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- The activities of financial markets are often irrational. Prices go up for no apparent reason and then suddenly the mood changes
- The first cause for anxiety is the global economy, and in particular the United States.
- There are also simultaneous slowdowns going on in the rest of the world. Europe's economy has slowed to stall speed, the U.K. is still operating way below its pre-recession level and activity has come off the boil in China, even though to western eyes growth still looks amazingly strong in China.
- Two-and-a-half years ago, financial markets rallied strongly on the assumption that the worst of the slump was over. There was relief that Great Depression 2 had been avoided. Now the talk is over a double-dip recession.
- In the 1990s, the Japanese government prevented its financial system from collapse but only at the expense of creating zombie banks, neither alive nor dead but kept functioning thanks to the largesse of the state.
- investors believe Europe and North America now have their own zombie banks.
- Today, governments are seen not as the solution but as part of the problem. The debt burden accumulated by the banks was, in effect, nationalised during the crisis
- It was hoped this would prove temporary, but the persistence of weak growth means that a private debt crisis has now become a sovereign debt crisis.
- Put all that together and you get the full Japanese package: weak growth, weak banks, weak policy response.
- Today Tokyo's Nikkei market is at less than 25 per cent of its level at the peak of the stock market boom in the late 1980s
