Wednesday, November 14, 2012

BoE's Mervyn King warns UK faces triple dip recession

The Bank of England's Mervyn King has warned that the UK faces a triple dip recession.

Regular readers know that this triple dip, soon to be quadruple dip, recession is simply another way to describe the Japan-style economic slump produced by the policies pursued under the Japanese Model for handling a bank solvency led financial crisis.

The real economy of the UK is simply unable to shoulder the burden of the debt service on the excess debt in the financial system and produce enough capital for reinvestment and growth.  The same is true in the EU and Japan and most likely the US.

The only way to end the Japan-style economic slump is to adopt the Swedish Model and require the banks to recognize upfront the losses on the excess debt that they would ultimately realize from going through the long process of default and foreclosure.

As reported by the Guardian,

The UK economy risks suffering from a triple-dip recession amid a period of persistently low growth that will last until the next election, the governor of the Bank of England has warned.
Actually, this period of persistently low growth will last until the Japanese Model is abandoned and the Swedish Model is adopted.

Japan has stuck with the Japanese Model for over 2+ decades and they have never exited the period of persistently low growth.
Sir Mervyn King cut Britain's growth forecast to 1% next year and warned that output was more likely than not to remain below pre-crisis levels over the next three years. "There seems a greater risk that the UK economy may be in a period of persistent low growth," he said on Wednesday....
 No surprise here as Japan showed it can take well over a decade to reach pre-crisis levels.
"Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in the fourth quarter as the boost from the Olympics in the summer is reversed – indeed output may shrink a little this quarter," he said. If that period of contraction continues into 2013, the UK could drop into a triple-dip recession....
This zig-zag pattern is a feature of the Japan-style economic slump.
He said there were limits to what monetary policy could do to boost an economy undergoing far-reaching adjustments in the wake of the financial crisis and amid severe headwinds from the eurozone debt crisis...
Walter Bagehot, the father of modern central banking, would agree with Mr. King that there are limits.  Mr. Bagehot would set the limit on monetary policy at maintaining a minimum of a 2% interest rate.  This avoids the economic headwinds he foresaw in the 1870s that zero interest rate policies create.

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