2009 how bad was that not
News Posted On: 21 December 2009
Writing in the Sunday Times this weekend chief economic writer David Smith's review of 2009 makes interesting reading.
“As we approach the end of 2009, we are also preparing to say goodbye to a year that will go down as the worst for the global economy and world trade since the second world war,” he writes. Citing the treasury estimate of a 4.75% slump in GDP this year he notes this puts 2009's fall in a bracket all of its own – double the previous worst ever recorded decline back in 1980.
“It has also been, by a margin, the worst year for the UK economy since the Depression,” he said.
Those following the housing and stock markets might find this information somewhat surprising. In 2009 the FTSE recovered more than 50% of its losses, and the housing market confounded expectations by not crashing. At the start of 2009 housing was widely tipped to end the year down 25%. Instead it looks like it will end up posting a modest rise.
How could analysts have got housing so wrong in 2009? At the beginning of the year the word on the street was 'deflation'. It was easy to see how this perception came about. The argument was that cash-strapped borrowers would be struggling to service debt, and that in a rush for cash a fire sale of assets was inevitable. Instead we got bank bailouts and quantitative easing. That is not the stuff of deflation, which is by definition a contraction of the money supply.
Governments, by monetising debts have 'put off' the day of reckoning for borrowers by essentially borrowing more. In fact we are seeing t he barely recognised signs of a new round of inflation, a natural consequence of increasing the money supply. The price of gold points to this also, having hit a new high of over $1200 an ounce this year.
Meanwhile house prices continue to rise, with latest reports from bodies like the Royal Institute of Chartered Surveyors and the Nationwide still indicating a rising market. The Nationwide recorded a jump of 0.5% in house prices in November.
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