Alphabet of global downturn: Economics and the coming crisis

Alphabet of global downturn: Economics and the coming crisis

Financier-turned-economic pundit Jim Mellon sees no reason to be optimistic about the world’s financial future

Sunday September 25, 2005
The Observer

The unwelcome arrival of Katrina and Rita in the US has swept away illusions about American society. The competence of the authorities, the standard of living of many of its people, the fabric of the country’s infrastructure - all have been cast in doubt by the storms’ effects. Third World scenes of starvation, looting and rampage have emphasised the fine line between ordered society and the law of the jungle. No country is ever that many steps away from anarchy and chaos.

The same is true of financial markets. Although a natural optimist, I am going to make a prediction that is almost apocalyptic. In a short time - a few years at most - the rich West and Japan will have a terrible shock. Living standards will fall precipitously, companies will fail en masse and established institutions will find themselves in financial peril. Asset prices - particularly those of houses - will fall dramatically in some countries, notably the US and UK, and world trade conditions will deteriorate significantly.

Worse, global tensions will rise and China will not only be a threat to Italian sock and bra manufacturers, but a potential military threat to the Pax Americana.

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