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"Where were you when the global financial crisis began, five years ago this month?"

Link to Daily Telegraph

"Flicking through [2007] press reports of a debt-fuelled takeover bid for Sainsbury’s, or the preposterous battle between RBS and Barclays for control of ABN Amro, is like looking at photos of young people larking about in the summer of 1914.

"Did they really have no idea what was coming?

"Some did, but not many. ... It was not the conventional wisdom five years ago. This from the International Monetary Fund was closer to what most of us convinced ourselves was the case:
"These events are likely to have some negative impact on growth not only in the United States but also in a number of other countries, so wherever forecasts were a month ago they should be cut a little bit."
"Go on then, just a trim."

"Bank to say economy is at standstill"
Link to Daily Telegraph

"The Bank of England is expected to say in its August Inflation Report that the British economy will come to a standstill this year, with virtually zero growth in 2012 as a whole.

"... Just three months ago, it was forecasting growth of around 0.7pc this year, as was the Government’s independent fiscal watchdog, the Office for Budget Responsibility.

"The new forecasts ... are also expected to show a sharp downgrade of growth prospects for 2013, to about 1.5pc, down from more than 2pc in May."

Link to Observer
(image relates to second story)

The Observer:
"Five years ago, the credit crunch began; today it's worse. How long will it last?"

"Jamil Baz, chief investment strategist at hedge fund GLG, wrote, in an eye-catching analysis last month:
"After five years, we are in a worse place than when we started."
"He observed that total debt – meaning government, household, financial and corporate debt – is higher than in 2007 in 11 economies under the microscope. They are Canada, Germany, Greece, France, Ireland, Italy, Japan, Spain, Portugal, the UK and the US.

"Baz made five predictions:
  • "All the perceived unpleasantness of the past few years is merely a warm-up act for the greater crisis to come", because the need to get debt levels down remains
  • History says debt cannot be reduced by more than 10 percentage points a year without causing social unrest, which suggests a minimum of 15 to 20 years, to achieve healthy conditions for growth
  • The economic impact of cutting debt will be massive, because a multiplier effect occurs when spending is reduced
  • Share prices may still be too high, because corporate profits will be hit
  • There is no magic bullet. Interest rates are already on the floor, and even back-door inflation would not help because bond yields would soar and, in any case, many government liabilities are inflation-linked.
"Too gloomy? Maybe, but the depressing lesson of the past five years is that the policymakers have only been able to provoke brief and small bursts of growth and confidence."

Link to The Guardian

The Guardian:
"Three myths that sustain the economic crisis"

"There is no real comparison between the events of the past five years and the half-decade that followed the Wall Street Crash in October 1929. ... A better historical parallel may be the Great Depression of the 19th century, a broad-based slowdown in growth coupled with deflationary pressure, that lasted from 1873 to 1896.

"The reason the crisis has been so long lasting comes down to three myths. The Anglo-Saxon myth is that big finance is essentially a force for good, rather than dangerous, rent-seeking and – in too many cases – corrupt. The German myth is that you can solve a problem of demand deficiency through universal belt tightening and export growth. ...

"... There is a third myth – namely that there was not much wrong with the global economy in 2007. But the old model was financially flawed, in that it operated with excessively high levels of debt, socially flawed, in that the spoils of growth were increasingly captured by a small elite, and environmentally flawed, in its assumption that all that mattered was ever-higher levels of growth."

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