I have, I think, flogged the tsunami metaphor to death but nevertheless, the economic crisis of 2007/8 has certainly not yet peaked. Dropping packets of dosh from helicopters, or 'quantitative easing' as the experts like to call it, will work to a certain extent in the very short term but as 'the cousins' are finding out, if the government is dropping the dosh into their own laps to spend as they see fit then you can be certain that the vast majority of it will be wasted. Eventually, there will, there must, be blood! All that the British (and American) government has done is to ease us slightly over the first obstacle and I suspect that too many people are beginning to wonder what all the fuss was about. They will find out shortly!
Philip Gibbs, a fund manager in charge of the Jupiter Absolute Returns Fund(*), provides a useful warning via Citywire. Gibbs is one of those dreadful short-sellers, you know, those bottom-feeders who swim apparently lazily around the markets looking for anyone in trouble, at which point they pounce with terrific speed. They sell shares they don't own in companies they think are weak, say, for £1 each, in the expectation that the price will eventually fall and when their buyers demand the shares they can actually buy them at the new lower price, say, 80p, and make a profit. Of course, they have a slight inside edge because as soon as word leaks out that the 'shorters' are after 'ABC plc', their share price tends to drop anyway and thus it becomes a self-fulfilling prophesy. Yes, I know, shockin', shockin', but it has the socialists showering each other in spittle so it's not all bad! And of course, like the scavengers in the natural world they serve a very useful purpose by clearing the environment of detritus.
Anyway, as Citywire reports:
There is a risk of a big crisis for developed markets in a couple of years as the central banks try to wean their economies off life-support, warned leading fund manager Philip Gibbs.
‘The developed economies will have to come to terms with their debt. I think on a view of a few years there is going to be a crisis as a result of developed world indebtedness,’ Gibbs told investors on a conference call.
I think he is absolutely right. The 'Tory-socialists' went as far as their collective nerve would let them and so they have cleared the first hurdle but the next one is higher and harder - inflation. It is impossible to print money at the rate we have done (and the Yanks, as so often before, have done it even bigger and better) without inflation rising. This suits some governments, Obama's is one of them, because first of all it devalues the debt to those evil money-lenders (who get their own back by raising the interest on their loans!) and it is only later that it begins to impinge on voters who perceive that their life-savings, their pensions and even their salaries are melting before their eyes. It is at this point that we shall find out the true metal of our government. If they allow interest rates to rise which will instantly dampen all the growth they had previously watered with new money then we can breathe again because they will be executing one of their prime duties - to protect the currency. If they fail to raise rates - then hold on to your hat because that is probably all you will have left!
‘I think inflation is likely to pick up now as a problem given the demand we've got for resources from the Far East,' Gibbs said pointing out there have already been some very strong rises in the prices of resources. He said currency instability such as dollar weakness could add to the problem, saying it t will push up inflation and ultimately will push interest rates higher. He said when inflation begins to head higher it will hit government bonds but will also put pressure on consumers in the developed markets. ‘The consumers in these countries could face some very difficult situations if interest rates get forced up,’ he said.
As far as we are concerned, here in Britain, we have 'enjoyed' the hors d'oeuvres of what is to come in the form of the student rampage but "when troubles come, they come not single spies but in battalions" and the big union battalions are still gearing up for their knock-about nonsense in the coming months. Some comfort can be drawn from the fact, exampled over and over again in recent years, that most union leaders, to say nothing of their followers, are as thick as a sack of rocks. Even so, for a while the going will be exceedingly rough. It will take a government of some considerable courage, determination and intelligence to thwart the unions and . . . oh dear!
Yes, it is being so cheerful that keeps me so young, thank you for asking!
(*) I am not promoting this fund although I think I will take a careful look at its prospectus!
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