Newspaper article The Evening Standard (London, England)

Csary Consequence of a Self-Deceiving Consensus

Newspaper article The Evening Standard (London, England)

Csary Consequence of a Self-Deceiving Consensus

Article excerpt


AMERICA'S index of consumer confidence slumped again yesterday, to its lowest for four and a half years. So much for Federal Reserve chief Alan Greenspan's miracle-working interest rate cuts warding off the effects of a US recession.

The US economy is driven by consumer spending, and individual Americans put their savings into the stock market to a substantially greater extent than they deposit money with the banks.

Last year they were so confident that they stopped saving and now have to cope with the fact that the stock market, particularly the Nasdaq, has fallen so far and so fast that they are all substantially poorer. On US television they call it wealth destruction.

We are getting into something with the potential to be rather nasty. All the fund managers in London expect America to have a short, sharp slowdown with a pickup in the third quarter. But they say it in a way utterly devoid of original thought and analysis, knowing it is not their money they invest and also that they can escape blame if they and their colleagues all make the same crass error.

Industrialists echo the view that the downturn will be short and sharp - but they, of course, cannot bear the thought that their share options might turn out to be worthless, particularly as they borrowed so much money to buy them. So corrupted is the financial establishment by self-interest that the only objective advice you can get is from journalists - which is perhaps the scariest thing of all.

It is deeply worrying that the consensus view on America is that everything will pick up in the autumn. There is not a shred of evidence to support this. What will happen when all these happy souls wake up to the fact that maybe this downturn is for real, not just for two quarters? We will find then that they will not know how to behave. When they panic it will be no time to be in the market. …

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