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  1. Wealth
October 9, 2008

The fall-out: how long?

By Spear's

No-one in authority knows how long the fall-out from the credit crisis will last.

No-one in authority has hazarded a guess at how long the fall-out from the credit crisis will last, which after all is what everyone wants to know, especially those that might lose their jobs, like Gordon Brown and his henchmen.

What precedents have we here? Well, nothing quite like this crisis, which is all about credit, but the Great Depression comes nearest, which was all about shares. This started with the Wall Street panic on 24 October 1929 and the recovery began with President Roosevelt’s inaugural speech on 4 March 1933, three-and-a-half long years later.

Whichever candidate wins the White House next month, they will be at the beginning of Year 2 of this crisis and not in Year 4: the crisis will be reaching its peak and the natural unwinding road of recovery in confidence will take at least two, or more, years longer; and neither candidate will have had nearly four years to ponder, analyse and formulate a ‘New Deal’.

There is a more recent example, which was all about credit, namely the Swedish banking crisis of September 1990, which came on the back of a housing boom in which house prices had nearly doubled from 1985 to 1991 – sounds familiar? The difference is that this crisis is global, or the Anglo-sphere world of the US, UK and Eurozone at least, whereas Sweden’s was purely domestic. Nevertheless, Sweden’s crisis ran for three years, with GDP falling by 5.1% between 1991 and 1993.

This crisis will cause a recession of at least three years, it seems, but if it worsens, then stand by for a depression. You will know when that happens – that’s when you lose your job!

What would you do to stimulate the economy and shorten the period of fall-out?

Would you start with a $700 billion bail-out of the banks that caused the problem?

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