Saturday, November 24, 2007
Gieve & Hawks and why recessions are good.
Sir John Gieve is normally naturally Hawkish.As a Deputy Governor of The Bank of England his judgement is usually better than Mr King.As the real possibility of a recession appears on the horizon (well l never!), coupled with serious liquidity and credit quality issues even he's changed his mind. He is deputy Governor responsible for financial stability.So voting for a cut in the current environment for him makes sense.His boss has made financial markets unstable and to some extent he has to fix it.Of course it's an absurd suggestion when you keep in mind pricing pressure and real world inflation.
Rates need to rise in the short term to stem inflation.They also need to rise because both the UK (and the US) need a recession.Central Bankers and economists seem to have forgotten that they are a necessary part of the economic cycle.They allow the bloodletting needed to ease asset price bubbles,namely housing.Trying to avoid a recession is like trying to cheat death.It will get you in the end.It's just a matter of time.
Recessions of the non-depression era variety are excellent for businesses in the long term.Badly run companies fold.Increased unemployment means wage push inflation slows.After all if you're afraid of losing your job,you're not going to whine about no pay rises for a few years.
Recessions are secretly even more welcome in banks.Especially by senior managers.You can legitimately get rid of all the underlings you disliked.More importantly you can 'encourage' all the bright young things to leave.In an industry where endurance and cunning are more important than intelligence smart people have to be shaken out.For three reasons,firstly if you're a senior manager they could become a potential threat to you in future.Get rid of the competition,and you're safe for another five years.Secondly you need smart people to do jobs that can be of benefit to you in future.You need to know that if ever you need a dentist,doctor,architect etc that that person will be brighter than you are.Otherwise what's the point in having all that money.Thirdly recessions are good in the here and now.First class cabins become a lot less full,hotel suites less expensive,nice restaurants are quieter.Second,third,and fourth homes get cheaper.The Maybach waiting list shortens,its not all bad.Even if you get laid off in a downturn,you'll get paid off as well.So you can sit it out.
Sir Gieve is wrong we need emergency rate rises,all the way up to 10% at least.
All in all recessions are desirable if you're long cash and not overleveraged.I can't wait for it.I'm already planning my holiday schedule and a list of new property purchases as prices collapse.What about you?
RB
Rates need to rise in the short term to stem inflation.They also need to rise because both the UK (and the US) need a recession.Central Bankers and economists seem to have forgotten that they are a necessary part of the economic cycle.They allow the bloodletting needed to ease asset price bubbles,namely housing.Trying to avoid a recession is like trying to cheat death.It will get you in the end.It's just a matter of time.
Recessions of the non-depression era variety are excellent for businesses in the long term.Badly run companies fold.Increased unemployment means wage push inflation slows.After all if you're afraid of losing your job,you're not going to whine about no pay rises for a few years.
Recessions are secretly even more welcome in banks.Especially by senior managers.You can legitimately get rid of all the underlings you disliked.More importantly you can 'encourage' all the bright young things to leave.In an industry where endurance and cunning are more important than intelligence smart people have to be shaken out.For three reasons,firstly if you're a senior manager they could become a potential threat to you in future.Get rid of the competition,and you're safe for another five years.Secondly you need smart people to do jobs that can be of benefit to you in future.You need to know that if ever you need a dentist,doctor,architect etc that that person will be brighter than you are.Otherwise what's the point in having all that money.Thirdly recessions are good in the here and now.First class cabins become a lot less full,hotel suites less expensive,nice restaurants are quieter.Second,third,and fourth homes get cheaper.The Maybach waiting list shortens,its not all bad.Even if you get laid off in a downturn,you'll get paid off as well.So you can sit it out.
Sir Gieve is wrong we need emergency rate rises,all the way up to 10% at least.
All in all recessions are desirable if you're long cash and not overleveraged.I can't wait for it.I'm already planning my holiday schedule and a list of new property purchases as prices collapse.What about you?
RB
