Saturday, September 10, 2011

The sounds and smells of the economy

Steven King writes one of the best articles of the week:

I accepted Martin Wolf’s invitation to “listen to what bond markets are telling us” (Financial Times, September 7). Unfortunately, I was unable to detect the call to “borrow and spend, please” so audible to Mr Wolf. I took a deep breath and immediately realised what was going on. I might not have been able to hear anything. But I could certainly smell something. I could smell fear.

Bond yields are low not because investors want governments to borrow more. Bond yields are low for the same reason that the gold price is high, the Japanese yen is strong, the Swiss National Bank struggles to control its currency and equities have tumbled. Investors are trying to find pockets of safety in a world where the financial system appears to be slowly crumbling. This is an olfactory, not an auditory, problem.

Financial Times | I can't hear the markets but I can smell fear

The financial system is collapsing under a babbling tower of debt aided by loose monetary policy and ill-considered central banking interest rates. A great deal of folks are going to have to take debt hair cuts.

When will all the write-downs finally occur? Later rather than sooner as long as central bankers and governments keep preventing it. Which is bad. In the meantime, economies will remain stagnant, and people will attempt to find safe haven for their money.

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