Boxing Day blues as world teeters on brink
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.
I teach classes in lifestory writing. For several years I’ve been encouraging people to document their daily life back in “the Good Old Days.” It’s important to map the roads of frugality and resourcefulness traveled by those who found their way through the years of depression and tribulations of the war years, before and after. I’ve told them that’s important, because the likelihood of similar years recurring is high, very high, and generations born in the sixties and later have little idea how to endure hard times and make do with less.
Thanks for the warning. It’s ugly, but we need to hear and heed.
By Ritergal on December 29th, 2007 at 12:37 am
Thanks for that, Ritergal.
It’s certainly true that the personal debt mountain combined with the worldwide gamble on sub-prime mortage instruments is set to knock us off course. How far is not yet known, but, as you say, western people under 40 have little memory of hard times. Now they will have to learn.
By John Evans on December 29th, 2007 at 12:25 pm
There’s another debt mountain accumulating, and this is based on the loss of productive time and cash due to the frustrations and equipment failure involved in Microsoft’s Vista OS. I probably wasted a couple of days trying to find my way around that puzzling maze over the first six weeks I had Vista on a new laptop. Then it totally melted down. About twenty hours of trouble-shooting later, I’m ready to install apps on my newly upgraded machine with a fully updated XP Pro OS. Phew!
Multiply my fifty hours of lost time by the number of users around the globe, and add in the huge cash flow generated by other frustrated users who have invested in new printers and other hardware as well as updated software and we probably have a couple of billion dollars invested in this fiasco, as well as hundreds of millions of lost hours.
I’ve been using Windows for twenty years and teaching computer classes for half a dozen. I did not come to the conclusion that Vista is a disaster lightly. Anyone who doubts the cloud of despair about Vista should Google “I hate Vista,” or some variation thereof. But nobody is talking about the economic impact of this debacle and its contribution to the debt mountain.
By Ritergal on December 29th, 2007 at 2:00 pm
I adopted Vista soon after it was released and had the same kind of problems you describe. I had to buy new printers and change certain apps etc. But I now love it to bits (if that’s not a pun). I run an XP machine alongside and I only ever revert to it around one day a month.
There’s a Service Pack 1 due soon, so maybe that will iron out many of the problems. I have to say, though, I wouldn’t go back now.
By John Evans on December 29th, 2007 at 4:53 pm
I doubt I would have bailed if I hadn’t experienced that total meltdown. That really destroys trust and security and introduces a level of risk I can’t afford — can you imagine projecting a blue screen boot in front of a conference session? I’m so happy for you that you haven’t experienced this level of disaster, and hope you never will. Considering that you are a business user, you are probably securely backed up too. That helps. The most I would have lost were two files I could have recreated in less time than it took to save them, but who knew?
Do you think all the time you have spent slogging through the challenges has been the best use of your time, or would you be better served by a more stable, user-friendly system that worked with your equipment and software and had the controls where you knew to look? That’s my point about the impact on the economy. If even 5% of a day over a period of weeks is spent trying to figure out new software and workarounds, or troubleshooting malfunctions, that’s huge. Medical costs will rise even further with the additional stress users experience, and there will be some under the best case scenario. Furthermore, the impact of replacing perfectly good hardware is an ecological atrocity as well as fiscal insanity. But hey! All that cash flowing for new goods keeps the economy pumping and people employed — somewhere on the earth.
Back to your original premise about the foreigners owning western economies … they can’t trash us too badly, or we won’t be able to buy all the wares they export to our greedy consumers. Well, that will be true until they pump up their own economies to the point that the US and Europe no longer matter.
We seem to be experiencing the ancient Chinese curse: “May you live in interesting times.” Indeed we do! Fasten your seat belt.
Cheers, beers, blood, sweat and tears,
And Happy New Year!
By Ritergal on December 29th, 2007 at 5:17 pm
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