Saturday, 6 August 2011

There will be No Swift Recovery

I keep trying to bang this home to people, but there will be no quick recovery after the Banking/Debt/Euro Crisis.

Its been three years now and we're still rolling around the precipice, trying to avoid the drop. The world economy has been SERIOUSLY over-valued for almost a decade and the bubble has by no means burst. We HAVE to HAVE a SERIOUS revaluation in the world economy. Its inevitable and the world economy will continue to be a dysfunctional mess without it.

Sad to say only when house prices are at least half of what they are now will I begin to consider the issue of recovery. That's the scale of the revaluation that has to come. It may take another 10 years, but eventually we will get governments that will realise the scale of the problem and actually do something about it. I said three years ago that the current crisis would last a couple of decades and on our present course it looks like I'll be proven right unfortunately.

The recent de-rating of America's credit rating is another slip towards the precipice. It slides and we follow. The lunatics really are in charge of the asylum over there and seem to not have a clue about responsibility to their citizens nor the repercussions of their actions worldwide. Their prevarications over the past week have shown them to be weak and uncertain. Weakness in finance is punished unmercifully and the US is sure to be punished, along with the rest of us.

THE most intelligent thing governments can do right now is to stop throwing money at the problem. Instead borrow the money not to go to banks and bonuses, but to provide a safety net for savers and for those who will lose their jobs. It will cost a fraction of the hundreds of billions we've already committed to the cause which has provided a small halt to the decline. Lets get serious about this: the banks got into this mess on their own and they deserve to fail on their own. Their shareholders may not be happy, but that's life: shares go up and down in value.

It may eventually send a warning shot across the bows of the banking industry to finally become more prudent and start to reduce costs, especially with regard to wages and bonuses.

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