Whenever the financial markets go off the bridge and plunge onto the craggy rocks at the bottom of the gorge you can be certain that investment advisers will be out in force telling us “Don’t panic."
This time it is comforting to note that ordinary folks don’t have to panic – we can leave it to the professionals.
The heads of the world’s central banks have got the printing presses working around the clock pumping out money. They want to ensure that there is adequate liquidity to ensure credit markets don’t dry up. Unfortunately, the world’s commercial bankers are so scared they are unwilling to lend to anybody and prefer to put any cash they get under a rock.
Meanwhile, the U.S. Treasury Secretary and his counterparts in other nations are busy looking at companies that are too big to fail that are failing. In what may be the biggest socialist experiment since China’s cultural revolution, U.S. taxpayers and their government are now the proud owners of one of the world’s largest insurance companies, a couple of mortgage guarantee companies and have taken a major stake in some commercial/investment banks through loan guarantees.
That this is happening in the final months of George Bush’s presidency seems fitting. His government eliminated many of the rules and regulations governing the markets and didn’t enforce others. It bowed to vested interests and let corporate lobbyists run the show. Bad practices proliferated, prudence and wisdom was cast aside and folly was encouraged.
Those eggs are now hatching.
Making matters worse, there was also a report that Standard and Poors, the big credit rating agency, has said that the U.S. could lose its AAA credit rating. If that happened it would be a nightmare. The U.S. government would have to pay a higher interest rate on its multi-trillion dollar debt and there are some lenders who might stop moving money into the U.S.
The result of that would be higher taxes, higher inflation or both.
While this has been a made in the U.S. situation, the troubles have spread to stock and credit markets worldwide. Anyone with money in the markets has seen huge losses in recent weeks. But greater difficulties could come if credit gets tighter and more expensive. Anyone looking to expand a business might have to pay more in interest and some may not be able to get a loan.
The only good thing that might come from this mess is that the next U.S. president will press for stricter rules for financial markets and the next Canadian government will have to resist any temptation to weaken ours.
After events of recent weeks no government can allow a situation where profits are privatized and losses are socialized.
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