Blog

Blog 8: The 2016 Recession 13/03/2016

It astonishes me that few people have seen this or noticed it.  In case you did not know, the cyclical recession (ie the "no more boom and bust" Brown lied about) is starting again.  The economic evidence is so very clearly there.  Last recession started at the mid 2007 (August 2007 to be exact).  And the 2016 recession has started, with us likely going into formal recession by early 2017.

 

Economic Identifiers

 

Late 2015 economic news showed the first splinters that would lead one to suspect trouble was in the brewing, and a quick look into further data actually showed that there was a large bump in 2014, add to that 2015 and then the economic news of 2016 and a recession seems almost an absolute fact.

In 2014 UK loans went up relatively substantially compared to business lending[1].  Loan default rates for mortgages and buy-to-let mortgages were low and at times fell[2].

 

2013 saw a significant default rate, and this dropped "significantly" in 2014 and early 2015 in the UK[3].

 

In 2007 to 2010 much of the UK, European and USA debt was acquired by Chinese banks and the Chinese Government.  In 2015 that returned to bite them.  By August 2015 China was being warned over the serious delinquency rates in China and its impact upon its economy[4].

 

Other reports throughout 2015 set out how serious the Chinese debt and debt default rates were:

"With Massive Defaults Looming, Chinese Banks Aren't Keen to Loan Local Firms Cash" 1 June 2015 Bloomberg[5]

 

"China Debt Markets Show Stress Amid Duck Supplier's Default" Bloomberg 2 June 2015[6]

 

"Chinese companies are starting to default on their debt" Business Insider 11 November 2015[7]

 

The news in early 2016 was even worse:

 

"China cuts 2016 growth target amid continued economy concerns" 5 March 2016[8]

 

 

In October 2015 the IMF warned of a looming economic crisis[9] having warned that if interest rates did not go up in september 2015[10].

 

On 25 February 2016 the IMF warned that the world's economy is "highly vulnerable[11].

 

Because the European economy is faltering the European Central Bank implemented a series of measures to try and kick-start the economy[12]13]:

 

ECB adds corporate sector purchase programme (CSPP) to the asset purchase programme (APP) and announces changes to APP

  • Combined monthly purchases under the APP are to increase as of 1 April 2016 to €80 billion from €60 billion.
  • Investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets eligible for regular purchases under a new corporate sector purchase programme (CSPP).
  • The CSPP will be added to the APP and will be included in the combined monthly purchases.
  • The CSPP will further strengthen the pass-through of the Eurosystem’s asset purchases to the financing conditions of the real economy.
  • Purchases are to start towards the end of the second quarter of 2016.

 

(1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from the operation to be settled on 16 March 2016.

  • (2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

"The Governing Council also decided to adjust the parameters of the public sector purchase programme (PSPP). The issuer and issue share limits for securities issued by eligible international organisations and multilateral development banks will be increased to 50%. In addition, as of April 2016 the share of such securities purchased under the PSPP will be reduced from 12% to 10% on a monthly basis. To maintain the 20% risk-sharing regime, the ECB’s share of monthly PSPP purchases will be increased from 8% to 10%."

 

TLDR: They are pumping billions into the economy and reducing interest rates to try and stimulate the economy.  They have increased the negative interest rate Governments/Central Banks must pay in interest (hence it being negative) for putting money in the European Central Bank.  They reduced the ECB interest rate (that one is still a positive number).

 

India cut their interest rates in October 2015[14].  They cut theirs four times[15].  New Zealand cut its interest rates four times since June 2015, the last on 10 March 2016[16]. On 26 February 2016 The Telegraph[17] ran the story "Mark Carney issues stark warning on global growth as storm clouds gather".  He also thinks that when the UK leaves the EU there will be a financial down-turn[18].  He's likely correct on that - the markets undoubtedly will be a problem for a few months when we Vote Leave on 23 June 2016.  The Federal Reserve in the UK left interest rates unchanged, as did the UK.

 

The country is going into a recession.  China is in serious trouble, with the worst export data for 25 years[19].

 

UK inflation is low having recently been negative.  Oil has collapsed.  Bank shares had a massive drop because of fears that they could not pay bond payments for the debt bonds issued in 2007 to 2010.  The Bank of England knows that the data is not good.

 

The recession is nearly here.  I think that is part of the reason for Cameron calling the referendum in June 2016 rather than trying to work on his Project Fear throughout 2016 and 2017.  I think the economic will collapse by August 2016.  Property prices are the first things to go, and UK property prices have stalled.

 

We should be glad that we have the tories in office because if we had to do this again with Labour we would fold as a country - bankruptcy would be in our very near future.

 

Remember, no-one else has said this yet - you read it here first.

 

 

References

 

[1] Page 8 Bank of England Money and Credit: December 2014

http://www.bankofengland.co.uk/statistics/documents/mc/2014/dec/moneyandcredit.pdf

 

[2] Page 6 Bank of England "Trends in lending"

http://www.bankofengland.co.uk/publications/Documents/other/monetary/trendsjanuary15.pdf

 

[3] Page 3: Bank of England Credit Conditions Survey

Survey results | 2014 Q4

http://www.bankofengland.co.uk/publications/Documents/other/monetary/ccs/creditconditionssurvey150106.pdf

 

[4] Radio Free Asia "China Warned on Debts, Default." 3 August 2015

"Mountains of corporate debt are casting a shadow over China's economy after a series of shocks in the stock market during the past month."

http://www.rfa.org/english/commentaries/energy_watch/china-warned-on-debts-defaults-08032015104526.html

 

[5] Bloomberg 1 June 2015 "With Massive Defaults Looming, Chinese Banks Aren't Keen to Loan Local Firms Cash"

http://www.bloomberg.com/news/articles/2015-05-31/bad-debts-prompt-china-s-banks-to-balk-at-loan-backed-bond-call

 

[6] Bloomberg  2 June 2015 "China Debt Markets Show Stress Amid Duck Supplier's Default"

http://www.bloomberg.com/news/articles/2015-06-02/china-debt-markets-show-stress-as-duck-producer-defaults-on-loan

 

[7] Business Insider 11 Nove,ber 20015 "Chinese companies are starting to default on their debt"

http://uk.businessinsider.com/chinese-shanshui-cement-corporate-default-2015-11

 

[8] Guardian 5 March 2016 "China cuts 2016 growth target amid continued economy concerns"

http://www.theguardian.com/business/2016/mar/05/china-cuts-2016-growth-target-amid-continued-economy-concerns

 

[9] 7 October 2015 Guardian "Risk of global financial crash has increased, warns IMF"

http://www.theguardian.com/business/2015/oct/07/risk-global-financial-crash-increased-imf-emerging-economies-eurozone-stability-report

 

[10] The Guardian "IMF warns of new financial crisis if interest rates rise"

http://www.theguardian.com/business/2015/sep/29/imf-warns-new-financial-crisis-interest-rates-rise

 

[11] BBC News 25 February 2016 "IMF warns the global economy is 'highly vulnerable'"

http://www.bbc.co.uk/news/business-35656895

 

[12] ECB Press Release 10 March 2016 "ECB adds corporate sector purchase programme (CSPP) to the asset purchase programme (APP) and announces changes to APP"

https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310_2.en.html

 

[13] ECB Press Release 10 March 2016 "Monetary policy decisions"

https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310.en.html

 

[14] India Economic Times 5 October 2015 "Here’s how RBI’s cut in interest rate impacts your finances"

http://economictimes.indiatimes.com/wealth/borrow/heres-how-rbis-cut-in-interest-rate-impacts-your-finances/articleshow/49203251.cms

 

[15] Wall Street Journal Blog 1 March 2016 "Why the RBI’s Rajan Now Has Room to Cut Rates"

http://blogs.wsj.com/indiarealtime/2016/03/01/why-the-rbis-rajan-now-has-room-to-cut-rates/

 

[16] BBC News 10 March 2016 "New Zealand cuts interest rates for the fifth time since June"

http://www.bbc.co.uk/news/business-35770370

 

[17] The Telegraph 26/02/2016 "Mark Carney issues stark warning on global growth as storm clouds gather"

http://www.telegraph.co.uk/business/2016/02/25/mark-carney-lays-down-growth-challenge-as-storm-clouds-gather-ov/

 

[18] The Telegraph 8 March 2016 "EU referendum: Mark Carney warns Brexit is biggest risk to Britain's financial stability"

http://www.telegraph.co.uk/news/newstopics/eureferendum/12187164/eu-referendum-mark-carney-priti-patel-suffragettes-brexit-live.html

 

[19] Wall Street Journal 19 January 2016 "China’s Economic Growth in 2015 Is Slowest in 25 Years"

http://www.wsj.com/articles/china-economic-growth-slows-to-6-9-on-year-in-2015-1453169398

 

 

 

This website is  © Kalvin Chapman 2015 & 2016.  This website is owned and operated by Kalvin Chapman, and is promoted by Kalvin Chapman on behalf of UKIP, UKIP Stretford & Urmston and UKIP Manchester

If you wish to use any item (including, but not limited to, video, text or photographs), please contact: press@kalvinchapman.co.uk  Please read the site DISCLAIMER