The Current Economic Situation

[Johnwg]

So many threads on here regarding the price of fuel, now we need to brace ourselves for 40% increases in the cost of gas and electricity... inflation on a steady increase due to huge jumps in the cost of food/fuel (when was the last time the term stagflation was used in anger by economic comentators?) house prices and the houseing market in general (need I say more), an ever increasing tax burden....

Where is all this heading ??? Can't help feeling this is a bit more than a slump which will last a couple of years...... are we going to see a repeat of the 70's? A repeat of the 1930's? Or something even worse ?

[robmawer]

Originally Posted by Johnwg

So many threads on here regarding the price of fuel, now we need to brace ourselves for 40% increases in the cost of gas and electricity...

There is a connection though...ultimately, it all comes from fossil fuels, upon which out society is heavily dependent. Increases in the cost of fuel leads to the increase in food, etc. as it costs more to put goods on the shelves. Cost of living increases, wages increase, leads to inflation, etc.

As a society we're always going to be vulnerable if we have such a heavy reliance on a (finite) commodity...


Rob.

[Johnwg]

Originally Posted by robmawer

As a society we're always going to be vulnerable if we have such a heavy reliance on a (finite) commodity...

The classic economic problem

Infinate Wants + Finite resources = Scarcity

or in Marxian Terms

The success of capitalism brings its own downfall ???

[Dr Zoidberg]

To me it seems to be a combination of the american financial sector's dodgy practices collapsing , and increased demand for basic commodities.

India , China and to a lesser extent other countries are now trying to compete with the economies of the traditional develpoed world and that sort of industry relies on large quantities of raw materials and energy.

Simple supply and demand means that prices will rise hugely , and as these economies become more successful their populations will have more money to spend on food and luxuries which also now cost more.

At the end of the day , this planet can not support the entire population living a modern western lifestyle. We keep being told that we should all use less (of everything) , but the other half of that equation says that if the number of people is reduced then there's more to go round. It sounds extreme , but substantially reducing the planet's population over the next few generations would make a large difference.

[heresmo]

Originally Posted by Johnwg

So many threads on here regarding the price of fuel, now we need to brace ourselves for 40% increases in the cost of gas and electricity... inflation on a steady increase due to huge jumps in the cost of food/fuel (when was the last time the term stagflation was used in anger by economic comentators?) house prices and the houseing market in general (need I say more), an ever increasing tax burden....

Where is all this heading ??? Can't help feeling this is a bit more than a slump which will last a couple of years...... are we going to see a repeat of the 70's? A repeat of the 1930's? Or something even worse ?

You ask this question and it would seem you might be a student of economics just now methinks. What would your answer be?

Regards
Mo

[gadgetman]

I do worry about the future for our kids (the world's I mean)

With technology so many jobs will no longer be needed. All I see is a future of everyone scrabbling for the last unskilled jobs that are available. The rest done with machines or in other countries.

Unless we abolish money?

[daiking]

We're ****ed and I'm BRIC-ing it. I don't see any positive aspects to our current financial service and so called knowledge based economy. Its based on debt and frivolous services.

[lozgti]

Can't see fuel and food coming down in price.

Reckon mortgage rates will slowly creep up to normal interest rates -10-15%

People won't be able to spend like they have done.Every man and his dog in BMW's and mercs.

House prices I reckon will come down an awful lot before they go up again.I reckon our £225,000 house will be worth about £150-£175,000 shortly.

Banks will be mean (despite the way they have behaved) and people will have to accept the fact they will probably only get 3x income and have to put about (at least)10% down.

I'm just pleased we fixed our mortgage for 10 years and we owe nothing on cars or cards.

Its all going to hit the fan and people needed this reality check.Boom and bust gone? I don't think so.Its serious this time

[GnatG]

My gas bill for April to June was higher than December to March. Not sure how that happened. OK, April was a bit chilly but looking at the bill our useage was lower. What I don't get is this primary and secondary units business. They always seem to charge more units at the higher rate.

I've got a nice wood burning stove which will see more use during the winter months this year!

[GnatG]

Originally Posted by lozgti

Can't see fuel and food coming down in price.

Reckon mortgage rates will slowly creep up to normal interest rates -10-15%

People won't be able to spend like they have done.Every man and his dog in BMW's and mercs.

House prices I reckon will come down an awful lot before they go up again.I reckon our £225,000 house will be worth about £150-£175,000 shortly.

Banks will be mean (despite the way they have behaved) and people will have to accept the fact they will probably only get 3x income and have to put about (at least)10% down.

I'm just pleased we fixed our mortgage for 10 years and we owe nothing on cars or cards.

Its all going to hit the fan and people needed this reality check.Boom and bust gone? I don't think so.Its serious this time

This happened in the early '90s. Hard times but we somehow got through them.

[Babs]

Originally Posted by Dr Zoidberg

It sounds extreme , but substantially reducing the planet's population over the next few generations would make a large difference.

Yup, nature tries to balance its self out.

In a related side-note, if we stop giving aid to 3rd world countries then the problem will sort its self out too.

[Fluffmeister]

I come off my current mortgage deal in September so am bracing myself, being self employed there are now far fewer self certification mortgages available and most regular high street providers are not interested, even though I have an perfect payment history and am on full repayment.

Some serious belt tightening is in order over the next few months to get in shape to weather the storm. Maybe we should stop engagin in expensive and pointless US Driven conflicts and spend some of that cash by reducing tax on fuel.

[cheezemonkhai]

Originally Posted by daiking

We're ****ed and I'm BRIC-ing it. I don't see any positive aspects to our current financial service and so called knowledge based economy. Its based on debt and frivolous services.

I'd be more RIC ing it as Brazil keeps failing to deliver.

Totally agree that a services based economy is a house built on sand right by the sea though.

[Aspman]

China might drop it's petrol subsidies which will reduce demand there a bit.
Demand is dropping here and the US already. I think it'll drop back or steady a bit in the next few years but it's never going to be cheap again.

We'll just have to start saving up for stuff rather than putting it on the never never.

The gov will just keep moving the goal posts so they can say things are better no matter what. The Tories will do the same when they get in.

[heresmo]

Originally Posted by Aspman

...
The gov will just keep moving the goal posts so they can say things are better no matter what. The Tories will do the same when they get in.

I agree. Either party leader will be sitting in King Canute's chair.

Mo

[Johnwg]

Originally Posted by heresmo

You ask this question and it would seem you might be a student of economics just now methinks. What would your answer be?

Regards
Mo

I was a student of economics 10 years ago Mo.... my answer, well I'm not sure hence why I asked the question as I know a good number on here have a very good intellectual out look on things socio-economic.

Personally I think we are into unchartered territories due the the global nature of the markets now - last time we were in the poo economically it wasn't because a Red-Neck from the deep South had borrowed more than they can aford to pay back.

I think we're being hit on 2 fronts, both of which have been pointed out in this thread, the first the finite supply and increasing demand for fossil fuels and second, the credit crunch and the fact that people borrowed way beyond their means without thinking about the potential for intrest rates to rise in the early to mid 2000's.

To be honest there appear to be so many complex factors to this it makes you wonder if economic policy makers have the right 'economic model' to get us out of it.

[heresmo]

I certainly agree that a lot of folks on here have a sound knowledge of economic interrelationships seen from a perspective of historical and cyclical events rather than some politicians who seem to spout only about current "surface" events (and will probably more so until the next general election. (I wouldn't class myself as knowledgeable by any stretch of the imagination by the way.)

I do agree, and have said so before, with others that an economy built on sand is bad news, i.e. one that's based on circulating funds despite being in a global economy, with very little being backed by production. Quite how the UK turns that around, I don't know given that it has little physical to export and elite knowledge is largely comparable elsewhere now.

I do think the UK should become more self-sufficient in food terms. Giving over half the country to growth of rape seed for oil defies logic in the longer term to me.

Your original question was where would all this lead. My response would be "Nowhere fast unless our politicians start thinking instead of "spinning".

Regards
Mo

[neelyp]

Originally Posted by Aspman

China might drop it's petrol subsidies which will reduce demand there a bit.

It was on the news last night that the Chinese economy is not going as well as we might think. Inflation running at 7.7% and they have increased fuel prices by 18%.
As always a double edged sword as we import a vast amount of goods from China and if they put up the prices, I guess we will pay more.

[cheezemonkhai]

Originally Posted by neelyp

It was on the news last night that the Chinese economy is not going as well as we might think. Inflation running at 7.7% and they have increased fuel prices by 18%.
As always a double edged sword as we import a vast amount of goods from China and if they put up the prices, I guess we will pay more.

Eventually as they increase their prices it will become cheaper to manufacture in europe/the UK and production will start to move back here. Things usually work in cycles, it's just that it might take a very bad downturn for here to become cheaper, but eventually it will.

[Clunkclick]

China is the Hub of the World economy, with India rising fast to join it.

As most of the worth of the industrial might of this country has been liquidated and converted into income streams from investment in foreign industry i.e. China's, then our economic well being and growth rate is dependent on on theirs.

Recently, various problems have caused the Chinese economic growth rate to fall back from 10-12% to 7-8% per annum, but that's still 3 times the UK average annual growth rate since WW2 - an 8% growth rate means your population's standard of living doubles every 9 years. To date, the UK's expectation has been for that to happen every 36 years.

On the face of it, doesn't seem like a bad deal that we've been tied into, except, as usual, institutional factors will conspire to ensure that some groups weather a storm better than others.

UK patrons of Primark, won't do so well as Chinese output price inflation is running at 7.7% and is being passed on immediately to all buyers, because the Chinese economy has been running at 110% full throttle. However, those dependent on unearned income obtained through investments in the City of London won't be affected until the deals on which their investments depend expire or are re-negoitated - this will only happen when the portfolio holders start re-evaluating their investments - this could be some way down the track.

Overall, how well everybody in the UK fairs in the downturn depends on how much of the UK service economy is really knowledge-based and to what extent it can assist in improving the productivity of the World productive capacity now based abroad in China and India. But, that's not all the story.

I do feel that the credit crunch is another of these events engineered to occur through a deliberate lack of control. After all, its is the West who are the principal financiers of Chinese growth.

Is it co-incidental that as soon as the prices of Chinese industrial output started to rise, due in part to the expected effects of rising consumer demand at home, saturation of foreign demand (US) and boom engendered supply shortages, that US financial interests suddenly started questioning the efficacy of mortgage lending to the those good financial certs, the string vest clad coloured man sitting on his porch steps in Alabama ? No, whilst output inflation of the World's principal industrial producer remained low, then investment of the surplus liquidated residues of the West previous economic growth in dodgy US property provided a sufficient return on investment, and conveniently provided an inflation sink proof against rising middle class incomes in the respective US and UK domestic economies. As soon as the Chinese output prices rose, the Western financiers saw more money to be made by switching part of their portfolio into commodity price speculation. So any uncommitted surplus funds were switched into that - hence the recent report that 60% of money on the Wolrd wheat market is speculative funds.

IMHO, things won't start getting better until the cost - benefit calculations undertaken by the financiers of the World economy show that they are loosing more money on their Chinese investments than is made from commodity speculation. This assumes a level of shared vested interest/communication across different markets that might not be there. That being the case, this will only happen once excess home demand is fully purged in China - that could take some time. So the longer the financiers indulge their fancies in "Bear" economics, the tighter the deflationary circle will get, leading the World economy to reduce in size far more than it need to. After all, where else, at the moment, are the Chinese going to get an alternative supply of investment capital. . . ?



Nick.