Thursday, January 15, 2009

reasons to be cheerful, part 3

So Shriti Vadera thinks there are signs of improvement in the economy. The Tories have messed themselves, predictably. Hey, she rationalised the railways.

But there are good reasons to think this: there are indicators. Notably, the spread - the difference in interest rates - between blue-chip and risky commercial paper is narrowing sharply. Similarly, the interbank interest rate is falling. And the corporate lending market just had its best week in 12 months.

Now, the credit crunch kicked off in late August, 2007; the signs had been there for years, and if you wanted a short-term alert, HSBC's property write-off that spring was it. I recall going on holiday and wondering if Barclays would be there when I got back. There was a guy who came back from hols and resigned, if you recall. The commodity bubble cracked in the spring of 2008, and all the other indicators crashed a few months later, many of them retrospectively.

So, there are reasons for optimism; if you base your judgments on data, that is. If the lag times are at all comparable, maybe the Treasury view isn't entirely stupid. Which is a problem if you believe, like John Redwood, that all economic problems are caused by uppity workers getting above themselves (this is politely called "inflationary expectations"), and a good smack of firm unemployment will make us all harder.

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