The clock ticks on economic collapse

This is a bit of a doomsday scenario in todays Telegraph even in these days of growing economic gloom and increasing social problems.

Is it tantamount to scaremongering, a "worst-case scenario", or is this a realistic possibility ? (note the silver lining right at the end of the article)...........

The clock ticks on economic collapse (Filed: 22/10/2005)

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$2&sSheet=/money/2005/10/22/ixcoms.html A pandemic is a case of 'when, not if', says the WHO, and global recession could follow. Ambrose Evans-Pritchard reports.

If we are to believe the World Health Organisation and a formidable cast of top scientists, a lethal flu pandemic is now inevitable - this year, or soon - as Asia's H5N1 bird flu virus mutates into a human strain.

The tipping point may even have occurred this week when a father in Thailand infected his seven-year-old child, though test results are so far unclear. A suspected family cluster in Indonesia proved to be a false alarm.

A full pandemic - the 11th in 300 years - will not bring the global economy to a juddering halt. Not even the Black Death could do that, although it did smash feudalism and usher in the modern wage economy. But a pandemic will be a major market "event".

Holland's ING bank warned in a report yesterday that "large swathes of economic activity could simply cease. A realistic scenario might involve GDP declines of tens of percent. We believe that fear of infection leading to drastically altered behaviour would result in the greatest economic damage.

"Investors would likely shun equities and corporate bonds in preference for government bonds and cash. Although economic activity would slump, inflation might well soar due to the interruption of supplies and loss of production."

We had a trial run of sorts in 2003 with Sars, albeit on a tiny scale by comparison. At the height of the epidemic, Hong Kong's Mandarin Oriental Hotel was down to one solitary paying guest.

Cathay Pacific Airways cancelled 42pc of its regional flights, knocking a third off its share price. British Airways stock was hit even harder for a few weeks.

Mobile telephone sales tumbled 40pc in Canton. But the Chinese car market flourished as travellers shunned public transport. Hong Kong tipped into recession, but bounced back quickly.

The final bill for Sars was about $30billion (£17billion), caused almost entirely by human emotion rather than the disease itself, which killed just 813 worldwide - less than the number killed every day from ordinary flu.

The WHO's chief, Lee Jong-wook, has been sounding the alarm for two years, warning that the H5N1 avian virus has now broken out in so many countries and infected so many migratory birds that mutation is almost a mathematical certainty.

"Will there be a human flu pandemic? The short answer is yes, there will be," he said this week, wearily.

The only question is whether it strikes fast, or can be contained long enough in a few places to give scientists the extra crucial weeks to find, produce and deploy a vaccine on a mass scale. In the mild pandemics of 1957 and 1968, the vaccines arrived too late to have an impact.

Hungary announced yesterday that its scientists had produced a human vaccine for H5N1, and would need up to eight weeks to produce a vaccine for the mutant strain, once identified.

The contingency plans already in place in some 30 countries call for border closures and sweeping flight bans. President George Bush even let slip this month that he would dispatch the US military to enforce quarantines.

"This is going to be very bad for the airline industry," said Mike Powell, an airline analyst at Dresdner Kleinwort Wasserstein.

"It'll hit short-haul as well as long-haul because people won't be allowed to travel. It's why we've already started to see pressure on these stocks over the last week," he said.

The Amex airline index dropped 5.76pc on Thursday as flu rumours swirled in Asia.

Michael Lewis, head of commodities research at Deutsche Bank, said a pandemic would slash demand for jet fuel, with rapid knock-on effects through the whole energy sector. The prices of copper, aluminium and other industrial metals tied to the business cycle would slide, at least for a while.

"This would be an extreme negative shock to the world economy. You'd see equity markets unravelling everywhere as people began to think through the implications. The dollar might collapse if Asians decided to keep their money at home. Gold could do well," he said.

Canada's Conference Board said in a report this week that a major pandemic would "throw the world into a sudden and possibly dramatic global recession."

In Washington, the US government is hurriedly upgrading its estimate of the likely damage, concluding that a full outbreak could kill 1.9m Americans and cost the US economy $450billion.

The equivalent "worst case" scenario from Britain's Department of Health puts the upper limit at 600,000 deaths, with 50,000 being a more likely number.

A leaked 381-page report from the US health authorities, the Pandemic Influenza Strategic Plan, said the virus could spread to America within "a few months or even weeks" once it had mutated, leading to food and fuel shortages and power blackouts.

Schools would be shut, grounding many working parents. A quarter of the workforce would refuse to go to work, and there might be riots at vaccination centres, it concluded.

The report described what would happen in a hypothetical April outbreak far away - in an Asian village perhaps. The first infected passengers would start arriving at US airports by June, and foci would emerge across America by July. The pandemic would then rage into the autumn before burning itself out by January.

So far, the H5N1 avian virus has infected 118 people in Asia, killing

  1. It poses almost no risk as such to Western societies, where few people live cheek by jowl with birds.

Although infected fowl has already reached western Russia and the Balkans, the migratory paths make it unlikely that any will fly into Britain this winter. This is small comfort.

The threat will come when one or more person - or pig - anywhere in the world who is infected with a normal human flu virus comes into contact with a bird carrying H5N1, setting off a lethal and highly contagious mutant virus.

This is what seems to have occurred with the "Spanish Flu" of 1918, which was closely related to H5N1 in genetic structure.

Not Spanish at all, it began on a farm in Kansas, going on to infect a fifth of the world's population and killing an estimated 50m people. Unlike normal flu, it struck hard at those aged 20 to 40.

Dr Olusoji Adeyi, the World Bank's Public Health Co-ordinator, said most people still did not seem to understand the threat. "It's not a question of if, it's a question of when this is going to happen, how rapidly it will happen and how devastating it might be," he said.

"Health care workers might be dying in large numbers, therefore the health services as we know them might cease to function. Supply and distribution chains might break down.

"Even if one country were able to hunker down and immunise all its residents effectively, what about the knock-on effect of the potential global economic meltdown?

"We don't know exactly how long it might take. It could be anywhere from 12 to 24 months."

The world's big central banks have been able to keep the global economy humming along despite the doubling of oil prices over the last two years, but they have done so by holding interest rates at or below the rate of inflation for an extended period - stretching the world's imbalances ever further.

Paul Volcker, the former chairman of the US Federal Reserve, warns that this is a hazardous game. In congressional testimony this year, he said the global economy was skating on "thin ice" as the US current account deficit tops 6pc of GDP and overall US debt levels reach historic highs above 280pc of GDP.

The hammer blow of a flu pandemic may well break that ice. Once it happens, there will be bargains galore for cool investors willing to bet - at the moment of deepest despair - that human ingenuity will quickly put the world economy back on its feet.

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Reply to
Crowley
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And how will it affect house prices?

Reply to
Alex

On 22 Oct 2005 02:10:12 -0700, "Crowley" mysteriously appeared thru the usenet mist to inform us thus...

OMG. The lengths Bush/Blair will go to, to introduce martial law and keep themselves in office.

Reply to
hummingbird

They're going down regardless ;-)

Reply to
Crowley

"Crowley" wrote

Not according to recent data!

Reply to
Tim

I can't help but feel that if Gordon the Moron got bird flu it might just be the best news the UK economy has had in years

Reply to
allan tracy

Apart from a couple of upward blips, inc. a recent one, they've been dropping for 14 months according to most reports Hometrack, Rightmove, Nationwide etc and sales volumes are between 30 to 50% down year on year. (The ODPM figures due out on 8th Nov should be interesting.)

I only have to look in the windows of local estate agents and in the property pages of the local rag to see that very little is selling and there are increasing numbers of price reductions of between 5 and 15%.

Booms and busts usually start in the south and, to a large extent, that seems to be whats happening again this time but don't take my word for it, even the Blair Broadcasting Corp is starting to admit it.....

"......Hertfordshire had the biggest property price fall, being down by

6%. Surrey, Somerset, Northamptonshire, Warwickshire and Dorset, all saw prices go down by 5%.

Halifax chief economist Martin Ellis said: "These falls need to be viewed in the context of the substantial price rises recorded in these parts of the country during the last few years."

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Reply to
Crowley

Many of the experts have been predicting 'gentle slowdown' and no crash.

Trouble is, the housing market has never before experienced a 'gentle slowdown', it would be a first.

Personally, I think once you hear people saying, "You can't go wrong and you will never loose on bricks and mortar", as we did last year, this is a sure sign we are in trouble.

The housing market needs to mature to reflect the low inflation economy we now live in. It's mindset is still in the seventies when you could safely borrow ridiculous amounts and then watch inflation eat into your debt as you received 20% pay rises every year.

These days have gone, probably forever.

The reality is this, inflation is increasing upwards thanks to oil price, steel price etc but this time will be controlled by further interest rate hikes.

GB has also f****d economic growth by over taxing so the UK can't afford the current levels of public spending, therefore more borrowing and inevitable tax increases (big ones).

Now unemployment is also increasing and with economic decline many of those foreign workers will be returning home or moving on elsewhere, so bang goes buy to let. Already, estate agents have 50% more housing stock on their books than just one year ago.

What goes up must come down.

Reply to
allan tracy

In message , allan tracy writes

Feels fairly gentle to me??

You only lose if you sell - if you hold on until they rise again, you dont lose, and that is what "they" mean.

They always have at this point in a housing cycle - but they will be back again in the medium term.

The idea behind increasing interest rates is to reduce spending - but this has already happened, so why make it worse.

Fear of tax increases is also depressing spending, so even less need to increase interest rates.

Nothing new there then - in a normal market I had 120 houses on my books. In the boom years of 2000-2004 I had around 40, at any one time. When we return to a normal market, you would therefore expect agents to have around 3 times as many properties in stock as they had a year ago. What's happening is a return to normality - which is not a bad thing, is it?

And with houses, what goes down, generally comes back up.

Reply to
Richard Faulkner

Don't you just love the level of positive spin that only an estate agent seems capable of.

Good luck to you anyway.

I would certainly come to you to sell my house.

Reply to
allan tracy

Speaking from the Provinces (Leeds) it has. By and large we get slow ups, and stagnations rather than downs. (There will be big exceptions to this).

I remember those days. But I worked for the BBC, the Union rag said "Pay Rise = 15% !!" but my grade only got 9.6% when inflation was 20%?

So I said "Fukkit"

However today we don't have low inflation, the numbers are bezzled. The figures are distorted by China's ever increasing takeover of the worlds market for manufactured goods. Last year it was plastic Hifi's and DVD players, this year it's clothing, hence the big Hoo-Haa with the EU. The £20.00 DVD players figure in the inflation figures. For instance, 4 years ago I bought a low cost (The cheapest) DVD player as a Christmas presnet for my daughter from Richer Sounds for £200 (It's done a great job BTW), but now they are £20.00 or less.

That one-off goes a long way to balancing off a lot of increases in gas, council tax, electricity or water charges over those years.

Of course housing costs don't figure in it anyway, and sooner or later there'll come a year when there's no new merchandise for the Chinese to offer us because they've already taken it all.

What will happen to the year on year figures then?

Anything could happen.

The chances are the next big change will be a chaotic one. IE like a Tsunami, nobody can predict it and it could be very large.

I think he's approaching the limit of how much he can tax the productive sector of the economy.

I may be wrong, but there *must be* an ultimate limit, and for selected sectors of the economy he's already there. He tried to reduce my allowances by £4,400 for a years private use of a 4 year old company car (effectively zero miles BTW) that was already 4 years old and worth less than that amount in cash in total. Tax wise it would have been better if the firm had simply given it to me as a B.I.K.

The result was that Le Chetalier's principle came into play and I reacted against the constraint and rejected (Politely) the company car, I now run a private car and make a profit out of claiming business miles, and the erstwhile company car is sitting in the yard on 4 flat tyres (unsaleable).

However I'm going to our Dutch office in Utrecht next month, in my own car, on a per mile basis. I'll route through France to get the cheapest diesel, and the most miles. They can't touch you for it ! Keep all your bus tickets.

(TM. K. Dodd) ;-))

However, this is totally wrong, the company should not be put into the position of changing it's basic modus operandi to save it's employees from a basically "Wednesbury unreasonable" income tax charge.

Could be, but we're not at that stage yet, by a long chalk.

It's risky now, suppose it always was, as it seems were student lets.

DG

Reply to
Derek ^

In message , allan tracy writes

I dont see it as spin. The spin is what those who dont understand the market propagate.

Thank you

No you wont - I'm not an estate agent anymore...... I'm semi retired as a landlord. Having understood how the market works, I bought, held and sold at the right times. Now is a time for us to hold, even if it means funding a few loans where the rent doesnt cover the payments.

As I said - if you dont sell, you havent lost anything.

Reply to
Richard Faulkner

This doesn't make sense.

Not being able to afford public spending is a sign of under-taxing.

Reply to
Ben Blaney

I think that's about as wise as saying during the 70's that we'd never see inflation below 5% again. I'm sure inflation will hit double digits again at the peak of the next credit cycle.

FoFP

Reply to
M Holmes

How much *are* tulip bulbs going for these days? I bet those holding on will get their money back real soon now...

FoFP

Reply to
M Holmes

Or too much public spending.

Reply to
Crowley

The black death had a bad affect on house prices but that killed a third of the population. If the Chief Medical Officer's prediction of 750,000 deaths comes true then you could expect some downward pressure - although in many cases it will just be one household member dying so effects might be limited.

The biggest problem will be people (including health workers) staying away from work for long periods because they are afraid of catching the virus especially after all the media hype. A relativel benign pandemic could have a huge effect.

Just think, 750,000 people would be like any medium sized department suffering one death. Although some of the places I've worked you could take out half the staff (a management technique not used since the days of Uncle Joe) and shoot them and productivity would actually go up.

Reply to
davidof

According to this data, released yesterday, they are.......

"House prices fall for 16th month By Steve Johnson. FT.com Published: October 24 2005 03:00

House prices fell for the 16th month in a row in October according to Hometrack, the property website. The average house price slipped 0.1 per cent to £160,700, compared with a peak of £167,700 in June 2004. Prices have now fallen by 3.5 per cent in the past 12 months....."

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Reply to
Crowley

There are an awful lot of single-person households, though.

Also, if the disease is seriously contagious, you would expect whole households to be wiped out if one member gets it.

Reply to
Ronald Raygun

According to this data, released yesterday, they are.......

"House prices fall for 16th month By Steve Johnson. FT.com Published: October 24 2005 03:00

House prices fell for the 16th month in a row in October according to Hometrack, the property website. The average house price slipped 0.1 per cent to 160,700, compared with a peak of 167,700 in June 2004. Prices have now fallen by 3.5 per cent in the past 12 months....."

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sounds like a soft landing rather than a crash then :-)

Reply to
Tumbleweed

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