Monday 5 March 2007

The coming crisis

Here is a rather good article on the economic situation.

This part was particularly interesting:

Outside the U.S., Britain, so proud of its position at the epicenter of the overblown speculations of world finance, will find its economy in collapse and London house prices dropping by more than half over the next 5 years. Only the Russian mafia, accustomed to stealing their money directly rather than through mere financial manipulation, will remain in London, more or less safe from Vladimir Putin, propping up the West End housing and luxury goods markets to a limited extent by their vulgar excess.
I think this is certainly possible and that's partly why I now live in Edinburgh. Needless to say I've not heard a word about the dangerous state of the world's finances from anyone running for Holyrood...

(UPDATE: More here. Read the comments.)

1 comment:

David Farrer said...

Comments made on previous template:

David Farrer
The world economy is growing at 5% & there appears to be no technological reason why this cannot continue. 
That's correct. 
Unfortunately, the fiat monetary system encourages mal-investments that wouldn't otherwise be undertaken. Every so often, the financial system catches up with the unsound investments and they get liquidated. 
Under a sound monetary system growth would be stable - if the politicians don't mess things up in other ways.

8 March 2007, 20:02:58 GMT
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Neil Craig
The world economy is growing at 5% & there appears to be no technological reason why this cannot continue. Ultimately wealth isn't paper or computer bank records it issomebody making things. 
Thus any "crash" will not be a world crash but destroy only those who live in houses of cards. 
Talking of houses - their price depends overwhelmingly on government regulation preventing the laws of supply & demand working. House prices should be falling because they could be built so much more cheaply. This would mean a massive paper loss for a lot of people but wouldn't destroy any real wealth. Ultimately it would encourage people to invest in things that actually create wealth. 
If 5% is world average growth then countries with 1.5% (ie Scotland) are in a comparative recession & have been for a century. Its just that politicos are still able to say "you never had it so good" so there is little incentive to improve.

8 March 2007, 17:36:08 GMT
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The global economy is theoretically only ever a couple of steps away from catastrophe. Usually, one seemingly insignificant event can snowball into an enormous crash. 
The corpulent float of in 2000 precipitated the Tech-Media-Telco lead bear market of the new century, which was compounded by the Microsoft prosecutions a couple of weeks later. 
This time I believe it will occur if or when the US attacks Iran. By opening a new front in its currency protection war the US dollar will be deflated to an even greater degree than the 40% decline it has endured since 2000.  
Of course, if it fails to attack and Iran continues unabated with its plan to set up a euro-denominated oil bourse then it will have a similar effect as Japan, China and Europe switch their reserves out of dollars and into euros. Cue massive US devaluation, huge Eurozone re-evaluation and a credit crunch to end them all as the US would have to maintain higher rates to give its currency even a modicum of support. 
I witnessed at close quarters the markets' runs on the ERM member currencies in the early 1990s. Until that point it was felt that economies such as the UK were insulated from the attacks of hedge funds by their sheer size. Kenneth Clarke said afterwards that he found the power of the markets on Black Tuesday "staggering, overwhelming and quite terrifying.". 
When the dollar is climactically attacked, more billionaires will be created in a single week than currently exist. They will be made rich by taxpayers who will never trust central bankers again.

8 March 2007, 05:41:46 GMT
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Very interesting items indeed.  
The reason for lack of comment is straightforward - Scottish politicians, are, as a rule, either economic ideologues (Forsyth, Sheridan) or economic ignoramuses (McConnell). 
Even although I love the smell of recession in the morning, it's almost laughable to see Martin Hutchison introducing the spectre of Smoot-Hawley. What's coming, what 'globalisation' will have wrought, will be far, far worse than any so-called hardship for which that act was responsible.

7 March 2007, 07:02:39 GMT