{"id":357,"date":"2011-09-18T18:55:20","date_gmt":"2011-09-18T18:55:20","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=357"},"modified":"2011-09-19T14:07:21","modified_gmt":"2011-09-19T14:07:21","slug":"global-crisis-about","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/featured\/global-crisis-about","title":{"rendered":"What is the Global Crisis About"},"content":{"rendered":"
\"Switzerland<\/a>

Switzerland Central Bank <\/p><\/div>\n

The decision by Switzerland\u2019s central bank to devalue the nation\u2019s currency by pegging its exchange rate at 1.20 to euro – at a lower level than previously set by the free market \u2013 and to \u201cprint\u201d an unlimited amount of francs to finance purchase of foreign currencies, is the latest sign of panic by global policymakers.<\/p>\n

They are adopting extreme and unconventional measures to cope with increasing stress in the world\u2019s financial system.<\/p>\n

It won\u2019t be the last of such measures. And by resorting to them, policymakers have triggered what Rod Davidson of Alliance Trust Asset Management describes as a \u201cmassive crisis of confidence\u201d in global markets.<\/p>\n

Chris Iggo of Axa Investment Managers says investors\u2019 expectations of economic growth have been revised down \u2013 \u201cwhich means either that debt-to-GDP levels will remain higher for longer, or more severe austerity.<\/p>\n

\u201cMoreover, the confidence of investors in the ability of policymakers to accelerate the adjustment has all but disappeared.\u201d<\/p>\n

Governments have been basing their policies on the assumption that the world economy will returned to sustained growth at the levels experienced in recent decades, but investors are coming around to realizing that assumption is false.<\/p>\n

That will have ominous consequences.<\/p>\n

Stephen King, chief economist at the giant international bank HSBC, writes in the FT that investors are now \u201clicking their wounds, having moved prematurely into equities without understanding the nature of the crisis.<\/p>\n

\u201cThe underlying problem relates to the totality of claims within the financial system on economies that have badly underperformed relative to previous \u2013 over-optimistic \u2013 expectations.\u201d<\/p>\n

He says that prior to the crisis that erupted in 2008, economists routinely thought the US economy could expand at a 3 per cent annual rate in perpetuity.<\/p>\n

Yet through the course of the economic cycle that coincided with the Bush presidency, \u201cthe US grew at only a 2 per cent rate, despite the \u2018help\u2019 of a housing boom, excessively loose credit, and financial trickery in all its many forms.\u201d<\/p>\n

The long-term average growth rate of the US economy may now be even lower.<\/p>\n

The burden of debt is now too big to be supported by the \u201cnew economic reality\u201d of lower economic growth.<\/p>\n

\u201cIn this world of economic permafrost,\u201d King writes, \u201csomeone, somewhere, will have to accept losses.<\/p>\n

\u201cWill those losses accrue to taxpayers, recipients of public services, equity investors, bondholders, domestic debtors or foreign creditors?\u201d<\/p>\n

Ultimately politicians will have to determine how the pain is to be shared out \u2013 but deciding how that is to be done still seems a long way off.<\/p>\n

\u201cIn this world of heightened uncertainty, investors naturally flock to safety.\u201d That is why the yields on the safest bonds \u2013 the securities of nations such as the US and Germany \u2013 have been falling, and their values have continued to rise.<\/p>\n

This shows \u201ca loss of faith in the entire financial system\u201d as investors try to work out the best ways to protect themselves.<\/p>\n

CopyRight \u2013 OnTarget September 2011 by Martin Spring<\/p>\n","protected":false},"excerpt":{"rendered":"

The decision by Switzerland\u2019s central bank to devalue the nation\u2019s currency by pegging its exchange rate at 1.20 to euro – at a lower level than previously set by the free market \u2013 and to \u201cprint\u201d an unlimited amount of francs to finance purchase of foreign currencies, is the latest sign of panic by global policymakers.<\/p>\n","protected":false},"author":1,"featured_media":358,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"amazonpipp_noncename":"","amazon-product-isactive":"","amazon-product-single-asin":"","amazon-product-content-location":"","amazon-product-content-hook-override":"2","amazon-product-excerpt-hook-override":"3","amazon-product-singular-only":"","amazon-product-amazon-desc":"","amazon-product-show-gallery":"","amazon-product-show-features":"","amazon-product-newwindow":"2","amazon-product-show-list-price":"","amazon-product-show-used-price":"","amazon-product-show-saved-amt":"","amazon-product-timestamp":"","amazon-product-new-title":"","amazon-product-use-cartURL":"","amazon_featured_post_meta_key":"","_amazon_featured_alt":"","amazon-product-template":"","footnotes":""},"categories":[8,15,9],"tags":[100,23,101,99],"class_list":["post-357","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-news","tag-central-bank","tag-currency","tag-global-crisis","tag-switzerland","has_thumb"],"yoast_head":"What is the Global Crisis About - 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