It’s ten years since the financial crisis so it’s about time that an unoriginal hack like me started to lecture people about what the word ‘crisis’ actually means.
Heres the old-fashioned definition of a crisis:
The turning point of a disease when an important change takes place, indicating either recovery or death.
Im not sure that, according to this definition, we can term what has happened during and since 2007, as a crisis. The financial system has neither recovered nor died. And I cant discern any kind of important change taking place either. In fact, Ive got a distinct feeling of déjà vu.
Weve solved a debt-driven crash by flooding the market with more debt. UK household debt is at a record high, the USs credit card debt has never been bigger, and the combined balance sheet of the developed worlds central banks now tops $15trn, according to the FT.
A leading economist at one of our recent events compared the western financial system to a sickly patient in the high-dependency unit, surviving on QE life support. But I dont hold with this view. Its more like an aging alcoholic who refuses to accept the party is over, staggering along the street hunting for the next drink. And instead of shutting the bars, central banks have stocked the shelves and passed 24-hour licencing.
Rest assured, some say, the mother of all hangovers is coming. In fact, almost 60% of those polled in Euromoneys Global Borrowers and Bond Investors Conference in June this year felt that QE merely put off the inevitable. Though no-one can quite agree on what the inevitable is. The equity bubble bursting? Soaring rates, house price crashes and negative equity? Inflation/deflation/stagflation? Perhaps all of the above?
Or maybe Im a tad puritanical in my outlook. After all, we keep being told about this goldilocks economy were living in now. Cheap money, steady inflation, falling unemployment and healthy GDP growth. Central banks talk endlessly about going through a process of normalisation - which sounds like something Stalin might do to political prisoners. That, or a weakly premised Hollywood blockbuster: Normalise that!
The Eurozones on the up (apart from those pesky NPLs) and even Greece the permanent sick(est) man of Europe is plotting a return to the bond market. New banking regulation has greatly reduced systemic risk (or should that be shifted it?). Whatever could go wrong?
My feeling when people start talking about growth and recovery is its rather like being one-nil up against Sir Alex Fergusons Manchester United going into extra time. Its a mistake to start celebrating quite yet. Is that Ronaldo I see warming up?
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