I watched Gordon Brown’s prime minister’s questions session yesterday and it made me very … concerned.
The sense you get out of the UK is practically one of desperation, and Gordon Brown, trying almost frantically to convey competence and confidence, ends up doing pretty much the exact opposite. Governments around the world are floundering to try to bring confidence into the system, and well, I’m just not feeling it.
So do we take the bad debt off company books, capitalize banks directly, loan money directly to businesses, nationalize the financial system? Pray for help? The sense is that governments are wildly swinging from one idea to the next in a firestorm of political agendas. Competence is not the word I’m looking for here. Desperation maybe, borderline panic – definitely.
And in the U.S., you’ve got the Fed targeting a 0% to 0.25% Fed funds rate range? Japan anyone? How much sense does that make? To me such a move is the epitome of pinheaded ivory tower policy making. I mean how much difference is 25 or 50 basis points at the bottom really going to make? And from a 10,000-feet layman’s perspective, you’re conveying panic and the fact that there’s nowhere else to go … the cushion is gone. All of this, not to mention the fact that pensioners are going to struggle mightily with near-zero interest rates and investors are most probably even LESS likely to put money into the system.
I hate to say it, but it is feeling like there is a lot of pain ahead still, and it’s not going to be localized. I can feel the downturn feeding on itself, with companies cautiously cutting back, which in turn means less money for other companies, who scale back more. And in addition to that psychology, you have the very real effect of a still-constipated banking system that is likewise having a confidence crisis and is still not getting the capital into the system that is critical to making everything run well.
But hopefully we can put all of that aside for now, and spend some time appreciating our families and all that we do have. In the long run, much of this whiplash of confidence will bring more solidity to the system and set the basis for the next run of giddy enthusiasm for the next bubble.