Two economy bears, one a member of the UK Monetary Policy Committee (MPC) and the other who is now known as ‘Dr Doom’ have given their verdicts over the last two days in the Daily Telegraph.

Today Adam Posen, an American who was recruited to the MPC partly because of his expertise on Japan, says that the UK’s current position is much like Japan’s was before their lost decade but without the wriggle room.

On the day that the FTSE drops over 100 points on opening, he points to three main obstacles:

  • The UK will have to sell most of its debt abroad to those who will drop it like a ton of hot bricks of they begin to doubt Britain’s future.
  • There is also the need to boost a manufacturing sector that doesn’t have a willing worldwide customer base that the Japanese had.
  • The continued banking sector problems will make raising money for business very difficult.

What Posen says is that the UK will be a ‘remake’ of the Japanese deflation episode. But he goes on to say that this remake could be worse than the original.

This comes after Nouriel Roubini (Dr Doom) who is now feted as some sort of economic god because he foresaw the bursting of the US housing bubble, who yesterday said that the present crisis is not yet over. According to him we are just in the next phase of the downturn.

He points out that all we have done is shift the debt from the private sector into the public sphere, but it still needs to be repaid. He also says that Greece is just the first of many countries to come under the cosh.

In the worst vase Greece will be forced to restructure its obligations, leave the Eurozone followed by Spain and Portugal with the eventual breakdown of the Euro.

Although the Office for National Statistics last week put the Retail Prices Index at an 18 year high of 5.3% there are more economists who fear a double dip to the recession. The credit strategist of RBS, Andrew Roberts, said the global economy could be on the way for Great Depression II, whilst Albert Edwards of Societe Generale foresees years of deflation then hyperinflation.

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