The Grim Reality Of 2009

by Bruce Jackson on 15 January 2009  |  53 comments
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Stock markets are tanking again and the economy stinks. But amidst the gloom, we have spotted Baroness Vadera's green shoots of recovery. There is just one catch.

It has all gone pear-shaped again. World stock markets are in a spin. The recession is biting. The news is bad. The weather is cold. It's all a little too depressing.

But then again, people like me aren't supposed to be saying things like "it's depressing". We aren't supposed to be gloomy, for fear we'll make a bad situation even worse.

If I say the economy is bad, and if I say you should stop spending, and if I say house prices are going to continue to fall, and if I say the recession will last the rest of this year and into the next, and if I say unemployment will peak at over 3 million, and if I say these are the worst economic conditions since the Great Depression, then all the above really will happen.

Oops. Too late. I've said it now.

I guess it could be worse. I could be a Newcastle United fan.

Silly Baroness Vadera

Silly old Baroness Vadera, the Business Minister. According to bbc.co.uk, she recently said she was seeing a "few green shoots" of economic recovery. I'm not sure what green shoots she was referring to. Was it green shoots on the top of the imported organic carrots at her local Sainsbury (LSE: SBRY), Tesco (LSE: TSCO) or Morrisons (LSE: MRW) superstores? In the midst of this cold winter, I can't imagine she'd seen green shoots anywhere much else.

Of course, there aren't any green shoots of economic recovery. Baroness Vadera's `crime' was to not so much that she got it wrong, but that she was seen to be out of touch with ordinary people like you and I - people who've seen their overall wealth cut by 30% or more, people who are fearful for their jobs, if they still have one, and people who are therefore being very cautious and rightly conservative with their money during these highly uncertain times.

Having said that, I can see where Baroness Vadera was coming from. Like all of us, she wants the economy to recover. It's not going to recover whilst people like me say "save, don't spend". Baroness Vadera is certainly not going to say that.

Her job depends on Labour being returned to power, and if we're in a deep recession come election time, that is simply not going to happen. Still, Baroness Vadera is probably financially comfortable, having previously been employed for over 14 years at investment bank UBS. Investment banks used to pay massive bonuses, but not last year, and not this year either.

Spend Up Dear People

So Baroness Vadera talks up the economy. It's the government's job, it's her job, and her job depends on it. Spend up dear people and the economy will be fixed quicker than you can say "I'm buying an investment property now, because interest rates are at record lows, rents are relatively stable and more than cover the mortgage, house prices are cheap, and viewed over a 20 year period, it should provide me with a stonking return."

Here at the Motley Fool, we don't have to worry about politics. We speak the truth. As a reminder, our company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king - without getting their heads lopped off. Right now, the economic truth hurts. The stock market truth hurts. Employment prospects stink. There is no light at the end of the long and dark tunnel.

Throwing Billions At The Problem

World governments are trying their best to stimulate growth. They are committing billions of yuan, yen, euros, dollars and pounds to infrastructure projects across the globe. Central banks are slashing interest rates to levels that are virtually non-existent. Yet it is still not working.

The faster government create jobs, the private sector eliminates them. Even as the base rate falls, banks still won't lend, and still won't drop rates to anywhere near the 1.5% level of base interest rates here in the UK.

And what about VAT? Do you feel flush with cash, and more willing to spend, now VAT is 15% and not 17.5%? I don't think so.

All that said, government action is probably better than no action at all. If they did nothing, who's to say the whole global banking system wouldn't have collapsed, with individuals losing their life savings as banks like HBOS, Northern Rock and Bradford & Bingley failed?

Recession Is Better Than Depression

For all the government's actions, all it can hope for is a milder and shorter recession than otherwise would have been the case. But let's put it in perspective. When I say milder, I mean recession rather than depression. When I say shorter, I mean years rather than close to a decade.

Hope is the operative word. The government hopes. We hope. Things will get better. Green shots will appear. But right here and now, we all need to be realistic. Spending is out. Saving is in. Welcome to the grim reality of 2009.

More: My 5 Stock Market Resolutions For 2009 | Naive 20-Year Olds Make The Best Investors

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> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.