Crisis Update: More Good News Than Bad
The banking crisis may be past its worst point. But we still live in troubled times.
It looks like Gordon Brown's bank bailout is beginning to restore confidence. As I write London's FTSE-100 index is up more than 5% at 4,500 points following an 8% jump yesterday.
What's more, the US government has announced a plan to invest up to $250bn (£145bn) in US banks. The New York Times reported that half of that sum will be put into nine large banks including Citigroup, Bank of America and Goldman Sachs. The US will also guarantee new debt issued by banks for three years.
There are some small signs of improvement in the credit markets. The overnight sterling Libor rate has fallen from 5.6% to 5.43% which is a welcome fall. These interbank rates are still at unusually high levels, but if we are seeing an easing in the credit market, banks may start to feel confident enough to lend to each other and also to their customers. Then we can avoid a slump and `just' have a recession instead.
Bad news, too
But it's not all good news today. Consumer inflation has risen to 5.2%, way higher than the government's 2% target. In normal times, that would mean a rise in the Bank of England's base rate was on the cards.
However, falling commodity prices and a weak economy probably mean the rate of inflation will start falling soon. So I'd be surprised to see a base rate rise in the near future. Further cuts are still possible.
On the housing front, the Royal Institution of Chartered Surveyors (RICS) published some pretty negative data. During the three months to September, the average surveyor completed 11.5 sales which is a new low for a series that started in 1978.
Of course, falling house prices are welcome for many people, but they won't encourage consumers to spend and boost demand in the economy.
The outlook from here
Given everything we've been through in recent weeks, it's perhaps rash to make predictions, but I can't resist.
I suspect that the banking crisis is beginning to end. But it's not party time. Economies across the world have been hit and I reckon a recession is almost certain. But a full-blown depression looks less likely than it did at the end of last week.
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I can add RBS to those banks refusing to honour switches when a more than adequate balance is in the account (transfer from RBS to NS&I).[br/]Is a credit union a sensible alternative to using the 'normal' banks?
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Regarding blocking of transfers to NS and I, this has just happened to me. I successfully applied on-line for index linked certificates last week, only to learn (from NS andI) yesterday that Cahoot have blocked the transfer of my funds.[br/]I immediately phoned Cahoot customer services to complain, only to be told that all of their systems are down and to call back later. That was yesterday. Tried again today and they are still out of action (their website is down), blaming a huge power cut. [br/]Surely an on-line bank must have robust power backup facilities to keep them operating? Is this just an excuse? Am I being paranoid or is another bank in trouble??
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palexgood[br/][br/]"I've emailed my MP and various quality newspapers and broadcasters"[br/][br/]Futile.. they dont understand Engineering concepts like most of the media.Take the example of the latest reporting of the Halon Collider.All that nonsense about the end of the world.I think thats been more likely in the last week.
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16 October 2008