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Is It Time to Panic Yet?

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The ScreamDid you catch the IMF playing the role of a stern nanny swatting world governments across the buttocks yesterday? According to José Viñals, the body’s financial counsellor (and we could all do with some counselling right now, right?):

… financial stability risks have increased substantially – reversing some of the progress that had been made over the previous three years. So we are back in the danger zone.

Whoops! That might have something to do with a bunch of countries facing elections in the recent past or in the not-too-distant future, where promises to increase government spending and possibly raise taxes would be deeply unpopular with certain sections of the electorate. There’s also the fallout from various bailouts, where banks, saddled with greater capital requirements, are now loath to lend to businesses for fear of diminishing their profit margins.

Then there’s consumer spending. That looks freakishly buoyant for a global economy that is supposed to be on the brink of collapse, but I suppose that people who have jobs still have money to spend.

The solution by the sages in various financial centres is that we need more jobs. Because (at least in the US and UK) governments don’t want to be seen as spending more than absolutely necessary to keep the whole banana boat afloat, this generally means we’re in for another round of quantitative easing. Printing money! Now, this didn’t work before, because in the wake of their bailouts, major banks took the extra money that had been created and hoarded it. But there’s absolutely no reason why the same approach won’t work this time round, right?! Right?

Meanwhile, every man and his dog is betting against the euro, a currency formed from political rather than fiscal motives, and (again) because of those pesky elections, the eurozone’s finance minsters have been paralyzed into inaction.

Basically, it looks like the global economy is in for a bumpy ride. Is it the end of capitalism, as Marx predicted? Will it set off World War Three, as countries withdraw from trade agreements and seek succour in protectionism? Or are we all going to end up eating leaves and berries in the woods as the world descends into every-man-for-himself anarchy?

Who knows. But if you were trying to profit off uncertainty right now, I’d invest in the shares of battery manufacturers.

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