Now something is clearly sticking to the pan. As JP Morgan’s dramatic rescue of Bear Stearns over the weekend underlines, what looks suspiciously like a major downturn is upon us.
US house prices are sinking faster than a poorly-built 1970s bulk carrier experiencing ingress below the waterline — taking down with them the whole pyramid of consumer debt built upon mortgage lending.
It is difficult to see what policy makers can do. As the experience of Japan in the 1990s proves, not even interest rates tantamount to free money are guaranteed to restart an economy once a property bubble bursts. It’s odd to reflect that nobody under 35 will have experienced a serious or protracted recession in their working lives. Younger readers can take it from those that have; they are not fun. What is more, shipping is not immune.
Let us leave it to Wall Street economists, while they still have jobs, to work out what impact mass foreclosures will have on US consumer confidence. But you don’t need to be on their pay to guess the repercussions for the transpacific box trade will be nasty.
If Middle America isn’t buying, the fashionable talk a few years back of a commodities supercycle could also look foolish; if China cannot sell what it is making, then it won’t be needing all those raw materials after all.
But look on the bright side; a slump will help a few countries meet their Kyoto Protocol targets.
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