Crisis may make 1929 look a 'walk in the park' - Telegraph Quote:
As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control
Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.
As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.
"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.
"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.
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Is this just normal "the sky is falling" rhetoric or is the world financial system really headed for massive upheaval? Have we any way to protect ourselves?
With a financial system that's been de-coupled from any form of physical asset, it seems to me that all we really have is a lot of paper, backed only by the faith that people believe it's actually worth something. When that faith is lost, the whole system is going to collapse.