Economic crisis

Rate of profit warning

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No one can predict whether the recent financial crises will develop into a proper recession.

Some have hailed China's economic expansion and the development of computer technology as potential saviours of the world economy - Karl Marx would have disagreed.

The mainstream economic commentators have all been revising their calculations since the monetary crisis caused by lending to "subprime mortgages" broke in August. Alan Greenspan of the US Federal Reserve Bank thinks the odds on a recession next year have risen to about 50-50, and the International Monetary Fund seems to at least half agree.

Soft in the middle

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Anyone who has recently tried to obtain a mortgage or loan will have known Northern Rock long before the current crisis broke - it was a byword for favourable rates.

The company's spectacular demise has sent shockwaves through the money markets, government, investors and general public, who all look on in amazement as something supposedly so good has become so bad.

No one can remember queues outside a British bank as investors struggled to remove their savings. Those scenes seem reminiscent of Weimar Germany or the US Depression of the 1930s. They seem to presage worse economic news to come.

The global economy - solid as a rock?

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The recent ructions in financial markets and the collapse of Northern Rock have a familiar ring.

Whether it is the crash of 1987, the housing slumps of 1989-90, Asia in 1997, the hedge fund LTCM in 1998 or dotcom meltdown in 2001, the world economy has been grappling with a succession of financial crises.

And yet, each time the global financial apparatus has withstood the onslaught and, it appears, come back stronger and more robust than before. Encouraged, the major actors in this evolution of unfettered markets - financial institutions and their shareholders - have taken on bigger, bolder and more aggressive bets.

Relocation inflation

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The ferment over the US subprime mortgage market, which has been helping to make the money markets so unsteady in recent weeks, tends to ignore one aspect: people are so desperate to obtain decent housing they will take on debt they are simply incapable of ever paying back.

The subprime market was aimed at those sections of US society who were too poor to gain mortgage credit any other way. They were people who lived on benefits, or very low wages, and who often had a bad credit rating. Suddenly a few years ago they were promised a dream home bought on credit with very few questions asked.

The financial panic that never was

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As we go to press the financial panic that made the headlines across the world in August seems to have subsided.

The message now from many of those who panicked is that nothing was or is amiss. After all, they say, the panic was only in the financial sector, not "the real economy". But it was not so simple.


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