The title of this post is taken from two sources. One was a headline in British tabloid, The Sun, in January 1979, when then-prime minister James Callaghan denied that strike-torn Britain was in chaos. The second was the title of a 1975 album by prog rock band Supertramp that famously showed someone sunbathing amidst the grey awfulness of the declining industrial landscape.

Are we now getting blasé about the latest crisis? Not so long ago, perfectly respectable economists and financial analysts were talking about a new Great Depression. The world was on the brink, it was said. Now, though, consensus appears to be that it is all over bar the shouting. The world is safe.

Wealth managers at Barclays have gone as far as telling their clients to get over it.

Move past the crisis .... The past year's events were deeply traumatic for most investors, but now is the time to move on, and take a more "business as usual" approach ...."

Such bullishness may not be comforting to the record numbers of jobless in parts of the world, but it is bordering on consensus. It is left to the likes of perma-bears such as  Nouriel Roubini to try to burst the bubble of optimism on which many are floating. The economist began one of his latest articles bluntly:

Think the worst is over? Wrong.

Roubini's main point is that unemployment is likely to get worse rather than better and that many U.S. jobs that have been lost will not come back.

Now, there can obviously be a disconnect between markets and economics, but the former tends to be based on assumptions about the latter. So which is right? Are we out of the woods? Or should Supertramp be firing up their keyboards again?

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

The discrediting of the efficient markets theory in the aftermath of the financial crisis appears to have been accompanied with growing support for the view that rather than efficient in nature, financial markets are predisposed towards the formation of bubbles.

A bubble can simply be defined as an occurrence that begins when the price of an asset has been driven significantly above it “fair” value. According to the efficient markets theory this would not happen.

If bubbles are a natural outcome of financial market activity it is relevant to ask whether the very loose fiscal and monetary policies of many central banks and governments are presently sowing the seeds of the next bubble.

Even though the real economies of the U.S., UK, Eurozone and Japan continue to be defined by expectations of rising unemployment and falling real wages, access to cheap money has already helped restore the profitability of many investment banks.

In turn, this has fed risk appetite which is evident in the rally in stocks since the spring, increased demand for “risky” currencies and a recovery in commodities prices. Brent oil has rallied by 128 percent from its 2009 low. The ability of oil to rally despite the existence of oil supplies well above the seasonal average suggests there is already speculative element in this market which could be in danger of driving prices above their fair value.

This week’s meetings of the Federal Reserve, the Bank of England and the European Central Bank have focussed attention not so much on rates, but on the extraordinary policy decisions taken by these central banks in the wake of the financial crisis and whether conditions are ripening in favour of a gradual withdrawal of some of these policies.

The Fed last week ended its $300 billion treasury bond purchasing plan, though it will carry on buying mortgage backed securities. The Bank of Japan last week announced that it will stop buying corporate bonds at year end. The Reserve Bank of India also removed emergency support measures last week.

This week there is speculation that the ECB could announce that it will hold no more 12-month cash tenders next year. By contrast the Bank of England is expected to increase quantitative easing at the November 5, Monetary Policy Committee meeting. Supporters of quantitative easing continue to stress that the lack of clear inflation pressures suggests there is room for these plans to be extended.

However, the lack of response in either money supply or inflation indices could equally be illustrating that these plans are not having a significant impact on the real economy and are therefore no longer appropriate. The paring back of these plans are likely to have an impact on the ability of some banks to turn an easy profit and thus should rein in risk appetite and limit speculative and “bubble” forming activity.

Unfortunately, a bubble can only be truly confirmed after it has burst; a characteristic with clear destabilising consequences. If bubbles are natural phenomena within financial markets, the need for tighter regulation and ongoing reviews of processes that oversee the financial system are absolutely necessary.

This conclusion, while in complete contrast to the implications of the efficient markets theory, ties in very well with the political desire to reform the banking regulatory framework in order to protect the tax payer from future hefty bank bail-out costs. The banking landscape, while already vastly different from just two years ago could continue its transformation for years.

researchEMEA@forrex.com

- Justin Fisher is Professor of Political Science and Director of the Magna Carta Institute at Brunel University. The opinions expressed are his own. -

The expenses crisis is well and truly engulfing Westminster, with equal anticipation and dread about future revelations. Labour was quite reasonably aggrieved that the initial stories all seemed to be about their MPs.

Perhaps this was naive – governing parties are obviously more interesting than their rivals – but the fear was that this crisis would be indelibly linked with Labour and Labour alone. Yet perhaps they needn’t have worried – the Telegraph was keeping its powder dry and today’s stories about some Conservative MPs are possibly even more damaging.

Claiming for a bathplug may raise a titter and seem petty – claiming for repairs to a swimming pool is of a wholly different order – at least as far as the public is concerned.

But before we rush to condemn all MPs, or insist that they must live like paupers in future, let’s step back a little. It is clear that some MPs have made extortionate claims. These claims were apparently within the rules, but they do appear to any reasonable person to have gone beyond the bounds of moral acceptability. Equally, the apparent practice of “flipping” second homes to maximise allowances is unacceptable and should not have been permitted.

But those examples should not be used to damn all MPs. The level of expenses claimed by most MPs may well seem extraordinary to the general public. But the job of an MP is itself extraordinary. MPs are expected to work both at Westminster and in their constituencies, which for many MPs is beyond a reasonable commute.

In fact, MPs are much better these days at serving constituents’ needs – they deal with far more issues in their constituencies than was previously the case. All of that costs money and we are better served for it. MPs who live beyond a reasonable commute to Westminster require a second home, and it is not unreasonable that they should be given some financial support. And, of course, second homes need things like bathplugs – just like first homes do.

But this is a crisis nevertheless, and Labour is worried. But it doesn’t, I think, necessarily mark the death knell for New Labour, though there may be some casualties. First, Labour is likely to perform poorly in next month’s elections. But it was going to do badly anyway. Second, the difference between these sleaze allegations and those of the 1990s is that they affect both main parties, not just the one.

However unfairly, the most recent revelations may lead voters to think that “they’re all as bad as each other”. That’s bad news for the Conservatives, but better news (at least temporarily) for the smaller parties. Third, with a general election now a year away, there are signs that the worst of the recession may be over (and more importantly, there are signs that people perceive things to be getting better). That’s good news for the government.

But things are looking far less good for Gordon Brown. There are some very public stirrings of revolt against his leadership, which will be amplified after the June elections if Labour performs as badly as expected. So, the irony is that Labour could be led into the next election in reasonable position following an upturn in perceptions of the economy. But it may not be led by the man who feels he deserves the credit, but by another key figure in the New Labour project.