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A Recession or Depression?
For years the US and UK have been living beyond their means.
Governments have taken on ever more debt as a result, and at a personal level, individuals also
have taken on increasing amounts of debt, partly fuelled by the property boom.
So is it all coming to an end, with recession turning
into a Depression for all of us?
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Depression
or
Just a Recession?
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The opinion of the experts:
The US sub-prime crisis has triggered many events in the finance sector, including the Northern Rock saga in the UK. Prices of energy and commodities are creating pain for other industries like transport, just at a time when debt becomes harder to negotiate,
and more expensive. We've already seen an increase in bankruptcies and repossessions...
However, that doesn't mean we are definitely heading for a 1930's type Depression.
Based on newspaper opinion, and the experts they call in, the consensus is that there is
a risk of depression, but it is by no means certain.
Have a look at some of the quotes below, and make your own mind up.
If you believe the odds of depression
are high, now is the time to get out of equities, if you haven't already done so.
Look at the investments particularly in any pension fund or ISA, and if you want to reduce risk, switch them from equity
funds to things like indexed linked stocks, or even cash if the scheme permits.
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Pessimists
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Ex-FSA chief Sir Howard Davies sees 'dramatic’ risks for Britain
link to article
Telegraph 15 Oct 2009
The British people are living in a fool's paradise and have yet to understand
the gravity of the economic crisis, according a former head of the Financial Services Authority.
Sir Howard Davies, now Director of the London School of Economics, said Britain faces a dangerous rise in the levels of public debt –
even taking into account tax increases planned for coming years.
Sir Howard said the reality is that the Government has so far come clean on
just half of the fiscal consolidation necessary over the next five years merely
in order to stabilize debt. By 2014 we will be among the Big Four of global profligates.
"It is not a great club to be in," he said.
UK warned of imminent recession by British Chambers of Commerce
Sunday Times 17 August 2008
THE British Chambers of Commerce (BCC) will this week become the first leading business group
to predict a recession in Britain. Its quarterly economic forecast, to be published tomorrow,
is expected to say that Britain is heading into a “technical” recession of two or more quarters
of declining gross domestic product over the next six to nine months.
It will say that a deep recession, of the kind last experienced by Britain in the early 1990s,
remains unlikely, but that the risks to the economy have grown significantly over the past
quarter and unemployment is set to climb by up to 300,000.
The BCC’s forecast follows a gloomy assessment from the Bank of England, which said last week
that the economy would be “broadly flat” over the next 12 months. Figures released showed
inflation at a 16-year high of 4.4% and the biggest monthly rise in unemployment since late 1992.
Both the eurozone and Japan reported declining GDP in the second quarter, hitting hopes that
strong export demand would help offset the squeeze on the domestic economy.
George Soros: worst to come for UK economy
Telegraph: 24 May 2008
Financier George Soros has warned that the UK economy has yet to feel the full impact of the
global credit crisis. Mr Soros said that while the "acute phase" of the credit crunch was over,
the fallout has still yet to be felt.
Speaking to the BBC's Today programme, he also disclosed his surprise that
it took the Bank of England so long to bail out struggling banks in the city
following their hit by the US sub-prime crisis.
Mr Soros said: "I think we are past the acute phase of the liquidity crunch,
the credit crunch. But it is the job of the authorities to provide liquidity and
it was actually quite remarkable how long it took them to find the right
ways of doing it. It took much longer than I expected. But that is now largely behind us. The
fallout, the impact on the real economy, is yet to be felt."
Mr Soros, who in January said the world was facing its worst financial
crisis since the second world war, labelled the claim that the US would ride
out the current crisis by the end of the year as "without foundation".
But while he said the US recession would be "more serious than currently
anticipated and certainly longer," he warned that in the UK "the situation
is in some ways perhaps worse than for the United States." He blamed the UK housing boom
and the economy's heavy reliance upon the financial sector as the main causes for fragility.
IMF gives bleak warning on dangers of global recession
Times: April 10, 2008
World prospects have deteriorated sharply, with the US economy tipping into recession and a
one-in-four chance of global recession, as the toll mounts from the “largest financial shock
since the Great Depression”, the IMF said yesterday.
In a bleak assessment, the International Monetary Fund said the world was in the grip of a major
financial crisis, fuelled by a US housing slump that continues full blast. It drastically cut
its forecasts for the United States and other leading economies over this year and next in its
latest World Economic Outlook.
Pointing to a series of dangers that could lead to an even worse outcome for the US and Europe,
the Fund said there was now a 25 per cent chance of global recession, defined as world output
growth falling to 3 per cent or less.
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Optimists
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There's a real sense of economic recovery in the air
link to article
Telegraph 16 Oct 2009
Cut through the mood of pessimism and despair that grips the nation like some kind of mass pandemic, and beneath the tormented surface something unexpected is stirring – signs of life in the real economy.
Yes, that's the real economy, not the financial markets or multi-million-pound banker bonuses.
These are already swinging along as if the banking crisis never happened,
to the understandable though misplaced disgust of the public.
Yet the real economy may not be far behind.
Interviewing Sir Terry Leahy, chief executive of Tesco, this week,
I was struck by the measured confidence he expressed in the resilience and growth potential
of the UK economy. In his own business, he is already seeing signs of recovery
in consumer confidence and demand.
But it is not just hearsay and anecdotal evidence.
According to official figures issued this week, unemployment was slightly lower
between June and August than in the May to July period.
Dire predictions of joblessness soaring to more than 10 per cent of the workforce,
conventional wisdom only a few months back, look ever more fanciful.
Survey evidence too supports the idea of a V-shaped recovery.
Jim O'Neill, chief economist at Goldman Sachs, points to the strength of recent
Purchasing Managers Index surveys, which, if maintained, suggest a self-sustaining recovery.
Rate cut may be needed to avoid UK recession
FT March 28 2008
The UK faces a slightly less than a one-in-three chance of slipping into a technical recession –
which is defined as two successive quarters of negative growth –
and the Bank of England may have to cut rates aggressively to avoid following the
US downward spiral...
In a report that reflects the increasingly downbeat view of the UK economy among analysts,
Michael Hume said on Thursday that the possibility of outright recession,
which is defined as a period of negative year-on-year growth, was now one in five.
Ten reasons for investors to be optimistic
Telegraph: 01/Apr/2008
The pessimism is overdone. The odds are that the current financial crisis is winding down and equity markets will stage a come-back over the remainder of 2008. Here’s why:
1, The US Federal Reserve has effectively pledged its own balance sheet to prop up markets...
2, Global liquidity is plentiful...
3, Equity markets are discounting a recession...
4, A hard landing may yet be avoided...
5, Corporations have been cautious about expanding employment and investment in recent years...
6, UK consumers are in better financial shape than generally appreciated...
7, Investor pessimism is extreme ...
8, While retail punters are bailing, US corporate insiders have stepped up buying...
9, Losses on US subprime mortgages have been largely accounted for...
10, The magnitude and duration of the fall in US financial shares is comparable with the decline associated with the savings and loan crisis of the late 1980s...
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If all this advice has got you worried, then what better to get a book on survival strategies!
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The Personal Finance Survival Guide:
25 Top Tips to Save Your House, Your Money and Your Lifestyle in the Recession
For many of us life can feel like a constant financial juggling act at the best of times.
We probably owe money on our credit cards, our living costs are going up,
and even the modest wish to have a secure income stream to pay for our home and to secure
our pension seems pretty ambitious. Besides, how much money is enough these days?
However much it is, progress is much more difficult in a recession.
Now's the time to get all those issues sorted, and this is the book to help you succeed.
It contains practical, easy-to-implement advice. There is absolutely no padding,
waffle or theory. Here are 25 brilliant ideas to survive the 2008 slump.
for more information, or to buy it
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This information is for the UK
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