–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
The Great Debate UK
Wednesday’s panic in the bond markets drove yields down to unprecedented lows in U.S., UK and Germany. The stampede into British and American debt is no surprise, since both countries represent a rock-solid guarantee of repayment in their own currency (though heaven knows how much lenders will be able to buy with the money in ten or twenty years’ time), but why the rush into Bunds?
Seeing the dewy-eyed kids at the post-election celebrations in Paris, I couldn’t help thinking how crazy it all was. The youngsters were plainly convinced they had a president to take their country forward into the new dawn - after all, he campaigned under the slogan “Le changement, c’est maintenant”. In reality, Francois Hollande’s programme is unambiguously regressive, with its stop-the-world-we-want-to-get-off determination to go in the opposite direction to every other country, its refusal to countenance any erosion of the country’s ruinously expensive welfare state and its complacent confidence that there is nothing to stop France carrying on as before. What better place to greet the return of the Ancien Régime than the Place de la Bastille?
Never make forecasts, especially about the future – wise advice, which I’m reluctant to ignore. But I will say I think the risk of a panic in the financial markets at some point in the next three or four weeks is extremely high. Wherever you look, there are icebergs on the horizon – small ones, like Greece, Portugal and Ireland, and giants, like Spain and Italy, and now most menacing of all, France.
It was bound to happen. You could see it waddling into view from a long way off. We are now being told by the medics that we should seriously consider a tax on fatty foods, in order to combat the scourge of obesity. How appropriate that, according to The Independent, the Deputy PM is planning to recruit 65,000 “State Nannies”!
Like many of the current government’s proposals, the announcement that the Education Secretary is planning to hand over control of ‘A’ Levels to the universities leaves me mystified. The only thing to be said with any confidence is that he is doing the same as each of his predecessors over the last half century: only fix the parts that ain’t broke. Be sure not to touch the worst bits.
By Laurence Copeland. The opinions expressed are his own.
In 1997, when Alan Greenspan famously pointed to “irrational exuberance” in the U.S. stock market, he nonetheless failed to follow up by doing what, according to an oft-quoted predecessor, is the critical task of a Fed Chairman: “taking away the punch-bowl just as the party gets going.” In fact, when the tech stock bubble burst in early 2000, he cut interest rates, and did the same again, more forgivably, in the aftermath of 9-11. The result of this laxity, emulated by the UK and Japan, was a new global bubble, this time mainly in real estate.
Last November, at the time of the Chancellor of the Exchequer’s Autumn Statement, the two men in charge of our fiscal and monetary policy together delivered the gloomiest peacetime message in our history. Those of us who have been pessimistic all along were totally outflanked.
When the Greek crisis began, there was much talk of contagion as the greatest short-term risk. In my view, this worry is almost irrelevant because bondholders are in any case facing a haircut of over 70%, so the question of default or bailout is now merely a technical detail.