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TofL: Nowhere to run in Market Crisis

The London Times
Last Updated: 4:29 AM, May 23, 2010
Posted: 12:53 AM, May 23, 2010

When staying at a hotel, always read the fire escape plan on the back of your door. Even better, walk down the hall and check that the fire door opens. It's a good precaution but, unfortunately, the financial markets offer no guides about what to do and where to go in emergencies.

In our global financial hotel, guests are yelling, "fire." There is confusion in the corridors as people rush for the stairs; others cower in their rooms, fearful, awaiting instructions.

Did you call the fire brigade? Are we insured? Who started it?

We want to know where the safe place is -- the muster station on the cruise ship where we assemble in orderly queues for lifeboats.

Instead, we have a rout. The euro, which was widely touted only six months ago as a successor, or at least alternative reserve currency to the dollar, was dumped this week in a mass flight from the eurozone. The biggest worry that Europe might dip into a new recession is now a panic.

Where are the guests in the euro hotel running? When all else seems to be lost, people look to the old refuges they remember, hoping that they still stand. Investors are buying dollars, US treasury bills, gold and even British gilts.

Astonishingly, bonds issued by the British Government are seen by some as a safe haven.

A flight from risk into British debt is truly bizarre at a time when the British government is borrowing at ever-increasing rates -- $14 billion in April. According to figures released Friday, the run rate of government spending is 127 per cent of revenues and the gap between annual spending and revenue represents about 11 per cent of the whole economy, not far from Greece, the ugliest debtor in the eurozone.

If the UK has become a safe haven alongside gold and the US government with its own monumental deficit (10 per cent of GDP), it is because the euro is tainted and we have nowhere else to go. Who is there beyond the US Treasury?

There is no safe haven. When Lehman went bust in 2008, we trusted in the sovereigns. The Federal Reserve and the Bank of England printed money. Now they are exhausted. The sovereigns have shown us their weapons, a trillion dollars' worth, but the flight from risk continues.


Read more: http://www.nypost.com/p/news/business/nowhere_to_run_in_mart_crisis_82ar6sXpDRGBf4ZiaTKFDJ#ixzz0om4mIQ2l