causes of a double-dip recession
To drive the economy out of recession requires extra demand but where is this demand coming from? Cuts in interest rates and a big fiscal stimulus in many countries (notably China and the United States) has helped to cushion the scale of the slump but sometimes despite tentative signs of green shoots, an economy can go into the second stage of a downturn, this is known as a double-dip recession. This can happen if the initial ‘kick’ of the fiscal and monetary stimulus starts to wear off.
This Newsnight video report by Paul Mason (recently returned from a lengthy period analysing the Chinese economy) features Martin Weale, Director of the NIESR and my old tutor at Cambridge who argues that Britain will have to get used to being 3 or 4 per cent poorer and expect a deterioration in public services with government spending cuts inevitable in the coming years.
There are signs that borrowing costs are starting to rise, particularly mortgage costs and loan and overdraft charges for businesses. This may undermine confidence and engender any green shoots.
Ireland in the grip of deflation
The debt ridden Irish economy is plunging into a period of price deflation according to new figures on consumer prices. The Irish economy is more exposed to the dangers of inflation than most because the private sector of the economy has a level of outstanding debt equivalent to around 175 per cent of GDP. The big risk is that a persistent downturn will bring about reductions in wages and prices and increase the real value of unpaid debts.
Revision - Cost of Living
The cost of living is a measure of changes in the average cost for a household of buying a basket of different goods and services. Percentage changes in the cost of living are measured by the inflation rate and in the UK there are two officially published measures, the Retail Price Index (RPI) and the Consumer Price Index (CPI).
read more...»Revision: The Liquidity Trap
A break down in monetary policy
When cuts in policy interest rates seem to have little or no impact on aggregate demand, then the economy can experience a liquidity trap. When interest rates are close to zero as they are in the UK, the USA and in the Euro Zone, people may expect little or no real rate of return on their financial investments, they may choose instead simply to hoard cash rather than investing it. This causes a fall in the velocity of circulation of money and means that an expansionary monetary policy appears to become impotent. If monetary policy is ineffective in stimulating demand, the solution may be to use fiscal policy or unconventional measures such as quantitative easing as a means of kick-starting demand and output in an economy mired in a slump.
Monetising the economy
One possible solution is to seek to “monetise the economy” by large scale buy-backs of government debt by the central bank to inject cash or liquidity into the economy. This was an option considered by the Japanese government during their deflationary recession in the late 1990s. And it has hit the news again in 2009 with the Bank of England engaging in quantitative easing with an initial scheme to buy-back up to £100bn of government securities. For the latest on this click this link.
Revision: Consumer Borrowing
Most of us at some time in our lives need to borrow money to finance spending. From taking out a mortgage to making frequent use of bank credit cards, borrowing is a normal feature of life and not necessarily something to be worries about. What matter is whether building up debt is sustainable – in other words, can those who rely on debt pay it back? Credit means being able to buy now and pay later. The credit market for individuals is complex at the best of times and there is plenty of scope for individuals to end up in trouble if they borrow irresponsibly or are subject to mis-selling of loan products from the financial services industry.
read more...»Sunlight is a great disinfectant
Who to blame? Who to target in the search for the culprits behind the great banking crisis which has mutated from a calamity in private sector credit and derivatives markets into a broader, damaging economic and social disaster. Playing the blame game is easier armed with the benefit of hindsight. But with each passing day it becomes clear that what we have seen is a multi-tiered case study in market and governing failure. Ordinary citizens — whose pensions and living standards are now threatened and blighted by the folly of financiers blinded by their own hubris and greed — will not easily accept that the current generation of leaders are the people to lead us out of this mess.
read more...»Most Popular Topic Tags on the Economics Blog
recession, demand, economics, price, unemployment, prices, inflation, investment, costs, profit, downturn, supply, trade, debt, employment, confidence, euro, gdp, competition, capacity, risk, production, china, oil, incentives, exports, expectations, housing, pay, manufacturing, sterling, food, profits, property, mortgage, tutor2u, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, deflation, airlines, innovation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, keynes, saving, google, opec, wealth, depression, moodle, depreciation, jobs, credit crunch, competitiveness, economic cycle, cars, tim harford, externalities, stocks, infrastructure, environmental, strategy, carbon, vle, monopoly, subsidy, evaluation, management, eu, losses, protectionism, spare capacity, inequality, environment, poverty, bank of england, budget deficit, construction, behavioural, wages, macroeconomics, carbon trading, steel, commodities, output gap, skills, japan, oligopoly, currencies, imports, bbc, stagflation, contestable, cpi, agflation, farming, newsnight, choices, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, amazon, fiscal stimulus, single market, pricing, dan ariely, nationalisation, cartel, pollution, eton college, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, currency, quantitative easing, facebook, income elasticity, stakeholders, current account, brazil, coffee, savings, microsoft, monetary policy, crowding out, collapse, barriers to entry, multiplier effect, economies of scale, suppliers, price discrimination, uk economy, development, quiz, apple, surplus, taxation, tesco, free, scrappage, labour market, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, cost of living, poverty trap, merger, growth, speculation, edinburgh, ownership, discrimination, northern rock, global, cost benefit analysis, ireland, oecd, supply chain, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, etonomics, iphone, starbucks, trade deficit, happiness, budget, human capital, capital, subsidies, immigration, eurozone, takeover, exploitation, ecb, paradox of thrift, wiki, advertising, public sector, labour force survey, peter day, utility, wants, brand, tax, poland, iceland, blog, recovery, foreign exchange, european union, indirect tax, robert frank, roger bootle, ocr economics, heathrow, hbos, hotels, freight, creative destruction, federal reserve, kaletsky, price war, information failure, crude oil, spain, gini coefficient, transport, government borrowing, leverage, sony, migrants, us economy, animal spirits, stephanie flanders, waste, information, fishing, milk, eu enlargement, anchoring, obama, entrepreneurship society, aggregate demand, needs, internet, forecast, discounting, real income, copper, deficit, contestability, nissan, evan davis, companies, fairness, geoff riley, blogging, standard of living, aqa economics, consumer welfare, martin wolf, renewable, labour mobility, collusion, imf, fair trade, pubs, income tax, obesity, res, disposable income, david smith, national debt, devaluation, consumer surplus, corus, vacancies, global economy, sub-prime, tariff, twitter, price capping, joint venture, accelerator effect, guardian, startups, youth unemployment, yuan, immobility, edexcel economics, edmund conway, redundancy, tata, walmart, relative poverty, sentiment, tickets, coal, vehicles, cash, base rate, russia, diesel, marginal cost, external shocks, movies, liquidity trap, contestable market, income elasticity of demand, libor, broadband, fixed costs, comparative advantage, accelerator, allocative efficiency, pensions, training, economic efficiency, trend growth, king of shaves, satisficing, undercover economist, hot money, price mechanism, deleveraging, positional goods, congestion, jobless, social entrepreneur, apprenticeships, hyperinflation, migration, financial times, age structure, cyclical, chris coleridge, monopoly power, pay cuts, reserve currency, ryanair, wheat, mervyn king, ucas, law of unintended consequences, carbon tax, aldi, gillette, deindustrialisation, barclays, price volatility, yahoo, organic growth, liberalisation, house prices, richard thaler, derived demand, veblen goods, paul krugman, schumpeter, royal mail, markets, diseconomies of scale, logging, green revolution, tax burden, savings ratio, pension, demography, structural, nhs, job losses, ocr, the economist, scotland, cross elasticity, brics, redistribution, biofuel, drugs, gold, nelson thornes, research, producer welfare, ebea, footfall, british airways, income distribution, social costs, ft, enterprise, natural monopoly, tariffs, general motors, o2, deforestation, economic welfare, bonds, asda, will king, automatic stabilisers, landfill, long tail, jim o'neill, disincentives, economax, energy, podcast, share prices, external shock, slump, resources, profit margin, fiscal drag, hysteresis, ftse, philip allan, hedge fund, students, buy to let, logic of life, contraction, equity, elasticity of supply, oil prices, market power, health, ben bernanke, market structure, global business, enlargement, retailing, supply-side, hedging, declan curry, nokia, chris anderson, bric economies, diane coyle, dynamic efficiency, price fixing, fiscal policy, winners curse, zimbabwe, stimulus, hamish mcrae, toyota, john kay, claimant count, green shoots, compound interest, contestable markets, frictional, rory cellan-jones, status races, healthcare, repossession, eastern europe, public good, credit, royal economic society, sustainability, invention, accession countries, probability, sustainable growth, gnp, superfreakonomics, vertical integration, inflationary pressure, business model, default behaviour, rentokil, retirement age, business cycle,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
