This was the FTSE a few minutes ago:
I like the long view: it helps comparison.
First things first, markets are down today, heavily, across Europe.
Second, so far this is not like 2008. I am not saying it could not be, but it isn't. There has been no catastrophic event, as yet.
Third, the decline looks much more like 2000: overvaluation is being adjusted for. I predicted it then. I did now. The story is always the same. A wall of money called savings hits the stock market which has no productive use for it and so as a result prices go up without any justification. And so they have to come down. They have some way to go.
Fourth, that they will go down more is obvious when the FT can report this today:
Record low prices for transporting coal, iron ore and other dry bulk commodities by sea have pushed shipping companies into severe financial distress.
The suspension of payments to creditors and big write-offs by publicly listed entities are likely to reflect similar hidden crises at smaller, private operators that own most of the world's vessels for carrying these products.
In 2000 the decline was because of the excesses of the dot.com era: this time the decline is because of global collapse induced by a lack of government spending and investment. Things could have turned ugly in 2002 but didn't. The downturn then came after a high and so spending was turned on. This time the decline is after a period of economic stagnation and no one is, as yet willing to offer the necessary remedy ( People's Quantitative Easing).
So, watch that index slide.
And worry that bank exposure to shipping is not looking good.
PS If you want a really mega-yacht I am told now is the time to buy
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“bank exposure to shipping is not looking good”. And I imagine most of those ships are leased from a bank. Have also heard it said that you can supposedly now rent a container ship for a week for less money than you can a Porsche for the same period.
As a result of this I wonder how many of these ships will be rendered unseaworthy as operators inevitably cut back on maintenance?
Cue more ship losses and huge insurance pay outs at Lloyds??
Or are scuttled?
It happens
The ships then end up in places like this: http://www.dailymail.co.uk/news/article-2324339/Worlds-biggest-ship-graveyard–huge-tankers-cruise-liners-scrapped-shorefront-workers-toil-2-day.html
Another Fritz Lang metropolis vision that shows how our culture rests on the shoulders of a living hell.
Wasn’t that 2000-02 downturn a lesson on Keynesianism?
The UK largely escaped unscathed from that period while other countries – notably the US – experienced a recession precisely because Labour had won its 2nd term and begun its investment round?
Never understood why that period and the lessons from it wasn’t referred to more widely when the 2008 crisis hit.
I am not quite sure I follow your logic
But if you are saying Labour got that one right (but should have backed off by 2005) then I would agree
Ben it was a lesson on Keynesianism on one half of the economic cycle. You can’t trumpet that as a success for Labour without mentioning that they were also running a deficit during the credit boom.
I did
“they were also running a deficit during the credit boom.”
So? This is a problem how exactly? The actual “problem” was a boom in imports.
One of the key pieces of data from the recession was the collapse in the strength of the British Pound. It fell by 20% from an elevated level down to what it was in 1997. There was quite a big impact on the producer price index, but very little impact on the consumer price index and nothing at all on the wages index.
And of course that was because the level of demand was insufficient to sustain the supply. Competition for customers was intense and substitution happened at an accelerated rate.
The policy output from the evidence is clear. Ensure the competitive part of your economy is subject to intense competitive pressure in all markets, fix price contract the non-competitive bit at the prices you want to see — regardless of CPI — and allow firms that are excessively borrowed in foreign currency fast track administration programmes to refinance from the banks in the domestic currency.
The deficit was a bit larger from 2005-07 than it should have been although that’s more obvious now than it was then. Even allowing for that, the public debt to GDP ratio was lower in 2007 than it was when Labour came to power. The government’s claim that reckless spending caused the crisis does not hold up against the numbers.
A stronger case is that Brown was ‘macro-imprudent’ in lightening financial regulation, allowing debt leverage to rise with insecure borrowing funding speculative investments, encouraging buy-to-let, etc. Such measures directly contributed to the financial crisis that then forced up the public defict. Some of that happened automatically as tax revenues fell and unemployment rose, some of it was a deliberate Keynesian response. By sustaining demand bankruptcies and job losses were kept down and by the 2010 election there were signs of recovery.
There was no UK debt crisis in 2010: government borrowing rates never exceeded 4%. Austerity provided a convenient cover for attacking public services and benefits that the Tories always detested. It delayed recovery for years while monetary easing alone could do no more than avert collapse at the cost of increasing financial risks.
For the coming recession, we shall need coordinated fiscal and monetary expansion to sustain demand while controlling public debt.
Agreed
Thanks
I understood that the ‘loosening’ which occurred in early 2000s was because the dot com crash, and continuing share price depression, was wrongly considered to be a major threat, when in fact it had little to do with the real economy.
There may be some truth to that
I would say that it’s more a lesson from Georgism. Second-hand shares are not part of the real economy. Land is. The land value peak was precisely predicted as end 2007 by Fred Harrison in his 2005 Boom Bust, House Prices, Banking and the Depression of 2010. He also predicted the previous peak in The Power in the Land.
QE and low interest rates have fed into land values more aggressively than ever before and everyone is too scared to go into reverse because of the inevitable crash that would follow when most credit is backed by land values. LVT is one of the simplest solutions to the capitalist boom/bust cycle, the permanent housing crisis and increasing inequality.
Carol – the problem now with LVT is how to deal with the genie being out of the bottle. Without a crash in house prices even the LVT introduced will only ensure things don’t get even worse-to get back to rents being no more that 25% of income would take years of slow erosion of house prices by more house building combined with LVT-does your research have any idea of such a time scale?
The only time scale we have considered (in our paper) is how long it would take to capture the full land value for public benefit. Because of the discrepancy between Business Rates and Council Tax and the huge concentration of land value in London and the South East, we envisage that LVT rate convergence would take 20-30 years.
It’s such a shame (and a mystery) that Labour did not have LVT as part of its great post-war policies, having actually enacted it in 1931 (although it was repealed by the tories and never implemented).