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City fears of 'Great Depression Mark II'
Leading City experts have started raising the prospect of "Great Depression II" amid worries that the European economic crisis could trigger a deeper bout of chaos. Markets on both sides of the Atlantic dipped to fresh lows as fears surrounding the fate of the euro project transmuted into worries about the wider global economic system. Bill Gross of bond fund Pimco said that hedge funds were starting to liquidate their positions in a bid to preserve their capital -- a worrying "mini relapse" towards 2008 territory. Andrew Roberts, head of European rates strategy at RBS, said "Great Depression II" could now be approaching, adding: "It now has potential to speed toward its conclusion; a European $1trn package which does little and political panic tells you we are about to reach the end of the road. The world should be discussing deflation, not inflation." In the US there was a surprise 25,000 increase in jobless claims to 471,000 in the week ending May 15.
Mr Gross said investors were now being frightened off by worldwide "fiscal tightening momentum", adding that markets were facing "a mini-relapse of a flight to liquidity as hedge funds and other leveraged positions are liquidated to preserve capital". One worry is that European leaders are not sufficiently behind the $1 trillion bail-out fund they announced, in collaboration with the International Monetary Fund, last week. A second fear is that other indebted countries could soon be exposed. Posted by: lotp 2010-05-21 |
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