We're all doomed! (despite the good news)

So the UK managed to avoid the dreaded triple dip recession. We are told that’s the good news. The bad news is that it might not really matter. Growth was a measly 0.3% in the quarter which isn’t anything to get excited about. It’s so shallow that it could easily be an anomaly and see us headed in the other direction next quarter.

But what concerns me is that this may be distracting us from the bigger issue. The crash of 2008 was precipitated by a loss of confidence among banks in each other’s ability to pay back interbank loans. The reason for this, as we all know, was that bad sub-prime risks had been bundled up with good risks with the effect that nobody really knew where those bad risks were being held. The result was confidence in the solvency of banks across the globe was shattered. Who held the bad risks? Did they all hold the bad risks? Probably.

I’m no economist but when we are told that banks have separated out their risks into ‘good’ and ‘bad’ banks, I have to doubt whether they are actually able to do that. The financial collapse was precipitated by the uncertainty as to where the bad risks were so how are they now able to simply pull them out and stick them safely in a ‘bad’ bank? I fear we are being sold a dummy.

On top of that, our government and others have decided the best way out of the problem is to print money. This one really baffles me. The last government to try that tactic was the Weimar Republic in post -World War I Germany. I don’t need to indulge in a history lesson to make clear the results of that fiscal policy.

As I say, I am no financial whizz but it seems to me that we are simply papering over the cracks of a much more fundamental financial problem that is eventually going to come to the surface. The bad risks are still out there and it would be foolish to assume that every bad lending decision has already come out in the wash. In addition, the quantative easing the Bank of England has been indulging in appears to be a cosmetic solution to a very practical problem.

Which is why I am not getting too excited by the avoidance of a triple dip recession. Being Scottish, it could be argued that I am naturally dour and negative but I can’t shift the feeling that we are sleepwalking into another financial crisis. Have we really dealt with the sub-prime mortgage problems? Does printing money to give to the banks in the hope they will lend to small business and potential home owners really solve the underlying issues with our banking system? Does a sliver of growth that avoids a technicality really mean we should be looking forward to the much-needed economic recovery?

For me, the answer to all these questions is a resounding no. Brace yourself.