The end of the prologue

Economic growth, Financial Events

The report in today’s ‘Financial Times’ that Barclays Bank has lost ‘several hundred million dollars’, means that the UK has now joined every other global financial centre in suffering from the US subprime mortgage crisis. The news followed Friday’s 5% drop in the value of Bank of China’s shares, after it revealed it held $9.7bn of securities backed by sub-prime loans.

The question now is whether this purely financial crisis will roll over into the real economy? So far, the signs are hopeful that it won’t. The latest weekly Economic Report from Kevin Swift at the American Chemistry Council actually shows a slight improvement in its running tab of positive indicators to 16 out of 20.

And outside the USA, the ACC report shows that ‘global chemical industry production expanded in July’, offsetting a revised decline during June. It says that the ‘improvement was broad-based and was strongest in Africa and the Middle East and in Central and Eastern Europe.’

However, Kevin does caution that key US indicators such as durable goods orders and leading economic indicators may not yet be fully reflecting recent financial turmoil. Whilst the US National Association of Realtors reported yesterday that the median US house price fell in July for a record twelfth consecutive month, and is now 0.6% lower than a year ago.

At the moment, liquidity seems to be improving again in financial markets, and some confidence has returned. But as I noted on 10 August, US house prices haven’t declined nationally since the Great Depression. With median wages static, and falling house prices, will US consumers decide to cut back their spending? And will lenders be happy to continue lending to them, if they need to borrow more to maintain their spending?

The subprime crisis is too recent for anyone to know the answers to these questions. But people are already beginning to return from the beach, as the summer holiday season comes to an end in the northern hemisphere. As we move into September, we may therefore begin to discover whether the Barclays news marks the end of the current financial crisis, or is a prologue to its extension into the real economy.

PREVIOUS POST

Comments off until Tuesday 28 August

24/08/2007

We will be undergoing routine maintenance this week end and you will be unable t...

Learn more
NEXT POST

China’s Finance Minister resigns

30/08/2007

You may remember that the Chairman of Sinopec, Chen Tonghai, suddenly resigned l...

Learn more
More posts
‘Watch out below!’ as supply chain chaos comes to an end
14/11/2021

“What goes up, comes down” is usually a good motto when prices start to reach for the sk...

Read
Industry now needs to step up, if Net Zero is to be achieved
31/10/2021

Net Zero is clearly the key issue of our time. With COP26 about to start, 3 key elements need to com...

Read
The Fed’s stock market bubble is at risk as China bursts its real estate bubble
24/10/2021

The US stock market bubble just keeps rising. And every investor “knows” that the US Fed...

Read
EU patience starts to run out as UK threatens to break the N Ireland Protocol
17/10/2021

Unsurprisingly, it turns out that Brexit still isn’t “oven-ready”, despite the UK ...

Read
An end to the China bubble would risk a Minsky moment
05/10/2021

My letter in today’s Financial Times warning of the risk to Western financial markets from the bur...

Read
Xi aims to “bring order out of chaos” by bursting China’s property bubble
03/10/2021

China is at the start of its biggest economic shake-up since 1978, when Deng Xiaoping launched his p...

Read
The end of China’s real estate bubble will impact global supply chains, exports and growth
26/09/2021

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly....

Read
An Evergrande default could reset the Chinese, and global, economy
19/09/2021

China’s economy has been ‘subprime on steroids’ since the financial crisis in 2008...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more