If and when China makes its currency convertible and opens its financial system the stage will be set for a bubble that should make the dotcom and housing booms look tame.
The Great Debate
Rest in peace, Great American Consumer. We will not see your like again.
“Cash-for-clunkers” aside, consumers seem bent on actually paying back debt rather than racking it up, a change that if sustained, as it is likely to be, will dampen economic growth not for months but for years, and not just in the U.S.
Activity in the U.S. housing market has bottomed – a huge plus for the economy – but a recovery in prices will not be sustained and the threat from real estate to bank capital remains acute.
A proposal to give banks, hedge funds and private equity firms “affordable” credit default swap-based insurance against market panics will be very effective: it will effectively encourage even more risk taking and turn the next crisis into one about government credit.
Investors met the news that Japan’s economy has emerged from a bone-breaking recession calmly and rationally: they sold shares quickly and in large amounts and made bets that consumer prices are going to be falling for years to come.
Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government’s bailout itself and the underwriting of banks that are too big to fail.
Things in the U.S. economy are moving in the right direction, but the pace will be slow, frustrating and very likely to disappoint investors betting on a rip roaring old-fashioned recovery.