Markets Fall, But Still They Chase the Elusive Confidence...

It is a very curious thing. The pouring of taxpayers money into the banking system was supposed to restore confidence. In the event, nothing has changed. Stocks are still falling and banks are still not lending to each other. It is now apparent that the severity of the problems are very deep indeed, in particular for UK banks. Iceland is now a basket case, and is a precursor to the carnage in the rest of the western banking system. Meanwhile, in a move that he will regret, Gordon Brown is threatening legal action as a result of the Icelandic meltdown and Iceland is blaming the UK for its troubles.

Quite frankly, as taxpayers money is poured into this insatiable black hole, the reactions and events are taking on the mantle of a very, very sick farce. It is clear that the bailouts have not been working, and that pouring in more money will really make no difference. Despite this, the politicians cling on to the belief that they can turn back the tides. Their concerted action on interest rates - no effect. The continual provision of liquidity, the headline bailouts - no effect. At what point, after spending how much money in supporting the financial system, will they accept that it will not work?

Perhaps the most disturbing part is that Gordon Brown, an individual who felt that he was entitled to lecture the rest of the world on the way to run the economy, is now grandstanding on the world stage, as if he has saved the UK banking system. Whilst he lectured the world on the success of the UK economy he watched the debt bubble grow, borrowed money during the so called 'good times' and allowed the money supply to get out of control.

I could comment on every detail of the crisis here, but do not feel that I have anything to add from my previous analysis, except for an expression of complete dismay. Normally I only aim to post if I can offer some analysis. However, my sense of dismay overcame my reticence. It is all just quite unbelievably farcical.

For new readers, I would suggest that you take a look at the links at the top left of the page (I suggest starting here). If you want to find out where this crisis really came from, and why all of this 'activity' by governments is both pointless and dangerous, then you will find all of the answers in these posts. Most people who have read the blog seem to find it illuminating, and I hope you will too. If you are really interested, dig into the archives and you will find more depth.

Some Replies to Comments:

Anonymous left the following comment:

'I just wonder. US, UK, EU countries are going to borrow all that money on top of what they borrow to function. Who has all that money to lend it to them? Does Asia have that kind of money? '

A very pertinent question. Yes, the money is out there in the rest of the world, but the big question will be whether they will continue lending. As regular readers are aware, that is why I believe that governments like the UK, and possibly the US, are going to have a terrible crisis. They will not be able to borrow, and this will either mean printing money (and hyper-inflation), or savage cuts in expenditure. I think this is, in part, what is driving these desperate measures, as I suspect they realise what will happen if they do not 'fix' the crisis. It is only a suspicion, but it looks increasingly looking like a roulette gambler who believes that they have one last chance to win on number 32, red. However, we will not know what they were really thinking until the crisis comes to conclusion.

On a similar vein, another commentator asks:

'My interest is what are the likely developments on the ground from here? I fear it will mean: civil unrest, rioting and instability.

What happens if the Government defaults?'

Your own analysis points to the possible answers. I am more than a little worried that the West in general is not prepared to deal with this crisis, meaning ordinary people are not. It sometimes seems that the good life is seen as a right. However, this is idle speculation. For your second question, see above. I can not predict which way they will jump, but suspect hyper-inflation.

Lemming asked:

An interesting little aside from Polly Toynbee in her column today where she comments alarmingly "Just-in-time food delivery, paid for with what?". To the people I know, the idea that food shortages might become a problem would just not be taken seriously, but there is no reason to think that it couldn't happen is there?

Whilst I am (as regular readers will know) not the most optimistic person, I do not think that the economy will fall to a level where there are food shortages. What is coming will be bad, but I do not believe that bad. Unemployment will be the biggest single problem, and many people will see a dramatic drop in their living standards. Many of the safety nets that we have become accustomed to will look more than a little threadbare.

Another anonymous poster asks:

'What do you suppose is motivating so many people to see the world through rose colored glasses?'

I find this difficult to answer, as I can not understand why people can not see what is in front of them. As such, I am afraid I have to pass on this answer. In this case 'I just don't get it'.

Jim asks the following:

'All over the world people study subjects like History, Philosophy and to a certain extent Psychology. Does anyone ever bother asking them for some insight?'

It is quite possible that this answers the previous question. Perhaps we can see why people are behaving in the way that they are from these disciplines. However, I have studied all of these subjects to varying depths, and am not sure that I can see the answer still. With regards to one of them, it is perhaps history that explains some of the solutions. I read an article in the economist that was suggesting that, this time, it is not as bad as the Great Depression. Meanwhile, Paulson is a student of the Great Depression. There are many comparisons being made, but the danger in those comparisons is that the world, and the problems of the economy are not the same. The main commonality, is that in both cases, people believed that wealth was a one way bet. Other than this, the circumstances are very different, and the bailout is an imagined solution to a different problem, in the different world of over 70 years ago.

I have also had many other comments, many of which deserve replies. However, I must make my apologies, and leave it there.