The collapse has started!

A few minutes ago, the latest figures on economic growth were released from the office for national statistics. Exactly on cue from my earlier predictions, the slide has begun. In the last three months of 2010 the economy contracted -0.5%. If this repeats itself in the current quarter we are back in an official recession (defined by two quarters of negative growth). The -0.5% quarter figure works out at roughly 2% over the course of the year. The petering off of the soaring oil price was last week a signal that we have again breached supply capacity limits. We have hit the next bump on the plateau of oil production. Expect the economy to undergo a strong recession, which if we recover from will resume itself once commodity prices soar again. Each time this cycle repeats the price threshold for collapse will become lower, as demand rises and supply contracts.

The BBC reports that the -0.5% figure was a shock. It certainly was to all the mainstream pundits and politicians who are clueless when it comes to the limits to growth. The worry is now that they have exhausted the monetary capacity in the economy - interest rates are still very low and inflation is high. The government will not be able to solve its deficit problems simply by cutting if this results in economic contraction, or if the economy contracts irrespective of the austerity, because tax receipts fall off. There is very little the government can now do to protect the economy from the inevitable downturn, and the fools in the city should get away from their computers are start learning about the real world. No matter how much money and entrepreneurship you can generate, these only facilitate resource extraction, but the evidence suggests that resource extraction is now being limited by oil supply constraints, which feed through to other commodities, such as food which is grown using oil, and metals which are extracted and transported using oil. I would suggest that the sudden downturn in the economy has been sparked by the sudden rise in inflation, which has reduced the purchasing power of money, and thus constrained unit consumption. Economic forecasts have been partly based on consumer spending data, but this measures only how much money is spent, not the purchasing power of that money.

I will accelerate my work on the e-book entitled "The Real Crisis" which seeks to make sense of the economic headlines of the last three years, as it seems that if I do not, then people will yet again be left to the unpredictable and foolish whims of the media barons in their understanding of the economy. Yet again, the money masters will fail to see that growth has nothing to do with pieces of paper, but everything to do with the ability to produce things that give them their value. That we can no longer do at an advancing rate. Expect the Labour party to argue for more Keynesian style investment to boost growth by stimulating the much touted "multiplier" effect, where increasing production in one sector of the economy will lead to further investment in others. This only works where firms and individuals are confident about the future performance of their investments, and at the moment they have absolutely no reason to be. What happened to Iceland in 2008, and Japan through the 90s is about to happen to the world. Expect the Coalition to cluelessly plough ahead with their austerity regime - either understanding nothing about why the economy won't bark to the same old tricks - or understanding something but not letting on for fear of damaging confidence in the markets. No politician is going to admit to the end of growth; they would crash the stock markets overnight, but to be honest, that is probably on the way irrespective of what anybody says.

It really doesn't matter if you disagree with my pessimism. I have been right so far on the economy. On oil, on gold, on pretty much everything. So quite frankly, if you disagree, go take a hike. I hope I am wrong. I hope! But to be quite honest, I'm rather looking forward to seeing the looks on the arrogant faces of Osborne and co as their house of cards tumbles into quagmire.