Quote:
Originally Posted by Hugh
I did live through the 70's, and also remember why what happened, happened.
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I feel sure you do but I feel it would be wrong to focus on who did what and why because that would start endless discussions on who went on strike and why.
The area I tend to focus on is the fact that secular recessions are usually back to back recessions in which the second is opposite to and made worse by the mistakes made in the first.
The early 70's were deflationary as spending power was lost in higher costs to the oil price hike. Businesses closed, unemployment soared and spending power was reduced dramatically. The deflationary period damaged the supply side of the economy very badly with boarded up shops and businesses which left no supply side when workers forced through higher wages. As demand rose with no supply, inflation rocketed until equilibrium returned.
This time around and as usual the opposite occurs. We have inflation in a situation which is more true of stagflation. When part 1 is over and all the mistakes (100's of billions down the drain) come into play. In part 2 we get the opposite of 1 and deflation kicks in. Following the rule of alternation we get what was prevalent during the secular recession before the last which was 1930's.
I think this government has made very bad choices because even discounting global factors, recessions are as much about consumer mass psychology as other factors. Austerity forces savings both via government measures but more importantly destroys public confidence. The less people spend or have to spend the greater the snowball effect as fear breeds fear and the money in circulation goes down. The less money in circulation the more people lose businesses and jobs and if it goes on long enough the effects are exponential.
Deflation can become a depression and if this country sees one I for one will know for sure that it was this government who on the back of the previous government's mistakes made an even bigger one by removing liquidity from the economy.