Really? It’s over? Just like that? I’m slightly bemused by how quickly some commentators are proclaiming the end of this – the mother of all recessions. If that’s it – finished – then the recession was quite dull by past standards and I will happily eat my shorts.
The world is becoming a much faster place so I’m thinking that recessions may have also sped up. Either that or we have incredibly short attention spans!
Anyway, the rational side of me says “we still have more pain to come.” Globally, we have applied a fiscal band aid without addressing the fundamental issues. Governments are now borrowing to maintain the status quo. At some point governments will have to rein in their spending or increase taxes, and only then will we truly understand the reality of the global economy.
Over the past 10 years our economy has been fuelled by debt-driven consumption – and so much of our economy relies on this continuing. Yet consumers are gradually deleveraging and have reduced their spending.
The strongest signal of the true state of the global economy is international trade. International trade is down 30%. Evidence of this can also be seen off the coast of Malaysia where there are over 1,000 empty container ships moored.
Supply can only significantly exceed demand for so long before it needs to adjust, and that means significant business closures and unemployment. Government spending cannot prevent this in the long term.
This is why I believe we will not see “high global inflation.” My view is that instead we will see a long period of low inflation. We will have high unemployment preventing wage growth and a lack of demand/over-supply keeping prices down. Reduced government spending will then create room for low interest rates.
What we now need to see is the government rein in spending. Ouch… That won’t be easy – but it does not make sense for the New Zealand Government to continue to borrow $250m per week, much of which does not support productivity. Globally, all governments are under political pressure to rein in their fiscal stimulus (especially the United States).
The former General Manager at ANZ National Bank, JB has brought is broad depth of experience in the banking industry to Squirrel, which is his own company. JB has directly managed over $30 billion of mortgages and deposits and is a regular commentator on the mortgage market in the press and on TV. JB has a BCA from Victoria University and has undertaken post graduate study at University of London. He’s easy going most of the time, except when it comes to his calculator (he’s pretty neurotic with it).