It’s Boxing Day here in England, a day traditionally reserved for giving presents (Christmas boxes) to the extended family and friends. I was going to take a rest from posting on Syntagma and other sites until January 2, but something is jangling away at me : the upcoming downturn/recession/depression/crash, depending on which view you take. The nasty end of that spectrum is now a real and menacing possibility.

The optimistic view says that Sovereign Wealth Funds — vast reserves of cash held by Gulf oil sheiks and “new economy” developing countries like China — will save world stock markets from collapse. Indeed such funds are buying up wagonloads of equity in some of the biggest Western corporations, Citicorp and Merrill Lynch, for example, and great chunks of Britain’s FTSE 100 companies.

Quite how allowing our biggest companies to be owned and run by a small group of Oriental potentates will look in 10 years time is anyone’s guess. I doubt we will think it such a smart move.

The pessimistic view — which I confess I’m now leaning strongly toward, despite my normally sunny nature — comes from the banks. Never mind the stock markets, look at how the bankers are reacting on the ground.

All banks are now hoarding cash like Ebeneezer Scrooge and virtually ceasing to lend. With house price indices slithering down a slope like novice ice skaters, and inter-bank rates running at around 8 percent, this has become a total banking crisis worldwide, and that has the potential for real evil in our economies.

Japan’s decade-long woes in the 1990s were caused by crises in its overprotected banking system, as were the Far-Eastern “Tiger” economies that collapsed at around the same time.

So how are we all reacting to this worldwide financial mess, now a “perfect storm” according to another banking pundit? Are we hoarding cash like the banks, or are we spend, spend, spending in the post-Christmas sales?

The real crunch comes if we all stop spending, as the Japanese did in 1990. Our economies will then spiral out of control as the High Street suffers and all kinds of businesses lay off staff in droves. Do we protect ourselves first by reining in, or do we support the wider economy? Since there will be little money to spend, the economy will suffer whatever anyone does. It’s a no-win situation from whatever angle you view it.

In retrospect it’s now clear that Alan Greenspan left rates too low for too long and spawned the mad rush to lend to the sub-prime market (Ninja mortgages : no income, no job, no assets). But on top of that, it is also now normal to be permanently in debt and to service it by moving it continuously between lenders engaged in a bitter battle for market share and a bigger slice of the easy action. These lenders are no longer willing to cough up, even if they were in a position to do so.

In Britain, the situation is getting dire. From the UK’s Telegraph : “Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending. … ‘How on earth did the Financial Services Authority let this happen?’ he asks. Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. ‘Brown hadn’t got a clue what he was doing,’ he says.”

And European treaties, like Maastricht, will make matters worse not better, says Ambrose Evans-Pritchard : “Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. … Brown has disarmed us on every front.”

Crucifixion is a powerful word, especially at this time of year. “Brown has disarmed us on every front” is a damning indictment of the UK’s new Prime Minister, more particularly because he has just signed us up to another Euro treaty.

I wish Syntagma could bring you a better box on Boxing Day, but I fear it may be much worse than even the news we’re now getting suggests.

Maybe I should have continued with my holiday. See you on January 2.