Tuesday, January 15, 2008

Silver And Gold

If you're willing to give it a chance, and you're curious as to just how big a deal the current mess the global financial markets appear to be in, then this debate in last month's Prospect was well worth reading.

Robert Wade is very convincing when he says:
"This is a topsy-turvy world, where the international financial system pushes
exchange rates the wrong way, amplifying rather than reducing current account
imbalances. Bubbles in the markets for credit, foreign currency and houses
become more likely, often followed by crashes. It is not that financial markets
are irrational. The problem is that unrestricted capital inflows prevent the
mechanism of depreciation from working. More recently, the instability has been
amplified by... the arrangements for splitting, spreading and hiding risk, to
the point where no one is able to assess it or take responsibility for it."
Anatole Kaletsky, a London Times columnist, tries to argue, on the other hand, that everything is, in fact, hunky dory.

However Private Eye have recently profiled all of Kaletsky's duff economic predictions, making him the star of their Hackwatch column in one issue. In the current issue the Eye details how Kaletsky's financial advice service apologised for publishing (and they quote here) 'a piece [in November] called A Year End Rally, in which we argued that the stage was set for a strong recovery on shares. As it turned out this was not our best call... Indeed month to date the World MSCI has dropped 3.6%, on track for the second worst December performance in at least 25 years.'

I'm guessing Wade is right and we're all screwed, then.
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