No Government can ever act on the basis of certainty. It is always forced to act on the basis of probability. In other words, there is no REAL idea as to when the current financial mess will end so decisions and actions are based on a “best-guess” basis.
Stock market prices lie in expectations for the future. It is a constant battle between optimism and pessimism. When there is optimism one expects:
Confidence in the Banks and the Marketplace
Consumers confident enough to engage in long-lasting spending sprees
- Rising prices
During a period of pessimism, the converse is true.
Depending on whether you are an optimist or pessimist, you will be anticipating one of the following (most probable) outcomes:
Uncontrollable money-printing and excess spending on bailouts and stimulus , producing a new, super-inflationary environment with a falling Pound and rapidly accelerating unemployment. (Option A)
A major change in capital flow evidenced by shifting consumer and bank attitudes, thereby generating a period of deleveraging and deflation that will eventually produce a economic rebalance and a strengthening Pound. (Option B)
Needless to say, the Government is hoping for Option B but at the same time it is running up its (our) budget deficit to historic levels and will soon be printing money like confetti.
The fact that unemployment is heading for a new record and consumers are spending far less means that the Government has painted itself into a corner and can only lead the country to Option A.
Our collective wealth in stocks and housing has been destroyed and Sterling is at a 23-year low against the Dollar which, post-Obama, will gain strength, thus further eroding the Pound.
Yes, we are up dirty creek without a paddle.
Notwithstanding the odd Minister-induced “virtual” green shoot and platitudinous attempts by government to tell us that “We’ll get through this”, the current perception both within the banking system and the real world is one of overwhelming pessimism.
The low Bank Base Rate and lack of consumer confidence in (what are still laughingly referred-to as) “lending institutions” will result in more and more money being kept under the mattress. The banks are doing it so why shouldn’t we?
The government should set sail for Option B (above). Unfortunately, it appears that no-one has any idea of where to start and the rudder appears to be broken.