Thursday, February 26, 2009

capital confusion

A quick peruse of this mornings paper and i find capitalism confuses even itself .

The figures confirm that the UK had plunged into recession at the end of last year and with interest rates nearing zero, the Bank of England is moving towards buying assets with newly-created money to try and boost demand.
Both professional services, such as accountants and legal firms, and consumer businesses, such as hotels and restaurants, reported sharp falls in profitability and warned of plans to scale back investments and jobs. The numbers employed also declined at a record rate,
Companies selling to other businesses likewise saw record rates of decline in job numbers and profitability, with worries about the ability to raise funds for expansion.

The CBI's chief economic adviser, Ian McCafferty, said: "Consumers are clearly reining back their discretionary spending - postponing holidays, and spending less on leisure activities and personal care.Similarly, an already deteriorating demand for business services such as advertising, legal advice and temporary office staff has slumped in recent months .Jobs are already being lost at the fastest rate in over 10 years from the whole of the service sector, and firms' expectations suggest conditions will remain depressed for some time to come."

Bruce Stout, manager of Aberdeen Asset Management's £568m Murray International investment trust, said
"Political rhetoric claimed the nation had never been in better shape heading into a downturn - in reality it was the complete opposite Policymakers outwardly delivered assurances whilst internally they panicked. Interest rates were slashed to historic lows whilst simultaneously fiscal pledges and spending rocketed. The effects of such drastic measures have yet to be felt, but given the chronic state of the banking system and the sheer scale of debt outstanding, the UK economy is likely to suffer the worst recession of all G7 countries."

Professor Tim Besley states
"The idea that we can and should use short-term interest rates to quell asset booms or to curb lending practices is intellectually and practically suspect," he adds. "Put another way, all those charged with getting us out of this mess are now having to make it up as they go. And one obvious risk of throwing too many weapons at the credit crunch is that inflation turns negative for too long and we find ourselves in that very uncomfortable downwards spiral experienced by the Japanese throughout their lost decade. "

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