Comments on: Are we heading into a recession, or is it Mind Games? http://www.ozzy.co.uk/blog/2008/05/27/are-we-heading-into-a-recession-or-is-it-mind-games/ The thoughts, ramblings and day-to-day experiences of Richard "Ozzy" Osborne Fri, 21 Nov 2008 03:23:25 +0000 http://wordpress.org/?v=2.6.2 By: Alan Moore http://www.ozzy.co.uk/blog/2008/05/27/are-we-heading-into-a-recession-or-is-it-mind-games/#comment-236 Alan Moore Sat, 31 May 2008 12:59:45 +0000 http://www.ozzy.co.uk/blog/?p=72#comment-236 Unfortunately you are applying a micro economic situation to a macro economic one. Your father in law is actually in the sector of individuals that would be substantially affected by rising prices. He only has a fixed income without the ability to move jobs or ask for a pay rise. He could take on a part time job but that would be taxed therefore possibly not giving him the incremantal income that he requires therefore his first (and most effective short term)option is to remove expenditure on non essentials. Regarding the property market we are told that many people have taken out credit on the basis of the increase in equity in their properties. We are now in the situation where the banks are now reigning in credit. Even the last reduction in base rates by the Bank of England was not passed on by the banks but merely used to shore up their profits so could we not postulate that the cause of this 'impending' recession has been 1) The greedy banks who place their profits above all else and 2) The 'pulling forward' of expenditure by the readily available credit (Again the fault of banks chasing greater profits) which has created a glut of spending. 3) The governments strategy over the last two terms has been to run the economy at a deficit on the basis that they will look at 'sustainable debt' over an economic cycle. Well that debt is now going to come back to haunt them as the previous strategies of governments is to borrow money during recessionary times to smooth out the impact. That strategy is no longer available as the UK has probably reached the limits of its own available credit. Unfortunately you are applying a micro economic situation to a macro economic one.
Your father in law is actually in the sector of individuals that would be substantially affected by rising prices. He only has a fixed income without the ability to move jobs or ask for a pay rise. He could take on a part time job but that would be taxed therefore possibly not giving him the incremantal income that he requires therefore his first (and most effective short term)option is to remove expenditure on non essentials.

Regarding the property market we are told that many people have taken out credit on the basis of the increase in equity in their properties. We are now in the situation where the banks are now reigning in credit. Even the last reduction in base rates by the Bank of England was not passed on by the banks but merely used to shore up their profits so could we not postulate that the cause of this ‘impending’ recession has been 1) The greedy banks who place their profits above all else and
2) The ‘pulling forward’ of expenditure by the readily available credit (Again the fault of banks chasing greater profits) which has created a glut of spending.
3) The governments strategy over the last two terms has been to run the economy at a deficit on the basis that they will look at ’sustainable debt’ over an economic cycle. Well that debt is now going to come back to haunt them as the previous strategies of governments is to borrow money during recessionary times to smooth out the impact. That strategy is no longer available as the UK has probably reached the limits of its own available credit.

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