Tuesday, November 22, 2011

Confidence crisis

Each day the news from the world economy seems more grim. And it doesn't look as though things will get much better in 2012. What we're experiencing is a crisis of confidence, and it's a crisis at the personal (micro) level as much as the national/global (macro) level.

For example, the pound coin or dollar in my pocket is only worth that much if, when I hand it over, you believe that you can get a pound or dollar worth of goods and services from someone else...Our money supply is no longer backed by anything hard and tangible (like gold) and so it's only worth the value stamped on it if we believe it's worth that value to other people too.

What we're seeing at the level of nations and global banking corporations is an erosion of confidence in their intrinsic value, or ability to service the debt that they've incurred. And it's affecting lots of things, including very small, local decisions about what individual consumers buy and, at a slightly bigger scale, what projects business leaders invest in.

Trouble is, there's no easy or quick solution once the confidence begins to slip as it has done. The bottom line is that there's money and investment around for businesses that are demonstrably already making money, but little or none for those where there's a risk to be taken. And business is very largely about taking risks and making investments. Tough.
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