Home Business News The 27 factors that could lead to economic apocalypse

The 27 factors that could lead to economic apocalypse

by LLB Reporter
13th Nov 11 2:17 pm

Politicians hate bad news. Even while Greece was negotiating sovereign debt restructuring, Europe’s politicians refused to admit there was a problem. JP Morgan likened the phases of denial, anger, bargaining and depression to the Kübler-Ross stages of coping with a bereavement.

Today there is a long list of problems which neither British politicians nor their European counterparts are prepared to talk about. They don’t want to be seen to “talk down the economy”. So we thought we’d break the silence with a compilation of all the woes and ills facing our economy.

Add ‘em up, and the outlook is pretty awful.

1. Italy, Ireland, Portugal and Spain are going to default

Italy is “mathematically beyond point of no return” says Barclays Capital. And what about the other PIIGS? FX trader Alex Hope says, “European countries that will default on their debt are Greece, Portugal, Ireland, Spain and Italy for sure. With Italy equalling the size of Greece, Ireland and Portugal times two in size, it’s going to be more horrific of a default.”

And France? Ever cheerful Gordon Brown says our Gallic pals “will be the next to crumble”.

2. Inflation

The Bank of England’s quantititive easing is going to hurt in the long run. How painful? Jupiter income manager Tony Nutt forecasts inflation will hit 8 per cent in 2015. Henderson chief economist Simon Ward says: “To reach 8 per cent by 2015 is a bold forecast but it is not unrealistic.” Well, CPI is already at 5.2 per cent.

3. The Bruvvers are on the march

The trades unions are having their big day out on 30th November. A full scale national strike will gridlock London. The mood is so grim even the National Association of Head Teachers is on strike, the first such action in its 114 year history. With Bob Crow on the warpath you can bet this is just the first in a long series of large scale demonstrations.

4. Private sector pensions are gravely underfunded

The deficit faced by UK private sector pension funds fell to a mere £159bn at the end of October, according to the Pension Protection Fund. Currently there are 5,175 private pension schemes in deficit, and just 1,358 in surplus.

5. New bank rules will starve small firms of capital

Basel III banking requirements place additional capital requirements on banks. This is reducing the banks’ ability to lend to small and medium sized businesses. Tim Ambler’s paper for the Adam Smith Institute How Basel III threatens small businesses gives the gory details. And ,as Lord Turner, chairman of the Financial Services Authority, has admitted last week, there’s nothing we can do about it.

6. Youth unemployment is horrific

The number of under 24s claiming jobseekers allowance rose 94 per cent in the North East and Yorkshire over the past six months. One in five British youths is now neither in work nor education. On the Continent things are worse. Youth unemployment in Sweden is 25 per cent, Ireland 28 per cent, Slovakia 33 per cent and in Spain a barely plausible 45 per cent.

7. The Luddites were right (eventually!)

Economists Erik Brynjolfsson and Andrew McAfee’s new book Race Against The Machine explores the way machines are taking over more and more of the economy. As our robot cousins replace us there are winners and losers – the losers being the low-wage, low skill workers who are rendered obsolete. Taxi drivers, for example, face competition from automated driving systems. The profound cultural and economic shifts in this man versus machine contest will be dramatic, and possibly traumatic.

8. Life expectancy is undermining pensions provision

Even pension funds in surplus might be in for a shock. Their life expectancy models may well be flawed. Last month Mercer observed that the FTSE 100 firms were forced to increase their life expectancy forecasts by another four months, bringing total forecast revisions to an extra 2.5 years since 2005. In the long term pension funds will find themselves fatally flawed by inaccurate life expectancy assumptions, as LondonlovesBusiness.com recently pointed out.

9. Interest payments on the national debt are rocketing

A monster is devouring UK government spending – interest payments on the national debt. This year interest payments will be £48.6bn, up from £27bn in 2006/7. Interest payments are forecast to hit £75bn by 2015. So when concerned citizens like Alan Bennett moan about libraries closing (“it’s child abuse”), that’s the real answer. Nothing do with the “Coalition cuts”, because there aren’t any.

10. The Robin Hood may get imposed

This is the tax which would cut growth, ruin the financial services sector, tax pensioners and have a negative tax raising impact. We’ve debunked it. The ASI has debunked it. Even the European Commission has destroyed the economic arguments for it. Yet Sarkozy and Merkel still support this mad tax. William de Lucy, managing director of Amplify Trading, tells us: “It’s bonkers. Europe would be self-imposing poor competition on itself. Trading would just move to New York or Singapore.”

11. China hasn’t declared it’s “nasties”

The ultimate bubble? If you believe that an economy can grow at double the normal rate for thirty years without any setbacks then go long. [awaiting more stuff from Clem Chambers of ADVFN]

12. Eurozone breakup?

Vince Cable says Greece leaving the euro would mean “economic Armageddon” for Britain. And it’s Armageddon if it stays in. So, er…

13. Energy costs keep going up

Energy costs are rising, up 15 per cent this year. And on top of these we have the green taxes being cooked up by our esteemed energy minister, the eco-warrior’s pal Chris Huhne. Industry is already squealing. Last week the British Plastics Federation’s (BPF) president Philip Watkins said the “The shocking increases in energy prices have to be questioned.” BP has forecast energy de
mand will rise 40 per cent by 2030, the equivalent of adding two current day Chinas. If supply can’t rise with demand, prices will continue to hit new highs

14. House prices are still falling

Low interest rates have insulated many mortgage owners from economic reality. Over the next three years prices will need to undergo the a long-overdue correction. Savills is forecasting residential property fall of 2 per cent next year, with falls of 4 per cent in Scotland. Knight Frank is forecasting a fall of 5 per cent next year and no growth until 2014.

15. The European bailout mechanisms are a farce

The European Fund Stability Fund has Euro 440bn to deal with a rescue package requirement of Euro1400bn. And that’s just Italy! Worse, the replacement body, the European Stabiltity Mechanism, is a undemocratic quango with dictatorial powers. Its board are to be immune from all laws and free from taxation. Politically it is a mess. And the sums involved are just too small.

16. Government spending is too high

Police officers, nurses, teachers and bin men all have one thing in common. They don’t send invoices. The public sector costs money, and soaks up talented people who otherwise would be working in the private sector generating cash. The problem? Public spending has soared in the past decade, from 37.4 per cent in 1999 to 48.4 per cent in 2011. In Northern Ireland and Wales, public expenditure has risen to around 70 per cent of GDP, and it is 64 per cent in the North East. The correlation between a bloated public sector and poor economic performance is tight. Just look at Hong Kong, where the government is 17 per cent of the economy. Growth? A handsome 7 per cent a year.

17. Fusion reactors won’t save us

Talk about the energy crisis and some smart-arse will mention nuclear fusion. “Free, limitless power will save us.” It won’t. Sorry, but fusion is still decades away. The problem is finding materials which can survive the 30m degrees Kelvin temperatures as well as neutron damage. The ITER plant in France won’t begin testing until 2026. The most realistic timeline for fusion is 2050, assuming the technical problems can be overcome.

18. More Brussels laws for the City

Our referendum-phobic prime minister admitted recently: “London is the centre of financial services in Europe. It’s under constant attack through Brussels directives.” He’s not wrong. There’s the AIFM, the growing powers of the European Securities and Markets Authority and a conveyor belt of harmonistaion to look forward to. Can Dave protect the City? Your call.

19. Britain’s high streets are becoming ghost towns

The BBC’s Queen of Shops Mary Portas declared Britain’s high sreets are “doomed”, and not many dissented. The number of empty shops has trebled since 2007, and in many towns, such as Hartlepool, Newport and Blackpool, one in four shops is empty. Why? Poor car access, crumbling public transport links, bland chain branches and the superiority of out-of-town malls. That’s before we start talking about boozy, tattooed teenagers glaring and spitting at shoppers.

20. Patent wars

The tech majors are positioning for all out patent war. Google spent $12.5bn on Motorola Mobility to stock up on patents as Apple threatens to take Google’s mobil operating system Android to court. Apple has already won a preliminary injunction stopping sales of the Samsung Galaxy Tab in Australia. German and Dutch courts have issued similar injunctions. It’s knuckleduster time.

21. Vickers ICB needs to be implemented

Bank reform hasn’t gone away. Sir John Vickers report on banking will need to be debated and then implemented. In the long run the reforms ought to strengthen the UK financial system, but in the short term the impact will be significant. And as critics point out, many banks will still be too big to fail.

22. Immigration restrictions

The Migration Advisory Committee is recommending only workers salaried at least £49,000 should be given leave to stay in the UK. Sourcing Indian IT workers and Chinese manufacturing experts is going to be a whole lot harder.

23. Olympic Games

Shocking figures from the tour operators raised serious questions about the economic merit of hosting the Games. The European Tour Operators Association surveyed 28 of of its members and found bookings were down by an average of 90 per cent during the Olympic period in 2012. It forecast £3.5bn could be lost to the UK economy. That’s before we factor in travel chaos and the distraction the Olympic fortnight will bring. Don’t forget that Team GB is in the football too this time, maximising the sick-day potential. Kate & Wills’ wedding hurt Q2 2010 growth, said the ONS. That was just a weekend. What will the World’s Greatest Show do?

24. The impact of the Greek default hasn’t been felt

About that Greek default. Well, it hasn’t actually happened yet. Furthermore, the proposed haircut only affects private sector holders of Greek debt. The next stage is for other Greek institutions to negotiate their position with the Greek treasury. And we haven’t seen how the default will undermine banks across the Eurozone. In short: the saga of Europe’s basket case economy still hasn’t played out. Alas, the worst is yet to come.

25        Bitter rows in Europe

It’s not just the Greek debt or the bailout mechanism. The whole European project is falling to bits. Goodwill is evaporating. Things are so dysfunctional Chancellor Merkel is demanding new treaties to reform the EU. And what are her chances of forcing through new treaties, when such a move would trigger referendums in the UK and Ireland and possibly half a dozen other nations? Markets hate political uncertainty, but that’s all they’ll get from Brussels for the foreseeable future.

26        Russia’s still a riddle, wrapped in a mystery, inside an enigma

Russia is corrupt. More than 300 journalists have been killed since including the editor of Forbes Russia, Paul Klebnikov. And corporate laws are flouted. Even President Medvedev earlier this year lamented the lack of the rule of law: “Honest entrepreneurs must be confident in property rights, in the rights to what they have purchased in any deals.” To entrepreneurs and oil firms which have had assets and whole enterprises stolen from them those words will sound hollow. Frankly we ought to pray the Russians keep the gas and oil flowing, and avoid a repeat of the shut-off in 2009.

27        Black Swan are out there

Disasters have the horrible knack of coming out of the blue. Dr Roger Musson of the British Geological Survey says London is overdue a 5.5 magnitude earthquake.

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