The vicious circle

Paul Tucker of the Bank of England has consistently warned about the dangers posed by the credit crunch to the global economy. Back in December, he identified the key issue as being that central bankers ‘must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other’. He also highlighted ‘monetary policy, liquidity policy, and regulatory capital policy as being amongst the instruments the authorities would need to use’.

In a new speech, he now highlights the fact that major stresses remain in the global financial system. He also warns that ‘in the US at least, evidence of a feedback loop is apparent’. Many senior chemical industry executives accept that the US is in recession, but expect it to be fairly short-lived. Unfortunately, this hope may prove too optimistic, if Tucker’s analysis is correct.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


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