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UK GDP - what's going on?

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1nvest
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Re: UK GDP - what's going on?

#323873

Postby 1nvest » July 5th, 2020, 1:13 pm

johnhemming wrote:
JamesMuenchen wrote:
johnhemming wrote:Try checking what happened to total public spending in real terms.

Did it increase at a slower rate than overall GDP?

Public spending increased in cash terms, but was around constant in real terms. Which means on an aggregate basis arguing that there has been severe cuts is not true. On an aggregate basis there were not cuts. It did, however, increase at a rate lower than GDP. The idea of that was to enable the deficit to be reduced both to initially ensure that the debt reduced as a proportion of GDP and then move towards reducing the debt.

JamesMuenchen wrote:
johnhemming wrote:
It certainly looks that way, yes

https://www.ons.gov.uk/economy/governme ... es/may2020
At the end of May 2020, the gilt holdings of the APF have increased by £46.7 billion (at nominal value) compared with the end of April 2020, to £475.1 billion in total. This increase is of a similar order of magnitude to the new issuance by the DMO in May 2020, which means that gilt holdings by units other than the APF have changed very little since April 2020.

It is a bit more subtle in that the debt is issued to the market and then bought back by the bank. The interest is paid to the bank at some stage if I remember rightly started paying some to the treasury.

Arguably this results in some asset value inflation, but partially that is an objective of it. If normal inflation started increasing then QE would have to stop.

Is that not the whole objective. A 2% target inflation rate, where the BoE set interest rates to steer towards that, or failing that (interest rates at/near zero) using QE scale up/down. In a zero interest/inflation rate world people with money can just fill mattresses with money and draw upon that as/when needed. If that money is being devalued by inflation they instead will typically look to 'invest' that money - which generates economic activities that otherwise wouldn't have occurred had the money been left idle.

Controls/micro-management typically leads to lower volatility. Without intervention for instance stock prices would have dived recently, by printing money and buying up bonds so pension funds etc. see bond prices rise and reduce bonds to buy stocks - that pushes stock prices higher. At the extreme, the BoE could just declare what prices bonds and stocks should be, totally fixed/rigged. Not a free floating market as originally devised to be. Carried to conclusion on the present path and the ECB/whoever could continue printing and buying up all assets, until all stocks, bonds and houses were owned by the state. Before then however given that its such a interconnected system (US Fed, UK BoE ...etc.) faith is lost and a flight of money occurs, leaving hyperinflation for the currency that money is flighted from.

'Old-money' recognises that, generational wealth spanning back 800+ years tend to be diversified across land/art/gold type assets, not in controlled stock, bond, commodities pegged to a particular single fiat currency. Where income/interest is intentionally avoided - seen as just a tax raising event. Where assets are sold whenever cash is required, at times and in a location where the capital gains are relatively tax efficient.

Used to be that the private sector was larger than the public sector. But where the public sector in liking spending other peoples money so much has the private sector struggling to sustain such spending levels. In the 19th century for instance investors were rewarded around 3% real for lending to the state. Nowadays the state wants to pay nothing, keep/spend that for itself, and as its greed/spending increase further even see negative returns for 'investors', individuals wealth eroded by costs/fees/taxes. Capitalism is on the brink of transition towards either Post-Capitalism - for which Paul Mason is a somewhat optimist of how that might pan out; Or a significant 'Correction' along the lines of the 1970's. Buffett seems to think that is a rising risk as even during recent declines be bought nothing, even sold some - to raise his mountain of cash to even higher levels. Of the two I suspect Buffett is more inclined to be right.

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Re: UK GDP - what's going on?

#323876

Postby johnhemming » July 5th, 2020, 1:54 pm

The problem with deflation is that it discourages people from making spending decisions as the cash price is likely to be reduced.

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Re: UK GDP - what's going on?

#323889

Postby Alaric » July 5th, 2020, 3:16 pm

johnhemming wrote:The problem with deflation is that it discourages people from making spending decisions as the cash price is likely to be reduced.


We've seen with electronic goods over the last forty years that year by year the specification improves and the price reduces. It hasn't stopped people buying. Nor would you stop buying in the event of your weekly shop becoming cheaper.

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Re: UK GDP - what's going on?

#323904

Postby johnhemming » July 5th, 2020, 4:42 pm

The bank of England is where I sourced my argument on this
https://www.bankofengland.co.uk/knowled ... -deflation

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Re: UK GDP - what's going on?

#323910

Postby scrumpyjack » July 5th, 2020, 5:16 pm

Alaric wrote:
johnhemming wrote:The problem with deflation is that it discourages people from making spending decisions as the cash price is likely to be reduced.


We've seen with electronic goods over the last forty years that year by year the specification improves and the price reduces. It hasn't stopped people buying. Nor would you stop buying in the event of your weekly shop becoming cheaper.


Quite correct, also there are a number of serious problems with inflation

It encourages effort and money being put into unproductive financial ‘engineering’ such as buying property with borrowed money because there is a very high probability of making a profit as the asset keeps its value in real terms whilst the liability loses value in real terms.

It causes people to lose confidence in the currency as a store of value so they will move it to currencies or assets that are more stable.
As people lose confidence in the currency inflation becomes increasingly difficult to control and can become completely out of control with devastating effects

Inflation enables the financially literate to benefit at the expense of the financially illiterate. Clever people find it easier to make money engaging in financial engineering rather than more objectively worthwhile occupations

Countries with low inflation seem often to be more economically successful than countries with higher inflation

Etc etc

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Re: UK GDP - what's going on?

#323915

Postby johnhemming » July 5th, 2020, 5:50 pm

The BoE's argument is that low inflation is better than high inflation, but is also better than no inflation. I tend to agree with this.

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Re: UK GDP - what's going on?

#324055

Postby ursaminortaur » July 6th, 2020, 11:57 am

Alaric wrote:
johnhemming wrote:The problem with deflation is that it discourages people from making spending decisions as the cash price is likely to be reduced.


We've seen with electronic goods over the last forty years that year by year the specification improves and the price reduces. It hasn't stopped people buying. Nor would you stop buying in the event of your weekly shop becoming cheaper.


It depends on the person. I have a friend who is constantly ribbed because he is always waiting for Intel's next chip when supposedly wanting to get a new laptop (and that is for a work laptop so doesn't actually cost him anything but just means if he gets it now he won't be eligible for a work laptop when a new chip comes out. He constantly prevaricates in that way waiting for the next great thing so tends to actually end up getting a laptop upgrade about half as often as everybody else.)

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Re: UK GDP - what's going on?

#332083

Postby JamesMuenchen » August 10th, 2020, 9:32 am

zico wrote:Sky are covering the news that debt exceeds 100% of GDP for the first time,

JamesMuenchen wrote: the GDP estimate they use comes from the OBR's guess here:
https://obr.uk/coronavirus-analysis/
This includes a forecast 35% contraction for 2020Q2, and there's already indication that things never got that bad (eg tax receipts are now being revised upwards).

I'm not trying to say the UK won't join the 100% club sometime soon, just that I doubt it has.


For those looking for some good news amongst the gloom, it seems I was right:
https://www.theguardian.com/business/20 ... p-among-g7
Figures from the Office for National Statistics on Wednesday are expected to show that gross domestic product (GDP), the broadest measure of economic prosperity, fell in the three months to June by 21%.

So nowhere near the OBR's 35% prediction required for the 100% debt:GDP ratio.

Do you think we will see a retraction of this story?

PS
"some good news"... -21% is still terrible.

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Re: UK GDP - what's going on?

#332095

Postby dspp » August 10th, 2020, 10:10 am

JamesMuenchen wrote:
zico wrote:Sky are covering the news that debt exceeds 100% of GDP for the first time,

JamesMuenchen wrote: the GDP estimate they use comes from the OBR's guess here:
https://obr.uk/coronavirus-analysis/
This includes a forecast 35% contraction for 2020Q2, and there's already indication that things never got that bad (eg tax receipts are now being revised upwards).

I'm not trying to say the UK won't join the 100% club sometime soon, just that I doubt it has.


For those looking for some good news amongst the gloom, it seems I was right:
https://www.theguardian.com/business/20 ... p-among-g7
Figures from the Office for National Statistics on Wednesday are expected to show that gross domestic product (GDP), the broadest measure of economic prosperity, fell in the three months to June by 21%.

So nowhere near the OBR's 35% prediction required for the 100% debt:GDP ratio.

Do you think we will see a retraction of this story?

PS
"some good news"... -21% is still terrible.


"UK to plunge into deepest slump on record with worst GDP drop of G7

The UK's reduction (-21%) appears to put the UK in worst place in G7:
https://www.theguardian.com/business/20 ... p-among-g7

Despite also being in the worst place for cv-19 excess deaths in the G7
https://www.bbc.co.uk/news/business-53222182

I wonder what else might be affecting the UK, apart from gross incompetence. Brexit anyone ?

Tough call for Brexiters. Do they explain it by saying that the Cons are incompetent ? Or do they explain it by saying it is worth it for other reasons ? Or do they attack the messenger ? Or do they seek to ignore it and throw some dead cats on the table ?

(I am sure responses to this will give some clues)

- dspp

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Re: UK GDP - what's going on?

#332115

Postby JamesMuenchen » August 10th, 2020, 11:21 am

dspp wrote:UK to plunge into deepest slump on record with worst GDP drop of G7
....
I wonder what else might be affecting the UK, apart from gross incompetence. Brexit anyone ?

Tough call for Brexiters. Do they explain it by saying that the Cons are incompetent ? Or do they explain it by saying it is worth it for other reasons ? Or do they attack the messenger ? Or do they seek to ignore it and throw some dead cats on the table ?

(I am sure responses to this will give some clues)

- dspp

Or do they just quote bits from the article that you chose not to?

Confirmation of the Covid-19 recession this week will come as the government tries to strike a balance between relaxing lockdown restrictions to kickstart growth
...
The US and the eurozone have already been confirmed in recession as the global economy grapples with the sharpest downturn since the Great Depression of the 1930s.
...
The slump in Britain is expected to be the biggest quarterly drop of any G7 economy due to the later launch of lockdown controls and the slower removal of harsh restrictions.


It would also be perfectly valid to "attack the messenger" as well, and point out (once again) that you can't use one element in a chained data series to make any meaningful comparisons between other chained data series. That might get tiresome though, and it's kind of implicit in the last of my quotes above.

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Re: UK GDP - what's going on?

#332116

Postby SalvorHardin » August 10th, 2020, 11:23 am

dspp wrote:I wonder what else might be affecting the UK, apart from gross incompetence. Brexit anyone ?

Tough call for Brexiters. Do they explain it by saying that the Cons are incompetent ? Or do they explain it by saying it is worth it for other reasons ? Or do they attack the messenger ? Or do they seek to ignore it and throw some dead cats on the table ?

(I am sure responses to this will give some clues)

Easy peasy.

1) The Conservatives are incompetent. No argument there (arts and humanities graduates aren't up to analysing data and as result they were hoodwinked by a model which has a track record of spectacular failure). Though a lot of the problems stem from Boris being struck down with the coronavirus, leaving the government headless for a few weeks.

Also the public sector hasn't exactly covered itself with glory. Public Heath England, for stopping testing in March and fiddling the mortality and morbidity data to make things seem worse surely has to take the prize for incompetence.

2) GDP fall. The UK is quite different from the rest of Europe. Our economy is dominated by a single city (and then a single region), in which a disproportionately large of economic activity has ceased due to government diktat (national and local), incompetence and many more people deciding to continue to work from home compared to Europe. See below (article from August 5th):

"Survey finds a third of Britain’s white-collar workers back compared with 83% in France"

https://www.theguardian.com/business/2020/aug/05/uk-office-workers-slower-to-return-to-their-desk-after-covid

3) Deaths. A mixture of incompetence (government and public sector), a more unhealthy population, London being a major global transport hub and multinational city (just like New York) plus larger ghettos of non-English speakers who don't follow instructions and deliberately act in ways which increase the spread of the virus.

But also the flu outbreaks of the last two years seem to have had an influence. Those European countries which had a more severe flu outbreak in 2018-19 and 2019-20 seem to have been less affected by the Wuhan coronavirus. Britain got off lightly so was more hard hit (many of the people who died of the coronavirus would have instead been killed by flu had Britain's recent flu outbreaks been more severe).

"The COVID-19 death rate is higher in European countries with a low flu intensity since 2018, says a working paper by Chris Hope of Cambridge Judge Business School."

https://insight.jbs.cam.ac.uk/2020/flu-and-coronavirus/

4) Brexit has already happened. We entered the EU illegally (breach of the Bill of Rights) and that has now been corrected. There are plenty of economic benefits to flow from adjusting regulation, such as businesses which do not export to EU member states (the majority of businesses) will no longer have to conform to EU regulations (many of which are designed to protect incumbents by disproportionately increasing the costs of smaller businesses (or stopping them from operating)).

It's really great that Brexit still gets under the skins of so many bitter remainers. Remain had the best part of three years to stop Brexit, but even with a large majority of MPs supporting remain they still couldn't pull it off.

5) There's probably something in how GDP is calculated. GDP is an increasingly poor measure of the economy, because it fails to record a lot of economic activity (and its treatment of imports and exports is bizarre):

"GDP fails to accurately assess the value of goods and services provided or estimate a society’s standard of living. It is a ruler with irregular hash marks and a clock with erratic ticks."

https://mises.org/library/how-gdp-metrics-distort-our-view-economy

I guess that this post will get pulled because I've forgotten the unwritten rule (Remain politics on the investment boards is fine, but pro-Brexit is not)


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