Lost Horizon

Many years ago, two astronomers had this discussion -

Astronomer 1 - "Any good cosmologist can think up any theory about the universe that he wants."

Astronomer 2 - "Who said he has to be good."

The same goes for economists. Recently,  the OECD in it's latest report, supposedly "proclaimed" that the recession is over, according to some American news headlines. On that same day, Spiegel spiegel.de in Germany printed their interview with the IMF chief Dominique Strauss-Kahn. He said "The global economic crisis continues...". . Answering another question, he just offhand happened to mention - "It is dangerous to think the financial crisis is already behind us."

So  who's right?

Obviously the International Monetary Fund is not entirely made up of economists. Nor for that matter is the OECD. But one would assume that these opinions came from economists in both organizations.

Well, actually, if both news stories are perused, they both seemed to be saying the same thing. And that is, that neither one of them knows for sure whether the economic glass is half empty, or half full. The hint is that some economists in each organization seem to think economic conditions are improving. And that others think the Central Bank lifeguards still haven't saved us from drowning.

In other words, economists are cosmologists. They are making up whatever theory their instincts tell them. Or what the people who pay them tell them to make up.

At this stage, no one knows for sure whether we're ascending or descending. Some, including Mr. Strauss-Kahn, seem to think we have created additional problems. Specifically, how to demonetize all these trillions of dollars, Euros, etc., before a "bad" inflation starts. Well evidently he has his chauffeur buying the petrol for his car. In some commodities a speculative inflation has already occurred.

This was also the worry of Central Banks in the early 1930s, after they thought an economic floor had been reached from all the money they created. Back then, the past hyperinflation of Wiemar Germany was fresh in their minds,  and so they tried to prevent the same thing happening worldwide by soaking up some of this liquidity. It didn't take much to start a banking crisis in Europe, and then a world currency crisis. Like a landslide,  economies everywhere almost instantaneously collapsed. And government leaders were still saying everything would be fine as it was happening.

If bond markets are any indication, our economic nightmare is far from over.

< More on the bond markets in the future. >

"Ah love. Could you and I but conspire,"

"To change this world of ours entire."

"Would not we mold it,"

"A little closer to the heart's desire." - Omar Khayyam