Liam Halligan gets all doomy in the Torygraph

mbga9pgf

http://www.telegraph.co.uk/finance/comment/liamhalligan/5906778/Huge-gilts-row-barely-registers-as-the-UK-sleepwalks-into-stagnation.html

UK output shrank 0.8pc between April and June – far worse than the average 0.3pc slump predicted by City economists. All parts of the economy – apart from the public sector – are now in recession.

This was the fifth successive quarter of GDP contraction, with output down 5.6pc since the spring of 2008 – more than double the depth of the early 1990s recession and the steepest peace-time fall since the early 1930s.

Serious financial obstacles prevent a return to sustainable growth. With the global economy still on the skids, demand in key overseas markets remains muted.

Far more significantly, though, UK banks continue to hold the rest of the country to ransom, refusing to extend credit on reasonable terms, despite replenishing their balance sheets off the back of taxpayer largesse.

Regular readers will know what's coming next. But repetition doesn't make a fundamental truth untrue. The UK's inter-bank market remains gridlocked largely because banks are still unwilling to lend to each other. That gums up the wheels of finance, starving credit-worthy firms and households of the cash they desperately need.

This inter-bank torpor stems from fear of counter-party risk, because our banks continue to sit on billions of pounds of toxic liabilities which they still refuse to reveal.

A wiser government, a braver government, would have forced the banks to "fess-up" these losses before splashing the bail-out cash, so purging the system and allowing a genuinely restructured banking sector to dust itself down and start again. It's called "creative destruction". It's not pretty, but it's the only thing that works.

These GDP numbers expose the City's talk of "green shoots" as nonsense. A full recovery won't happen while the UK remains burdened by our newly created Japanese-style "zombie banks".

This is the heart of the problem – yet the politicians don't want to know. The banks are ticking over on a diet of government cash while charging usurious rates on extremely limited lending books. The UK, meanwhile, sleepwalks towards a lost decade.

As the economy stagnates, unemployment rises and the national accounts bleed ever more red ink – as revenues collapse and government spending goes up. New figures show that in June, tax receipts were 8.2pc lower than the same month the year before, while social security benefits were 9.7pc higher.

In any downturn, the public finances suffer, as tax and spending pull in opposite directions. But the bank rescue packages and the depth of the current recession are tearing the UK's national accounts apart.

In his 2008 budget, Alistair Darling said he'd borrow £70bn during 2009/10 and 2010/11. In this year's budget, the Chancellor admitted no less than £348bn of extra debt would be racked up during that period – an astonishing five-fold increase on his forecast of 12 months before.

But even that jaw-dropping increase was an underestimate – because Darling's borrowing predictions are based on the UK economy shrinking only 3.5pc this year, then returning to growth of 1.25pc in 2010 and 3.5pc in 2011.

When these projections were published three months ago, this column dubbed them "ridiculous". Given how growth has fared since, they now look even worse. So the UK will borrow even more this year than the £175bn announced at the last budget. No wonder the gilts market is so spooked.

While admitting fiscal consolidation is needed "at some point", politicians from all main parties drone on that the UK's national debt, while sharply up, is "only" around 56pc of GDP. "It's much higher in the US, Italy and Greece," they say.

Fetch my revolver. Do these people not understand that insolvency relates not to the stock of debt, but to cash flow? And as spending rises and tax receipts fall, cash flow is the issue upon which the gilts market is now very firmly focused.

The UK is issuing more debt as a share of GDP than any major economy. We're borrowing twice as much in 2009 as France and Germany. In recent months, banana-republic style, the Bank of England itself has bought around half of all gilts issued.

Then on Thursday, following the biggest auction of index-linked sovereign debt in UK history, a massive dispute broke out, with investors publicly accusing the authorities of bad faith after the Bank hinted, just 20 minutes after the sale had closed, that it may soon stop buying gilts.

Such a row is almost unprecedented. It is of huge and pressing importance to this country's future status as a viable going concern. Yet it barely registered on the media's radar, receiving a mere fraction of the column inches devoted to the soap opera of Norwich North.

Highlighting shamelessly copied from t'other website.

mvengemvenge

It's a shame he left CH4 News.

mbga9pgf

Didnt realise he was on!

Mr_Mumble

Those final five paragraphs sum it all up; Rochdale Pioneers take note .

mvengemvenge

mbga9pgf wrote: »

Didnt realise he was on!

Yep, he was their economics reporter for several years. He probably couldn't have expressed his views as forcefully as he does now, but he did some good stuff on there.

DiggerUK

mbga9pgf,
Thanks for posting Liam Halligan's piece from today's Telegraph. I usually keep his column to the end of my Sunday read.
If anybody wants to keep track of his articles here is a link.
http://www.journalisted.com/liam-halligan?allarticles=yes

The only criticism I have of his outlook is his overemphasis on the inflationary problems to come.
Not that I don't see inflation on the horizon, it's just that we have no way of knowing to what level inflation will rise.
By his lack of emphasis on the deflation we are experiencing I just feel that he comes over as presenting inflation as the only boogeyman.

I just see the current deflation, added to future inflation, as a dire economic mix.
The ramifications would then make the boogeyman seem quite friendly, and welcome.

Could you tell me how you rate his economic comments, or have I walked into an LH fan club thread.

mbga9pgf

The only criticism I have of his outlook is his overemphasis on the inflationary problems to come.

I agree. The thing is, deflation makes the problem worse. I think he is too entrenched in the inflation theory, perhaps he thinks government wont accept deflation and will simply inflate whilst they can. I dont think they can do much more inflation without facing a bond strike, as this article alludes to. The important point to remember is this; the inflation/deflation arguement to me is a bit of a misnomer; the key underlying issues highlighted by the article remain whether it is inflation or deflation that we face exist for both contexts.

I listened to a couple of articles on Radio 4 he did for today on the way to work; I agree that we face a massive correction still, I disagree that it will be inflation that we face.

DiggerUK

mbga9pgf,
The debate over the 'flations to me seems best understood as two sides of the same coin, and a very debased coin at that.

At it's extreme is Zimbabwe, were assets can't be priced in any currency that the holder of those assets will trade at. A total collapse in normal economic activities.

Then there is the analysis of LH, that points out the UK tax take is down 8.2%, and welfare payments are up 9.7%.

We are a debt and mortgage free household.
But if our income went down 8.2% at the same time that our outgoings went up 9.7%, with a massive debt to service, then I know which street we would find ourselves on.

Edale

Liam was calling for higher interest rates in the middle of 2008 when the rot was starting to appear, again citing the massive inflationary 'tsunami' that was upon us. It would be interesting to see where house prices, in/de flation, unemployment and the economy as a whole were if Liam had his way with no QE, higher interest rates and no bank bail outs.

StevieJ

Edale wrote: »

Liam was calling for higher interest rates in the middle of 2008 when the rot was starting to appear, again citing the massive inflationary 'tsunami' that was upon us. It would be interesting to see where house prices, in/de flation, unemployment and the economy as a whole were if Liam had his way with no QE, higher interest rates and no bank bail outs.

Some of the cowboys on here were calling for that to

mbga9pgf

We will see who the cowboys were in 10 years from now. Bitter pill now will avoid a lot of pain down the road.