We’re facing an economic crash – what’s coming next

By TruePublica Editor: No matter what your feelings are right now about the COVID-19 pandemic, about how it was managed, about what has happened, the next big crisis is only a matter of weeks away. Britain is facing an economic crash. The country has never faced a deceleration of business activity such as this. It didn’t in any of the wars, in the Great Depression, the Great Recession or any other event. In many ways, what we are facing now is a (rapid) repeat of the fifteenth century  ‘Great Slump.‘ Reuters quotes market traders as predicting “the worst slump in Britain for centuries”.

It is a reality that Britain has likely reached 30 per cent unemployment (in the current lockdown) possibly with worse to come without any indication as to how many will get their jobs back. Expect unemployment to reach somewhere near 8 per cent by the start of 2021 though.

Many economists are stating that as a country with its own currency, Britain can simply create the money it needs as it is essentially debt to itself. This may well be the case, but this has never stopped the state from taking back what it gave. The war era of the early twentieth century ended with crippling austerity in the guise of an economic depression that was matched by the same strategy employed to combat the bank-led financial crisis of the early part of this century.

The financial crisis of 2008 taught us something. The Conservative party either made huge policy mistakes or enacted a class war on the poor and lower middle-classes. And rather than taking the opportunity to attempt to fix the structural problems that caused the crisis, they rewarded those who committed the crime. This was because banks were big donors to a party whose public membership had collapsed. In so doing, they effectively moved the elements of that crisis only to see it end up unfolding in the next.

So here is the reality. Businesses were already more indebted at the end of 2019 than at any time in recorded history. The same with household debt. With rapidly rising unemployment, private sector debt will, therefore, become unsustainable.

Businesses are taking a beating because of the economic ramifications of the lockdown, banks will end up with its unpaid debt. In Britain, there are possibilities that the banks will need support – again. The recovery will be slower because the government will be under pressure to stop public debt from spiralling. Expect Britain to do worse than many other economies in the developed world.

The COVID crisis creates heightened implications over the demographic bomb that was always going to explode in the face of government. It means that they now have to fund elderly care to an extent that satisfies public anger. This government had weakened publicly financed health systems and now have to reverse that – without the revenue to pay for it.

Inevitably, the economy will spiral and many businesses will become insolvent. From there, households default, banks end up holding unpayable debt and public finances (deficit and debt) head north. Asset prices will fall due to a lack of demand. Commercial property values will rapidly decline (which they are already) and bring even more debt back to the banks. Many companies were preparing for Brexit and are now holding too much stock, which will cause yet more price falls. Productivity, already the worst for gains in over 200 years, will continue to decline. Living standards were already falling faster than at any time since the last World War. In tune with all of this, residential property prices will fall. Unit churn – the number of properties that exchanges hands will decline substantially, resulting in less stamp duty and less economic activity. Think lawyers, surveyors, estate agents, removals, carpets, curtains, paint and so on. By the end of 2021 economic activity could have fallen a whopping 10 per cent.

Do we have the right people in power to cope with this monumental crisis?

The answer to that question lies behind Brexit. The Tories have a dreadful record. The early 1990s recession was caused by what was termed the ‘Lawson Boom.’ That was caused largely by the adoption of a de facto exchange-rate target of 3 Deutschmarks to the pound in the EU’s Exchange Rate Mechanism. It was a huge miscalculation and caused a crisis in savings and loans and led to 10.7 per cent unemployment. It was to an over-response that fuelled unsustainable growth. The recession that followed lasted 5 quarters and took 11 to get back to full recovery. Nigel Lawson, a hard Brexiteer himself applied for French residency last year for reasons we can only speculate over.

Whilst the cause of the Great Recession (2008) can be placed at the feet of both parties over four decades of Thatcherism, it was the Tories who undertook savage political policies that austerity is now known to have inflicted. But the reality even here is that Britain was either going to suffer austerity or rising public debt.

This new recession will cause other problems as well. Globalisation will fragment and falter. Just as Britain prizes itself away from the European Union, many countries will be looking towards self-sufficiency and self-protectionist policies in an attempt to shield their own workers and economies. We are already witnessing the restriction of some goods such as food, pharmaceuticals and even technologies involving medical equipment and we have seen how ruthless we become when there’s a threatened shortage. Many economic migrants have returned home or will be sent home quite soon.

For Brexit, the domestic and global recession couldn’t be worse in timing. The huge infrastructure works announced by Rishi Sunak at the 10th March budget amounted to £600bn over ten years. Its purpose was two-fold. The first was about ‘levelling-up’ and the second was simply maths – something was needed to replace lost business over Brexit. It was a bit of Keynesianism.

Brexit was calculated to cost about 5 per cent of lost economic activity per year if an amicable deal was signed with the EU. Without one, a damaging 7.5 per cent (or thereabouts) is predicted. Add that to an economy that has cratered and you have a real catastrophe in the making. And yet, this government have said on multiple occasions throughout this crisis that Brexit’s December 31st is an unmovable target. That being the case, a hard Brexit is coming. Other countries in Europe will not be so bothered about Britain’s Brexit as it will take a backseat against rising public dissent across the democratic West as the winter approaches.

Ironically, with Germany losing its preeminent leader, with Macron failing to take advantage, Britain would now be looking to take the leading role in Europe – but Brexit has destroyed any hope of that and now the country is facing multiple crises on multiples fronts.

Ultimately, democratic values in Britain will continue to fade as the Boris Johnson government doubles down on its modus operandi – distorting the truth, destabilising the institutions that uphold civil society and attacking civil liberty. They will not be able to rely on economic experts as they were ridiculed and written-off for warning about the perils of a hard Brexit.

In the late months of 2019, the economy had stalled and was already heading towards a mild recession into 2020 without the real effects of Brexit. Unfortunately, it’s now a case of brace yourself. There will be a few winners and millions of losers as the summer months come to an end and both winter and Brexit beckons. Don’t forget, the winter crisis has just about overwhelmed the NHS every year for nearly a decade and COVID-19 will not have gone away by this winter. Q4 will be as distressing as it will be shocking in so many ways. And then we’ll be facing 2021.

 

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