Sunday, Sep 13, 2009
"It is not a liquidity crisis. It is a bankruptcy crisis."
Telegraph: Lehman is a footnote in the great East-West globalisation crisis
Lehman no more caused the economic convulsions of the last year than the assassination of an Austrian prince caused the First World War. There was the little matter of a rising Germany then, and a rising China now. Both scrambled the international system, albeit in different ways. ... The housing crash has tipped 15m US home owners into negative equity. A third of sub-prime mortgages are in default. Some 7.8pc of all loans backed by the Federal Housing Administration are in foreclosure or 90 days in arrears. ... It is not a liquidity crisis. It is a bankruptcy crisis. ... There is a gaping hole in world demand. It is being filled by governments, all nearing the limit of fiscal stimulus. ... The liquidity is leaking into stocks, metals, and property.
4 Comments
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1. stillthinking said...
Good post. Ambrose has hit it on the head. We are living in la la land if we think that the position is slowly turning around.
2. drewster said...
There are some interesting comments below the article:
BULL 1: There are alternative views of the future which don't involve an abyss - try reading Hamish McRae, David Smith, or Anatole Kaletsky in competing newspapers.
BULL 2: Hamish McRae [Independent], David Smith [Times], Anatole Kaletsky [Times], Sam Brittan [FT], Wolfgang Munchau [FT], Larry Elliott [Guardian], Jeremy Warner [Independent], AEP [Telegraph]. All distinguished economics commentators, and only one of them is predicting a debt-deflation-driven plunge into catastrophe. AEP may be proven right, but it's looking like a long shot.
BEAR: They haven't got the track record of AEP. Try reading Kaletsky's predictions for 2007 ("Optimism for 2007 is well-founded") without guffawing.
I'm a natural bear, so of course I side with AEP. Nevertheless it's interesting to see that he's in such a minority.
3. bellwether said...
AEP is doing a decent job of bringing many of the underlying features of the crisis into the mainstream. He often just says the same thing, but then I guess the not much has changed over the past couple of years, so how can the narrative change.
We seem to have created a crisis of solvency and have been trying to dress it up as a liquidity issue ever since. The hope now is that optimism and animal spirits will drag us out of the mire, the yanks (as they used to be called) are hugely keen on this, Obama wrote a book called the Audacity of Hope FFS!
As I keep saying I think it is too early for that, we are going to be in the trenches for a few years first, tin hats and all.
4. mountain goat said...
What a great article thanks for posting.