Wednesday, November 30, 2011

Does the economy need a plan B.

Does the economy need a plan B.

For anyone interested in the current economic crisis the Bloomberg app is a must have. 24 coverage of the massive swings in stock markets and bond yields.

It doesn’t matter where you are in the world everywhere you turn is the same.

Today stock markets around the world have risen, but it can only be temporary the crisis has not been resolved.

The unprecedented situation means we are moving at lightening speed from one boom to bust and from crisis to crisis.

The chart below show the falls in the US stock market between 1929 and 1930 as every recovery was cheered it was followed by a further fall.

Despite printing huge sums of money and pumping billions into the worlds financial markets the crisis has not been resolved. The strategists for capitalism are at their wits end in trying to resolve the problem as we head into a double dip recession.

Governments around the world are unable to alter the situation or the direction of travel.

The Greek debt problem will pass from country to country as first Portugal then Ireland and even Italy get dragged into the mess.

European intervention has only delayed the problem by kicking the ball a few months into the future.

The break up of the Euro is inevitable the only question is will it be planned by the leaders in France and Germany or a chaotic collapse brought about by the markets.

The break-up of the Euro will lead to further attempts by countries to protect their currencies. Switzerland recently promised “unlimited fund” to protect it’s manufacturing industry.

The effect of Euro break-up will be felt worldwide.

Recent globalisation has allowed trade to boom but it’s reached its limit.

Austerity measures in country after country will reduce demand and suppress trade making the situation worse.

Its not that people don’t want houses and cars and things the problem is they don’t have the money to pay for them.

Since the 1980’s credit has been used to overcome this problem. But it can’t go on. Debt has to be repaid. With interest. Greek 2yr bonds are trading at melt down levels of interest.

The Tories have hyped up their austerity plans but in reality public spending is actually increasing.

Borrowing more money will only push the crisis back and result in a deeper dip in the economy.

Its not a plan B we need it’s a plan C

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