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What Will The Pain Look Like When It Comes?

By Andy Shaw | January 26, 2010

Originally posted 31st July 2009

I spoke about the pain we will be having in the UK when the new government comes in, that will indeed be needed if we are to turn around the debt we now have in the UK. Then I read an article about what Ireland is having to endure already and thought you might want to see what I mean. In Ireland they have already passed two emergency budgets to stop the deficit soaring and these have not been enough. A report last week said, “Dublin must cut deeper, or risk a disastrous debt compound trap.”

So they estimate a further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already at 12% and heading for 16% next year – and as yet I have not seen one unemployment projection that undershot!

They say that education must be cut by 8%. So dozens of rural schools must close, and 6,900 teachers must go…Nobody is spared this. Social welfare payments must be cut by 5%, child benefit cut by 20%…nice! The police, already hurt from a 7% pay cut, may have to buy their own uniforms and hospital visits could cost £107 a day! The list goes on…

Can you imagine the outcry if those items listed above were announced by the Conservatives in June next year? The trouble is they are exactly the sort of measures that are needed to stop the rot…the question is does Cameron have the stomach for it? No, he doesn’t but I’d imagine there will be Blair/Brown style stealth work done.

Personally I think the time for that is over, they should go for trying to fix it. Spend a load of their own money on PR demonstrating repeatedly how this has been caused by errors made by Labour and explain that they are just fixing it and then we could get out of this…but they won’t. So we will be doomed to repeat the mistakes again at some point.

No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs, but the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of financial ruin. It looks like we are going to see the same sort of lost decade that Japan had now as I don’t think they are going to do much to stop it. Frankly, I don’t think they can anymore. I wrote a while ago now that as every day passed we were getting closer to a deflationary spiral and that this thing is like a black hole – as we get closer the gravity gets harder to pull away from.

The only advantage is that it won’t last as long as Japan’s has (two decades really), but then maybe I am underestimating the ability of government (both sides) to really screw it up.

The government has not yet provided a clear plan to get the UK back to solvency (mainly because it hasn’t got one, they haven’t got a clue how to do it…if you doubt that then I suggest you read Atlas Shrugged) and the bond markets and even the currency exchange markets have been giving them the benefit of the doubt. But that will not last forever.

Last week I was very depressed to see that the Fed did not step in to bail out the CIT bank in the US. Instead they were ready to let it fail. An 11th hour sale saved it from filing for bankruptcy. But that was not the important thing, the important thing is that they (the Fed) are mirroring what they did in 2008 and we all remember how good that year turned out to be.

Do you remember last year they bailed out Bear Sterns and the market breathed a sigh of relief? Then as the summer went on everyone started to feel better. Then some idiots in the states started talking about interest rate rises because of the relieved position. If you remember I said at the time rates would go down further and that the UK rates would have to fall too. In fact I was screaming that they should be lowering rates. What happened? The market hardened expecting rate rises which ultimately (well probably) led to the premature demise of AIG, Fannie and Freddie and of course the tipping point, Lehman Brothers.

So what I think this means is that we are doomed to repeat the same mistakes again this year, especially with this frankly stupid chat about ‘green shoots’ and therefore that will cause a further severe problem in the Autumn. I wouldn’t be surprised if some high powered ‘numpty’ in the UK started talking about rate rises soon, and that will really help screw things up. They simply did not need to make what is going to happen, happen – ‘loose lips sink ships’. People who have a voice, yet have no understanding of how opinion can sway what actually happens, are simply talking too much about a subject that they shouldn’t be allowed to comment on at all.

Expect plenty of ‘I told you so’ articles from me this autumn, as the events that seem to be so clear to me come out as a complete surprise to the media.

As I write all of this, I am thinking about how everyday I see more and more opportunities. They are opportunities that I did not look at before, mainly because they weren’t there or I was too busy. For an opportunity to be there, you need to have people with a need or more accurately, people with a problem that you can solve. At the moment, there are stacks more people with problems and to paraphrase Napoleon Hill, ‘if you want to get rich simply find enough people to help.’

This is rhetoric, I know but more fortunes are made as you come out of a recession than at any other time. I expect plenty of new opportunities over the next few years and you should too.

Best wishes

Andy

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