The following articles appeared on the same day, last Sunday. They tell very different stories about the same thing. Take your pick: sunshine or gloom. Times:

it is time to take a more optimistic view, this being the season to be cheerful. Gordon Brown and Alistair Darling are as confident in private as they are in public…Every month the Treasury puts together a compilation of independent forecasts. The latest, published a few days ago, shows economists expect a slowdown but not a recession. Four months after the credit crisis broke, the average growth forecast for 2008 is 1.9%. That is slow but not painfully so, and slightly better than 2005, when Britain managed only 1.8% growth…

Britain’s long run of growth, stretching back to April-June of 1992, represents a lot of momentum. Annual growth in the third quarter of this year was a buoyant 3.3%, and more if you believe the Bank of England, which thinks the official figures understate it. The brakes may now be on, particularly because of the credit crisis, but this is an economy that will take a bit of stopping.

Related to this, the labour market remains very healthy. Darling and Brown were guilty of opportunism in citing the unemployment claimant count, now at a 32-year low of 813,000, or 2.5% of the workforce. The government’s preferred measure (or at least it used to be) has unemployment at 1.64m, or 5.3%…unemployment has been falling and employment is a record 29.3m, up by 226,000 over the past year, with little or no help from the public sector.

Meanwhile, the Telegraph had a somewhat different story to tell:

“The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard…They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don’t think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park”…

Not a single junk bond has been issued in Europe since August. Every attempt failed. Europe’s corporate bond issuance fell 66pc in the third quarter to $396bn (BIS data). Emerging market bonds plummeted 75pc. “The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history,” says Thomas Jordan, a Swiss central bank governor…

capital ratios have fallen far below the 8 per cent minimum under Basel rules. “If they can’t raise capital, they will have to shrink balance sheets,” he said. Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending. Average equity capital has fallen to 3.2 per cent (nearer 2.5 per cent sans “goodwill”), compared with 5 per cent seven years ago. “How on earth did the Financial Services Authority let this happen?” he asks.

Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. “Brown hadn’t got a clue what he was doing,” he says. The risk for Britain – as property buckles – is a twin banking and fiscal squeeze.

It is evident that the real economy looks ok while the financial economy has some problems — and even those problems were not enough to prevent Wall Street bonuses from being up 14% this year to $30 billion. So perhaps we should just all go and enjoy our Christmas pudding.

This entry was posted on Tuesday, December 25th, 2007 at 9:24 am and is filed under business, EU, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.