In August, the blog welcomed the statement by UK Finance Minister, Alistair Darling, that the ‘global economy was at a 60-year low’. It noted that he was ‘the first western politician to abandon reassurance and instead to focus on the reality of current problems’. But it still took until last weekend before all the relevant policymakers had taken this message on board.
Financial markets are now busy celebrating their ‘escape’ from the prospect of a major Depression. And so is the blog, as an economy without functioning banks would have been difficult indeed. It is just a pity that this situation was ever allowed to occur. I spelt out the potential problems in a series of 3 letters to the Financial Times in 2006-7, but policymakers were too busy cheerleading the boom years to listen:
• On 3 November 2006, I argued we should ‘beware lending institutions bearing gifts’
• On 27 March 2007, I called for ‘action, not words, to end the liquidity party’
• On 4 September 2007, I summed up the problem in ‘Every mania is based on an illusion’
As is the way of large organisations, Darling’s boss, UK Prime Minister Gordon Brown, will now probably get most of the credit for the rescue that is now underway. But the blog tips its hat to him.
And before we all get too carried away, it is worth remembering that the housing crisis is still unsolved. This is the origin of current problems, and the events of recent weeks have nothing to help stabilise them. The continuing decline in house prices also remains the single most important problem facing the chemical industry, as it weakens demand in core customer sectors.
As the aptly named Mr Darling said in his famous August interview, the coming downturn ‘will be more profound and long-lasting’ than most people expect. He was right about the risk of Depression and, unfortunately, he is right about this too. The blog will analyse the issues this poses for the chemical industry next weekend, in its annual Budget outlook.