As anyone who has seen the election debates could tell you, one of Gordon Brown’s favourite phrases at the moment is ‘securing the recovery’. Britain’s GDP only grew by 0.2% last quarter, and we should avoid anything that might divert us from the economic straight and narrow. By this he means, of course, that we shouldn’t be voting for the Conservatives and their proposed tax cuts.
If only avoiding a double-dip recession was that easy. There are several things that could push us back into recession that Gordon Brown isn’t really talking about. If you’ll excuse a somewhat gloomy post, I think it’s worth exploring a little.
The housing market is the main way that new money is created in our economy, making it key for economic growth. But despite the ‘slump’ over the last couple of years, property is still overvalued by a third. As David Steven points out, Britain has enjoyed a long boom in house prices, and . Two years of artificially low inflation has kept the market afloat when it really should have deflated a lot more. Now that prices are rising again, all the same problems that we saw in 2007 are still there – including massive debt, dangerously optimistic mortgage deals, and young people priced out of the market. Like any bubble, it has to pop.
Speaking of bubbles, in 2008 we saw a major one in the oil market, with prices hitting record highs and then crashing spectacularly. Since the crash, the politicians appear to have taken their eye off the oil price, assuming it was down to speculation and short-term problems. Some of it was, and some of it wasn’t – much of it is due to the simple fact that in a rapidly developing world, we aren’t finding enough new oil. There isn’t enough to go round. The price of oil has doubled in a year, and is trading at $86 a barrel today, the same price it was in . In six months time we could have set a new record, and every oil crisis so far has triggered or contributed to a recession.
Thirdly, the G20 has made remarkably little progress on its since the historic September 09 summit. As Greece keeps reminding us, there is still no provision for countries facing bankruptcy. As the Goldman Sachs case shows, there is no agreed international standard for accountancy, and no sign of the new transparency we’ve been promised. Regulation is no tighter, contagion hasn’t been limited, and a global stock market collapse is just as likely as it was before. Except that this time, governments are so deep in debt that it’s hard to imagine where any new bailout money would come from.
In short, securing the recovery looks like a rather rash promise from a politician. But I guess the telling people the truth of the matter doesn’t win votes.