There will be a lot of new millionaires made this year
They will be the people who choose exactly the right moment
to start spending money, to expand existing businesses and to start new ones, and
to start buying property and shares again instead of selling them.
The difficulty – and this is where these people really will
earn their money – is selecting precisely the right moment.
Reading the signs takes particular skill, because the signs
are so contradictory. The markets are improving, there is little talk now of a
banking crash, and economists say the worst of the recession could be over this
year – but at the same time, the list of business failures and job losses gets
grimmer by the day, especially since it includes more and more names which most
people thought were recession-proof.
Every bit of good news is followed by some bad news – and
The key to making sense of all this is to understand that we
are dealing not with one economic crisis but with three. Although the three
impact on each other, each has its own causes and effects – and, most importantly,
its own timescale.
1 The Banking Crash. This is the crisis of
confidence in the banking sector that threatened to destroy liquidity last
year. The coming of the long overdue recession – see below – was only the spark
that ignited the huge pile of dynamite that had been built up over many years
by greedy bankers adopting short-sighted lending policies. The panic measures
taken last autumn to prevent a total collapse of the financial system were
flawed and crude but, credit where credit is due, no pun intended, they
stabilised the situation: the patient is still very sick but, for the moment at
least, he is out of immediate danger.
2 The Actual Recession. The official
definition of a recession is two successive quarters of “negative growth” – what
everyone who is not an official would call “contraction”. Whatever idiot
politicians might say, the economy is cyclical. A slowdown was long overdue but
was delayed – and made worse – by governments in the USA and the UK borrowing in
order to spend. Our podcasts
have always predicted recession would come – but there is no reason why it
should not pass fairly quickly. Recession, in the technical sense, ought to
pass soon, but...
Hangover. Even after the recession ends according to the official
definition, the practical consequences will be with us for a long time to come.
Experience shows that the worst insolvencies and job losses often come after
the technical end of the recession, because most companies fight to the end,
even after they have ceased to be viable. Many of these businesses and jobs are
gone for good – at least in their old locations. Countries like the USA and the
UK face additional long-term problems because their governments were panicked
into running up huge deficits to fund ill-considered short-term “stimulus”
packages. These did little good, even in the short-term, especially since the
worst of the banking crisis was over by then, but the money must still be found
to pay for them. At best, recovery will be a long, slow, painful process.
So there are three key recovery points: one might have
passed last year, one might be passed late this year or early next year, but
the third may be many years in the future.