Tuesday 14 Aug 2018 | 05:37 | SYDNEY
Tuesday 14 Aug 2018 | 05:37 | SYDNEY

Welcome to the meltdown


Mark Thirlwell

18 March 2008 11:11

When it came to my turn to speak at our regular research meeting at the start of this week, I noted that the main items on my agenda were to liquidate what small financial wealth I have, turn it into an optimal combination of gold, canned food and bottled water as quickly as possible, and then hunker down for the next month or so while global capitalism collapsed, before emerging cautiously from the rubble to see what the new world order looked like.

Alright, I was joking. Yes, I have been arguing that we have arrived at a turning point for the international economy, but I’m not (quite) ready to proclaim the arrival of the economic apocalypse. Still, there is no doubt that, following the demise and subsequent fire sale of Bear Stearns, there is a real sense of panic in the air as investors wonder which institution will be next to tumble, and as markets grow increasingly concerned about the Fed’s ability to do anything to stem the unfolding crisis.  As Paul Krugman pointed out last week, conventional monetary policy has so far failed to get any traction. That failure has prompted the Fed to turn to a series of ad hoc measures, a point expanded upon here. In a more recent column, Krugman now argues that a public bailout of the US financial system has become inevitable.

How bad could things get?  This piece by Carmen Reinhart suggests we may have just started to feel the pain. She points out that asset price falls have been common markers in all of the big banking crises over the past 30 years, and that output declines after such crises have been both large and protracted. Not  much comfort there, then.

Photo by Flickr user PhotoGraham, used under a Creative Commons licence.