Capitalism is Fixing It. Slowly.
We’re in the middle of a small orgy of kneejerk (or jerk-kneeing, if you prefer) bashing of bankers with self-inflated banker-bonkers, and not a few people trying to keep the ball rolling because it is convenient for their politics.
But it seems to me that some of the basic indicators on the Economy are beginning to return from extreme values to something a little closer to ‘normal’.
I’m not saying it’s all fixed, but the Gordonion Knot starting to loosen itself?
Here are a couple of graphs for a discussion starter.
Leverage of UK Banks has halved
The Bank of England’s Financial Stability Report for December 2012, says:
‘Leverage ratios, which compare a bank’s unweighted assets t o the book value of its available capital, have approximately halved since their historical highs of close to 50 in 2008.’
House Prices have fallen by 20%+
Media reporting loves to leave inflation out of House Prices and rent. According to the Nationwide, house prices are now back to the levels of roughly mid-2003.
- Nationwide Real House Prices
That represents a fall of more than 22%.
Even in London, House Prices are only now at their 2008 peak in cash terms; a fall of some 13% after inflation.
Yet the newspapers echo with reports of all time high house prices, in cash terms.
Not being a banker, or an economist, but just a bloke with a numerical degree, I need some help with this!
I tend to think things are going the right way, and may improve when confidence returns very slowly.
That, unfortunately, would best have been done by implementing the austerity option at a more practical speed than we have seen.
What say you?
Photo credit.
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1
February 15, 2012 at 16:27 -
No, we’re all doomed.
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3
February 15, 2012 at 16:45 -
An alternative view here:
http://www.cityam.com/latest-news/allister-heath/the-real-reasons-why-uk-trouble?tw_p=twtThere is a strong argument to say we are having very little austerity at all given spending is actually going up in spite of the BBC/Guardian/Labour screams. The reason there are cuts being felt is that an ever greater portion of the spending is going on paying debt interest and this will only get worse. Whenever anyone talks about the economy remember the difference between deficit (current spending – income) and debt the accumulated deficit which must be repaid.
There is a very valid point in that the Government does not appear to have a growth strategy and it really needs one if we are going to get out of this.
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4
February 15, 2012 at 16:48 -
Absolutely agree there, Iain.
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5
February 16, 2012 at 12:50 -
In the same vein an interesting article in the Commentator today on what is happening to actual spending:
http://www.thecommentator.com/article/903/the_truth_about_cuts_and_austerity?tw_p=twtIt is true there are cuts. The table below from the OBRs latest forcast does, however illustrate where some of the money is going:
£ billion
Outturn Forecast
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Central government gross debt interest 42.8 47.6 47.1 50.5 56.1 61.7 65.5These numbers could get a lot higher if Governemnet borrowing rates increase from the current sub 3%.
The full tables showing all expenditure items can be found here.
http://cdn.budgetresponsibility.independent.gov.uk/Autumn-2011-EFO-Charts-Tables129467.xls#T4.18!A1The OBR provide a wealth of information if you want to look at UK economic statistics and are sonewhat of a geek (points at oneself).
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6
February 16, 2012 at 13:38
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7
February 15, 2012 at 16:52 -
I sold a house last month for a little over 20% below peak price so I guess you are right about that anyway, just hope you are right about the rest too.
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9
February 15, 2012 at 17:00 -
The reason for the crash was the rise in oil prices which have remained stubbornly high. The rise in oil costs effectively removed a large chunk from the money supply. Money that the banks needed to keep their crazy schemes from collapse.
In real terms economies are still contracting as activities which were viable prior to crash are no longer viable due to high costs in energy.
Absolutely the bankers had developed very flakey products that were very vulnerable to changes in the economy and the bankers were incompetent as they assumed all graphs would continue upwards. But the cause was the steep rise in energy costs, the effect was to crash the banking system.
Yes banking is slowly (as pointed out by Matt) getting it act together, but the root cause has been ignored. “Those who cannot remember the past are condemned to repeat it”. The UK government (and others) are committed to repeat history by raising energy costs even higher.
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10
February 15, 2012 at 17:40 -
Part of my thesis is that the plumbing is still blocked.
By which I mean things such as banks hoarding cash more than may be strictly necessary, mortgage deposit requirements, Section 106 agreements for Planning Gain contributions being hardwired to peak prices so developers can’t afford to build now that the new house price premium has almost vanished etc.
Your point on energy is a very good one.
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11
February 15, 2012 at 17:56 -
Matt,
Isn’t £325 billion of Quantatative Easing enough to unblock the plumbing? It’s almost 25% of UK GDP. There will be tears before bedtime.
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12
February 15, 2012 at 18:09 -
Hmmm.
Extending my analogy, putting more water in doesn’t unblock plumbing – it does nothing then makes it burst
.M
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13
February 15, 2012 at 20:05 -
This is just speculation, but – suppose the BoE has decided on a policy of trying to inflate away (or at any rate, inflate down) sovereign debt. It’s generally reckoned (though officially the view is dismissed) that QE is inflationary. The headline rate drops, and suddenly we get another bout of QE. Coincidence? Maybe not. If they keep inflation at managably high levels (5-6%), whilst avoiding the double-digit inflation that plagued the late ’70′s and early ’80s, for several years, the debt problem will be significantly reduced. It doesn’t help that we are still running a deficit, and it doesn’t help that the global economic downturn has happened just as we need a return to growth. It also robs savers and pensioners – a point which has not escaped the brighter commentators, but which is a useful political gag on Ed Balls.
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14
February 15, 2012 at 18:51 -
“Not being a banker, or an economist, but just a bloke”……qualifys you to see things clearly.
What I see from your evidence are the private sector (banks) and the little guys (mortgage holders) adjusting to reality, as usual government is not participating in reality. Their dead hand on 50% of the economy is frozen, no cuts are happening and damaging increases in taxation are stifling growth, monetary policy is guaranteed to bake in inflation. Under this regime you can only look forward to Callaghan’s managed decline.
I remain sceptical that things can improve whilst the camoron team stays in place, yet the thought that the milibandistas could achieve power is truly frightening.
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15
February 15, 2012 at 20:11 -
It’s going to take a least one, and more likely two or three, decades to undo the damage of the Brown Terror. Some early signs of returning sanity are welcome, but there’s much yet to do.
The only way any recovery is going to be lasting is if governments of all stripe for the next thirty years stick rigidly to a policy of not spending more than they earn, and not bleeding the real economy dry by high taxes. Can’t help feeling that may be too much to ask – but you have to hope.
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16
February 16, 2012 at 00:12 -
Everywhere seems very quiet. Quiet shops, quiet roads. Pubs quiet apart from pensioner meal deals. Not just my corner of sleepy Sussex either.
Yes I do know about half term. It’s not that. Its 2/3 months of it.
It all has the feeling of waiting for something to happen.
Be interesting to see whats happening with personal debt levels and forecourt sales of petrol/diesel. -
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February 16, 2012 at 02:12 -
Banks have not so much “deleveraged” as recapitalised. The spike on your graph was caused not by overlending before the crash but by the collapse of bank shares (the denominator) after the crash. They are at market value in the graph. Some (eg Barclays) have now recovered while in other cases (RBS,LLoyds) both the government and shareholders have put up lots more money.
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18
February 16, 2012 at 13:35 -
Apparently, we are also working more hours in total, despite “unemployment” going up. Graphed here:
http://libertarianhome.co.uk/2012/02/total-hours-worked-rising/
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