Responsibilities

Thank you all for the feedback, I have also received a lot of stick for writing a blog, and the responsibilities that come with it. I have also been questioned as to the purpose of my blog. There are two main ones:

• Firstly to (re)educate those who are interested in the economy and who gain all their economic information from either the LondonLite or another tabloid.

• Secondly to inform people that we are entering a recession (not a credit crunch, although is ones of its features) and to start preparing for the end of the party. Our generation has no idea what a recession is like. We have had it very good all our lives, and as we all know every good party is followed by a painful hangover.

What a week to start my blog. Over 17,000 jobs have been lost this week; that recession train has not only left the station but its beginning to accelerate, rapidly. I thought I would first mention where I acquire my data, opinions and facts from. I rely heavily on several sources, so if you want to go straight to the source, and miss me out, feel free to do so. I will list them in order of preference:

1. First up we have RGE Monitor that "delivers ahead-of-the-curve global economic insights that financial professionals need to know”. The site is headed by my hero Professor Nouriel Roubini, who wrote a paper in Feb 08 predicting the crisis, worth a read if you are bored. The best thing about the site is that at the moment it is free to sign up, “because of the financial turbulence”. So sign up!
2. Next up we have Robert Peston who is the BBC’s business editor. He offers a UK centric view of what is happening. Very good for the situation with the UK banks.
3. FT Alphaville offers updates and opinions throughout the day on anything happening that is relevant to the economy. Some of the stuff even I don’t understand but most of it is simple and very insightful. As there is a lot of information, so focus on the Lunch Wrap; which offers selection of the best articles of the day or search to find what you are after.
4. And finally The FT!

I realised that I missed out a few important events in my last post:

• For starters the lack of credit/money available to everyone from banks, companies to the consumer, and this more than anything will exacerbate the recession. A credit crunch! This is reflected in the 3 month LIBOR (London Interbank Offer Rate), which shows how expensive it is for banks to lend to one another. This has shot up, as the graph shows because banks no longer trust each other, especially after Lehman collapsed. If they don't trust each other, this means that the banks will not lend to busniesses or to normal people.

• This then turned into a liquidity crunch, where because companies could not get access to credit they did not have access to enough money to pay off their liabilities.

• Also the fact that the US and UK governments now own a sizable proportion of their respective banking industries
• Finally it is GLOBAL. Globalisation has driven the world economy and now it will make this recession worse than those before it.
  

Now to a review of the main news of this week:

• 17,00 job losses announced this week. Mainly from BT (10,000), Virgin Media (2,200) and Yell, the publisher of the Yellow Pages (1,300). All these job losses are for so-called white collar workers. It is not the manufacturing sector that is bearing the brunt of this recession, as it has in the past, but the service sector. Although manufacturing has been hit, especially the car makers, it is the service and banking sector that will be most affected. Thus this time round it will be “Grim down South”, with London the worst affected.

• London’s GDP is predicted to shrink by a massive 3.8% (Oxford Economics). The City will lose 35,00 jobs at least over the next two years, and house prices in the affluent areas of London and the “stock broker belt” will plummet. City workers who bought their properties based on the expectation of future bonuses will be forced to sell, as their will be no bonus this year.

• The pound has nose diving lower and lower as each week has gone by. One pound now buys $1.47 compared to over $2 earlier this year. Why does this matter, well if the pound keeps falling any debts that are held in foreign currencies will become larger and larger, as you will need more pounds to pay them off. This will put a large strain on banks and companies that are already being attacked by falling sales, however it will be good news for exporters.

• This article poses a very interesting and worrying question, it asks whether the UK will follow in Iceland's footsteps and default. I believe that George Osbourne read this and then made this statement . Even that is a remote possibility is very worrying. All those jokes about what is the capital of Iceland, soon we could be asking what is the capital of the UK?
• Finally I am not the only one who is so bearish, so is the Bank of England. It has just published its November 2008 Inflation Report, and here are the headline figures. It expects growth to fall to -2% by 2009 and delfation to become the main worry rather than inflation. Deflation is when the general price level drops, the opposite of inflation. This is bad news as deflation can be very bad. Imagine if you know that prices of the goods that you buy are falling, so you decide to wait for a bit and the price will drop, you decide to wait some more for it to become even cheaper. This is the problem with deflation, consumers decided to defer their purchases, and therefore little gets bought. This is exactly what Japan experienced during the 1990's, its "lost decade".

Finally a little rant. I shall be very angry (bare vexed, suffering from inconsolable rage, angrier than a little spoilt girl who cant have that 35th Barbie) if any bank that has received state aid proceeds to pay out bonuses to its staff. I don’t care if you have made millions upon millions for your bank, your bank failed and it lost a hell of a lot more. These banks received state aid (taxpayers money, your hard earned money) in order to prevent them going bankrupt, thus these are failed businesses. The only reason they were saved was because banks are so important to the smooth running of the economy, if they were any other type of business the accountants and lawyers would be in sorting out the bankruptcy. Ergo the fact that they have a job should be their bonus.