Truly, we live in parlous economic times. For proof, consider the warning from the International Monetary Fund last week: “The sovereign bank nexus could lead to a self-reinforcing adverse feedback loop that could force the government into default”, calling the process a “doom loop”. Bewildering or what?
I know economists are a rarefied breed, but they’re not doing themselves any favours when they dish up warnings like this. Mind you, “doom loop” is sensible shorthand. After all, consider its full meaning: “The doom loop is the circle of vulnerability where a country’s banking system can be severely hurt by volatility in the price of the sovereign bonds they hold for reserves resulting in a contraction in lending provided by the banks.”
