The Chancellor of the Exchequer gave his Autumn Statement yesterday, involving much fiscal tightening as the economic situation has deteriorated since the budget in March. His statement was informed by the November report of the Office for Budget Responsibility, (OBR), which is basically pretty grim reading as far as I can tell (I’ve not had the time to read it all but have skimmed it pretty deeply).

It was reported in much of the media that the OBR has cut back its growth forecasts for the economy, and indeed they have, but the worst of it doesn’t seem to have appeared in many places, although I saw it online in a Daily Telegraph blog by Jeremy Warner. Because of the Depression, the economy will be 13% smaller by 2016 than was expected in 2008, and “not much bigger than it was in 2007.” Public sector job losses are expected to double up to 710,000. Disposable incomes will shrink some 2.3% this year and shrink again next year, at least. World output fell 1% in September. And most telling of all, standards of living are not expected to rise for up to 14 years! I suppose that means up to 2025. That sounds like a Great Depression to me!

Unfortunately, I couldn’t find this last prediction in the report, but I guess I can take his word for it, for now. It seems plausable given the depth of the Depression around here.

But… in any case, there’s more. In their opening paragraphs, the OBR say,

We stress-test our fiscal forecasts and judgements using sensitivity and scenario analysis. The central economic and fiscal forecasts assume that the euro area finds a way through its current crisis, but a more disorderly outcome is clearly a significant downside risk. This risk cannot be quantified in a meaningful way, as there are numerous different ways in which such an outcome could unfold. Suffice to say, the probability of an outcome much worse than our central forecast is greater than the probability of an outcome much better than our central forecast.

In other words, if the Euro crisis deepens, so does our economic gloom. And the odds are in favour of this happening.

So what is the government, and indeed what are foreign governments talking about doing to fix all this? Well, who knows? It’s all hot air anyway since nobody knows the answers to economic problems. In general they are talking about how quickly they can return the economy to “growth". Our economy is forecast (now) to grow by 0.7% next year (GDP, 2012). As an aside, remember that inflation is around 5% so really that “growth” is minus 4.3%. So, let’s talk about real growth for a minute…

Achieving real growth is probably the wrong target to be aiming at, in my thinking. By the time this forecast reaches its end-game, in 2016-2017, we will be in a position to know with reasonable certainty whether the world has reached the peak oil point: that is, whether in fact we are starting to run out of oil, noticeably, because production can no longer be increased and will be beginning a long-term decline.

This, and the global warming problem, point the finger firmly towards a different target. We should be trying, not to grow, but to develop sustainable economies. Our standards of living can still improve without growth. Improvements in technology can achieve this, and so can improvements in government, indeed. Economic growth is a shibboleth that is destroying the world we depend upon and it is not necessary. It is also something of an illusion as our constantly depreciating fiat currencies confuse the issue of when we have growth and when we have inflation anyway, and the system encourages decidedly unsustainable debt bubbles as we must all surely realise by now.

We are semi-blissfully going about our daily business thinking that maybe the ‘Credit Crunch’ wasn’t so bad after all… a little hiccup maybe, but not so bad. But, actually, there are a lot of problems lurking, not least of which is the massive debt both governments and individuals around the world are contending with.

The problem with debt, basically, is that it needs to be paid back, or, it is necessary to default on it. Either solution messes up the economy. Either solution messes up your and my finances. If we divert funds to paying it back, that money isn’t being spent on productive capital, or even on goods. It is money down the drain. If we default, well, our creditors have money shortages instead. Either way, we all lose.

Economies historically deal with huge national debts in one of two main ways: economic recession (or its extreme version, depression/panic), or inflation (or its extreme version, hyperinflation). Recession sees prices falling, jobs getting lost as businesses can’t make a profit or jobless consumers can’t consume, and so on. Inflation sees prices rising rapidly and consumers not being able to keep up, and, after a time, jobs getting lost as businesses can’t make a profit because they can’t afford the raw materials or customers can’t afford the high prices… Depression and hyperinflation are extreme versions of these and can be quite terrible.

After the Credit Crunch (caused entirely by slack regulation of the financial markets by governments around the world, encouraged by free-market economic theories (not that the alternatives work so well either)), governments had basically two choices: stand back and watch the economies of the world slump into depression, or print money (sorry, euphemism of the day: “quantitative easing") to try and cancel out the collapsing money supply as shares and banks tumbled. Well, they chose the latter and printed money (or, really, sold treasury bills and reduced interest rates - effectively the same). In the UK they only did this enough to cancel out about half of the slump, however. That is one reason why our economy isn’t recovering much yet the recession hasn’t been so intense either (on the surface). Nevertheless, this amounts to a huge debt which is going to have to be paid or defaulted on. In the US they’ve gone further and the outcome is much the same so far. This video suggests the outcome is going to be hyperinflation. The video makers have their own political free-market axe to grind (and as I mentioned free-market theories led us into this mess in part), but the evidence that the economic ramifications of this mess are still working out seems pretty good. Oh, and if, unlike me unfortunately, you happen to have some spare cash, it might be worth investing in silver, apparently…

It seems Spring is making a proper appearance at last, albeit only for a few days perhaps. Anyway, I went out and took some photos in a nearby bluebell woods - you can see the pics via my Image London blog.

The credit crunch is all very well - indeed, I’ve been having my very own credit crunch for most of my life it seems - but in some parts of the world things are, of course, much worse than here. According to Macrohistory, a very good history site, the news for April 9th is:

Back in 2003 I wrote an article about the coming Great Depression. Well, the current “sub-prime” banking crisis certainly fits the pattern of a financial bubble finally bursting.

Basically, a wunch of bankers have been lending money to people such as myself who can’t afford it, and now they’re all surprised as it blows up in their faces. The boss of the Northern Rock bank, Britain’s recent casualty, bleated before a parliamentary committee that “nobody could have foreseen this", as if people such as myself haven’t been forecasting this outcome for, literally, decades.

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