Economy in turmoil just as I head off on holiday....
By editor - Posted on September 16th, 2008
Relaxing on the shore of loch ness is great for relaxing, but shocking if you are looking for a mobile signal to get on the internet.
You head off on holiday in good faith and what happens as soon as your back is turned. Lehman Brothers files for bankruptcy. Merrill Lynch gets snapped up (to protect itself). HBOS sees its share price fall, and AIG is under pressure.
Finally the 3G modem has kicked in so I can access what the sage of the BBC, Robert Peston has to say. Is AIG going to be next? Not according to him. In his own words, "If AIG went down, a number of banks' balance sheets would be mullered " I suppose it couldn't have been put in any plainer terms for non economic literates such as myself.
Do I agree? Well clearly there are some companies that for the sake of the global economy, it just wouldn't be helpful if they collapsed. Will that stop the forces of global capitalism, and is Robert Peston once again on the money? I'm not sure. Who knows what further carnage I may read about the next time my modem gets a signal!
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As your old economics teacher can I remind you that many variables in economics are lagged and as such will take time to manifest themselves. The consequences of the imminent slowdown in terms of unemployment, government borrowing etc are not going to be felt immediately. The good news is that when they do appear they will carry on deteriorating after the recovery has begun, which many suggest will not be until 2010.
The next conservative government (does anybody think they can lose?) are going to be inheriting the economic equivalent of a Talbot Sunbeam with little room for fiscal manoeuvre and a desperate electorate seeking new horizons. I hope the conservative party can deliver.
A lovely legacy from Gordon Brown eh!
No doubt they would have you believe todays situation is down to 18 years of Tory rule.
I'm no expert on the current economic situation, but from what I hear, AIG doesn't have enough collateral to meet its obligations under its new credit rating. So short of some sort of a loan or bail out, I don't see how they won't go under. But regardless of whether some private or government entity steps in to "save the day," it sounds like they would just delay problems instead of solving them.
-Nick from Avvo
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