ANALYSIS: A gathering storm.

Noah watched the ‘orizon, like
and saw the clouds grow dark –
‘e were not liking t’look of the weather at all,
and were thinkin’ of buildin’ an Ark

(Mike Harding Monologue)

The Fed Reserve’s meeting yesterday afternoon (EST) got what’s being called a ‘mixed response’ from the media and markets this morning. It was hard to see any other reaction resulting from this tepid squib – a yes-no-maybe conclusion to days of oxymoronic Bernankerisms; but in case anyone felt it was good news, the US trade gap widened again – half of it down to commerce with China. Today (BST) the Bank of England ‘s heavily leaked growth forecast reduction emerged from its less than oracular governor Mervyn King, and so now gloom has descended with a degree of finality on both coasts of the Atlantic.

The latest figures to come out of Beijing show both output and retail sales slowing, alongside still-rising inflation and yet contracting money supply. Oil took a dive globally, and the World clamoured for low-risk US Government Debt….preferring that of Japan – perhaps on the principle that for the Sons of Nippon, the only way is up. If so, then the Nikkei defied them overnight by falling yet another 2.7%. Which means both Pacific coasts are glum.

On land in the eurozone, it is like Pompeii after the first small eruption. What was all the fuss about? people ask, as they smile nervously. But the OECD’s Felix Hüfner opined last week, “This current period of optimism and euphoria we’ve experienced in the second quarter is not going to last. The real question is how much growth is going to come back.” And Karine Berger, chief economist in the Paris office of the credit insurer Euler Hermes wrote in Le Figaro over the weekend, “The growth peak is behind us. In the United States and in the euro zone, consumption is stalling.”

Jean-Claude Trichet of the EU’s central bank is noticeably silent. A silence from Trichet is like a petunia in an onion patch – very welcome, but you wonder how it happened. The answer (I’m told) is an edict from his fellow-ECB board members – most of whom never wanted to buy up any junk bonds, and all of whom think their boss has made a pig’s ear of things. To be fair, J-C’s been having his ears boxed by every pundit, leader and pleading banker for the last six months. It must be hard to keep your head with all that going on, and Monsieur Trichet certainly lost his the weekend before last. His message seemed to be “bolt all the exits and prepare for the storm, for the age of austerity is upon us”.

As I write, every major market around the globe has fallen from 0.5 – 2.7%. If there is any specific sense of deja vu around in my head, then it is unmistakeably that period from August onwards in 2007, when The Slog’s predecessor Not Born Yesterday sat waiting for the collapse – wondering if by some Saturday matinee escape, it might yet be avoided. Well, some of it was then, but it won’t be this time: too many usable sources of money have been exhausted.

As in Autumn 2007, bets are being laid about who and/or what the catalyst for panic will be: but the difference this time is that there are many more from which to choose. Spain? A German Bank? The US deficit? A serious run on the euro? Greek default? Russia’s harvest on top of its property mirage? A bond-market meltdown? A market-starved China? The list is near-endless.

Nobody knows where things go from here. There are long views about what must take place, but nobody knows where it will lead. So much depends on what our leaders – financial, political and business – decide to do, if indeed they decide to do anything more at all. If one is being realistic about it, since late 2007 they’ve done nothing except react. This isn’t a good sign, but then proactive strategy depends on will and unity. Both have been largely absent.

When Western authority figures and opinion leaders appear on television, online or on the stump these days, they seem to me like precocious apprentices in search of a sorcerer. Left alone with a plentiful supply of gadgets and too many bright ideas, they have brought forth credit derivative options, credit default swaps, dark liquidity pools, megafast trading and currency unions to spin around pointlessly in a world gone globalist, market-decisive, religiously intolerant, and insanely politically correct.

After decades of being patronised with largely useless ‘aid’, the East has made its own way by deciding that self-help was better. And being almost entirely devoid of clever people in pin-stripe suits, it has chosen to make, copy, invent and export real things. When these began arriving on our shores in bulk after 2000, stupidly we decided that shuffling notional (aka fake) money around could give us a job for life and wealth forever. The whole idea was so unutterably daft, only very high IQs could ever have entertained it….and only furiously materialist populations embrace it. Yet just last week I read a long piece (given respectful space by a noted journal) in which a Harvard Professor argued that our mistake had been not devoting ourselves wholeheartedly to financial services earlier. It’s hard to argue with that and remain civil.

But as the storm gathers, how nice it would be to say simply, “Aha! There will be rain!” How comforting it would be to have Noah’s certainty, to start gathering wood and animals, and then wait for some flying thing to show us an olive branch ordaining land ahead.

Instead, we have only a furious cacophony of argument: it will be hot, it will be cold, it will be inflationary, it will be deflationary, it will be fascist, it will be anarchic, it must be cut, it must be stimulated. This is, surely, the babble of asserted certainty which always prefaces entry into epochs wherein nothing is certain. To switch analogies, King George is mad, but the doctors can’t agree either about what he has, or how to cure it.

Having re-read this piece, it sounds (even for me) doom-laden. But it isn’t, actually. This is the point at which (like Hitchcock on the subject of Psycho) I insist that the whole tableau is something we should laugh at – as at the warring nations in Gulliver’s Travels, fighting to the death over how to open a boiled egg. The econo-fiscal-politico-media axis is become satire made flesh. Mysteriously given life and a hysterical reality, it is a comedic miracle: we should treat it as such.

The Slog is off attending a family wedding over the next five days. Posts could be intermittent, and perhaps non-existent.