Is recession looming?

[vand]

On a personal level our household is already in recession, as our wages are not keeping up with the headline rate of inflation, therefore our purchasing power is falling.

I don't see that as a definite sign of recession
a lot of people have savings they can fall back on, or can reduce spending to compensate
That is my view and NOT a dig

If I consume 100 Starbucks lattes a year but prices rise so I have to cut that down to 75 then I'm worse off. My consumption of lattes and therefore my standard of living has fallen by a quarter.

Consuming less because you can't afford to consume as much as before is the very definition of falling standard of living. Savings has nothing to do with it. Maybe I should sell my house to maintain my standard of living?

Surely cutting the number of coffees you buy, is how recessions start. The barista loses his job and falls behind with his rent. The coffee shop closes. And so on. Somebody benefits from the high oil prices - the oil companies and the Saudis. They spend more on exploration (if they are allowed) or armaments, and expenditure finds its way back into the World economy with a lag. But that lag creates the recession.
This time around, it is not just high oil and gas prices, but all the other things which come from Russia and Ukraine, nickel, paladium, wheat etc. This is going to affect the World economy in ways it is very hard to judge at present. But I would have thought a recession is already baked in.

In the Austrian theory of business cycle, the recession occurs because central banks overstimulate - they keep monetary conditions too loose for too long, so they change the structure of production in the economy and send false signals about where capital should be allocation... which allow unsustainable malinvestments to build up, tying up the pool of finite resources on projects that are of questionable value thereby ultimately impoverishes us.

Tom Woods has the best reader's digest version of this: https://www.youtube.com/watch?v=9a-eUKjnDfM
Paul Cwik presents it in long format: https://www.youtube.com/watch?v=6d0325eDArU
Probably the best (and most restrained) presentation by Peter Schiff: https://www.youtube.com/watch?v=npJ0CUT8d_Y

Which comes back to the actions of central banks to fight the CV19 downturn by injecting massive quantities of liquidity and lowering interest rates to zero. It's not difficult to see where these malinvestments are turning up in the real economy. A new army of retail day traders, a new housing boom, construction projects going through the roof.. all of it shaped by monetary policy set by central planners rather than market prices.

[vand]

A rather mainstream political commentator is making the same point for most of us the downturn has already begun:

"The most basic costs of living are soaring. And that means a devastating recession that has already begun for all those but the richest. This blow to living standards will be the worst in living memory, more pernicious than the impact of either the banking crisis or Covid."

https://www.itv.com/news/2022-03-09/is- ... vqfGTTkQJs

[anon155742]

A rather mainstream political commentator is making the same point for most of us the downturn has already begun:

"The most basic costs of living are soaring. And that means a devastating recession that has already begun for all those but the richest. This blow to living standards will be the worst in living memory, more pernicious than the impact of either the banking crisis or Covid."

https://www.itv.com/news/2022-03-09/is- ... vqfGTTkQJs

"The most basic costs of living are soaring. And that means a devastating recession that has already begun for all those but the richest. This blow to living standards will be the worst in living memory, more pernicious than the impact of either because of the banking crisis and Covid."

[scrumpyjack]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

[MDW1954]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

He wasn't long out of university when I was dealing with him in the late 80s, so yes.

MDW1954

[stevensfo]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

Could you be more specific and say how it was worse? Nothing personal, promise! I am genuinely interested. I was a teenager during the 70s and have nothing but happy memories. My Dad had a job, we went to school and tried to avoid the pervy teachers. I remember the power-cuts but we used candles till they finished. We had one car, but our mum would just send one of us to the shops. School buses were free. Technical colleges ( now Regional colleges) were free. Public transport was affordable. If our school bus didn't turn up, we just took a normal bus and the driver shrugged and dropped us off at school. Is it considered worse because our lives today are based around consumerism, and 3 TVs per house or something else?

To be honest, I learned when I was older that my grandfather's retirement had been turned upside down and ruined due to the rampant inflation, but that's another story and nothing to do with inflation.


Steve

[scrumpyjack]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

Could you be more specific and say how it was worse? Nothing personal, promise! I am genuinely interested. I was a teenager during the 70s and have nothing but happy memories. My Dad had a job, we went to school and tried to avoid the pervy teachers. I remember the power-cuts but we used candles till they finished. We had one car, but our mum would just send one of us to the shops. School buses were free. Technical colleges ( now Regional colleges) were free. Public transport was affordable. If our school bus didn't turn up, we just took a normal bus and the driver shrugged and dropped us off at school. Is it considered worse because our lives today are based around consumerism, and 3 TVs per house or something else?

To be honest, I learned when I was older that my grandfather's retirement had been turned upside down and ruined due to the rampant inflation, but that's another story and nothing to do with inflation.


Steve

Where to begin! There was a mandatory 3 day week to conserve electricity and coal stocks, Miners strike, Red Robbo, 22.5% inflation, civil disorder, bodies going unburied etc etc. The oil price shock causing massive problems and rampant and sustained inflation.
and so on and so on. It was the public's utter despair with the unions that led to Maggie Thatcher coming to power and eventually sorting things out. So eventually things worked out. Peston's worries are utterly trivial in comparison!

[77ss]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

Could you be more specific and say how it was worse? Nothing personal, promise! I am genuinely interested. I was a teenager during the 70s and have nothing but happy memories. My Dad had a job, we went to school and tried to avoid the pervy teachers. I remember the power-cuts but we used candles till they finished. We had one car, but our mum would just send one of us to the shops. School buses were free. Technical colleges ( now Regional colleges) were free. Public transport was affordable. If our school bus didn't turn up, we just took a normal bus and the driver shrugged and dropped us off at school. Is it considered worse because our lives today are based around consumerism, and 3 TVs per house or something else?

To be honest, I learned when I was older that my grandfather's retirement had been turned upside down and ruined due to the rampant inflation, but that's another story and nothing to do with inflation.


Steve

A good question. One that needs asking - and answering. One should always challenge received wisdom. As ever, different people will had different experiences. My personal memories are certainly not unhappy ones. Macroeconomics? What did I know? Or care?

I was in my early 20's. working in chemistry lab in London. Three day week/power cuts - no problem - you just had to schedule your work more carefully - a very instructive experience. I remember reading at the time that productivity went up. True or not? I don't know, but very plausible.

I don't recollect my parents or grandparents having any particular problems. Maybe we were just lucky. We were certainly not well off.

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

[Nimrod103]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

Could you be more specific and say how it was worse? Nothing personal, promise! I am genuinely interested. I was a teenager during the 70s and have nothing but happy memories. My Dad had a job, we went to school and tried to avoid the pervy teachers. I remember the power-cuts but we used candles till they finished. We had one car, but our mum would just send one of us to the shops. School buses were free. Technical colleges ( now Regional colleges) were free. Public transport was affordable. If our school bus didn't turn up, we just took a normal bus and the driver shrugged and dropped us off at school. Is it considered worse because our lives today are based around consumerism, and 3 TVs per house or something else?

To be honest, I learned when I was older that my grandfather's retirement had been turned upside down and ruined due to the rampant inflation, but that's another story and nothing to do with inflation.


Steve

A good question. One that needs asking - and answering. One should always challenge received wisdom. As ever, different people will had different experiences. My personal memories are certainly not unhappy ones. Macroeconomics? What did I know? Or care?

I was in my early 20's. working in chemistry lab in London. Three day week/power cuts - no problem - you just had to schedule your work more carefully - a very instructive experience. I remember reading at the time that productivity went up. True or not? I don't know, but very plausible.

I don't recollect my parents or grandparents having any particular problems. Maybe we were just lucky. We were certainly not well off.

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

I was a university student and got my first job during the high inflation years of the mid 70s. I don't recall things being particularly hard economically, mainly because salaries and paycheques (or envelopes with money in them) largely went up in line with inflation. I don't think many had savings or investments large enough to worry about them being eroded by inflation. Jobs were abundant. The 3 day week and consequent power cuts were the result of diabolical labour relations, mainly in the nationalized industries (coal, steel, cars etc), rather than inflation per se.

[scrumpyjack]

The huge benefit of the situation in the 70s, in the medium term, was to those who bought a house on a mortgage.

Whilst interest rates were very high and so the initial cash flow was very difficult, the real pain rapidly reduced as earnings rose with prices, but the mortgage liability remained static and house prices rose to reflect inflation. The end result 10 or 15 years down the line was that a lot of people had built up massive equity in their home ownership and the mortgage servicing burden had been greatly relieved by inflation.

Oh and the mortgage interest was tax deductible!

[NotSure]

In the seventies (overall) real wage growth was positive. Who cares if inflation is 20% if wages are rising by 22%? Not sure we are going to see real wage growth in this present and imminent bout of price rises, compounded by rising taxation too.....

[tjh290633]

I don't recollect my parents or grandparents having any particular problems. Maybe we were just lucky. We were certainly not well off.

They were lucky. There were many stories of 80-year-old widows and other pensioners on fixed rate investments and level annuities who lost out in a big way.

The state pensions were increased, but not everybody had a full entitlement.

Just looking at the Royal Society of Chemistry triennial figures for median salaries in my age group, there were some dramatic rises in that period.

1971   £3080   +46.67%
1974   £4460   +44.81%
1977   £7080   +58.74%

The increases are over each 3-year period. There will obviously be some element of scale increases with age and responsibility increases, but I was in the same cohort all that time.

TJH

[vand]

Some really fascinating posts about the 1970s from those who were there - great stuff.
Whether or not the current crisis goes on to match or even exceed those times remains to be seen, but we should not rule out that possibility. Something that I picked up a long time ago and has stayed with me is to always expect that anything could happen - the future can be worse than we expect based just on our past experience.

I’m not a perma bear - I do believe that things on the whole get slowly better over time due to human progress and ingenuity. The world is more prosperous today than 10 years ago, and will more prosperous 10 years from now. But I’m quite short term pessimistic too and believe we sometimes need to take a step backwards in order to correct ourselves when we’ve messed up to then continue to move forwards.

[GoSeigen]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

Jeez why all the Peston bashing? Do you all think he's a fool? He's talking about a drop in standard of living. If you bashers have data showing falls in real per capita income in the UK during the 1970s -- and that they are worse than what is likely to come with current 5%+ inflation and barely rising incomes -- then you're welcome to share here.


GS

[Nimrod103]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

Jeez why all the Peston bashing? Do you all think he's a fool? He's talking about a drop in standard of living. If you bashers have data showing falls in real per capita income in the UK during the 1970s -- and that they are worse than what is likely to come with current 5%+ inflation and barely rising incomes -- then you're welcome to share here.


GS

Peston may be right that the Govt doesn't realize the economic problems coming down the track towards them, though they may just be keeping quiet about it. And Peston seems to recognize that, whereas Covid was a temporary phenomenon, the recreation of the Soviet Union will permanently damage trade and living standards.
Then, Peston seems to be saying 'Why is the Govt not borrowing more to shield the population from the difficulties ahead?' Which of course will raise interest rates. He says:
But much of the inflation cannot be stopped. And the increase in the cost of money will only make the living standards crisis worse for poor people, and will increase the government's interest bill, further depriving it of funds for public services.
and
The raw politics of how much a Conservative government should be borrowing to help public services and poor people will be back with a vengeance.

The UK will have to make a permanent ajdustment to life being more expensive and challenging, with a significantly higher defence bill. For that we need to make permanent changes to our lifestyles, not borrow yet more, and hope that something turns up. On that evidence, I think Peston is a fool.

[BullDog]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

Jeez why all the Peston bashing? Do you all think he's a fool? He's talking about a drop in standard of living. If you bashers have data showing falls in real per capita income in the UK during the 1970s -- and that they are worse than what is likely to come with current 5%+ inflation and barely rising incomes -- then you're welcome to share here.


GS

Peston may be right that the Govt doesn't realize the economic problems coming down the track towards them, though they may just be keeping quiet about it. And Peston seems to recognize that, whereas Covid was a temporary phenomenon, the recreation of the Soviet Union will permanently damage trade and living standards.
Then, Peston seems to be saying 'Why is the Govt not borrowing more to shield the population from the difficulties ahead?' Which of course will raise interest rates. He says:
But much of the inflation cannot be stopped. And the increase in the cost of money will only make the living standards crisis worse for poor people, and will increase the government's interest bill, further depriving it of funds for public services.
and
The raw politics of how much a Conservative government should be borrowing to help public services and poor people will be back with a vengeance.

The UK will have to make a permanent ajdustment to life being more expensive and challenging, with a significantly higher defence bill. For that we need to make permanent changes to our lifestyles, not borrow yet more, and hope that something turns up. On that evidence, I think Peston is a fool.

As has been every government post Thatcher. Excessive debt by government is simply robbing growth from future generations who have to pay for it. The unpalatable and unspeakable (politically) truth is that we don't have a revenue problem in the UK. We have an expenditure problem. The intellectual pygmies in parliament are either of too poor intellect to understand or, even worse, ignore it.

I have a great dislike for all politicians, irrespective of party. They reduce every issue in the country to a political Punch and Judy show. It's quite sickening to see it.

[stevensfo]

Clearly Robert Peston can't remember the seventies. It was far far worse then than the relatively trivial scenario he paints and hyperbolises!

When Peston talks about 'within living memory' he does seem to be omitting the '70s - as a younger person that is understandable. As a serious journalist - less so.

Jeez why all the Peston bashing? Do you all think he's a fool? He's talking about a drop in standard of living. If you bashers have data showing falls in real per capita income in the UK during the 1970s -- and that they are worse than what is likely to come with current 5%+ inflation and barely rising incomes -- then you're welcome to share here.


GS

Just for the record, you seem to have mixed up your quotes, thus wrongly attributing the Peston comments to me.

Steve

Moderator Message:
Sorted that out for you.

TJH

[pje16]

Robert Peston bashing seem to have become a "thing" on this post
For those of a certain vintage Peston is better to listen to than Bob Beckman - the prophet of doom from the 80s
Early 80s was the time of my first dabbles on the stock market and good ol' Bob would be on the radio every morning with prophesies of doom and gloom even in a bull market
Of course if you predict the same thing all the time one day you will probably be right so I imagine he gloated on 19 October 1987
but boy was he depressing to listen to

https://en.wikipedia.org/wiki/Bob_Beckman

[RockRabbit]

As has been every government post Thatcher. Excessive debt by government is simply robbing growth from future generations who have to pay for it. The unpalatable and unspeakable (politically) truth is that we don't have a revenue problem in the UK. We have an expenditure problem. The intellectual pygmies in parliament are either of too poor intellect to understand or, even worse, ignore it.

While I loath increases in Govt borrowing, I think they may have no choice at this point. The economy is going to take a massive hit this year due to inflation etc and reducing Govt expenditure at this time would increase that hit and risk making any recession significantly worse.

Also, what expenditure do we reduce to make a meaningful difference? Much of it goes on social care, pensions, defence, police, education and NHS, all of which are struggling under current budgets. (probably a discussion for another thread or we'll go off topic).

[RockRabbit]

Robert Peston bashing seem to have become a "thing" on this post
For those of a certain vintage Peston is better to listen to than Bob Beckman - the prophet of doom from the 80s

Crikey, I remember Bob. I think he advised people to sell their houses - what a bad piece of advice that turned out to be.