In today's Exponential Investor:- Yes, we're in a recession
- Yes, it's a recession we have to have
- No, it's not the end of the world
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Let me be very blunt.
When people ask, are we in a recession yet, the mainstream will have you believe we're not.
The truth is that we are.
Yes.
We are in a recession.
And in a few days the inevitable will happen reaffirming that point.
The Bank of England will raise the Bank Rate.
How much? Only the Bank know.
But if you ask us, anything
less than half a percent is further testament to the ineptitude of the current Bank of England's Monetary Policy Committee.
We told you a recession was coming
You do not need me to tell you that the Bank of England has been slow to respond to the current and pressing problem of inflation.
A major part of the problem has been excessive quantitative easing (QE – the creation of money out of thin air with which to purchase bonds) since 2008 and – in particular – over the last two-and-a-half years.
A brave approach would have been to hike the Bank Rate in steps of 1%.
Yes, it would have crashed demand, but that's
exactly what is needed to bring inflation under control.
That is essentially what the Federal Reserve did under the chairmanship of Paul Volcker at the end of the 1970s and the beginning of the 1980s – when that central bank dealt with inflation in the United States.
Now, we have the double-digit inflation that we've been telling you about now for over a year.
In fact, over a year ago I said that the
Bank of England needed to raise rates fast to get inflation under control. I think that Bank Rate needs to get to 5% or 6% before the problem gets out of control.
That might seem like a massive leap from the current Bank Rate of 1.25%. However, it's
necessary to avoid inflation heading closer to 20% – by which time we'll really have problems.
Either way, this is all coming to a point. It's all leading to something else we've been saying is necessary to stabilise the economy…
You may be interested in
Your hard-earned money is evaporating
If you were in a scorching, parched desert…
Would you pour your precious drinking water into a leaking bucket?
That’s the draining reality of runaway inflation.
And those that sit back and leave it to chance could be left high and dry.
With inflation at a fresh 40-year high…
Your money IS evaporating!
If inflation were to average JUST 5% a year over a 10-year period, research from Schroders shows £100k would be worth just £55k.
Could you afford to see your money almost halve in value over the next ten years, in a worst case scenario?
As Bloomberg reported, it hit 9.4% in June – and that new 40-year high worsens a living standards crisis that is likely to only get worse in the short term.
Think about your nest-egg.
Think about if the money you have set aside right now – just in case – could take that kind of hit?
If you are worried, like so many of us are (including the clueless powers that be)…
Follow this link…
And check out an investment “blueprint” that could help you both protect your money against inflation – and even help it grow.
Now this is investing, so you’re still taking a risk. There’s no guarantees, so only invest money you can afford to lose.
This “blueprint” been put together by someone with 15 years’ experience doing global deals with the world’s largest wealth management firm…
What’s more, since 2008, he has been living where inflation often runs at 50%-plus a year.
So, you might want to listen to him…
In particular when it come to three inflation-busting moves you can make TODAY.
Capital at risk. Forecasts are not a reliable indicator of future results |
The recession we have to have
In November last year
I wrote to you saying,
In mid-1990, Australia was in the depth of a deep recession that lasted the better part of a year. Unemployment shot up into double digits, there were failures in the financial industry…and even a commercial property bubble bus that the Reserve Bank of Australia estimated cost the economy around $9.2 billion.
It was (according to the Australian Treasurer, Paul Keating), "a recession that Australia had to have".
Well that's exactly what the UK has to have now.
I went on to say in November last year that,
I expect that soon enough rates will rise, high – indeed, really high to the extent that unemployment will shoot higher and that recessions will come. They'll be deep, long and tough because that's what's needed to right the troubled ship that is the global economy.
We're at the start of all that now.
Unemployment will rise. It is
inevitable.
The country will be in a recession. It is
inevitable. And this will be the outcome in much of the world. The United States is already in recession, and official interest rates are at least ratcheting up faster than here.
Also, don't forget that by the time a recession is
officially announced, that six months will have passed of being in a recession.
Official recessions require two consecutive quarters of negative growth.
That means by the time its official, six months have passed of a recession. This is why reactionary monetary policy is half the problem with central bankers.
So, recession is coming, rates are rising. These are inevitable facts of our world right now.
Rising rates and a recession can be good
The bad times will not last forever.
As we did in the 1990s, we will come out the other side of these periods.
Well we
should come out the other side. There are still problems that we need to address.
For instance, there is the expectation of wages rising at pace with inflation. This is one of the great fallacies of modern times.
That's why militant unions demanding massive pay increases during these periods doesn't actually help at all: it worsens the problem and hinders the solutions. It will lead to more unemployment.
It ends up driving unemployment up when employers can't stay solvent without cutting staff. The expectations of wage growth are out of sync with the realities of the state of the actual economy.
Nonetheless, recessions sound bad, and long protracted ones sound really bad.
But recessions can be good, if it helps realign an economy and gets everything back into a frame of normality again.
So, are we in a recession? Yes. Is it all bad? No. It will present opportunities. Is the time to move now? Not necessarily. But get ready, be prepared and keep one eye on the thing no one's actually talking about right now… the recovery out of this mess.
Until next time…
Sam Volkering
Editor,
Exponential Investor
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