Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Bitcoin Price Rises Higher Than Gold… But Its Value Is a Different Story - 30th Mar 17
Critical Fibonacci Extensions May Mark End Of Trump Stock Market Rally - 29th Mar 17
Ending Syria’s Nightmare will Take Pressure From Below - 29th Mar 17
Charts That Reveal US Real Employment Status and It’s Not Good - 29th Mar 17
SNP Controlled Scottish Parliament Demands Right for Scotland to Commit Suicide - Indyref2 - 29th Mar 17
USD Gold Myriad of Signs - 28th Mar 17
Ominous Social Trends That Will Shape Our Future - 28th Mar 17
Foundation And Empire: Is Donald Trump The Mule? - 28th Mar 17
Top Ten US Dollar Risks - 27th Mar 17
The Popularity of Gambling and Investing Amongst Students - 27th Mar 17
Is Political Betting on the Rise? - 27th Mar 17
US Stock Market Consolidation Time - 27th Mar 17
Russia Crisis - Maps That Signal Growing Instability and Unrest - 27th Mar 17
Goldman Sachs Backing A Copper Boom In 2017 - 27th Mar 17
Foundation – Fall Of The American Galactic Empire - 27th Mar 17
Stock Market More Correction Ahead - 27th Mar 17
US Dollar Inflection Point - 27th Mar 17
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

UK Economic Meltdown Continues Towards Price Deflation

Economics / Recession 2008 - 2010 Feb 11, 2009 - 10:26 PM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleThe Bank of England's quarterly inflation report forecast UK inflation of just 0.5% in 2 years time, with the UK economy now forecast to have fallen by GDP 4% by the middle of this year. It was not so many months ago that the Bank of England was forecasting growth of 2% for 2009.


Bank Governor Mervyn King implied by his accompanying statement that he does not have a clue what he is doing, as the UK economy under his and Gordon Browns collective stewardship continues to fall off the edge of a cliff, the Bank of England Governor stated :

“The United Kingdom economy is in deep recession. The length and depth of the recession will depend to a significant extent on developments in the rest of the world, where a severe economic downturn has taken hold.”

  • The economy faces its deepest recession since the post-war years of 1945 and 1946, and its worst peace­time decline since 1931.
  • The Bank is likely to reduce interest rates further, perhaps to as low as zero, in an attempt to prevent the downturn becoming worse than the depression in the 1930s.
    It will resort to new drastic measures to pump extra cash into the economy as soon as this week.
  • Unemployment – which hit 1.97 million yesterday – will rise further and house prices will continue to fall in the coming months.

My commentary during the summer months of 2008 seems to have been proved accurate in that the BoE MPC at those monthly meetings remained paralysed by the fear of inflation and more or less sat sipping tea and conversing about the weather whilst the economy continued to burn towards the fourth quarter crash.

What is the Governments Solution ?

Quantative Easing aka Printing Money - The consequences of which are that Britain is at increased risk of bankruptcy as I first warned off in April 2008 following the first print run of £50 billion by the Bank of England and reiterated on a near monthly basis since (archive), with the most recent article ( UK Interest Rates Crash to 1% New Record Low) updating to the current position of Britain's path towards bankruptcy.

The British Pound responded to the Bank of England's report by resuming its bear market after the correctly forecast bounce from £/$1.37 to above £/$ 1.45 and now again on route towards parity to the U.S. Dollar. (21st Jan 09 - British Pound Panic Selling, Counting Down to Bankrupt Britain )

FSA - Who Should Regulate the Regulator?

To illustrate the point in how wide the gap is between competent regulation of the UK banking system and how it is actually being regulated by the FSA, not just before the credit crisis broke in August 2007, nor in the immediate aftermath which witnessed the run on Northern Rock Bank, but to this very day some 18 months on as witnessed by the resignation of Sir James Crosby, Gordon Browns own appointment as the Deputy Chairman of the FSA on allegations that during his tenure as the head of HBOS (Halifax), he sacked Paul Moore due to the alleged complaints he had made about the banks risk taking that had not been properly minuted at HBOS board meetings.

Deflation of 2009 Will Eventually Turn to Inflation

My earlier analysis of the UK inflation concluded that the UK is heading for real deflation during 2009, with the RPI inflation measure expected to go negative by mid 2009 by targeting -1.2% . The expectations are for similar deflation across the world, as deficit spending stimulus packages cannot hope to compete against the loss of asset values which are in the order of ten times the amount of planned stimulus. The analysis also concluded in that the immediate risks to the forecast are to the downside i.e. prices spiking lower than expected.

This therefore implies for further stimulus packages far beyond that which have been committed to date, with all of the associated consequences of collapsing currencies under the weight of growing deficits and liabilities which sets the scene for higher future inflation as the deflationary impact of collapse in crude oil during the second half of 2008 starts to leave the inflation indices during the second half of 2009, thereafter the deflationary forces of contracting economies will compete with the inflationary forces of money printing and rising commodity prices.

For more on the impact of deflation, download the world's foremost expert on and proponent of the deflationary scenario,Robert Prechter's FREE 60-page Deflation Survival eBook or browse various deflation topics like those below :

UK Interest Rate Forecast 2009

The February rate cut to 1% fulfills the forecast target for 2009 (4th Dec 08 - UK Interest Rates Forecast to Crash to 1% ). ,The next stop would be a similar Zero Interest Rate Policy (ZIRP) as that adopted by the United States that have cut their interest rate to 0.25%.

Whilst the base interest rate stands at 1%, the 3 month libor rate is at 2.14% and the real economic interest rate is at 3.54%, which clearly indicate evidence that the banks are still refusing to the lend and in-effect hoarding government bailout cash injections much of which is being used to reward bonuses to culpable staff.

Deflation Investing Strategy

Now again I need to emphasis that during economic contraction most asset prices will fall i.e. stocks and housing, other assets such as industrial commodities such as crude oil and base metals will formulate a saucer shaped bottoming pattern. Others will lead future inflation higher i.e. agricultural commodities, and then we have the alternatives to deflation AND inflation as embodied by gold and gold stocks that follow a more volatile pattern based on investor fear (See Jan 09 - Financial Markets Forecasts for 2009 )

MY strategy as I have iterated over the past 4 months is basically to drip accumulate assets at rock bottom prices during the current deflationary crash of 2009. That means rock solid dividend paying stocks, commodities (especially oil and agricultural) and inflation linked bonds. Deflation is temporary and WILL give way to much higher inflation. (Oct 2008 - Stocks Bear Market Long-term Investing Strategy )

The indepth forecast for the UK recession in terms of GDP contraction is underway, to receive this in your email in box on the date of publication subscribe to my always free email newsletter.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

owiku henry
28 Jul 09, 07:58
how can we solve this global economic crisis

this issue of the global economic meltdown is issue that surpposed to be undertaken by the state or country so please tell us more about the global economic crisis sir/ma


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife