Global economy to shrink for first time since the Second World War

[BrilloPad]

http://www.telegraph.co.uk/finance/f...World-War.html

HSBC has warned that global gross domestic product will contract in 2009, describing this as "an extraordinary development in the modern era". In a comprehensive examination of the economic crisis, it predicts that next year will be the worst in peacetime both for rich countries and the wider global economy since the Great Depression.

And in a further blow to the Chancellor Alistair Darling, the bank warned that the UK will endure its worst year of growth since the bleak winter recession of 1947, forcing the Bank of England to slash interest rates to only a quarter percentage point above zero. The gloomy forecasts are far more pessimistic than those from the Treasury or the International Monetary Fund.

Stephen King, HSBC's chief economist, said: "For a while, it was possible to pretend that the financial and economic crisis was merely a problem for
the major industrialised countries.

"Over the last three months, however, that theory has been blown out of the water. We have made savage downgrades to our forecasts with some of the emerging markets bearing the brunt of the bad news.

"On the basis of nominal GDP weights, we expect global GDP to shrink in 2009, an extraordinary development in the modern era."

He added that the serious risk now is that families and businesses will begin to hoard cash rather than spending it, as deflation rears its head across the rich world.

"Stuffing cash under the mattress, however, will only end in cumulative tears," he said.

"This, after all, was part of the dynamic associated with the Depression in the 1930s."

[PM-Junkie]

http://www.telegraph.co.uk/finance/f...World-War.html

HSBC has warned that global gross domestic product will contract in 2009, describing this as "an extraordinary development in the modern era". In a comprehensive examination of the economic crisis, it predicts that next year will be the worst in peacetime both for rich countries and the wider global economy since the Great Depression.

And in a further blow to the Chancellor Alistair Darling, the bank warned that the UK will endure its worst year of growth since the bleak winter recession of 1947, forcing the Bank of England to slash interest rates to only a quarter percentage point above zero. The gloomy forecasts are far more pessimistic than those from the Treasury or the International Monetary Fund.

Stephen King, HSBC's chief economist, said: "For a while, it was possible to pretend that the financial and economic crisis was merely a problem for
the major industrialised countries.

"Over the last three months, however, that theory has been blown out of the water. We have made savage downgrades to our forecasts with some of the emerging markets bearing the brunt of the bad news.

"On the basis of nominal GDP weights, we expect global GDP to shrink in 2009, an extraordinary development in the modern era."

He added that the serious risk now is that families and businesses will begin to hoard cash rather than spending it, as deflation rears its head across the rich world.

"Stuffing cash under the mattress, however, will only end in cumulative tears," he said.

"This, after all, was part of the dynamic associated with the Depression in the 1930s."

When I see someone who runs a bank twittering on about deflation, it does make me smile. Given that the pound is weak (and getting weaker), everyone acknowledges that the price of oil will rise during the year, and we import more than we export....how exactly do these people suppose that we will have prolonged deflation? Could it be that they are actually desperate for people to keep using their services? Naah, cynical old me.

I suspect inflation will drop below 1%, and then bounce back up. That, coupled with higher than necessary interest rates caused by the snot goblin throwing borrowed money around like confetti means we will have a W shaped recession rather then a simple U shape.

Hold on to your skirts girls....its going to get bumpy.

[Doggy Styles]

He added that the serious risk now is that families and businesses will begin to hoard cash rather than spending it, as deflation rears its head across the rich world.

"Stuffing cash under the mattress, however, will only end in cumulative tears," he said.

When I see someone who runs a bank twittering on about naughty people saving money, it does make me smile. If people had done more saving and less borrowing over the last 10 years, we wouldn't be in half as much shyte as we are.

[PM-Junkie]

When I see someone who runs a bank twittering on about naughty people saving money, it does make me smile. If people had done more saving and less borrowing over the last 10 years, we wouldn't be in half as much shyte as we are.

The problem is that the financial system on which most western economies run is based on borrowing. Without ever increasing borrowing, the banking system collapses anyway.

And I have seen nothing in the last 4 months that either accepts this fact, or addresses it. So all that is happening right now is that governments and banks are papering over the cracks....and when it happens again, and it will - it'll be even worse.

[Doggy Styles]

The problem is that the financial system on which most western economies run is based on borrowing. Without ever increasing borrowing, the banking system collapses anyway.

And I have seen nothing in the last 4 months that either accepts this fact, or addresses it. So all that is happening right now is that governments and banks are papering over the cracks....and when it happens again, and it will - it'll be even worse.

deposits and lending

They get the funds to lend from depositors. If there's a large imbalance between the two you get... well, you get what we've got now.

[PM-Junkie]

deposits and lending

They get the funds to lend from depositors....

You would think so, but then you have a brain and think logically. When you actually look at how the system works though, it is completely reliant on borrowing. A two year old kid could figure out that sooner or later borrowing would outstrip deposits, and obviously that is what has happened....but there is still nobody addressing the fact that the underlying reliance on borrowing is dumb, and is like building a house on sand.

Hence my suggestion that this will happen again unless this is addressed.

[Doggy Styles]

You would think so, but then you have a brain and think logically. When you actually look at how the system works though, it is completely reliant on borrowing. A two year old kid could figure out that sooner or later borrowing would outstrip deposits, and obviously that is what has happened....but there is still nobody addressing the fact that the underlying reliance on borrowing is dumb, and is like building a house on sand.

Hence my suggestion that this will happen again unless this is addressed.

Ah sorry, I thought you were talking about how it used to work, and should work, rather than how it has been working in recent years.

[dang65]

Is "Global economy to shrink for first time since the Second World War" supposed to be bad news or good news? The way everyone's been moaning about unsustainable growth etc for the last decade at least, I'd have thought they'd all be very happy that things are slowing down a bit and getting more sensible and sustainable. Instead, this is being presented as being as much of a disaster as the over growth that caused it in the first place. Come on "experts", make up your minds.

[sasguru]

You're all right but missing the fundamental point: the "rich" West (especially the UK) is not really rich any more - other countries are more productive, cheaper and live within their means.

There are only 2 "solutions":

1. Accept a permanent reduction in living standards that reflects what the country actually produces and can afford (the "added value").
2. Keep borrowing using various sleights of hand to artificially maintain our unjustified high standard of living.

Option 1 is impossible for politicians to contemplate hence why they are going for Option 2: maintain the status quo.

However you can't buck reality indefinitely.

[Doggy Styles]

Is "Global economy to shrink for first time since the Second World War" supposed to be bad news or good news?

Bad news. It's a symptom of a fecked up economy.

HTH