Credit Crunch Rumbles on....
sam orgill of ProACT Partnership reviews the credit crunch unravelling
Earlier this year I highlighted that two recessions were headed our way, a currency induced and the bank lending crisis. Things were going to be much worst than we were being told. How are things unfolding?
The UK Bank of England govenor announced in april - having bailed out the Northern Rock and other british banks that they finally recogonised they could not stop the recession. American has seen three national banks collapse this year so far. Other banks such as RBS & HBOS need substanial new capital to get there house in order and right off bad debt. Mergers and acquisations are one of the ways of sorting this balance sheet mess out.
Cyprus Property
How does it feel now? Cyprus has benefited from Russian investors still benefiting from a booming russian economy based upon sky high commodity prices. But the locals and expats were feeling the squeeze. The signs have grown; shops closing, car hire lots full, tourist areas quite, empty flights, business getting nervous over unpaid bills, consumers cutting back.
Now we are begining for the first time in over 10 years to see real price cutting and 'special' offers being made. Aristos developers offer over Euro6000 of furnishing and air-condition free. Supermarkets have 2 for 1 offers in abundance. Sales go on and on in the retail stores desperate to take cash. Property lies empty unsold and not rented, more and more billboards appearing as consumers vanish.
Property prices have held up at the top end so far but the middle market is dead right now. Prices have to fall to get sales of middle and low value properties going again. This is already being seen in the UK with falls in the region of 16% already this year. The cyprus property market will have to adjust prices down as well as part of a global shake out of excess and overborrowing before the world economy can start moving forward again.
The credit crunch recession is as bad as anything since the depression of 1929. Governments are trying to avoid this by pumping billions into the banking system to reflate the economies and bail out those that overextended themselves (which will lead to inflation and high interest rates when we are throught the recession bit!)
The hope is to only have a recession of the 1974 order (the next worst recession over the last 100 years) but that took three years to work its way through and get things moving again. If the current credit crunch recession is over sooner it will be an excellent (and amazing) achievment.
3 years takes us to 2011/12. Not as bad as the 30's you might say. indeed because that recession was only ended by world war. A world war that started with a proud nation demanding respect on the international scene and actively seeking to protect nationalist interests in neighbouring countries. This led to the invasions of czech republic, austria and poland initially. A wordl war reslted and finally ended the depression. Could that be the outcome in our uncertain world? On the auspicious date of 8/8/08 and the start of the olympics russia invaded goergia to defend nationalist interests in georgia. Oh my.
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Sam Orgill ProACT Partnership
see also;
2008 Recession 2009 Depression
Credit Crunch: On First Anniversary - Sky News
Russia Invades Georgia - Sky News
