Theresa May (the former Prime Minister) once said “there isn’t a magic money tree that we can shake that suddenly provides for everything people want”. We all know that the country is in a debt crisis we only have to look around to see the ravages of inflation and the pressures on household spending.
In the same way, a Prussian diplomat once said “when America sneezes, the world catches a cold”. So, will the UK get a bad case of influenza as a result of the current state of the American economy?
The central banks in both the UK and the US have worked very hard since the financial crisis to ensure their respective economies stay out of intensive care. Their solution was creating cheap debt which ultimately has had repercussions leading up to this current debt crisis, hence the magic money tree. With any vaccine, you usually administer a small amount of the pathogen, perhaps the magic money tree was shaken too hard such that there was too much cheap debt which lead to more borrowing and ultimately inflationary pressures.
In the US, the jobs market is still strong but the undercurrents of a slowdown in consumer spending and increase in credit card debt are starting to become more pronounced. Are these an indicator that the US will be admitted as a patient suffering from pre-recession symptoms? The last time the US suffered from what was called ‘the Great Recession’ (because that recession lasted from December 2007 to June 2009) was clearly some time ago, so do current conditions mean the recurrence of a new recession? The problem with this diagnosis is that it has been put forward by economists for some time and there have been no signs of the US economy faltering though you should bear in mind that whenever someone’s not sure about a diagnosis they get a second opinion and the New York Fed has apparently predicted that there is a 62% chance of a US recession in the next 12 months which apparently is the highest for the last 40 years. You should also bear in mind that there is a 38% chance of no recession and the thing about economics is that no one ever really knows. What is certain is that these are interesting economic turns to be navigating in the business sector.
