Thank you, the world economy was doing very well in Spring 2007. Following three years of good growth averaging 3.8%, it was expected to fall only slightly to 3.6% in 2007. Meanwhile, the United Kingdom was doing well as well. House prices rose from an average of £150,633 in January 2005 to £184,330 in May 2007, a 22.4% increase, while wages grew at a rate of more than 5% per year between 2004 and 2007. Inflation, on the other hand, remained under control, rising by an average of 3.25% during the same time period. Furthermore, the FTSE All Share Index increased by 49% between 2003 and 2007, so everyone was feeling pretty upbeat about the future. Except for Roger, no one was talking about a recession, let alone a full-fledged crash!
So, when Roger issued his dire warning, the overwhelming response was to laugh it off, just as we would laugh at a soothsayer who predicted the end of the world. Yes, it's eccentric, and it's likely to happen eventually, just not anytime soon.
You can imagine that those of us who were present in 2007 are far less likely to dismiss Roger's views now than we were previously.
As a result, I was pleasantly surprised and encouraged to receive his latest Economic update, which was written on June 16th. He is once again at odds with the mainstream view, and he criticizes those who downplay global economic prospects. He begins his piece by claiming that the press is being irresponsible in its coverage of our economy. His first paragraph begins as follows:
""""Last weekend the Daily Telegraph had a banner headline: 'Britain's biggest ever collapse in GDP wipes out 18 years of growth'. This statement is completely incorrect. I am concerned that people who are attempting to make sound decisions are being fed this nonsense. To be clear, our GDP was £1 trillion 18 years ago. It has now reached £2.2 trillion. In April, spending was down 20% from the previous month. The monthly spending flow averages £200 billion. 20% of that is £40 billion. As we all know, the media has an impact on emotion and decision making. As a result, the Telegraph article is both economically illiterate and irresponsible."" ""
Wow! It's hard hitting stuff. And the persistence of such remarks is still visible a week later. Sajid Javid was quoted in the Sunday Times on June 21 as saying:
""""In two months, GDP has dropped by 25%. To put that in context, that is 18 years of growth erased in two months.""
And this is coming from our former Chancellor of the Exchequer, who should be anything but an economic illiterate!
In his update, Roger goes on to say that, despite what the world and his wife are saying, there will be no recession. Indeed, while he acknowledges that the second quarter of 2020 will be significantly negative, he expects the third quarter to be significantly positive, and predicts that the UK economy will grow by 8.5% in 2021, with the global economy returning to 2.5% growth the following year.
His argument is that the fundamentals of a recession do not exist in the same way that they did in previous recessions, such as rising prices and interest rates squeezing individuals and businesses alike in 1979 and 1989, and banks ceasing lending in 2008. The common factor is a lack of available funds, which is not the case this time. Households have seen a drop in income but a larger drop in spending, and the UK Government is pumping an extra £40 billion into the system every month, so there's no shortage here. Roger anticipates a mini-boom in the coming months as a result of the excess cash in the system, with the only things that could dampen it being media reporting company closures, an increase in the R well above one, and stories of mass redundancy.
I won't repeat all of Roger's arguments here; instead, you can read the entire article at https://www.ellisbates.com/news/june-2020-economic-update/. to get the full picture, but his reasoning and logic are very persuasive. And I, for one, would not put money against him. I also wholeheartedly agree with his condemnation of sensationalist media reporting. They must accept greater responsibility for the message they send because, right or wrong, people do listen to them. A less melodramatic and more even-handed approach to reporting would benefit us all. After all, we've all seen the power of 'fake news,' haven't we?
World Economic Situation and Prospects 2007 (United Nations publication, Sales No. E.07.II.C.2), accessed on June 21, 2020
UK House Price Index, Office of National Statistics, retrieved on June 21, 2020
Wages and Salaries Average Growth Rate Percentage, Office of National Statistics, 21 June 2020
RPI from the Office of National Statistics Every Item: Change in percentage over a year, as of 21 June 2020
Swanlowpark.co.UK FTSE 100 and FTSE All-Share since 1985, as of June 21, 2020"""