Tuesday, 26 June 2007

Booms were made to go bust

I thought this was a good article on Yahoo Finance. Judging by the response, which is pretty overwhelmingly negative, it's very much a contrarian position but I think the point that the global boom in assets is driven by a credit bubble is pretty inescapable. The question of course is if and when it will burst - or whether it will gradually deflate. We've seen some glimpses of what could happen , back in February, if it does burst - rapid currency fluctuations, crashing stock and commodities markets and general financial mayhem. And it should be noted that gold went down too, as holders sold it off to cover their losses in less liquid areas.

The other side of the equation in this story, the huge current account surpluses of China and petro-countries, also appeared in the news today. The FT reports that the German government is considering setting up an agency to vet acquisitions by state-controlled foreign funds along the lines of the US Committee on Foreign Investment. In my opinion, it is a very sound idea. These acquisitions need to be vetted in all Western countries to ensure that the interests of the acquirers are aligned with consumers and national policy. In particular, I would highlight energy policy and the acquisition of supply companies by energy exporting countries - an area where there is a clear conflict of interest.

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