How bad will 2009 get? Go and ask the Bank Manager

Sunday, January 4th, 2009 - economics, sunday thoughts

The first Sunday Thoughts of 2009, and I suppose like many I am writing about predictions in 2009.

Oh, and before I forget – Happy New Year!

From a business view point, looking back at 2008 the down turn hit the UK hard and fast from August/September 2008. That was a full 12months after the downturn started in the United States, and now as the economists recognise eight months after the recession started in the UK in January 2008.

And that’s the problem in making 2009 or any form of accurate prediction – almost every prediction is proven or not wholly in retrospect: historians close the book on predictions. And of all the economic indicators, employment – or unemployment – is wholly a lagging indicator of economic activity.

However, from what was seen in the last quarter of 2008, it is easy to say that the first quarter of 2009 from an employment view point will be nasty – as the media and even the normally colourless economists, bloody. But you don’t need me or Mystic Meg to predict that.

The only two questions you have, and seek that I answer are:

  • Can I avoid unemployment?
  • When will the upturn occur – or at least when will my employment look secure?

The answer to the first question is: YES! In fact anyone can avoid unemployment, if they are actively managing their career. If you looked back at 1st January 2008, you knew if you enjoyed your job and liked your boss – and that should tell you if you are secure in your job now. If not, I hope you looked at moving and have taken action – have you spoken to us yet? If not, your chances of unemployment are high, as you would be in the first wave of people being made unemployed. There are firms making “(competitive) down sizing” choices right now that don’t need to, using the credit crunch as an opportunity to position their business for the upturn. Even the benevolent Sir Tom Hunter undertook such a positioning with a pre-packaged administration deal for clothes retailer USC.

So, when will the upturn occur? Let me take you on a short tour of financing, via the excellent Martin Lewis’s Money Saving Expert website. In his eNewsletter this week, Martin suggested waiting if you could before getting a remortgage at a better rate in January – rates should drop down further in light of the expected Bank of England cut of at least 0.5%: except where your lender has applied a minimum rate, known as a collar. However, on the other hand Martin suggests savers lock in rates, where they can find deals now – Barclays had a 7.5% deal until 31st December, 2008.

What happens if you were a lender and a saver? Or better still, a lender and a rate setter – like the UK Government. So to encourage the public to spend, you lend to us a 2%; while to stop the banks getting into more trouble, you leant to them at a higher rate on their debt to you – say 12%?

What would Martin tell the banks to do? He would tell them to pay down the debt first. Anyone want to wonder why even if you have a great credit history, you still can’t get a loan at present? Anyone want to speculate what the banks are doing with all that money we are saving with them? Right – paying off the debt to our government, who are setting a near zero rate of interest to keep us spending and hence get the economy out of deeper trouble.

The problem is, that money presently is only going one way: our wages to the deposit account (a nest egg in case we get made redundant; also pay down the washing machine loan); to the Bank of England (to pay down that BoE debt faster); to the treasury bond holders (to pay the interest on those loans to get us through the crisis).

If it keeps going on like this, then spending will stop on all but essential spending (births, deaths, marriages and survival); and a depression will be on us. Unemployment will rise to 6million, let alone 3million

What can the government do? I agree the VAT cut was pointless, but much as Brown led the world away from a catastrophic crash to an presently unknown multiple fender bender+ with need for medical attention, Barack Obama could show the world what is needed to get out of this hole.

It is pretty clear that Obama has a focus on new energy sources for two great political reasons: reducing the United States reliance on oil imports: developing a world-class leading renewables and green energy industry.

Simply, he’s picked a long field target, and as the quarter back thrown the ball confident in the fact his team will win. Picking short term targets like 2.5% VAT cuts was a tactical choice over a strategic winner. And if Brown/Darling want to keep their jobs post 2010, they need a longer term target – and so does UK employment. Step two of the tactical economic revival – getting the banks to lend, or buying corporate bonds – needs to be taken soon: before the Super Bowl in Tampa Bay on 1st February, 2009.

The UK long term throw needs to be taken before the end of quarter two 2009 – the Americans intend to win green energy, the French have railways, the Chinese manufacturing, and I think India will win software. We Brit’s have always been good at innovation, and have world class leading capability in both aerospace and pharmaceuticals – please Gordon, pick one or pick something else, but what ever you do: for employment, think long.

Good Luck!

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One Response to “How bad will 2009 get? Go and ask the Bank Manager”

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