2008 is going to feel like a picnic in comparison

The worst economic crisis of my life was the 2008 financial crash. As readers will know, we had long forseen a crunch coming in the credit markets due to lax Government regulations and arrogance of those in power both at the banks and the Governments.

However, 2020 feels like it will be worse. For one, those immidiately affected are the old, the poor (retiaers, coffee shop owners, airline workers etc) and the needy; not wealthy bankers losing their jobs in Canary Wharf at Lehman Brothers as the first stage.

Moreover, because this crisis is so visceral and real, the Fed last night dumping $500 billion into T-Bills and dropping interest rates by 100 basis points has made no difference. Markets are down about 6% at time of writing. Pumping more fiat money only helps the Banks and traders, it will not make people fly again nor can a coffee shop owner survive when the Government has ordered them to close.

The 3 to 4 month hiatus in the economy we are about to experience will be very hard to manage. I can see UK Government debt ballooning by £100 billion for this year and maybe next year too - there is just so much to subsidise and try to keep going. In the round, this in and of itself won't kill the Country financially (unlike Italy) but it does mean higher taxes will be coming in the 2020's to pay for all this - and who is to say this is a one off, quite the opposite, Covid-19 is a successor to H1N1, so is already not a one-time emergency.

We will have to see where things go but airlines and all forms of travels, sports and events and retail food (incidentally all amongst the big winners economically of recent trends) are all going to be smashed to pieces. Whatever world emerges by the mid-summer will look very different to the world as it was on Valentines day in the West.

Situtation normal?

Compare and contrast the charts below, on the one hand there is a nice rise in US Bond yields (which is making markets jittery - of course, should be the opposite, but what do the machines and algo's know,eh?). This is a sign at last of the end of the Financial crash, 11 years after it began. Historically that is about right, for major financial crashes. Interestingly though on a longer term view, US yields still need to go above around 4% for them to be at 'normal' levels. That may be possible this year with Trump's pump-primed US economy kicking into gear.

Let's hope the more nervous and sclerotic UK economy can follow in due course. 

Eight years of banking pain and still no end in sight

Co-Op bank has put itself up for sale today. Ouch, even after a big bailout from new shareholders, there seems to be no way for it to actually turn a profit on its customer base. Frankly with low interest rates and non-banks piling into the market, there is not much to be said for retail banking. They never did get there way on charging for current accounts...


Add this to RBS, being denounced in the press for being about to launch another mass redundancy round to try and cope with its 9th annual multi-billion loss. Again, similar to Co-Op, it can't make money from its business - certainly only a couple of billion from what it has left after shutting down investment and international banking. This  two billion is dwarfed every year by payouts for the sins of the past misdemeanours.


2007/8 feels like a long time ago, but many of the problems in the banking system are still working through. The medicine of Quantitative Easing, which was hard to argue against at the time, has persisted long past its use by date. The Bank of England has always found a reason to keep the taps on to help the economy.


However, the underlying system is now very screwed by this approach. With no interest rate differential in the markets, banks struggle to make money. The regulatory burden, necessarily increased after the great crash, is expensive. Instead of the Banks making good, new entrants, with lower costs have come to the market and started to feast. This is good capitalism and as it should be, but will make for a big taxpayer write-off on the RBS investment.


Perhaps we should just do it and move on, rather like Co-Op group did with Co-Op bank.