Demand for the old normal

For the last six years the developed world has been suffering from a chronic shortage of demand: demand for goods, demand and services, demand for investment.  The need to deleverage personal, corporate and government debt has meant that there has been massive excess capacity and a huge shortfall in aggregate demand.  This lack of demand has been driving up unemployment and driving down prices.  All this has been complicated by the fact that we in the West are at the zero bound of interest rates this nasty cocktail has been characterised as secular stagnation.  Over the last six years wages in all normal income groups have flat-lined and living standards will now be lower at the end of this economic cycle than they were in 2008 – this is extraordinary, almost unheard of in the developed world.  Or is it?  Thomas Piketty, the French Rock Star Economist (is that an oxymoron as the French have no rock stars?) would have us all believe that we are now returning to a more normal state of affairs, where vast pools of wealth lie idle in the hands of a financial elite and the rest of us jog along at a steady but uninspiring rate.

A French Rock Star??

Crude benefits of falling oil prices

The ending of QE in the US and the fall in the price of oil from over $115 a barrel to under $60 a barrel were the defining economic events of 2014, but their consequences will not be felt until next year.  The ending of QE in the autumn brought to an end the huge expansion of the US Federal Reserve’s balance sheet, since 2008 the Fed has pumped some $2.3tn of “new money” into the world economy which has had a wondrous effect on asset prices in all sorts of weird and wonderful places.  London property prices have boomed, stocks in emerging markets reached new heights and bond prices sky rocketed as yields collapsed – also commodity prices boomed and oil was not left out of the party.  Between 2009 and 2011 oil prices rose from $40 to $125 a barrel, driven by ever increasing demand from emerging markets and $1.9tn of US and UK QE.  Following the boom in commodity prices between 2011 and 2013 prices stabilised at a high level before falling off a cliff in 2014.

The Crude Story

Who's Been Eating My Porridge

Even the Bank of England has now confirmed that the green shoots of recovery are growing strongly and that we have reached escape velocity.  Even inflation is falling towards the Government’s target range of 2%.   Some might describe this as the perfect Goldilocks scenario for our economy– not too hot not to cold! However there is one angry bear that might ruin the breakfast – poor productivity and falling living standards.

It's a Gas, Gas, Gas

It  amuses me that England may be about to enjoy a fracking gas boom just when the Scots are about to vote for independence.  Sadly Scotland is 90% granite - not much shale around north of the border!  Having moaned that we have squandered their oil inheritance they will be pretty peeved if we end up having an energy boom of our own just after they ditch the grand alliance!

Up dated on 11th jan 2013

We now find that the Shetland Islander don't want to play ball either - Alex Salmond could be running short of energy very soon

http://www.telegraph.co.uk/news/uknews/scotland/9794268/SNP-warned-off-outrageous-Shetland-oil-grab.html


The Up Helly A festival in the Shetland Islands to show off their Scandinavian heritage