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Europe is in disarray, stock markets are plunging, the banking crisis is back in full swing, gold is at record levels, and both the UK and US are self-evidently slipping back towards recession – not since the autumn of 2008 have things looked quite so ominous.
We appear to be at another pivotal moment, with Western economies once more staring into the abyss. At a conference in Frankfurt this week, Josef Ackermann, chief executive of Deutsche Bank, compared events to the Lehman Brothers catastrophe of 2008 and warned that many banks in Europe are essentially bust. His opposite number at KfW went further still and said that the present cocktail of negatives was “much more dramatic than 2008”.
Back then, governments and central banks still had the financial firepower and the will to attack the problem with massive injections of fiscal and monetary stimulus.
Today, the fiscal armoury is exhausted, while it is not clear that further monetary easing through the printing presses of “quantitative easing” would have any positive effect beyond the negative of adding to inflation.
Indeed, the parallels look alarmingly closer to the banking collapses of 1931, which plunged the world into prolonged depression, than the storms around the Lehman collapse. ...
Mass and disorderly default appears to be the only way in which events can unfold. The distinct possibility of catastrophic loss once more looms large across the world economy.
Against this grim backdrop, the cacophony of voices arguing that governments and central banks change tack, postpone fiscal consolidation and crank up the printing presses again grows steadily louder......
It took Europe over 40 years of economic and political turmoil to recover from the extreme over-indebtedness it imposed on itself in the folly of the First World War. Much as today, creditors and debtors tore each other apart economically in attempting to find a politically acceptable form of burden-sharing. We all know how the currency and trade wars of that era ended.
... the tell-tale indicators of financial and economic distress are still not as bad, at least in the UK and the US, as they were in the immediate run-up to the Lehman crisis. Spreads are not as wide, bank funding markets remain just about open, and there is not yet the same complete collapse in consumer and business confidence as then.