Credit Crutch

In the time sine I last posted anything, the "Credit Crunch" has gone from bad through worse to somewhere near disastrous. Banks in the UK and the US have been rescued, Lehman has failed, Morgan Stanley's motto went from "The Thundering Herd" to "The Blundering Nerd" before, themselves, running to be protected by a bigger bank.

Here have a problem, does bigger mean better? And what about Fractional Reserve Banking? Would we be in this mess if we still had local banks and a banking system that held full reserves? I suppose that is in effect the million dollar question. Perhaps we are living in a time that just HAD to happen, because all we have done since 1996 bis postponed the inevitable. I have a feeling that the unproven thesis in economics called the Kondratiev Wave may just have been proved both true. It may also be that the last 10-12 years have been the gold rush they have for the banks for the simple reason that we now have politicians that are beholden to, or perhaps just in awe of big business and rich people.

To understand what the Kondratiev Wave or other long timescale economic cycles are, have a look at this. There are some good links there that will help you understnd what people believe may be happening now. However if one takes a Kondratiev cycle to nominally be 53 years, and recognizing that a wave commenced after the senond world war, say 1946, this means the last cycle should have finished in 1999. It's interesting to note that 1999 was the beginning of the "Dot Com" bust, but while this did have a major effect on the Worlds Stock Markets, but little effect on the man in the street. Perhaps the Intenet did change the paradigm, or at least perhaps distorted it, extending it by seven years to 2007.

It was there that the stupidity of trying to sell houses to people that cannot afford them was finally realised. Since then a new vocabulary has appeared "Sub Prime", "Tier A Capital" and "NINJA" are good examples.

Where do we go from here? I believe the saying "God only knows" may be the closest to reality, but I worry that we are nowhere near that bottom. Stock markets are leading indicators, usually 12 to 18 months, so it would seem we can look forward to a pretty tough 2009, even with where we are now, although some commentators have called the bottom of the bear market I don't believe we are there yet, but only time will tell