The Great Debate UK
–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–
The title says it all: “This Time is Different” by Reinhart and Rogoff tells how, for centuries, monarchs and, later, nation states have persuaded lenders to forget their chequered credit record and trust them yet again with loans on relatively easy terms. Although, by the nineteenth century, Western European countries had mostly reached a stage where their reputation seemed worth preserving at some cost, more or less from the moment they achieved their independence the South American countries established a tradition of default which they have guarded jealously to the present day, and as Reinhart and Rogoff make clear, Greece has defaulted at regular intervals ever since it became an independent nation in 1832.
Yet the tale they tell flies in the face of common sense, as well as running counter to the faith in the rationality of capital markets which used to be widespread but is now confined to a diminishing band of true believers. After all, with such spotty credit records, you would expect sovereign borrowers to be able to raise loans only by paying prohibitively high interest rates. Yet however much attention they may pay to credit history in their consumer lending division, when it comes to sovereign borrowers, bankers seem to believe with Henry Ford that history is bunk, or as the CEO of the world’s then-biggest bank put it in the 1970’s: “Countries don’t go bust”.
Sure enough, this year, lenders have finally come to their senses with respect to the euro zone countries, but not before our bankers – yes, the ones whose skills are as rare as those of a Lionel Messi and need to be rewarded accordingly – had lent them vast sums at interest rates that took no account whatever of their respective creditworthiness, and indeed they are still doing the same with their lending to Britain and America.
The assault on the Irish bond market by bond investors has continued with a vengeance this week with 10-year bond yields hovering close to nine percent at 8.91 percent. Since August yields have been trending higher, but they accelerated sharply in mid-October, when they were at six percent. At this rate, yields could be in double figures by next week.
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
If the economics profession has sunk in public estimation in the last two or three years, it would hardly be surprising. Our failure to predict the crisis is something which cannot be simply brushed aside lightly, as some of my colleagues would love to do.
- Laurence Copeland is a professor of finance at Cardiff Business School. The opinions expressed are his own.-
Worries about Europe’s banking system go back at least to 2007, but whereas the U.S. (and UK) banks appear to have weathered the storm, there are fears that for European banks the worst may lie ahead. Concerns centre on four areas.
Central banks in debt-strapped countries have a golden opportunity ahead of them, if you will excuse the pun, to help their countries' finances by selling their yellow metal holdings.
At least, that is the message that Royal Bank of Scotland's commodities chief Nick Moore has been giving in recent presentations -- and he thinks it might happen. The gist is that gold is now at a record price but banks have not come close to meeting their sales allowance for the year.
-Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.-
Anyone looking for a broader perspective on the events of the last three years could hardly do better than choose for bedtime reading “This Time is Different” by Carmen Reinhart and Kenneth Rogoff.
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
If a gauge is needed to measure how concerned investors are at about sovereign default risk, we need look no further than the price of gold which has made fresh all time highs this week.
-David Kuo is director at the financial website The Motley Fool. The opinions expressed are his own.-
You could not make this up if you tried.
Britain gets its knickers in a twist over a hung parliament, Europe has been unceremoniously skewered by a Greek debt crisis, and if that wasn’t bad enough, the Bank of England’s Monetary Policy Committee sits idly by as the rate of inflation climbs.
– James Saft is a Reuters columnist. The opinions expressed are his own –
To look at sterling and gilts, you would hardly know that Britain is sailing into a general election which will likely deliver a weaker government with a diminished ability, if not will, to grapple with high debts, an uncertain role in the global economy and an aging population.
-David Rankin is managing director of business advisory, tax and assurance at Vantis. The opinions expressed are his own.-
There is no doubt that the economy is one of the most contentious issues in the run up to the election. While politicians argue over who would be able to handle the economy in the best manner going forward, we thought it would be far more telling to ask smaller businesses, those at the hardest end of the coal-face, just what they thought would happen to the economy.