Protectionism, talk about a return of fascism, falling house prices in London, rising interest rates, should we be worried?

Is there a risk of a re-run of a 2008 level crisis? Or could it be worse?

Article updated: 25 July 2018 9:00am Author: Michael Baxter

Everywhere I look I see predictions of doom. Are they right? Do investors need to start factoring in the dangers of a re-run of 2008? Or worse, do they need to start factoring in the risks of a return of fascism?

Back in the autumn of 2008, just after the finance crisis erupted, I attended a press conference held by an economic forecasting group. I asked whether they had considered producing a second set of forecasts based on the assumption that we see a return of protectionism? They were quite dismissive of my question: “a return of protectionism was unlikely,” they said.

In a way they were right. For the best part of a decade following that crisis, international trade seemed relatively unaffected.

I think people forget what it was like in 2008. In that year it felt as if capitalism itself was close to ending: forecasts of catastrophic collapse were everywhere.

The parallel with 1929 was clear. Of course, the 1929 crash was followed by an economic depression. The economic depression saw a return of protectionism – a reversal of globalisation, making things a whole lot worse. The 1930s also saw the rise of fascism. Not just in Germany and Italy, but across much of the democratic world; the UK saw Oswald Mosley, in the US, one poll from Gallup indicated that one in six Americans thought Hitler was doing the right thing. It ended with a world war, of course.

Alas, while memories of 2008 are fading, it seems to me that memories – even secondhand memories (gained from the reading of history books) – of the 1930s have practically vanished.

This time it was different

But the way things panned out this time was different. From the 1929 crash, things happened rapidly. This time, the fallout from 2008 was gradual. Record low interest rates, quantitative easing and bank bailouts softened the impact of the 2008 crash. On the other hand, austerity pushed in the opposite direction – while central banks created pain killers, government policy across Europe added to the pain.

And today

The Trump approach to trade is confusing, to say the least. On the one hand he threatens all-out trade war, today I read he is proposing a free trade zone with the EU with no tariffs at all. The reality is complex of course. If there was an EU/US free trade zone, what might that mean for chlorinated chicken? (Which itself is a complex subject, as this article explains). If there was a free trade area between the EU and US how would privacy be affected? GDPR is designed to stop the development of a kind of Orwellian society. Attitudes to privacy in the US administration are quite different. These details are important. Creating a free trade area is fraught with difficulties, it requires a good deal of harmonisation of rules.

But let’s take Trump at his word, or at least the words he had enunciated up until yesterday and say there is a trade war. The consequence of that will be lower global output. This will lead to inflationary pressure, which will lead to much higher interest rates. (I think globalisation is the single biggest reason why interest rates have been so low this century).

House prices

The London housing market is struggling. Working out why is not hard to do. House prices in London are too high. According to Land Registry figures, London’s house prices fell 0.4 per cent in the year to May. The truth is, London is seeing massively excessive supply at the higher end of the market, resulting in empty properties, while people on reasonable earnings struggle to fund their rent. 

At the moment, the consensus seems to be that the London market will recover in 2020. I am not convinced, in the past, property booms and crashes have both begun in London, I fear that we may see contagion, leading to falling house prices elsewhere.

A backlash against globalisation, leading to lower global output, creating inflationary pressure, leading to higher interest rates could be the catalyst.

Return of fascism

I don’t want to get heavily into this today, suffice to say it is a real danger. We see worrying signals in Europe and US. In the 1930s Jews were held up as the cause of all our ills. Today it is immigration. Although, I think George Soros would confirm that anti-Semitism is not dead either.

The outlook

I think this is all rather worrying, but I am not predicting doom. Actually, for all the talk of rising debt, with some notable exceptions, private sector debt across much of the world is significantly lower than in 2008.

Banks in the UK, for example, are significantly better capitalised than in 2008.

We are also at the early stages of the Fourth Industrial Revolution, this creates a good deal of hope - although there are plenty of dangers in that, too.

And investors

This article by The Share Centre's very own Tracy Zhao provides some good ideas for investors.

I would add to that, big tech. A theme I shall return to in a few days.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.