Withering Green Shoots?
by Tom on April 22, 2009
in Market Musings, banks
Martin Wolf from the Financial Times has a good write up on the dangers of assuming that this bounce in the economic news and the stock markets is indeed a bottom. It can, in my mind, be summed up by one word:
Deleveraging
What does that mean? It means that the entire world was drunk on credit and we’re just starting to get over the hangover. But there’s still the realization that alcohol was a problem and we need to stop drinking.
It means that individual consumers are changing their spending habits because they have realized that they can’t keep getting further and further in debt.
It means that this isn’t over yet…..
Tom
InfoViewer: Why the ‘green shoots’ of recovery could yet wither
The danger is that a turnround, however shallow, will convince the world things are soon going to be the way they were before. They will not be. It will merely show that collapse does not last for ever once substantial stimulus is applied. The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained, private-sector-led growth probably remains a long way in the future.The world economy cannot go back to where it was before the crisis, because that was demonstrably unsustainable. It is at the early stages of a long and painful deleveraging and restructuring. Fortunately, policymakers have eliminated the worst possible outcomes. But there is much more yet to be done before fragile shoots become healthy plants.
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