Tag Archives: George Osborne


Economics and the rhetoric from left to right – Its the ECONOMIC ORTHODOXY STUPID

Both the Spectator and New Statesman like to out do themselves on the partisan nature of debates on the economy.  Read the Spectator and you tend (with the odd exceptions) to get a diatribe of anti-left, deficit denying rhetoric, while the New Statesman balances the argument with often equal diatribes demonising the selfish right wing.

To get at the truth is something of a feat, and of course tends to be somewhere in between.

However, an interesting economic debate has occurred on the Spectator website which was mildly refreshing in it’s tone. An open letter to Will Straw about deficit reduction. . . 

The debate was interesting, as were the lengthy comments which showed just how the debate can be both interesting and of a base nature.  Of course the usual insulting nonsense went on, accusing “lefties” etc for almost all ills in the world.

The debate they have had, although interesting, was largely missing the point of the current economic decisions now facing us, as seen as the current inevitable crisis unfolds.

Rather than arguing who’s cutting faster, or harder, or trying to out do each other on the minutia of statistics, the wider macro-economic decisions are far more crucial.

I cannot state just how utterly pointless it is to decide just how right or wrong an economic policy is by comparing how deep the cuts are from one country to another.

The US economic situation is very different from the UK, and the UK’s different from many European countries.  The question is what is the right course for the UK economy now, not what went before, or what was done in Canada in the 1990′s, or indeed how deep the cuts are in the US.

As discussed previously our economy is running a tightrope course, too much one way or the other is likely to cause either a rising deficit causing inevitable economic problems in the future, or plunging into deeper recession.  Neither outcome is desirable, which is why taking the ideology out of the economic debate is so important, which is why so many commentators get it so utterly wrong.

It now looks likely, after the Bank of England has kept interest rates on hold yet again, that the expected hike in interest rates is far off.  Maybe even as much as 2 years down the line.

There are those on the right of the political and economic perspective who have been calling for interest rate hikes for over 2 years (ie – Nigel Lawson, Fraser Nelson, John Redwood). Yet it is clear that the economy could not take hikes in the base rate at this time.  People are hurting, their standard of living is reducing and people are spending less.

What is also clear, is that the deficit has to be dealt with and reduced.  Although our debt is historically low, the deficit is historically high which will impact on the overall debt eventually.

However, there is a myth of monumental proportions that has gathered steam and has been repeated often enough that many accept.


1) If we cut spending this will get rid of the deficit
2) The economy is like a household, we must cut our coat according to our cloth

This, although sounding reasonable is actually totally misleading.  Our economy is nothing like a household.  If we were to compare it to anything, it would be more like a blue chip company, who borrows money to invest, in order to create more revenue and profits.  As an economy, we create money through credit, therefore to borrow money is not only sensible, but essential.

However, it is important not to borrow too much, which is all to do with servicing debt.  If you can service the debt, then there should be no problem, however, you would not want to continue indefinitely increasing the debt burden.

If we reduce the deficit through cutting spending alone, we could actually do this relatively quickly and everything would be fine, but this is not how the economy works.  By reducing public spending, you reduce the amount of money in the economy and people are made unemployed.  Higher unemployment leads to a higher deficit – wasting resources in an economy is inefficient and costs money.

Reducing public spending also affects private companies as many services are outsourced to the private sector as well as infrastructure projects, therefore you not only reduce state spending and the size of the state, you also reduce the size of the private sector economic activity.

As discussed in The Truth About the UK Deficit , it is not primarily public spending that caused the large deficit, but the financial crisis that caused a recession and the collapse of tax receipts.  If the economy does not grow, income from tax reduces and the deficit increases.

This penny is just beginning to drop, as people are asking “where is the growth going to come from”? – Economists and Politicians have presumed we will have growth, some even saying cutting the size of the state automatically invigorates private enterprise.  However, the reality is much different.

So the debate, is not should we cut public spending – the answer is yes, but asking how much we cut spending and how do we encourage growth in the economy. Only the gradual reduction in public spending AND significant growth will rid us of the deficit.

If you cut too much, the deficit will rise.  If you do not encourage enterprise and keep the dole queue to a minimum, the deficit will rise.  If you tax ordinary people too much the deficit will rise.  If you cut taxes too much the deficit will rise.

The frailties of our economic situation are finely balanced.

There are those in the US and repeated by some commentators in the UK that blame “left wing” policies for the deficit.  Citing Obama as “left wing” and saying he has spent too much.  Of course, ignoring the fact that Obama inherited the economic situation, and ignoring the fact that it was a democratic administration under President Clinton that balanced the books and it was George Bush – one of the most right wing of Presidents, wh0 massively increased spending.

Not only this of course, but calls for continued tax cuts in the US  - when President Bush both increased spending AND decreased taxes for the rich.


The TRUTH is that there is no left or right of politics that has a monopoly of economic prudence.  Sadly, economic orthodoxy is the problem.

In the 1930′s – it was balancing the books that helped keep the world economy in perpetual depression.  It continued with protectionism and currency wars. Then came Keynes and counter intuitive economics.

In the past 30 years we have had neo-liberalism that has been the dominant force at work, an economic orthodoxy that has influenced world leaders, the IMF and the World Bank – world economists and leaders appear to have no where else to turn.  We are about to make seemingly similar mistakes as in the 1930′s – Balance the books at all costs; currency wars (see Switzerland, Japan and the USA); and leanings towards protectionism.


At present the markets are making a mockery of democracy and economic and political prudence as they bay for blood, looking for the next buck, trying to ascertain where the safe havens are.

The August jitters have begun, aided and abetted by the inadequate political leadership in the Euro Zone and the inept Washington politicians playing chicken with the world economy.

Then there are the economists and asset management experts giving advice not to invest in Europe and the US and move money into commodities, South America and the East.

Some reading from their economic textbooks stating we need to let the countries in southern Europe default, let the banks go bust in Europe and the US and start again.

This of course is fine in an economic handbook from the Chicago school – a shock doctrine on how to make money out of a crisis, but for society and ordinary people this would be financial Armageddon  the like of which the UK has never seen.  Try speaking to the people of Argentina circa 2001 to get a grasp of what this entails and then amplify the impact 100 fold.

The Euro zone will have to restructure itself as it cannot survive without fiscal AND political union to be unified and make quick decisions.  This will not however happen in time to save the Euro in it’s present form.  But the markets are at present being hysterical over the Italian and Spanish deficits, and could well cause a self fulfilling prophecy – with the inevitable diatribe of – “the markets are always right”.

Growth will not come easily – and it is likely a sustained period of stagnation is ahead.  A great recession – or a depression – double dip recession – it matters little what we call it, all we know is this is going to be very painful and will take years to rectify.


Euro Crisis – Greek Debt, Systemic Failure and Procrastination
We have nothing to fear except fear itself




George Osborne has declared that the economic figures released today regarding the UK economy’s growth are a good sign and shows the economy is “stable”.

The Office for National Statistics show that the UK economy grew by 0.2%.  The Office of Budgetary Responsibility (OBR) will have to downgrade it’s estimate for growth yet again.  From an expected growth of 2.7% down to 1.7% so far and is likely to fall to 1.2%.

The Osborne line continues, and as ever we are supposed to believe that these figures are “good news”.  We have to now start asking ourselves what exactly the difference is between “stable” and “stagnant”.

The UK economy now has virtually not grown at all for 9 months – this is certainly “stable”!  But in an economic model that means we HAVE to ensure growth in the economy to maintain and increase wealth, and of course to reduce the deficit, the news that the economy has not grown for 9 months is fairly devastating.

We have also been treated to the economic myths associated with such bad news.  In a country where we can have the “wrong” snow or leaves on the line – we are also the only economy in Europe that suffers from bad weather in winter; bank holidays; warm weather, wet weather; Easter – oh and Royal Weddings.  Apparently all these “one off events” have at some time in the past 9 months explained the dearth of an economic recovery.

The Truth however is far more dyer than anyone can admit.  It is not that these figures are bad for the economy, but what the trend tells us.  We had a small surge in growth taking back 1.8% of the 4.6% loss in GDP, and now the economy is not growing at all, and has not done so for 9 months.  This is no longer a “blip” but a trend.

What is worse is that the parts of the economic figures that were looking good are now looking as though they are following the trend.  Manufacturing is now shrinking again.  This is very bad news at a time when we are supposed to be “re-balancing” the economy, and having an export led recovery.  The truth however, is that manufacturing got an initial boost from a weaker pound, but this advantage only lasts for a relatively short time and then the advantage is lost.

Couple this with hard pressed economies in Europe, Ireland and the US and you have our main export markets in turmoil, recession or austerity – ie) consumers not overly willing to spend.

More bad news is that our main growth appears to yet again be coming from the financial sector.  This is obviously not bad  per say, but is bad if we are to believe we need a re-balancing in our economy and if we are to reform the financial sector to ensure the exchequer does not become too reliant on financial services and to prevent another credit crunch.

As we have heard, Mr Osborne is not for turning, well yet anyway.  George Osborne and David Cameron’s credibility are increasingly reliant on the economy and with all the U-Turns the government has taken, politically they will feel they cannot be seen to take another one, regardless of the evidence.

They are boxing themselves into a corner.

The effects are obvious – we have a higher deficit than under Gordon Brown, no growth, and higher taxation with rising inflation.  Yet the “cuts” have not bitten yet, and this will further dampen demand and employment opportunities.

Every time statistics come out a trend of stagnation and of great recessionary trends are shown.  Whether we are technically in recession or not is irrelevant – to all intents and purposes we have been in recession for the past 9 months as costs rise and peoples standards of living decreases.

I fear that in 7 years time we will look back at the previous decade as the decade of stagnation.

UK ECONOMY IN STAGNATION – British Chamber of Commerce predicts 0.3% growth

Recession what Recession? The private sector will pick up the slack and the Conservative Party has all the answers in these “difficult times.”

As the proof of the pudding is being tasted around the country it looks less and less like we managed to avoid a slump and more like we could be heading for a decade of stagnation.

Today we have the British Chambers of Commerce predicting that the UK economy only grew by 0.3% from March until June.  Others are predicting we shrank by 0.2% (citigroup) in the same period.  A third of finance directors believe we are heading for a double dip recession according to Deloitte.

Economic figures other than the overall rate of unemployment have been dire over the past 9 months.  If the expected low or nonexistent growth in the UK economy comes to pass it will mean that the UK economy has not grown for 9 months.

In terms of the deficit this is a disaster, as without growth the deficit will remain or, as is the case at the moment, increase.

This news is being kept off the front pages at the moment due to the News International Scandal and Cameron’s difficulties, but nothing will hide the mess of Osborne’s economic policy as the summer continues with consumers becoming shrinking violets.

Whether we go into a double dip recession is irrelevant, as whatever the technicalities of the economic figures show, the UK economy is stagnating. However, IF we go into a technical double dip it will be a massive psychological blow to the government and confidence will be further reduced as a result and of course Ed Balls will be able to go further onto the attack.

How long will we accept that it is all Labour’s fault??

RECESSION WHAT RECESSION – Is the Private sector really going to take up the slack?

David Cameron’s and George Osborne’s  mantra, of the private sector taking up the “slack” of the shrinking public sector, is beginning to look like wishful thinking rather than economic reality. Anyone with a sense of reality, can see that there is absolutely no evidence of this.

The one statistic that is trotted out to convince us that this is the case is the amount of private sector jobs created as compared to public sector jobs lost. At the last count over 500,000 jobs in the past 3 years.

However both the jobs created statistics and the unemployment figures are puzzling. The public sector appear to be losing more jobs than forecast but there are more jobs being created.  Yet the output figures seen here, show that productivity is not matching the growth in jobs.

Many of the jobs created in the private sector are “flexible” job creation – either part time or less secure and lower waged. As households move from full time work to part time work this puts a strain on the high street as consumer spending decreases. This movement from quality full time jobs to “flexible” and part time work is a familiar story in the UK.  We saw this in the 1980′s.  While we have a warning this week of a “repossession Tsunami” if interest rates rise, this is boxing in the options for the chancellor and Bank of England.

Economic data over the last 6 months have been catastrophic.  The UK economy has not grown at all; inflation is high while wages are rising at less than half the inflation rate; and standards of living are decreasing at rate not seen since 1977. Over the past few days the reality of an economic policy of austerity and rhetoric of doom and gloom is creating the decimation of the high street.

Purely in economic terms this is fairly disastrous.  In many towns and cities, as in Dunstable, a third of commercial units lie empty without any economic activity. Again this is a familiar story that we saw in the 1980′s.  I remember doing a survey of industrial estates in the West Midlands in the mid 1980′s where anything up to 50% of the units would be empty at any one time.

This is just the economic perspective, the cultural perspective is perhaps worse as high streets decline and then the local community declines in tandem causing deprivation and a feeling of hopelessness. There are few on either side of the political divide who would have forecast that we would see the likes of Mothercare, Habitat, Thorntons, Odd Bins, Jane Norman, HMV, and T.J.Hughes either go into administration or massively cut back on jobs and retail presence, while today Lloyds Bank have announced a new round of “efficiency savings” aka 15,000 job losses.

As austerity bites and standards of living decrease, the British public are starting to only spend what they really need to and are ruthlessly looking for bargains switching to the internet for their shopping habits. Yet the deflationary public sector cuts and job losses have barely begun. While this sucks money out of the economy, out sourced inflation continues to rise.

Greece yesterday ensured that their economy would remain stagnant without growth for a decade and garner the ego of the IMF by voting through the austerity bill delaying the inevitable default and restructuring of the Euro as they wait for the next Euro Domino to fall.

Further shocks to our economy are inevitable with the prospect of inflation caused by external forces and commodity speculation; the decimation of the Euro as we know it; rising interest rates and the continued erosion of democracy as unelected bodies like the European commission, IMF, World Bank and the Banking Sector have a disproportionate amount of power.

Other symptoms of the mess we are in is the latest public sector strikes.  The government rhetoric from both sides of the coalition are attacking the democratic legitimacy of the Unions, while playing the lowest common denominator card.

As with the accusations of “envy” politics of the 1970′s when people were being taxed so much to make them as poor as everyone else, so the right are now playing the same cards.  They continually talk about the poor conditions of the “average” member of the private sector, as if those working in the public sector should have their conditions reduced to that level.  This is pure envy.  Rather than thinking of ways of improving the standards of living of the private sector and securing a better future for all, we are in the blame game and keen to reduce standards of living to a lower acceptable base. While MP’s conveniently have amazing benefits and pensions.

In the article Are we heading for a “Great Recession” , it was discussed how the talk of avoiding a slump is misplaced.  Our stagnation as an economy and society is set to continue.  There is no prospect of significant growth in our economy for possibly years to come while standards of living continue to erode.

We have taken our eye off the ball, as we follow the ideological path of the IMF, with its concentration of Chicago School economists.  If we do not spark growth in the economies of the west we are going to have a bigger deficit (Truth about the UK deficit) in 3 years time than we have today.  Growth is the name of the game and we need to find a way of increasing growth in our economy, or we need to fess up to the inherent contradictions in the capitalist economic model and search for an improvement or a different economic model all together.

Should we consider a “Steady State Economy” and abandon the race for growth?  This could enable stability and a coherent environmental policy, while concentrating on quality rather than quantity and having a debate on what really is “efficient” in either the economy or society.

With every month that goes by, it seems that the lessons of the financial crisis are not being learnt and we dig a bigger hole to put our heads into the sand.  If it were left to the controlling forces of ideology in our society we would race back to the laissez Faire economics of more than 150 years ago, which took a hundred years to evolve into a more civil society.

I for one could not tolerate this, and I am dismayed by the lack of vision by our so called elite as they erode democracy throughout the world.

We need a new vision, a new way forward, and to throw off the shackles of the past.  With the current crop of leaders within the UK and the world I don’t see any evidence that this will happen.




Are we heading for a “GREAT RECESSION”, akin to the great depressions of our past?

Each day that passes, the narrative of politics and economics never ceases to become more interesting.  And so these interesting times continue with yet more bad news for our economy.

I remember some time ago, soon after the crisis of Autumn 2008, having a conversation with a friend who stated quite confidently that the only companies going to the wall were badly run businesses.  How house prices (one of his main concerns) would recover and there was plenty of money in our economy.

The conversation followed the belief that this would be a short blip on the economic landscape, and times would return to normal fairly quickly.  Indeed, within a few months the same person, along with various media publications were stating that the banking crisis was either “over”, or nearly “over”.

Several years down the line – 3 1/2 years since the queues outside of Northern Rock – if we look back we can see a timeline which is significantly longer than we were led to believe.

Today, no one knows how long the banking crisis will last, or indeed where it will lead next.

It seems like every week new news is broadcast casting doubt on any economic recovery with commentators always pointing to the fact that “technically” we are no longer in recession.  This however denies the seriousness with which the world economy is stumbling from one economic shock to another affecting the standards of living of billions of people.

We Avoided Going From A Recession To A Slump 

As we know, Gordon Brown “saved the world”, from the worst effects of the banking crisis, and we are constantly reminded how this action prevented a recession from turning into a slump or depression. (Please note the hint of sarcasm before people start giving me abuse!)

My reading of the action taken by world leaders at the time, including Gordon Brown, is that their action was decisive and needed to prevent a collapse of the capitalist system as we know it.  I am glad that Gordon Brown was actually in power at the time, the thought of George Osborne et al being in power, staring into the headlights fills me with horror.

However the structural problems have still not been dealt with and the terms behind the bailouts were poorly thought out.  Like the snooker player planning a centenary break, our esteemed leaders were only thinking as far as the next black.

The idea that we prevented a slump in my opinion is looking less and less like fact and more like propagandist rhetoric.

The more economic indicators are released across the world, the more the economic crisis continues, and for some gets worse and not better.

If I were living in Spain today would I be thinking that this is the normal “economic cycle” or recession, or would I be thinking that this was far more serious?

Spain has 22% unemployment and 45% youth unemployment – a country in debt – and had negative economic growth for 6 consecutive quarters and in the last 5 quarters has not grown more than 0.3% in any quarter. The economy is stagnant at best with now the prospect of enormous cuts in public expenditure, sucking enormous amounts of money out of the economy.

If you were living in Spain would this have been a recession or would you see this as a depression?  The prospects for the population over the next decade in terms of standards of living and general employment is bleak at best.

Spain is by no means the most badly effected economy in the world following the financial crisis, yet these figures give pause for thought after the recent elections and demonstrations there.

Spain though is possibly the most pivotal country within the Euro zone, the country that will have the most effect on the outcome of the Euro’s fate.

Whereas bail outs can be discussed and organised for Greece, Ireland, Portugal and maybe even Italy, to talk of bail outs for Spain would be a bridge too far.

The European Union is the largest economy in the world, a homogeneous trading area, overtaking the USA in GDP in the last decade with over 15 trillion dollars and over 20% of the worlds market share.  The US and EU account for over 40% of the GDP of the planet, so despite the rise in the growth of China and India, the old engine rooms of the world economy are still incredibly important.

Although the rise of these developing economies can aid world economic growth, the fact that these countries “make things” and sell them back to markets in the developed world means that if the developed economies are on their knees then the developing world will grow less as well.

In addition to this there is a massive discrepancy with debt and surplus as China saves too much and collects the debt of the largest single country economy in the world, the US.

The World Economy shrank for the first time in post war history by 2.031% in 2009 showing just how bad the economic crisis has been and how the words of Alistair Darling were so prophetic back in 2008, that this is the worst economic crisis in 60 years. 

Neo-Liberal Philososphy

The crisis appears to be worst where the neo-liberal philosophy was strongest and where the financial markets and economies are at their most mature.

Like 1929, the crisis originated in the US, but due to the spreading of the same ideology across the world by the IMF and World Bank and the ever increasing “Globalisation”, it exposed many interwoven economies and affected those in developing countries who are least able to cope with the fall out.

I remember seeing an interesting debate on the current affairs programme “Newsnight”, before the catastrophic events of 2008, when it was argued that the globalisation and capitalist ideology of the past 25 years had reduced world hunger down to approximately 650 million, that is people who actually go hungry everyday.  Within 6 months of that interview, the amount of the people who go hungry in the world increased back up to 950 million or so.  25 years to decrease it by a third and 6 months to push it up 50%, back to the levels it was previously.  An excellent achievement!

The above graph shows the trend of those who are undernourished courtesy of the worldhunger.org website. Indeed this graph shows that the figures often banded about are actually worse than originally thought.  This graph shows that currently around 13.1% of the worlds population go hungry/are undernourished everyday, 1 in 7 people on the planet.

Globalisation has in fact created more vulnerability in the world economy and the well being of people than before.  Where as many countries were cushioned somewhat from economic strife in one area of the world, the interconnectedness now exposes everyone rather than spreading the risk.

Like the Sub-Prime housing market that started this mess, the spreading of risk added to the problems, hiding them in accounts, products and market values that no one could value or  understand.

The scandal that is the IMF, World Bank and WTO

There appears to be irony in every aspect of life these days, as the two institutions that were becoming almost irrelevant to the developing world prior to the credit crisis are now centre stage “saving” the developed economies of the western world.

Prior to the crisis, the IMF and World Bank were being side lined in trade agreements and loan agreements as developing countries would no longer accept opening up their markets to foreign companies to asset strip them, or deregulating fledgling financial sectors so that speculators could decimate their economies; or sell off their education and health services to the private sector in return for loans so that private companies could make money out of the poorest people on earth while allowing millions to go without education and health provision.  In short the “penny” had dropped.

The WTO constantly struggle to impose its will on developing countries now as deal after deal is scuppered by those who know the harm they do.

These organisations, dominated by the interests of western economies and especially the US, seek to open up markets for the benefit of developed countries with the spin that they will allow “inward investment” and open up markets for developing countries.

Yet the very same US and European Union constantly employ trade restrictions and in some cases the most restrictive practices in the world to prevent damage to their interests.  The US protects its Agriculture sector, steel industry, car industry and airline industry to just name a few.

Irony again rears its head as the IMF prior to the 2007 beginnings of the financial crisis recommended that all countries should follow the US and UK in their approach to light touch regulation in the financial markets.  Praising the US and UK and endorsing their economic policies.  This incidentally is the same IMF that every world leader mentions when justifying their austerity measures, including our own George Osborne.

The IMF was WRONG in 2007 over light touch regulation and DID NOT SEE the crisis coming.  The IMF was WRONG in the way it spread the ideology of neo-liberalism around the world and the WORLD BANK was WRONG in insisting in the liberation of fledgling markets and the privatisation of health and education institutions in developing countries.

Most of these criticisms are barely within the discourse of economics in the mainstream media or political parties.  Both the Labour Party and Liberal Democrats appear to be wedded to the same discourse.

The Effect of Cutting Public Expenditure

As we all know in the UK, we have a deficit that needs to be reduced.  As discussed here in the Truth About The Uk Deficit, the reason for the deficit is largely due to the reduction in tax take rather than simply “over spending” as the chart below shows:

Although outlays were higher at the time of the crisis than tax take by around 2.7% to 3.1% of GDP depending on how you measure it, this was within tolerance limits.  The reason for the decline in tax take and the ever increasing deficit is due to the lack of credit available in the economy and the realisation that much of the wealth created on Banks accounts were not real.  As credit reduced and money was effectively taken out of the economy the recession ensued and people were able to make less money and thus pay less tax.

If we are to bridge this gap we HAVE TO GROW.  If the economy does not grow the deficit will get bigger no matter how many cuts we inflict on our public expenditure.

Over the next 4 years the European Union is embarking on large cuts to public expenditure.  So to are other countries in the world economy like the US.  This will have the effect of deflating the economies in those countries effected, which in turn effect the countries they trade with as they will be able to buy less products, therefore importing less.

This is not a short term problem.  Japan has had mounting debts now for decades and has stuttering growth.

The current rounds of austerity will be affecting the next 4 years, even though most discussions appear to be focussed on the next 2 years.  Effectively the Euro zone average of anywhere between 1.86% to 2.4% of GDP depending on how you measure it (economic statistics are never straight forward!) as the Full fact shows here.

Note this diagram only projects cuts in the first 2 years and the cuts in the UK will be far more in the 2 years after this.

The US is cutting even quicker and plans to decrease the deficit by $4,000 billion or 2.2% of GDP by 2015.

If the 2 economic areas of the world cut between 2% and 2.5% of GDP how will this affect the economy of the areas affected or the world economy?

Nobody really knows is the true answer, the same as no one really knows what will happen next with the banking crisis.

The UK Position

The UK position is perilous at best.  Over the past two days we have had yet more bad news for George Osborne and his plans for growth and reducing the deficit.

Yesterday it was shown that the deficit is increasing under George Osbornes leadership rather than decreasing, and yet growth is also on the wane. Every month we get a further downgrading of growth expectations, today was the turn of the OECD who have down graded to 1.4% this year.  This is after the UK economy has not grown for 6 months and recent figures showing not only consumer confidence is low but that consumer spending is decreasing and is technically in recession after declining for the second quarter in a row by 0.6% in the last quarter, the lowest since the technical recession in 2009.

The “good” news for the UK economy is that the great “re-balancing” of the economy is happening with the stuttering recovery being led by exports.

Many, including the OECD today are calling for the rising of interest rates steadily to counter inflation.  Inflation is not home grown as the depressed wages show, but rather due to commodity markets and increased costs of raw materials.  However, it is argued that increasing interest rates to a more “realistic” level will strengthen the pound and therefore help counter inflation.

Yet it is the weakness of the pound which is helping our exporters, making them more competitive.  If they lose that competitive advantage will that not damage the fragile recovery?  Is this not the classic sign of what happens when you have an effective devaluation?

Further Shocks Will Knock Us Off Course 

We have many more shocks to the economy over the next few years, and which ever way we look at the economic figures they look bad.

Over the next 4 years both the EU and US will go through massive public expenditure cuts and with it probably massive unemployment to go with it.  This will suck out money from the economy causes more stress for consumers and businesses.  If interest rates increase, this will again add costs to businesses, put pressure on households making it harder to pay mortgages that has been the saving grace for many people over the past few years.

This will increase the value of the pound and probably reduce our exporting capacity further having a negative affect on the economy.

Further shock will come as the debts of Greece are most probably going to have to be “re-structured” and Italy may well be the next domino to fall in the Euro zone”.

Speculators have now gravitated to the commodity markets causing further hardship to the real economy and will add to inflationary pressures, putting more pressures on interest rates.

Food riots due to rising prices are likely yet again, while the natural disasters, sadly effecting many areas of the world (including our own, with crop yields looking to be significantly lower this year due to drought), will cause more hardship.

Then we have the prospect of Peak Oil on the horizon.  This is more worrying as it will affect every part of modern life, and is inescapable. No planning has been put into effect by European and western governments generally, it is a forgotten problem, put on the back burner, always something that politicians can come to later.

So are we heading for a Great Recession? Some commentators have already dubbed it as such, but basically without meaning.  If you were living in Spain, Ireland, Greece, Portugal or Italy I would say they already think so.

Other than the odd anomaly like Germany, who seem to be well placed to profit from an export led recovery, with the help of a deflated Euro caused by the southern European countries in crisis, the recovery will likely be in two spheres. The developing countries growing somewhat while the developed countries stutter and stumble trying to get back to normality.

The neo-liberal model is still with us, it has not been challenged economically or politically and continues to hold sway.  Banking reform, though essential still appears to be on the back burner, while those benefiting from high commodity prices like Australia make hay while the sun shines.

This is NOT about economic cycles in a text book, rather an ideology of madness that has taken over undemocratic institutions like the IMF, WTO, World Bank and the Banking Industry that have a disproportionate amount of power in an increasingly interdependent world.

A crisis of democracy is likely to follow, as seen with the recent protests throughout Europe.  This is just the beginning of austerity Europe, and the chances of a “Great Recession” or a “Slump” seem to be closer every day.