Time for some chart-porn. A few interesting charts that can tell you far more about the economy than all of my yaddering. Two themes today: economic recovery and printing money
Economic recovery
This first one is courtesy of Paul Krugman - the story of the crisis in one picture.
The lines represent world industrial production – the blue being in the 1930s and the red the current trajectory. The story is clear: the opening months of this crisis were as bad, if not worse, than the Great Depression in terms of the collapse of economic activity (for which ind production is a pretty good proxy). Since then, the massive injection of stimulus from central banks and from governments all around the world has helped arrest that decline. Of course, it’s far too early to sit back and relax. I fear there could be a further dip in the future as the stimulus wears off, or is reversed, but it is reassuring that, throughout the world, the plan is having at least some success.
Except, it seems in Britain, at least according to this chart from the National Institute for Economic and Social Research.
This is the path of Britain’s economic output throughout this crisis, compared with previous recessions. As you can see, NIESR’s latest calculations, which take into account UK performance in October, show we’re still sinking deeper. In fact, they calculate that this is now a deeper recession than in the 1980s (at over 6pc peak to trough contraction). Why has the UK suffered so much? Oh, the usual reasons: over-reliance on the City (not to meantion North Sea oil revenues, as I wrote in my column this morning); over-borrowing by the Government before the crisis; over-borrowing by consumers; a company fundraising system that relied too much on borrowing directly from banks rather than the bond market etc etc…
Printing Money
As we all know, the Bank of England is creating money (it doesn’t like to call it “printing” but the net result is the same) like gangbusters. This morning it committed to creating a further £200bn of the stuff. Now, what alarms many of you, and rightly so, is the fact that it is using this money to buy Government debt. After all, as I write in my comment piece for the newspaper, it raises suspicions that it is considering monetising the deficit (printing money to fund government borrowing – what the Weimar did in the 1920s and Mugabe in the 2000s). I still believe intently that this is not the intention here in the UK (at least not yet) but it is alarming that whereas the other major central banks – the Fed in particular – have printed money to buy private debt, we in the UK have printed it to buy gilts. This chart from the IMF (report here – pdf) tells the whole story.
Click on it to expand it.
The blue bits are government debt. Why on earth does the Bank find it impossible to buy anything other than gilts when others have no problem at all? It’s a real concern.
Finally, here is an excellent chart documenting the consequences of QE. This is what happened in the early 19th century when the British Government embarked on an ill-advised attempt to print money and sever the link between money and gold. The result was inflation of well over 30pc and a series of future crisis.
The chart is from George Trefgarne’s excellent investigation into QE for the Centre for Policy Studies, which I would thoroughly recommend you all check out. It is the only account I’ve seen that properly unravels the consequences of Britain’s previous experiments with QE. Two of the three episodes ended in nasty and sticky inflation. Oh dear. But even in spite of that it might surprise you to learn that Trefgarne, my predecessor as economics editor here, is actually in favour of the policy (though not willingly but with his nose pegged.)
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