In an extraordinarily candid and chilling economic assessment, the Governor of the Bank of Spain, Miguel Ordonez, warned that the global economy is on the brink of a “total” financial meltdown. Governor Ordonez, in an interview with the Spanish newspaper El Pais is quoted as follows:
“This is the worst financial crisis since the Great Depression”
“There is an almost total paralysis from which no-one is escaping.”
“The inter-bank (lending) market is not functioning and this is generating vicious cycles: consumers are not consuming, businessmen are not taking on workers, investors are not investing and the banks are not lending.”
“If, among other variables, we observe that inflation expectations go much below two percent, it’s logical that we will lower rates.”
“The lack of confidence is total”
One thing for certain is that the Governor’s remarks will do nothing to restore confidence in the financial system. Typically, central banker statements are reserved and constructed to restore confidence in the financial system rather than to incite panic.
As the head of Spain’s Central Bank, one of the Governor’s primary functions is the promotion of the sound working and stability of the financial system. One may wonder exactly how seriously the Central Bank adhered to their duties when they allowed the Spanish property markets to soar to ridiculous markets values, fueled by easy Central Bank lending policies and lax oversight. Perhaps they were following Alan Greenspan’s advice that bubbles cannot be recognized and are best dealt with after the fact. It is statements such as this that prove the basic incompetency of Greenspan, the man most responsible for destroying the integrity of the world’s financial system.
The central banks responsible for the insane easy money and lending policies that brought us to the brink of ruin are now in charge of restoring confidence. Their prescription for recovery is more easy credit. ( See $700 Billion Debated – $5 Trillion Ignored) I think it is indeed time to panic.