Governor of the Bank of England warns of final day of reckoning
Posted on 19 October 2011 with 5 comments from readers
The Governor of the Bank of England Sir Mervyn King is warning that governments have still not addressed the fundamental issue of overspending which lies at the root of the financial crisis. Nations have been living beyond their means on borrowed money for too long.
In a speech in Liverpool last night the governor said action by eurozone leaders this weekend would only ‘buy time’ but added, ‘So far, that time has not been used to deal with the underlying imbalances, or the weaknesses in bank and sovereign balance sheets. Time is running out.’
Another stop-gap?
There is mounting expectation in financial markets that a meeting of EU leaders this weekend will reach agreement on a bailout deal for the banking sector and final solution for Greece. But sovereign debts continue to rise with the West borrowing from the East to finance a lifestyle now beyond its means.
‘Without a rebalancing of spending in the world economy, a struggle between debtor and creditor countries will inflict economic pain on everyone,’ Sir Meryvn noted. ‘We must use the gravity of the global crisis to provoke a bold response.’
Britain is the most overborrowed nation in the world (click here), so it is good that the country’s top central banker finally gets it. However, he could not resist the buck passing remark that international problems are ‘a threat to our strategy of rebalancing and recovery of the UK economy’. This is also far too little, far too late.
Sir Mervyn got close to the bone, however, pointing out that low interest rates and quantitative easing or electronic money printing had done nothing except ‘delay and exacerbate’ the final day of reckoning. The speech sounded like an apology for past policy failures.
Punch bowl almost empty?
Central banks have been failing in their duty to take the punch bowl away from the drunken public and private sectors for years. There has been an orgy of debt accumulation. They now keep the party going a little longer if they can do it with more of the same toxic brew.
It will clearly not be governments who put this right but financial markets that eventually collapse. This will cleanse the system and destroy the bad debts and bankrupt the debtors. Trying to save everybody when there are only liferafts for half the passengers will never work.
How close are we to this sticky end? Well when the Governor of the Bank of England starts laying out the case so that he can later say he told you so it is time to worry. This month’s ArabianMoney investment newsletter will be looking at how to make sure you end up in a lifeboat (subscribe here).
5 Comments posted by readers:
Piling more debt on top of existing debt works fine, until it doesn’t. After viewing those UK debt numbers, I feel somewhat better knowing that we here in the USA, owe a bit less than those in the UK.
This unpayable debt makes me wonder what life will be like when it eventually collapses. Will the Dow go to 2,000, or 200? Will gold be at $400 or $40,000? Will a dollar be worth $.70 or $.07 ?
The Guardian comprehensive bailout plan sure boosted the markets with their $2 trillion fund rumor. The enormous leverage that they are considering sounds a bit dangerous should another recession hit. I would discuss the latest downgrades, but they are getting too numerous for me to remember.
MarketWatch has a depressing article on corruption in Russia under Putin and pals. Suffice it to say, that 40% of the population under 25 would like to leave. Next thing you know, someone will discover that Chinese firms steal intellectual property and keep multiple sets of books. That video of the people walking by the child run over by the van was scary. I wouldn’t want to be living next to them.
I don’t think that politicians are any more foolish than non-politicians, such as bankers and borrowers.
I reckon that politicians will look for an outcome to mankind’s indebtedness which will not make their responsibility worse than it is.
Therefore, one thing they won’t do, I suggest, is what Mervyn King wants them to do, namely, to reduce public spending severely. I think they will let the financial markets do that for them.
They will get some blame for this, true, but less blame than if the inevitable human suffering that is ahead can be shown to be demonstrably entirely their fault.
Votes for all adults has caused politicians to compete with each other for votes. To gain our popularity, and through that power, they have thrown debt after debt at us. We have loved it! We have picked up the debt, thrown like bread to the masses, and lived like kings and queens for a time.
We have voted for politicians, who will give us the most debt to enrichen our lives, and they have never dared to warn us or to regulate the banks or to stop fractional reserve banking.
This has been the way of Democracy! Now that Democracy has been so abused by us all, it is dying. Its terminal illness will bring in anti-capitalist riots and authoritarian responses.
What lies after the death of Democracy? Some sort of non-representative Autocracy!
An Autocracy, which doesn’t give a damn about the vote or the voters of the past but will impose its diktats upon us on pain of punishment. And perhaps we have deserved it!
A$..King can’t be both a money printer and a beacon against debt..he, his predecessors, ALL the other central banks – same corrupt deal..Peter – can you believe WHERE WE ARE TODAY is not by DESIGN?..does our situation appear in the least accidental?..these minions have a fast approaching timetable they wish to arrive at..
there is no stopping this end..the selection is for their kind of bankruptcy, which will serve the masters interests..the financially disenfranchised will pay
The South Sea Bubble is an example of a system with no overall control. The result of interaction of multigoal-seekers (if I may) always distills into anarchic reusult. This can be shown clearly using a mathematics presentation.
The present situation, not clearly described, by definition, is what is occurring at present. Each interested party, constrained by its goals, interacts to destroy the existing structure on its way to anarchy.
The primitive “attempts” by the parties to do good and avoid evil have certain comedic aspects. One is reminded of Greene’s Third Man Theme with the chaps discussing the view from the Ferris Wheel.
You may want to watch the EXCELLENT 8 minute video at http://www.bloomberg.com/video/78369788 ‘France, Germany May Lose AAA Rating, Grant Says’ in which Mark Grant of Southwest Securities discusses the awesome magnitude of the debt problem in Europe. Summary : RUN!
Meanwhile some author on CNBC Europe in London is describing Europe as ‘terminal’.
Maybe the second meeting next week will sort it all out.