The darkest hour is just before dawn. We heard yesterday that UK inflation has fallen to 4.2% and that fall is mainly due to lower petrol prices and the effects of the VAT hike to 20% having worked its way through the system. The experts think that inflation may be around 2% by April. We also heard that unemployment figures have fallen – not by much – but have nevertheless fallen.
The problem on the world economy is twofold. The Euro problem shows no signs of resolving itself and the markets and people of the world are beginning to treat the grave uncertainty that surrounds the Euro as a fact of life – rather like the weather. You can get used to everything and the longer the uncertainty surrounds the Euro the more likely that any resolution will be orderly and ultimately logical.
The second great part of the problem is that no one really knows whether the USA, the world’s most powerful nation and possibly strongest economy at this time, is beginning to prosper or beginning to decline. The prosperity of many manufacturing nations, such as China and México, is strongly linked to the US economy. In China we have growth but it is hard to estimate how much growth, as there is also inflation.
When we look back at the world in twenty years time we shall probably see that the economic problems had reached their worst by now and were starting to resolve themselves. The key question is whether we will have learnt our lessons. Some nations seem to be on the right track in some respects; the UK’s proposal to split retail banking from investment banking is a step in the right direction. The fact that banks in Europe no longer trust each other to lend short term and would rather pay to deposit short term funds with the European Central Bank is I hope the beginning of a new reality in banking practice.
The real problem with the economy is one of size. There are too many enterprises that are too big. They are characterised as being too big to fail but the real characterisation is that they are too big to control and too big to regulate properly. Institutions like the big banks, the big oil companies and steel companies, the big energy companies are able to act outside the laws and rules that apply to smaller enterprises and individuals.
This may well be the cause of more economic woe in the short term future, unless governments can get to grips with the problem.
Filed under: banking Tagged: | darkest hour is just before dawn, uk inflation, world economy
