Blog 2023 Malcolm Blair-Robinson

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Malcolm Blair-Robinson U.S        

Malcolm Blair-Robinson UK

Britain has one of the highest levels of household debt worldwide. Economists tend to remark, in the midst of the global market uncertainties, that because the UK economy in centred on home consumption, we are insulated to a degree from what goes on in the rest of the world. That is true in itself but it ignores a critical flaw in the economic model. The consumption is fuelled by household debt and this, having reduced in the recession, is now rising again and is set to pass its previous peak.

Moreover the economy is predicted to grow less than Osborne forecast, because of the China slowdown, drop in the oil price, headwinds et al. We seem to be getting very close to where we started. The end of a boom (such as it has been) followed by a bust. It is not inevitable but unless Osborne changes course it is very likely.

QE in various forms is now very much part of the economic conversation, especially in connection with recent market turmoil. Dynamic Quantitative Easing remains under government, not bank, control and targets specific investment projects without borrowing, interest or repayments. It can reboot the economy, boost manufacturing and exports and enable sustained growth of real national wealth shared by all, rather than just asset inflation which is the downside of ordinary QE. If you want to find out more you can enjoy a lucid explanation of the original idea from the link below.

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The answer is that if you keep calm, China has problems but they are manageable. Because of the unusual model of state controlled capitalism where the government, not the markets, is in ultimate control, it is hard for analysts of all types to read what will happen. Therefore a slowdown from exotic growth to significant growth causes near panic across the world. Yet China is financially very strong. Its external debt is just under a trillion dollars but its currency reserves are over three trillion. Too much has been lent to Chinese citizens by its banks to buy shares and property which has inflated both above either’s true value and this is bringing about a painful correction which will slow its economy further. But in the end the second largest economy in the world controls its own currency and has the resources to ride out its own storms. Its record thus far suggests it will find a safe course to sail.

The problem is that too much of the rest of the world has taken Chinese mega growth as a bedrock certainty, leading to overproduction, especially of oil and commodities, and to over borrowing. It is not clear whether some emerging market economies can cope with the consequences and whether international banks are as secure as was hoped should an Eastern credit crunch develop. This is an economic situation which has dangers, but also opportunities, and it can be managed by cool heads and steady hands, neither of which are in evidence in a bear market if one develops.

Remedies require political decisions, because as always in economics, it is a case of organising competing tensions into an acceptable model, and opinions vary as to what that should be. The greatest risk out there is that far too much of the menu of economic management has been ceded to Central Bankers whose caution, because of their discomfort in the political undertow of their remit, usually drives them to do too little too late. Right now that could be quite a problem.