England Hits the Panic Button

October 11, 2011

England Hits the Panic Button

“The world is facing the worst financial crisis since at least the 1930s. If not ever.”

That ominous assessment came last week from Sir Mervyn King, Governor of the Bank of England, after announcing that the Bank’s Monetary Policy Committee would put £75 billion of newly created money into the British economy in a desperate effort to avoid a new credit crisis and a UK recession.

According to the UK Telegraph, “Economists said the Bank’s decision to resume its quantitative easing [QE], or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.”

British Prime Minister David Cameron, also quoted in the Telegraph, summed it up this way: “The Eurozone debt threatens global economic stability.”

International Monetary Fund advisor Robert Shapiro joined in the chorus, telling the BBC:

“If they [Eurozone Leaders] can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system.”

Shapiro isn’t talking about a relatively small Belgian bank in trouble. He’s predicting that if European political leaders can’t rein in their out-of-control debt, some of the largest banks in the world could go under—banks in Germany, France and eventually Britain. If that happens, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, Britain, Japan and countries around the world.In my view, that crisis would dwarf the one in 2008.

Shapiro went on to imply that what we don’t know certainly could hurt us: “What we don’t know: the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

You can see a short clip of this interview here.

More and more leaders in the European Union are beginning to sing in harmony. They recognize that their sovereign debt crisis can quickly spiral into a global financial crash that could eclipse the impact of the already painful Great Recession.

This panic is good in that it will lead to action; however, we need to be very aware of the economic risk, turmoil and proposed solutions inEurope, as their actions will impact us all.

My perspective is that one of two scenarios will unfold in the coming months:

a) Default and Break Up of the EU – Specifically, Greece defaults and is ushered out of the EU to fend for itself, as well as other potentially insolvent countries in similar condition. Few believe this is likely. Even so, this corrective action will send shockwaves through the financial markets and destabilize what growth is taking place, OR…b) Resolve to Remain United and Continue Bailouts – It appears that the current political climate indicates this as the more likely course. Notice that the Bank of England announced another round of Quantitative Easing (printing of fiat money) and alluded to the commitment of more to come.


Some pundits call Option B the “Extend and Pretend” policy, i.e., extend the default deadlines out into the future and pretend it will give everyone sufficient time to grow out of this mess. American economic policy makers have more confidence in this approach than their European counterparts as evidenced by how often we deploy it.

What is happening in Europe is likely to be on its way here soon. We are seeing early warning signs that should not be ignored.

Over the coming weeks, I will be sharing my perspective of the financial moves that should be a high priority for Christians to be prepared for the turbulence to come.

Pray for our nation and our leaders. God’s wisdom is vital for such a time as this.


Don’t forget to sign up to receive this column each week and tell your friends about it. It’s one of the few places (maybe the only?) you’ll get insights on current economic events from a biblical perspective—and it’s free! You can subscribe here.

P.S. I have not completed my tips on buying gold (as promised in the last edition). I hope to get that to you in the near future. It has been a hectic schedule since returning from Asia.


Disclaimer: The above information is provided for informational purposes. MrHerrera is a Crown Financial Counselor. No remuneration is provided by them to mrherrera. No copyright infringement is intended.


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