Tuesday, January 20, 2009

 

How Much Worse Can it Get?

The latest package of measures by the PM and the Chancellor have given rise to some fears that we are on the brink of a major meltdown a la Iceland. The argument goes like this. During the good times the banks built up huge liabilities of trillions of pounds. The initial attempt to fill the breach via £37bn proved hopelessly inadequate and so another package was whipped together to throw in after it.

The subgsequent continued falls of the market now tell us the rest of the world has no confidence in sterling or in Brown's government to turn things around. If our liabilities exceed our assets then the world's financial system might witness another Iceland only much bigger, in the form of the UK economy.

Against this I hear Sir Alan Budd, former Chief Economic Adviser to the Treasury on the Today Programme this morning and he was confident it had not yet come to this. And it's true the Cassandra voices are mostly on the right but, as a non economist, it all seems like a very dark horizon right now. Whoever gets in next time will have to deal with a mountain of debt and it doesn't look like international markets have much or any faith in lending any more money to help haul us out of the danger area.
Hope I'm being unnecessarily pessimistic but the indicators, as far as I can read them, have seldom looked worse.

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