Stock markets traders hysteria

May 21, 2010

Here is a comment that was posted on the Financial Times   site yesterday in response to an excellent piece by Samuel Brittan arguing the British sovereign debt question has been overblown.I agreed and wrote the following.


Samuel Brittan is correct to argue (in the F.T) that there is no immediate crisis surrounding British indebtedness. The problem lies not in the debt and deficit or gross financing requirements but in the paralysis of common sense that now appears to affect youthful traders and investor traders with virtually zero knowledge of history round the world. Todays(i.e.yesterday's) panic in the stock markets because of the totally irrational over reaction to the sensible efforts by Germany to curb naked short selling of stocks and purchases of derivatives insurance products in a wholly speculative manner is an excellent example of this problem.(Such curbs have existed in Hong Kong for a decade and have also been adopted by China)

The global environment is not inflationary but still quite disinflationary and even border line deflationary. Britain may be temporarily outside of this framework but I suspect that this state of affairs won't last for long. Traders would be well advised to take a long overdue break from panic selling and read some economic history and the rewarding debate about fiscal policy and debt management that is available in scholarly literature. Those who refuse to learn from history are condemned to repeat it. The G8 and G20 countries and their central banks still have plenty of ammunition left to stimulate the economy and avoid a depression or even a prolonged slump. but the old discredited dogmas about the perils of debt
 need to be jettisoned.