I know this is going to sound like a negative post, but I don’t think I can just skip over the subject as if it’s not happening.
Worries about European and American debt has caused the financial markets to sell off their shares in a manner not seen since the financial crisis 3 years ago. Markets are spooked by the fear that governments won’t be able to pay off their debts and that the measures they are taking to reduce their budget deficits aren’t far reaching enough.
The biggest European risks at the moment are Spain and Italy. Today the ECB announced that they would start buying up Spanish and Italian debt to try to ease the worries in the markets, but all Asian markets closed sharply down, and at the time of writing the FTSE 100 is down 1.5%. Last week alone the FTSE lost over $262 billion – that’s about the same as our whole budget deficit in sterling!
So what is the going to mean for the spending public? Well this crisis is different to the last one in the fact that governments are struggling with their debts and not the banks, so immediate liquidity problems shouldn’t be a problem. However, if a country was to default on it’s debts, banks with money locked into those government would then start to take hits. It’s then when we could start to see banks coming under the strain again.
The big worry from our point of view is how much media coverage this story is getting. The big headlines and 24 hour analysis isn’t going to inspire the public to go out and buy a house full of windows and doors. I know some of you are going to think I’m being hypocritical for writing this post, but as I’ve said before, this site gets nowhere near the coverage the news channels do, so won’t really cause that much harm.
There is a potential for this crisis to be as bad as the one in 2008. At the moment the markets are very volatile, full of knee-jerk reactions because of the potential unknowns. Those buying and selling just need to keep their heads. Over reactions could cause this situation to become unnecessarily worse, plunging the world into another recession.
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