In the week that followed a summit to change the world, nothing much changed. Last week, it seemed the leaders of the EU had agreed a package to save the euro. A week on, and the same old problems, same old rows and disagreements are as great as ever.
For one thing the yield on Spanish bonds rose above 7 per cent. Yields were only above that level for a short while. But the fact is that a week on from when Spain was saved, the yield on its bonds hit their highest level since the euro was formed.
In the UK, the US and Germany, on the other hand, bond yields fell some more. At the time of writing the yield on UK ten year treasuries is 1.59 per cent. Re read that, the government can currently borrow over a ten year period at a rate of just 1.59 per cent, around half the rate of inflation.
Of course, quantitative easing helps. Last week the Bank of England revealed a further £50bn worth of what it calls unconventional monetary easing. Some call it money printing, but it’s not really that at all. In the UK the money supply grows via debt; the more we lend and borrow, the faster the rate of money supply growth. In the UK, what’s called broad money supply or M4 contracted at an annual rate of 4.1 per cent in May. Despite QE, the money supply is not, repeat not, growing.
The latest set of surveys revealed that the UK and euro area are limping. Markit, which compiles Purchasing Managers’ Indices (PMIs) around the world, concluded that the UK probably contracted at about 0.1 per cent in Q2, meaning the UK is either still in recession or perilously close. The PMIs for the euro area were pretty bad all round.
In the euro area, the latest PMIs suggest that Q2 saw the weakest economic performance across the region in three years, while output in Germany contracted at the fastest rate in three years.
Even Brazil has problems – it is growing at a snail’s pace, with growth down from 7.5 per cent in 2010 to 2.5 per cent last year. The latest PMIs also suggest that Brazilian manufacturing is contracting, and forward indicators point to bigger falls ahead.
PMIs for China were not looking pretty either.
In response we saw interest rates cuts in the euro area, China, and Vietnam. In Australia rates were left on hold, but then again, they have been slashed by 0.75 percentage points over the last couple of months.
In Germany, a survey revealed that the majority of Germans (a narrow majority) are against any more bail-outs in the euro area. And yet the truth is that if the euro fell apart, Germany would be the greatest loser.
Bank of England Governor Mervyn King says we are not yet halfway through the crisis of our times. He is surely right.
And until a way can be found to get all the money that’s flooding into safe havens into investment and stimulus; until a way can be found to get countries hell bent on austerity to spend more; to get less money going into government bonds and more into the pockets of entrepreneurs; to find the leadership that instead of blaming benefit cheats for all our ills, realises that the real problem is the growing gap between the very richest and the rest, the crisis will drag on.
We are in the midst of a new industrial/technological revolution. But instead of this creating wealth for all, it may be creating economic Armageddon. But until consumers, companies, economists, markets and – above all – governments see the opportunity that surrounds us, we are in danger of converting triumph into disaster; the soaring ambition that created the Shard turning into plummeting confidence, and vision turned into myopia.
For today’s stories: The Shard: bubbles and when we lost a sense of reality The problem with bank bail-outs New banks rise from the ashes, but the government must do more to help entrepreneurs A week in focus: More QE, Euro crisis drags on
©2012 Investment and Business News.
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© Investment & Business News 2013