Newspaper article The Evening Standard (London, England)

Greed Must Not Displace Fear in 'Recovery' Euphoria

Newspaper article The Evening Standard (London, England)

Greed Must Not Displace Fear in 'Recovery' Euphoria

Article excerpt


IT IS HARD to remain sceptical when the likes of Bank of England Governor Sir Edward George and US Federal Reserve chief Alan Greenspan are calling the end of the recession, but it is perhaps more important than ever to be so.

Those thinking of plunging in to the market should bear in mind that it is one thing to note that central bankers say the worst of the decline appears to be over, quite another to infer that normal growth is about to be resumed.

It all seems too easy. Already the recession is being dismissed as one of the shallowest on record, but to me it seems the speculation and excess as the market approached its peak surely required a much greater correction if the system was to be properly purged and the US economy restored to equilibrium. There is a strong case that the rally in shares since autumn is a glorified dead cat bounce and that the market will need to go lower than it was on 11 September before real value can be found.

Instead, we are going into recovery with the imbalances still in existence.

The US trade deficit is worse than ever, increasing at $1 billion a day. The dollar remains high. Americans still consume everything and save nothing. And all this continues to be financed by sucking in massive amounts of foreign capital - starving the rest of the world of the resource it most needs to compete.

Such arguments are brushed aside by people waving statistics that show a productivity surge, a spending surge and even the beginnings of an investment surge in America. But it was mindlessly believing the US statistics that got us into trouble in the first place.

The productivity explosion so lauded in the boom turned out to be no more than a normal cyclical upswing. The statistics translated $38 billion of actual spending on computers into a $300 billion uplift in gross domestic product by putting a cash value on the greater power of the new computers. …

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