Tuesday, January 26, 2010
Well we are officially back in growth by 0,1%. 0.1% is a suspicious figure, even moreso since there is exactly the same 0,1% increase in both manufacturing & services.
In the last 2 1/4 years our economy has declined about 3%. China's has risen 20%
And what we have achieved has been done by borrowing 12.5% of GNP. Take that away, as must in time happen & ...
However worst of all is to compare this with the 10.7% growth China is now achieving.
I hope that for once the Conservatives will make that comparison. We could have 10.7% growth too if it were not for Luddist regulations destroying 50% of our economic potential & government spending eating 50% of what remains.
The Wall St Journal says
The pound fell across the board on the news, dropping to $1.6150 against the dollar from around $1.6210, while gilts firmed.0.1% growth is well within the limits of measurement error & it seems unlikely that had the initial calculations shown zero increase, when the Chancellor's latest forecast had been for growth in this quarter, he would not have asked for a recount. Nor if this had been the first calculation, that he would have asked for a recount.
"This is crawling out of recession," said Brian Hilliard, U.K. economist at Société Générale. "We seem to have ended the quarter in pretty weak shape. I think it will reopen the debate about whether the Bank of England will consider expanding quantitative easing at its February meeting."
The economy's expansion will come as a relief to the U.K. government, which forecast a return to growth at the turn of the year. However, the tameness of the growth will raise concerns that the economy could yet fall back into contraction...
total services and total production were both up 0.1% in the fourth quarter. In services, the biggest lift came from distribution, hotels and restaurants, which were up 0.4%. Government and other services output rose 0.2%. In production, manufacturing gained 0.4%, but utilities output fell 3.3%.
Economists surveyed by the U.K. Treasury in January expect the economy to grow 1.4% this year. The Treasury forecast at the time of December's prebudget report that the economy is likely to grow 1% to 1.5% this year.
However, some economists feared that, with the value-added tax rising to 17.5% from 15%, on Jan. 1 and the political uncertainty of the election this year, the economy could weaken in the early months of 2010.
We are now in the 3rd year of a lost decade of growth similar to Japan's lost decade (actually nearly 2) also caused by the bursting of a property bubble & government borrowing & printing money to "stimulate" the economy by putting more of it into unproductive government spending & to bail out the banks. This article from the Mises Institute shows the comparison.
"The Japanese asset bubbles were identical to other asset bubbles in the sense that they were essentially inflated by credit," writes Asian bank regulator Andrew Sheng in his book From Asian to Global Financial Crisis.Sound familiar.
Banks lent to highly leveraged developers to buy real estate against inflated collateral values, which then fueled the bubble further. Asset prices bore no realistic relationship to their return on capital, particularly since cost of funding was exceptionally low. The minute the credit stopped, the bubble began to deflate, and the main victims were the banks themselves.
After the bubble popped in Japan, that government pursued a relentless Keynesian course of fiscal pump priming and loose fiscal policy with the result being a Japan that went from having the healthiest fiscal position of any OECD country in 1990 to annual deficits of 6 to 7 percent of GDP and a gross public debt that is now 227 percent of GDP. "The Japanese tried to cure an alcoholic with heroin," writes Bonner. "Now, they're addicted to it."
Japan's monetary policy was to aggressively lower rates to .5 percent between 1991 and 1995 and has operated a zero-interest policy virtually ever since.
Between 1992 and 1995, the Japanese government tried six stimulus plans totaling 65.5 trillion yen and they even cut tax rates in 1994. They tried cutting taxes again in 1998, but government spending was never cut. Also in 1998, another stimulus package of 16.7 trillion yen was rolled out nearly half of which was for public-works projects. Later in the same year, another stimulus package was announced, totaling 23.9 trillion yen. The very next year an ¥18 trillion stimulus was tried, and, in October of 2000, another stimulus for 11 trillion was announced. As economist Ben Powell points out, "Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession," with Japan's nominal GDP growth rate below zero for most of the five years after 1997.
After five years in an economic wilderness, the Bank of Japan switched, during the spring of 2001, to a policy of quantitative easing — targeting the growth of the money supply instead of nominal interest rates — in order to engineer a rebound in demand growth.
The move by the Bank of Japan to quantitative easing and the large increase in liquidity that followed stopped the fall in land prices by 2003. The Bank of Japan held interest rates at zero until early 2007, when it boosted its discount rate back to 0.5 percent in two steps by midyear. But the BoJ quickly reverted back to its zero interest rate policy.
In August of 2008, the Japanese government unveiled an ¥11.5 trillion stimulus. The package, which included ¥1.8 trillion in new spending and nearly ¥10 trillion in government loans and credit guarantees, was in response to news that the Japanese economy in July suffered its biggest contraction in seven years and inflation had topped 2 percent for the first time in a decade.
To get real growth we need policies which improve real competitiveness not smoke & mirrors shuffling paper. I detailed how in November 2008 & it is still correct.
Scotland, whose growthn is lower, despite SNP promises, & recessions deeper is "not expected to come out of receiion until April" which is no guarante it will then.
The most I can see Scotland achieving with lower taxes and regulations is becoming an English speaking Norway. Scotland might be able to achieve more than that, but first you will have to be able to reach Norwegian levels of prosperity.
Being English speaking is a great advantage (as even Norwegians who often don't subtitle US films shown there know).
I would rather emulate Ireland. A high growth rate quickly trumps every problem & Ireland demonstrates this is achievable without that much effort - indeed what we are seeing in western countries is active effort to prevent it.