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09 August 2011


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Good find...I remember being struck, when I read Security Analysis by Graham & Dodd, not just at the extent of the crash in 1929 but also at how long the markets took to recover. Then, like now, there was a balance sheet depression caused by overleverage and it was only once that excess of leverage had worked its way through the system that recovery could commence. It's my belief that recovery is hindered by governmental and regulatory can kicking that postpones the reduction of over indebtedness. Given that governments are perhaps the most excessive borrowers of all, I see no reason to believe that this depressing can kicking will cease any time soon. I feel the coalition should have been much more open last year about the extent of the problems of the nation's finances (both government and household). Politically the moment for that has now passed and I am pessimistic about any future government grasping this nettle, though I would love to be wrong of course.

Terry Smith


Like you I would be happy to be wrong. The damage to my ego and reputation as a forecaster if the current government policies turn out well will be far less important than the positive impact on the economy and society. But sadly I doubt that is the case. On the subject of governments providing stimuli, a phrase worth remembering is that the best way to put money in peoples pockets is to leave it there in the first place, not to tax them and redistribute it through the incredibly inefficient mechanism that is most government.

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