Posted on 25 July 2012 with 1 comment from readers
The eurozone sovereign debt crisis is very close to going critical and could blow up before the end of this year with a Greek exit from the euro creating a Lehman-style contagion in the global banking system.
That was the blunt assessment of Professor Niall Ferguson addressing the Agora Financial conference in Vancouver. He was there to promote his latest book ‘Civilization’ that charts the rise of the East and fall of the West.
Of course any book is written many months in advance of publication and so the story moves on in the interim, especially during an ongoing financial crisis or ‘Slight Depression’ as Professor Ferguson characterizes our era,
However in case the company does not have a strong fundamental then it could start to sell and immediately go to a discounted price. You should do through research or take other advice of a broker to know whether a particular stock should or should not be added to your portfolio.
and the one-time company biographer of the Rothschild dynasty has an amazing historical perspective on this.
He pointed to there only being three real depressions in history: the 1870s, 1930s and today. And why was it that today we only have a ‘Slight Depression’ and not something like the Great Depression of the 30s?
Professor Ferguson answered this very succinctly noting that the Fed and other central banks had read the history of the 1930s and responded to the recent crisis with exactly the opposite policy response.
‘The trouble now is that we don’t know exactly what effect doubling or tripling the money supply will have,’ he added. “It could be inflation but the transmission mechanisms are not fully understood and we cannot be sure.’
Hence financial markets are confused, volatile and turbulent. And from a historical perspective he actually thought our current depression had more in common with the 1870s when there was less unemployment and deflation than in the 30s but the depression dragged on for rather longer.
So this could be a matter of a lost decade for global economic growth. But from what Professor Ferguson said about Greece it is also apparent that we may well not have seen the bottom yet.
How low will things go? Bond crises are nasty events in financial markets and bring financial ruin. The aftermath of higher interest rates is severely deflationary and causes a depression of economic activity.
On this Professor Ferguson did not have anything to say, cleverly leaving such immensely difficult speculation to others. Instead he set out a list of challenges facing the next generation that seemed a little inconsequential with the plates about to be smashed in Greece.
The Agora Financial conference may offer some more clues over the next few days so watch this space.