Economic Forecasts

Dear Members,

In our Ambassadors meeting this morning, we discussed, inter alia, the impact of C19 on the UK Economy.

Here is the summary data from the OBR https://obr.uk/coronavirus-analysis/

There are a number of other reports on the site.

Bottom line Q2 GDP down 35%

They are assuming a Bounce Back in Q3 with an overall annual drop of 12.8%

Let's hope that is the full extent of the damage.

The Q2 figs are based on data Q3 looks like a best case scenario

PSNB is Public Sector Net Borrowing, the amount we will add to the national debt. Some economists are not too concerned about the national debt. £298.4 billion is a third of a Trillion this year, so our total cumulative debt will increase from £2.3 trillion to £2.6 trillion. Which puts that into perspective. Manageable so long as interest rates stay low. Not manageable if they shoot up.

On the subject of interest rates, it seems that we will have deflationary pressures due to lack of demand in the short to medium term, so continued low interest rates, followed by high inflation as all the QE, comes home to roost. This will require hgh interest rates to control.

If you are taking out loans, consider fixed interest loans at the point when the interest free period is ended, and ensure that those will be available with your bank.

 

95.8% GDP is a worry. I am not sure why 100% GDP is an important number. I think its because the Credit ratings agencies tend to downgrade economies, then the interest rates can go up very quickly. It happened to Greece see below.

Nick

Office of Budgetary Responsibility OBR

 

Our stragy seems to be to print enough money to stop a crash, whilst not printing too much, and causing inflation.The Problem is that printing money does cause inflation. Unless the economy is so flat that there is nowhere for the inflation to come from. So the strategy seems to be, keep the economy as flat as a pancake, and protect asset valuesat all costs. Its the Status Quo approach to economics.

The problem with all this is that rather than solving the problem, it just puts off the inevitable. Which is a Fraud on our children. Where does all this money printing end?

Is it better to manage a reset than to have it forced upon you?

A Global crash, may well take place in the Bond markets, they are filling up with collaterised bbb grade bonds. That is one above junk. As mortgage defaults come in, we could well see these bonds classifed as junk, in which case they will have to be sold at basically nil value, because financal institutions are not allowed to hold them. That may well happen in Europe first, due to recent legislation in Germany restricting QE. In which case we will have a new banking crisis. See The Big Short. It is well worth looking at this for 5 minutes

 

And then another 5 minutes if you want to understand what went on, and is going on again today.

Collateralised Debt Obligations explained

 

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