I have not written in English for quite some time as we discussed Poland-related matters. This post is of global interest so I use the only global language – globbish (i.e. simplified English).
In the recent article in Financial Times professors C.Reinhart and V.Reinhart warn that crisis is not behind us, that we are in the middle of it. The looked at financial crises in the past 200 years and found that way to often policy-makers call the crisis off way too early. A quote:
But the bigger worry remains the assumption that dust has begun to settle; that the shock from the crisis is temporary, when it is likely to be deep and persistent. Today, as in the past, over-optimistic fiscal authorities are over-estimating tax revenues. Financial supervisors want to believe that troubled banks are temporarily illiquid, not permanently insolvent. And central bankers like Mr Bernanke may soon attempt to restore employment to unattainably high levels. If they do so, the road to recovery will be long, and the lessons of history will have been ignored once more.”
To put it really simple. Growth is likely to remain low in the coming years, tax revenues will be modest, public debt will continue to rise or will remain elevated in the best case. In such environment it is very easy to scare markets, to experience herding behaviour, so see investors flee highly indbeted markets, or banks with heavy loads of risky sovereign bonds.
This lies ahead. This is what a history of the past 200 years teaches us. You have been warned. It is the duty of the governments to prepare national balance sheets to weather the upcoming storm. It is the duty of company management to prepare for weaker consumer spending and and temporary disruptions in credit markets.
Investors, fasten you seatbelts real tight, the next wave of volatility is coming.
We all had a pleasure to enjoy the Greenspan post-Fed book – The Age of Turbulence. After hearing Ben Bernake speak last week I have this troublesome thought, that Ben’s post-Fed book will have the following title:
“Hurricane Ben. Great turbulence that I helped to create”.