America's five-year downturn

 
A trader works on the floor of the New York Stock Exchange as he listens to an announcement by the Fed in New York August

What the central bank of the world's biggest economy, the US, said last night was that there would be no proper recovery in that economy for at least another two years.

That was the meaning of the announcement of the US Federal Reserve that it anticipates holding its official interest rate, the so-called federal funds rate, at exceptionally low levels "at least" through mid-2013.

Those exceptionally low levels are between 0 and quarter % - or as close to zero as it is possible to get.

This is quite remarkable. It is an official recognition that the credit crunch and banking crisis of 2007-8 is likely to still be preventing adequate growth in the US five years later.

And if that's true of the US, it is also likely to be true of the eurozone and the UK.

So although shares in the US and Asia have risen following the announcement from the Fed that it is doing what it can to foster some kind of proper recovery - and presumably UK shares will follow their lead - there is no grounds for euphoria.

Apart from anything else, if the Fed's and the Bank of England's policies of keeping money cheaper than it has ever been hasn't returned the US and UK to better-than-anaemic growth in the past three years, it is questionable whether it will be a sufficient condition for proper recovery in the next two years.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 305.

    296.
    DevilsAdvocate

    "So he is a Banker being paid with Tax Payers cash & he does nowt but post on the BBC to incite disaffection - interesting."

    Why? - because I don't fit your pre-conceptions?

    Do you think I should have an attitude of 'i'm alright jack'? - like the looters demonstrate in the extreme his week?

    You reap what you sow my friend, you reap what you sow....

  • rate this
    0

    Comment number 304.

    It's the debt, stupid.

  • rate this
    0

    Comment number 303.

    It is not just middle class savers who have been robbed i was self employed and the pension i paid for has lost 70% of its value by trusting insurance and pension companies. I now have a heart disease,After a cardiac by pass operation I can not work productively as i have done al of my working life. Is this really my fault???

  • rate this
    0

    Comment number 302.

    I will take 3 years of downturn and 2 years of anemic growth over 5 years of downturn any day. Does anyone really care whether it's deemed "proper" by a BBC journalist or not?

  • rate this
    0

    Comment number 301.

    Could you pease tell me, what would happrn if we all said we are not paying? I understand this is not feasable but what would the realistc outcome be? African states have done it,with no detrimental outcome.???

  • rate this
    0

    Comment number 300.

    The Fed is doing the right thing in signalling ongoing very low base rates as the risk premium on lending being charged by the banks right now is so high. Shame Greenspan in the US and euro-politicians through monetary union in PIGS caused inappropriately low rates in the early naughties when the risk premium was already too low, massively exacerbating all the problems in first place.

  • rate this
    0

    Comment number 299.

    Asian and European/US markets reacted the exact opposite to the Fed's announcement.

    If I was an alien analyzing the world, I'd say that the Asians do not understand English (the language the announcement is in), while Europeans do.

  • rate this
    0

    Comment number 298.

    " ..It is an official recognition that the credit crunch and banking crisis of 2007-8 is likely to still be preventing adequate growth in the US five years later ..."

    Duh ..you think? This is almost as funny as reading economics journos go on about the crash and recession of 2008 as if it is history.

    NEWSFLASH - WE ARE STILL IN IT and we there is a lot more to come.

  • rate this
    0

    Comment number 297.

    291.David
    149.Vladimir Tepes

    "The roots for this financial melt-down were cast in the eighties, when Maggie and Ronie removed the constraints on the banks and stock markets.
    =
    Wrong!! It was Bill Clinton that removed the barrier between retail and wholesale banking, go back to the Guardian blogs!
    =
    Didn't he also introduce the laws that led to Toxic Mortgages?

  • rate this
    0

    Comment number 296.

    195.stennylfc
    I guess WOTW has been banned again?

    He may be vociferous BBC but as in insider in the banks his viewpoint is worth its weight in gold, and like gold getting more valuable as the crisis unfolds.
    =
    So he is a Banker being paid with Tax Payers cash & he does nowt but post on the BBC to incite disaffection - interesting.

  • rate this
    0

    Comment number 295.

    162.United Dreamer
    10 Hours ago
    #125 - numeracy illiteracy is a big problem in society. I thought Vorderman's call for continued education until 18 was a splendidly astute evaluation and address of a big problem in this country.
    =
    You can lead a horse to water but you can't make it drink. I know, I tried making a great many of the nags that are trashing the Northwest lap up education.

  • rate this
    0

    Comment number 294.

    118.John_from_Hendon
    11 Hours ago
    89. apc

    Totally wrong as usual - you are in denial.

    The interest rate regime set by the fools at the Bank of England let you profit from the savings of the prudent mediated via the banking system. You are 'looting' savers and there is an end to it.
    =
    Hmm, but you want to join the Euro so we can benefit from Germany - is that not looting Germany?

  • rate this
    0

    Comment number 293.

    112.stan howard

    cameron says that this rioting has nothing to do with goverment policies & then says these people think they are owed something! do you think that might be jobs, the chance getting a mortgage, uncut benefits, affordable further education etc.
    =
    So far the rioters include a Graphic designer & a Teaching assistant. Pre Uni Education costs nothing, & the idiots value it at that

  • rate this
    0

    Comment number 292.

    86.stan howard
    anyone who thinks the present ecconomic climate and cuts has nothing to do with rioting is mad -
    ==
    or else they listened to the BBC interviews with rioters in Manchester, and elsewhere and agree with Diane Abbot (never thought I'd agree with her!!) this is Recreational Looting.

  • rate this
    0

    Comment number 291.

    149.Vladimir Tepes

    "The roots for this financial melt-down were cast in the eighties, when Maggie and Ronie removed the constraints on the banks and stock markets. The very constraints which were put in place after 1922, to prevent a crash ever happening again."

    Wrong!! It was Bill Clinton that removed the barrier between retail and wholesale banking, go back to the Guardian blogs!

  • rate this
    0

    Comment number 290.

    Easy money at 0 % what could possibly go wrong with that idea ? How about increases in food and fuel prices due to speculation which lead to people having less money to spend on the high street which leads to more job losses and a lower tax take by government sending us even deeper into debt, currency devaluation and eventual default like every other fiat based currency before it.

  • rate this
    0

    Comment number 289.

    288. apc

    re 286. John_from_Hendon

    I was answering Brian's question - not the general one. Spreading risk is generally a good idea, but when the (financial) World collapses it is back to the jungle!

  • rate this
    0

    Comment number 288.

    286. John_from_Hendon

    You have also got to ask the question that if the banks did go down, and millions of savers were affected, who is going to come up with the hundreds of billions of pounds required per FSA gurantees?

    I am not suggesting this is an issue, or cause for concern, but the money has to come from somewhere if the banks collapse again.

  • rate this
    0

    Comment number 287.

    #200

    Yeah, let's have tally sticks. I've got a lathe in the garage and lots of wood ready to turn.

  • rate this
    0

    Comment number 286.

    #283.Brian "I have substantial savings with Santander plus a healthy current account.....Barclays"

    No deposit taker is 'safe' above €100,000 (If your accounts are UK regulated that is £85,000 per FSA registration - check their website.) Keep at, or below, in different institutions (see registrations above) and that is the safest thing to do - but it is really a nuisance to administer!

 

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