Danger ahead
It's as simple as this: unless the markets recover soon, our entire economic prosperity is threatened. First of all, those, and it's millions now, who rely on investments to pay their pensions are going to have a less than secure retirement; secondly, businesses will find it impossible to raise money for new investment, which means no new jobs. Given the collapse of share prices over the past two years and the related destruction of wealth, it's inevitable then that the real economy is going to feel the pain soon. Logically, if people feel poorer, they'll spend less.
It remains to be seen how all this will play out around the world. In Japan, the banks are in a terrible mess so we can only expect more bad news from Tokyo. Germany's banks are not in such a state but they're under pressure. How share-based capitalism (US, UK) and the bank-based version (Japan, Germany) deal with the crisis should be telling. Despite the current situation, I feel that the share-based model is more solid. After all, if a bank has bad debts and the depositors demand their money back, it goes bust, if, on the other hand, share prices fall, people get hurt but the damage is more widely distributed.
Speaking of Germany, it desperately needs to export more at this critical stage but the higher the euro rises, the harder that will be. OK, its economy isn't subject to the kind of corporate corruption that's shaken the US but it's plagued by corporate incompetence and that's damaging.
Of course, the markets might be reading this all wrong. There's no war after all and the housing markets in both Britain and the States are strong. So, let's keep our fingers crossed.
