Financial meltdown - are the doomsayers right?

There’s a bubble and it’s going to burst, say the experts.

Which bubble, though?

The Daily Mail’s Andew Neil focuses on the US’ national debt which has passed $40 trillion – 124 per cent of GDP, before noting “Every major economy is in hock to the bond markets. France’s national debt is 116 per cent of its GDP, Italy’s 137 per cent, and Japan tops them all with 204 per cent.”

The Mail’s Alex Brummer has breakfasted with a hedge fund manager who says that the crisis will be triggered by a collapse on the stock market whose gains have been supercharged by speculation in Artificial Intelligence. Brummer harks back to the dotcom mania at the turn of the Millennium and his advice is… “Take heed of that hedge funder’s warning – and plan accordingly.” That’s not very helpful but at least he got a croissant and a coffee out of the meeting.

More practical is the Mail’s Jeff Prestridge who suggests staying in the market but the right parts of it – e.g. bonds, income funds, precious metals – and trimming exposure to the big AI stocks.

Other assessments are available…

For example there is Promethean Action who think the growth in US government debt is tolerable provided the economy can grow faster. This conservative, pro-Trump team sees an ongoing battle between globalists and the American economic nationalism pioneered by Alexander Hamilton. Promethean sees the British as the long-term villains, promoting wars and manipulating finance to replace by influence the power they had with the British Empire.

Another analysis is offered by Professor Steve Keen, one of perhaps only twenty professional economists (out of 20,000) who predicted the Global Financial Crisis of 2008-9. He says that the cause of recessions and depressions is not government debt but personal debt. Household debt reached an all-time high of 155.8% of disposable income in 2008. Individuals cannot conjure up more income to manage their obligations but governments can. So under Modern Monetary Theory the State could invent more credit and inject it into the economy to maintain demand and then suck it back out again to prevent inflation. There are those who say this approach is dangerous and one dreads to think what our socialist government would do given unlimited power to print money.

All this may be irrelevant if we further damage our country with war. Arguably Britain’s ruin began with our Government’s decision in 1914 to declare war on Germany. Now we are making weapons for Ukraine to use on Russia including its civilian population and our new PM has reaffirmed his support for Zelensky. Russia perceives us as directly involved in the conflict and has just recently withdrawn its ambassador to the UK.

Maintaining the value of investments (for those lucky enough to have them) may soon be the least of our worries, thanks to the clueless ideologists in Westminster.