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The mother of a crisis is on its way

The crisis is coming, and, though the bankers are still raking it in, the shit is really about to hit the fan. I can’t put it better than three wise men, whose concise views I quote at length:

Duncan Weldon is terrified by bond yields:

We have falling equity prices, falling commodity prices, record low bond yields across UK, Germany and the US and the worst hit shares are financials (where rumors of problems in the European banking system are once again circulating) and those most exposed to global growth.

This is a growth scare – and a big one.

And George Osborne is still taking comfort in low yields on government debt and declaring Britain a ‘safe haven’.

I’m afraid a bond yield of 2.3% on 10 year UK government debt isn’t the market saying ‘well done you, nice deficit reduction plan you’ve got there mate’ it’s the market screaming ‘for Christ’s sake, everything is fucked and we’re terrified about vanishing growth’.

Markets, as we know, can be irrationally optimistic but they can of course also be irrationally pessimistic. Let’s hope that’s what’s happening now.

He fear though that Paul Krugman is right:

Here we are, with markets now deeply worried not by deficits but by stalling growth, fearing not fiscal profligacy but fiscal austerity, and with interest rates at historic lows….

In the past, you could make excuses on the grounds of ignorance. In the 1930s they didn’t have basic macroeconomics. Even in Japan in the 1990s you could argue that it took a long time to realize that the liquidity trap was a real possibility in the modern world.

But we came into this crisis with a pretty good understanding of what was at stake and pretty good analysis of the policy options — yet policy makers and, I’m sorry to say, many economists just chose to ignore all that and go with their prejudices instead.

And the worst of it is that the people who got this so wrong have not and probably won’t admit to their awesome wrongness; on the contrary, they’ll dig in. And the Lesser Depression will go on and on and on.

Finally, Richard Murphy draws a sound conclusion:

There are rumours – no more – that loans to ailing financial institutions are beginning again in Europe.

The Greek bailout is, by all reports, failing.

Markets are falling.

The underpinnings of the banking system are falling apart again.

Of course we can save the banks, again. We can print money. We will have to.

But this time let’s get real. This time we don’t lend them that money. Or give it to them as quantitative easing.

This time we nationalise.

This time we take control. This time we do so with the aim of cutting out the cancer. This time we do it for the long term. This time we don’t take the crap: the bankers do. This time, surely, we get it right. And this time we change the management, for good.

Surely no one can disagree this time, can they?

But, sadly, foolishly, they will.

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