Every economy needs an engine-room: better one manned by bankers than none at all
Well, unfortunately the water is pouring into this engine room now that the vessel has hit the iceberg.
The fact is that this globally extractive industry is - with a few honourable exceptions - parasitic upon truly productive industries. It produces virtually nothing of real value, but rather, manufactures out of thin air financial claims over real value.
I must say I had not appreciated the full effect on government finances that a collapse in City earnings will bring about. It makes it all the more necessary to come up with a new framework for public finance.
As you say, we're just hitting the windscreen as we apply the brakes: the real crash is just up ahead....
It's true that since Thatcher the rest of the British economy has been eaten up, destroyed, drained of vital resources. This is the Anglo Disease, like the Dutch Disease in which investment and resources were channeled into natgas to the detriment of the whole economy and its balance. When locusts move on, they leave nothing behind
a) It doesn't seem to recognize any value to diversification. I'm not fond of the City on various grounds, notably the way subsidies and policies are skewed to the benefit of the City at the expense of other industries. But, that doesn't mean to say I'm against Britain being involved in Financial Services, or even it being a serious part of the economy. But why should/must it be the only part?
b) I suppose this can be read as part of my first point, but taken as a whole, the "engine room" nature of the City seems profoundly dependent on various cycles in the world economy. We've had some years where those conditions have been favourable, but what kind of idiot doesn't plan for adverse conditions? But it seems there is no idea of how the economy continues when the City takes a downturn.
The current implosion in that industry is very bad news (VBN) for Britain and Gordon Brown indeed. Not only have the Eurozone and Frankfurt, London's chief competitor, been relatively unaffected, but Eurozone countries still have strong industrial sectors to add substance to the sometimes ephemeral nature of financial services and products.
Think where will the Chinese, Indians, and Oil producing countries invest their massive surpluses from now on? The nosediving dollar, the stagnant pound, or the Eurozone which still produces a lot of real products (Airplanes, Cars, hi tech goods) that people actually want and need in the real world?
The very thing that is supposed to have held Eurozone countries back - excessive government regulation - is also what has ensured that their financial services are backed by real assets.
The dollar will recover it's poise in due course, the USA's real economy is still quite strong. But whither Sterling? notes from no w here
The dollar will recover it's poise in due course, the USA's real economy is still quite strong.
The dollar as currently constituted is finished.
The crash coming will be as dramatic as that at the end of the Japanese bubble and there is still a long way to fall. The difference will be that there will be stagflation in the US, not chronic deflation as in Japan.
The underlying US economy is potentially strong, for sure, but where will the money come from to mobilise it? The one thing I do know is, it won't be in dollars as we know them.
The US economy is still growing faster than the EU - and current currency movements will only exacerbate that divergence unless the EU reduces interest rates sufficiently to halt any further appreciation of the Euro. notes from no w here
It will join the Euro, of course, as soon as the City decides it is in its own best interest or the BoE/FSA/Treasury crash the ship through incompetence. However, the UK will have to go through two years of pain while they join the EMU exchange mechanism before they can actually join the Euro. We have met the enemy, and he is us — Pogo
