In another week of further currency fluctuations following the $750Bn loan guarantees provided by the EU and IMF it makes you wonder why such huge numbers don't appear to make the dramatic impact they should.
It's hard if not impossible to pin it down to a single cause but it seems like chaos theory is running the world, funnily enough, those of you who study chaos theory will see remarkable similarities between it and the way the world of trading.
Just over a week ago now the world stock markets nose dived. Was it because of the estimated 5000 barrels of oil pouring into the Gulf of Mexico and impact it is having on the economy and wildlife or was it because of the ash cloud continuing to affect air travel. Well, not really, it's because the Greece bailout, when it finally came was not deemed to be big enough and there were concerns that the European Currency would start to tumble taking countries other than Greece with it. Greece needed to borrow more to pay the interest on it's debts which is like me or you going to a bank and asking for a loan to cover the escalating interest costs for our mortgage. Don't worry though, it's the way governments work, they operate differently to the man on the street.
Greece's borrowing is not unique but the world economy starting to wake up to the fact that borrowing above your means is not the best of fiscal measures so they all had a bit of a chat, a long chat actually, it lasted 11 hours and decided that the best thing to do was provide a pool of funds $750bn to allow countries like Greece to continue borrowing but at a lower interest rate. The simple aim being to ensure the Euro retains it's strength and does not fall over the precipice.
Sure enough, the Euro bounced back (temporarily) and all was well again and stocks began to trade as if nothing had happened. But it had, $750Bn is a big number but it takes a number like that to stabilise currency, stabilise stock markets and keep countries from going bankrupt.
The UK recovery is starting to take shape, slowly but it is starting to recover. The early plans were to have a low valued currency, meaning imports were more expensive and exports cheaper. People would buy cheaper British goods so helping the economy grow. A good plan, but it's not that simple, the UK trade defecit reached 4Bn last month, more than the month before so what is going wrong. People are a little more astute than governments sometime. If a person doesn't have the money to buy expensive goods in a time of recession, they tend not to buy so even though British goods are cheaper, people still aren't buying. We're still importing from countries like China because their goods are cheaper.
In a slight twist, sterline rose a little last week off the back of the 11 hour meeting. This means that the cost of exports rose (people buying our goods had to pay a little bit more) but it did mean that the UK government bonds are a little stronger making it a little bit cheaper for the UK government to borrow more money. To top it all, UK interest rates remain at an all time low, they want us to borrow at low interest to buy goods to help the recovery, making the pound stronger and making it easier for the government to borrow at lower rates.
Simple isn't it. The world relies on credit, the more expensive it is the harder it is for economies to recover. But wasn't it the credit crisis that caused all the mess in the first place. Ho hum.
No comments:
Post a Comment