Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Credit Crunch Fifth Anniversary

Stock-Markets / Financial Markets 2012 Aug 13, 2012 - 06:57 AM GMT

By: Alasdair_Macleod

Stock-Markets

We are coming up to the fifth anniversary of the financial crisis, at least for the UK’s banking system, because it was five years ago that anxious depositors were queuing up to withdraw their money from Northern Rock, leading to its inevitable rescue by the tax-payer.


Anniversaries are often a time for reflection. The Northern Rock failure marked the popping of the UK’s residential property bubble. The signs of excessive valuation were all there, particularly speculation in the buy-to-let market, wide-spread public participation in a “sure thing”, and Northern Rock offering loans with a loan-to-value of 120%. The same extremes of sentiment were visible in the US where there was a lending frenzy on the false assumption that a diverse portfolio of mortgages was somehow risk-free.

Bubbles everywhere went pop. It was completely unexpected by academic economists, a point made deliciously by the Queen, who when opening the New Academic Building at the London School of Economics was moved to ask why no one saw the crisis coming. They had no answer. The same academics reassured us the crisis was a just a temporary blip, and normal economic growth would shortly resume. Yet, here we are five years later, still awaiting the recovery while sinking deeper into the mire; and Her Majesty might still be reflecting on this fact.

The problem is one of misdiagnosis, which is why Keynesians have been wrong-footed from the start. They do not seem to realise that their policy of ever-expanding debt has a real-world limit. Having successively expanded it as a solution to previous economic difficulties, the economic establishment has become complacent. It certainly does not want to reconsider cherished neo-classical assumptions. This is why it still believes that “more of the same” is the answer: inject money into the economy and hike government spending. If that fails it is because we are not doing it aggressively enough.

Here we are five years on. There is no meaningful recovery and the crisis has shifted to the Eurozone, and unless that can be resolved it threatens to bring down the entire global banking system.

The Keynesian answer unsurprisingly is to print however much money it takes. After all, the inflation-rate outlook is benign. Interest rates are zero, so governments, with the exception of some in the Eurozone, have a duty to borrow limitless amounts at negligible cost to ensure recovery. The Keynesian analysis is of course fatally flawed. It assumes savings are bad, spending is good and debt does not matter. It ignores the very basis of a sound economy such as that of Germany and endorses the policies common to all failed states.

One is left wondering whether the next crisis, the predictable result of the mishandling of the first, will occur by the sixth anniversary. I for one can’t wait for the Queen’s insightful comment about that one. Perhaps her financial advisers, who this time might be on the receiving end, might like to reflect how they have protected the Royal Portfolio from systemic risks so far. The table below will give you some insights into how well different vehicles fared in preserving purchasing power during those last five years with buying gold and silver as the clear winner.

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2012 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in