Busted: Bankers and The Global Economy

June 28, 2008

Global Storm Predicted by EU Bankers

Global confidence in banking has been breached as far as some European investment bankers are concerned. British-based Barclays sees a perfect financial storm on the horizon and a complete loss of credibility by the U.S. Federal Reserve. Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.

This is a strong admission for any banking institution. Most have quietly struggled while fearfully or relunctantly forging ahead over the last six months or so. Now, Barclays is not holding back on any punches.“We’re in a nasty environment,” said Tim Bond, the bank’s chief equity strategist. “There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.”

Wow. The Royal Bank of Scotland has issued a global crash alert, advising clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

The Federal Reserve and its policies are being blamed for the global rise in commodity prices. The global investment bankers see the weakness in the dollar as responsible for the global rise in energy prices. Mr. Bond said the emerging world is now on the cusp of a serious crisis. “Inflation is out of control in Asia.”

The bank said the full damage from the global banking crisis will take another year to unfold. the Fed’s policy of benign neglect towards the dollar had been stymied by oil, which is now eating deep into the country’s standard of living. “The world has changed all of a sudden. The market is going to push the Fed into a tightening stance, proclaimed David Woo, Barclay’s currency chief.

Bernard Connolly, global startegist at Banque AIG, said inflation targeting by central banks had become a “totemism that threatens to crush the world economy”. He proclaimed it madness to throw millions out of work by deflating part of the economy to offset a rise in imported fuel and food prices. Real wages are being squeezed by oil, come what may. It may be healthier for society to let it happen gently.

“Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point,” says Bob Janjuah, RBS credit strategist. The bottom line is that wealth is locked up on all fronts because of credit.

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1 Comment

  1. […] European Union bankers have a more apocalyptic take on what to expect here and in the markets overseas where investors are concerned. Anyone with a […]

    Pingback by Welcome to the “Slow-Motion” Recession « Busted: Bankers and The Digital Economy — July 2, 2008 @ 9:57 am


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