January 30, 2010 Patrick Oliver-Kelley

In 2009, economic catastrophe was averted… just! Today’s stability is worryingly fragile: global demand is dependent on government support, papering over older and deeper problems.


The political and social consequences of the worst economic crisis since the Great Depression have been milder than predicted. The end of 2009 was a period of healthy recovery. The fact that there has been no angry upsurge in pessimism explains that composure. BRIIC (Brazil, Russia, India, Indonesia, China) now accounts for 45% of global growth, but final demand for exports rests on America.

Property prices may be stabilizing in the US, after falling 30% from their highs, but in UK, in Spain, and in Ireland, housing prices have further to fall.

Banking stress persists.

In 2009, troubled commercial loans in the US increased five times, to $68 billion. Are we to learn anything from the 20 years Japan has needed to begin recovery after they dragged their feet making hard decisions about their problem banks? The pupils are worse-off than the teacher was. Our global turmoil makes Japan’s problem small, in comparison. The West has a more flexible system and acted more decisively in pumping money into the economy. However, overly optimistic signs of economic recovery must not fool the West. The banks have huge write-downs to make on their loan portfolios, industry is burdened with excessive capacity and household debt levels remain high. Hotel delinquencies increased to 14% from 1.2% and overall delinquencies were 6.7% versus 1.3%.

There is a specter of asset bubbles in commodities markets and distortions will get worse, since government openly admit that they are forced to keep financial conditions too loose, for too long. In the US, we have lost more than seven million jobs and over 10 million full-time jobs last year.

Expect all kinds of shocks. There will be significant pockets of weakness in coming years. There is no way that a sustainable economic cycle can get underway.

Business needs rules and those rules need to be followed.

Capitalism has the tendency to form cartels, but tend to collapse on the weight of its own inventiveness. Our Real success depends on moral sensibility and institutions of governance, a democratic system of laws and social institutions- people yearn for a sense or moral purpose. Moral progress is up to You and to Me. Let’s get our harness on!

There are no straight lines in the stock market.

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