Post Olympic recession depression

Yesterday the London 2012 Olympics ended with a spectacular finish, leaving the UK proud to have pulled off such a historical event. Across the globe the world’s media have sung our praises on the success of such a great 16 days.

The London Olympics was just one of a handful of events which the UK, particularly London, has been preparing for, for a good while now. Its completion signifies what I suspect will be a speedy fall back to earth for British citizens who have had party after party to look forward to for many years.

The country has been in full Union Jack waving mode for over a year, with everyone looking forward to the next street party or day off.

First we had the Royal Wedding in April 2011, this was announced late 2010 so the country had been in wedding frenzy from that point. We then had the Diamond Jubilee in May which has been an excuse for major Royal Family tours and events since the beginning of the year and into late 2012.

Then of course came the London 2012 Olympics, a phenomenal effort and impressive show which took years of planning, months of ‘the sky will fall on your heads’ warnings from Boris Johnson, literally weeks’ worth of moans from the majority of London’s City workers and just days of learning how to renegotiate the ‘efficient’ Olympic lanes put in place. But we have enjoyed it and embraced it. I even heard an Australian tourist comment on how much friendlier Londoners seemed compared to his last visit 20 years ago.

That’s how happy we all are. Even Londoners are being nice to tourists.

David Segal of the New York Times wrote, ‘The Games have hit this country like an extra-strength dose of a mood-enhancing drug. The question being asked here now is whether this national euphoria can last or, better yet, lead the country out of its recent economically driven malaise.’

One Guardian writer wrote the Games will ‘mark the end of Britain’s age of decline’.

Mark the end of our age of decline? Will this optimism and party atmosphere really last so long as to get us out of this economic mess?

I suspect not, after the party comes the hangover. Not only do our problems, which we decided to put to one side during the party, remain but they’re now much bigger, demanding our attention and that massive hangover we have won’t help us to deal with them.

I suspect the majority of British citizens know things are bad, but when the first 12 pages of every newspaper is full of Wedding/Jubilee/Olympics news, with each image showing some form of Olympic triumph it’s difficult not to believe that this will all just blow over.

Sir Mervyn King warned us over the weekend that “the games cannot alter the underlying economic situation we face,”. Whilst our confidence grew the closer we got to the Games, it certainly remained unchanged when it came to the belief in the government fixing the economy. Since June 2011 our confidence in the government has dropped dramatically.

This decline is most likely thanks to concerns over household finances, pensions and employment worries. Unemployment stands at 8.1%, whilst it is likely to stay this way for the rest of the year, analysts fear that once employers realise the recovery will not come as speedily as they hope, this number will increase significantly.

Other depressing data which shows we are do not deserve a gold medal for our economic aptitude includes the UK trade balance which is at its lowest since 1997; in the last quarter construction shrank 5.2pc – the largest drop since the first quarter of 2009. Services output contracted 0.1pc.

Savers, the bedrock of our economy, the sensible ones to whom we all should have listened during the boom are those who have been hit the hardest. In 2007 the average savings rate across all products in the UK was 4.12%, today it stands at just 1.09%, seeing a fall in gross annual returns to savers fall to £7.9bn from £29.8bn

Meanwhile the Bank of England has admitted that perhaps their only solution, to implement QE, might not have worked so well. In the nine months to June, £125billion of QE led to a money supply increase of only £30bn.

Looking like Japan

The central bank’s response and the economy’s recovery have prompted parallel’s to be drawn with Japan. There, the central bank also expanded the balance sheet with fear of deflation, yet this failed to increase the money supply or have any desired effects at all. In the UK, 10-year gilt yields are now at a historic low of 1.5% and show no signs of recovery, this may be for similar reasons to Japan where their own 10-year yields have also been knocking around 2% since their crash.

Fear of Japanese stagflation is prompting investors to call for further QE from the BoE, reasons given is that Japan implemented QE too early, so therefore we should carry on printing. Scary stuff and will no likely lead to greater problems if the BoE heeds this advice.

One thing Japan didn’t have was the Eurozone as its largest trading partner. Represented by 17 totally dissimilar economies, the single currency area becomes more fractured and desperate each day. The ECB last week issued stark warnings of the health of Eurozone, for the UK Q2 trade with the single currency area is down 9.9% on last year.

We can do very little to improve the Eurozone crisis, there are enough problems of our own, however it may be worth heeding Nomura’s research which suggested we may look to leaving the EU as we attempt to save our skin.

Passing the baton

The handing over of the Olympic flag from London to Rio de Janeiro was symbolic but not just for the Olympics. It was almost the handing over of economic doom from the UK to Brazil.

In March this year, Brazil overtook the UK as the world’s sixth largest economy. Whilst the UK only grew by 0.8% in 2011, the largest South American country grew by 2.7%. Brazil has seen the biggest growth in the middle-classes, showing their promotion from ‘developing to developed’. Yet in recent months economic reports from Brazil show that whilst there has been a slowdown in the ‘supercharged credit growth’ which was causing some concern.

The economy is not expected to maintain its success over the next two decades and will struggle to keep up with the other BRIC nations. Industrial production only grew by 0.2% last quarter, far less than expected. ‘Piecemeal’ stimulus measures have been taken by the government but little growth has been seen as a result.

From Japan to Brazil, via the Eurozone the world is in economic turmoil. Why some think our comparatively tiny island would suddenly recover thanks to a two week long sports day, I do not know.

People power

What really made the Olympics? Yes, the venues are impressive, yes we saw the most amazing sporting achievements ever, but that wasn’t what everyone’s talking about. What everyone has praised, unfailingly, was the hard work and enthusiasm of the 70,000 volunteers. The Olympics came down to people power.

So whilst we might not have any money left, our leaders may be completely delusional and our central bank clueless, we know that we have an aptitude for pulling together when the world doubts our abilities. Let’s hope that this can ring true in the financial crisis, we won’t be able to fix it, bypass it or speed through it, but we can show the world that we know how to put on a brave face and get through it.

Read the original article over at gold bullion investment site The Real Asset Company.

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