Any other business | 27 August 2011

The shocks won’t end with the summer

The world’s stock markets have had a ­pretty gruesome August. Listen to most of the financial press and you might think the reasons for this are ­hideously complicated. Not so. It boils down to the simple truth neatly summed up by Tim Price, director of investments at PFP Group: ‘What is unsustainable by ­definition cannot indefinitely last.’ If there isn’t enough real money around to repay debt, be it Greek, Irish and US sovereign debt or next door’s mortgage, it won’t get paid back. As every day goes by it becomes increasingly obvious to everyone that the West will never be able to generate enough income to service its debts and its welfare promises. It will have to default on its obligations to its creditors or its citizens or both.

Spending cuts and credit freezes aren’t much good for growth, so all this might look likely to drive down prices. But the end game has to be inflationary.