Wednesday, May 05, 2010
Global markets drop like guillotine, as fears over hanging parliament recede
Investment and Business News: Global markets drop like guillotine, as fears over hanging parliament recede
Yesterday was a day of panic. Markets looked at the social unrest in Greece, at the plight of Spain and Portugal, and then at efforts to stage a rescue. They weren’t impressed. The Greek contagion is spreading. Yet bizarrely, while the UK media fret over the prospects of a hung parliament, the markets seem indifferent. The real news on the UK economy yesterday was actually very promising, maybe the most promising to date.
Posted by mike @ 01:20 PM (377 views) Add Comment
2 Comments
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1. mdmick said...
I found the HPC site a while back as a result of googling 'house price crash' .
Today, I started googling 'stock market crash'.
As I have said before, I don't understand economics - and I try to learn from posts on this site;
But I look around and I don't see any good news anywhere.
How can anyone have faith these days in what today's consensus says assets are worth?
So what else am I supposed to think and feel - regardless of what parliament does tomorrow?
2. paul said...
mdmick
On the economics front, there isn't much good news right now. In fact, to hard working and conscientious people, there hasn't been much good news for a while unless you think that rentier capitalism and idly watching house prices rise is a good thing.
What assets are worth depends on what people are prepared to pay for them on the open, unsupported, unencumbered market. Unfortunately, the UK hasn't had one of those for the housing market for a while in the UK because the financial system in the UK has become increasingly dependent on house prices so the government has become increasingly focused on maintaining high and rising house prices 'in the interests of national economic stability'.
This policy has in turn led to what can only be termed a 'cascade failure' of economic policy - the more dependence and priority the government (and Bank of England) have placed on high and rising house prices, the more dependent the UK has become on it. It should be remembered though that the only real beneficiaries of high asset prices are banks and retiring baby boomers. Unfortunately retiring baby boomers are exactly what a lot of economic policymakers, MPs and 'property experts' are. The rest of us just have to take it on the chin for the time being. Everyone else is impoverished by it in the long run because asset markets do not create wealth and are termed 'zero sum' markets.
Now our esteemed economists find that none of the levers work (interest rates) because they've been abused a little too keenly for purposes they were designed to mitigate (speculative asset booms) but have not been deployed to tackle.
And we're heading down a hill towards a cliff edge. Greece is already over the edge and unfortunately we're not far behind and much much heavier. So my advice is to stand back and watch and remember ... the warning signs were there a long long time ago now.