This is no new financial crisis

With UK unemployment and inflation both up this week, and in the light of the recent stock volatility around the world, people have begun to wonder if we’re about to see another financial crisis.

The US credit-rating downgrade hasn’t helped, and there’s no end in sight for the eurozone crisis, so it’s no surprise the markets have been getting nervous and consumer sentiment remains low.

But we’re not about to see another financial crisis. We couldn’t. It would be impossible to have another one, because we’re still in the first one.

The whole thing came down like a house of cards in 2008. The rumblings had been there for a year or two before, but it was 2008 when it all really kicked off.

The US government in particular chucked loads of money at the problem – a move that is the basis of much of today’s partisan divide within American politics.

Whether or not it worked is a moot point – critics say the current high unemployment and low economic growth proves it didn’t, while advocates claim things would have been a whole lot worse without any intervention.

But that’s besides the point. We are where we are, and the fact is that three years ago the government took on much of the debt that was crippling the private sector – particularly from the banks. The debt didn’t disappear, it just changed hands. And now the government is having to extend its debt ceiling once again in order to keep operating. Have a look at www.usdebtclock.org to see the state of the US’s finances.

In Europe, meanwhile, we have the European Central Bank having to step in to bail out the so-called peripheral economies such as Greece and Ireland, as well as guaranting to buy the bonds of larger countries such as Italy and Spain.

So European governments have bailed out the private sector, and now the ECB has bailed out the governments. Who will bail out the ECB when it begins to crack?

Kicking the can down the road is only ever a short-term fix. We eventually catch up with the can and have to kick it down the road a bit further. But the time will come when we mis-kick, fall over and end up on the deck.

The timing of that mis-kick is anyone’s guess. But you’d be a fool to bet against it happening at some point.

posted on 17 August 2011 14:28 byMM24 Adam

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