Whilst we Europeans eagerly await 9 or 12 December to see the outcome of what appears to be brewing in Chef Merkozy’s secret kitchens, the latest unemployment figures have been published in the US. Now that the technical recession has, at least officially, been left behind, US unemployment appears to be trending more clearly downwards. The following chart from Chartoftheday.com It’s quite simple and speaks for itself. Although the fall in US unemployment is not happening at the same pace as in previous recessions, there’s no denying that it is happening.
The debate in Europe centres on whether the expectations raised by the Merkozy duo’s appearance on 9 December will be met, or whether, on the contrary, the disappointment of yet another ineffective political stopgap will once again send the markets tumbling and put the insolvency of the European periphery back on the brink. Meanwhile, the world keeps turning. And it does so to allow the most capable, those that evolve in the truest Darwinian sense, leave behind the crater left by the bursting of the credit bubble back in the spring of 2007.
But in Europe there is so much commotion and uncertainty that it seems as though the world has come to a standstill and will not get back on track until a solution to the European debt crisis is found. Nothing could be further from the truth. Whilst here the markets continue their countdown with nervous fluctuations that are affecting other stock markets to a greater or lesser extent, emerging and US economies are carrying on as normal: Some are moderating their growth and experiencing a soft landing, whilst others are trying to consolidate their recovery, leaving behind – not without effort or exasperating slowness – the recessionary figures of what is still the world’s leading economic power.
Perhaps at this juncture, with global economic figures struggling to recover whilst the countdown continues to determine whether Europe’s deleveraging will take place in an orderly manner or through a collapse, it is worth recalling the origins of the chaos. And that was almost five years ago now. If only we’d been wrong when, in June 2007 We predicted the risks posed by the financial house of cards in an article entitled «Financiers and Investors: An explosive mix»:
«Some say that a new economic crash is imminent. It is by no means clear whether people are beginning to talk about something akin to 29 October 1929 or simply a widespread economic crisis that may affect the world to a greater or lesser extent. It is clear that the interdependence of the world’s economies and the house of cards that is the modern financial system do nothing to lay solid foundations capable of withstanding global crises. In other words, some of us are beginning to recognise the dangers of macroeconomic globalisation and the proliferation of financial products, which serve no purpose other than speculation (which is no small matter). In recent years, financial engineers have created structures and products that would have been unimaginable a decade or two ago, and which are underpinned by foundations that are themselves now far removed from the traditional real economy. Complex structures built upon complex structures.
Buying or selling an oil contract is now child’s play for any private individual, even if they have never seen what a barrel looks like or what it contains. These days, the brochure for any structured product consists of a couple of pages explaining how that product will perform over time according to various possible scenarios. Relatively simple text, graphs and mathematical formulas, together with an explanation from the relevant adviser or manager (sometimes even given competently and objectively), will attempt to help the buyer understand how their new financial toy works.