- So says economist Michael Darda, chief economist at MKM Partners LP in Greenwich, who is quoted on Bloomberg this morning. According to Darda, “Banks won’t be throwing a lot of loans out there when they fear – rationally – those loans may not be paid back.”

- We’re reminded of the plight of the the unfortunate French ducks who have their livers forcefully fattened to produce foie gras (literally “fatty liver”). The Fed is determined to force feed debt down the throats of already indebted Americans so that said already indebted Americans can go out and spend said debt. The theory being that this “stimulates” the economy. Of course, in the case of the poor ducks, they end up dead.

- Things are so bad that even the Queen of England is pissed. “Why did no one see it coming?” asked Queen Elizabeth during a visit to the London School of Economics this month.

- The clear lack of foresight leading up to this crisis has also left a lot of egg on the face of policy makers, according to an article in the Financial Times. Prime among them is Fed head Ben Bernanke.

In his Senate nomination hearing of 2005, Ben Bernanke, the Federal Reserve chairman, said the US financial system had already benefited from a series of crises that had reinforced its ability to cope with difficult times. “The depths, the liquidity, the flexibility of the financial markets has increased greatly,” he said.

Depths, indeed.

Bernanke’s British counterpart, Bank of England governor Mervyn King, didn’t fare much better. In May, he insisted, “It’s quite possible that at some point we may get an odd quarter or two of negative growth. But recession is not the central projection at all.”

The problem, according to Stephen King, chief economist of HSBC, is that: “Almost all economic models assume that the financial system ‘works’.” Apparently, “economists in general did not foresee how the looser monetary policy of the early part of the decade could lead to an unprecedented credit expansion.” Where were they? On the moon?

- One of the best reads on this crisis is the FDIC’s quarterly list of “troubled banks,” banks at risk of going under thanks to toxic debt. One in four institutions lost money last quarter. Meanwhile, the number of banks on the FDIC’s failure watch list increased from 117 to 171 and the assets of “problem” institutions rose from $78.3bn to $115.6bn. As long as the number of banks on the deathwatch list keeps increasing, it’s difficult to see and end to the current mess.

- Still think the government is going to fix it all like some sort of happy-ending Humpty-Dumpty? How so? What exactly are the federal rescuers doing to solve the problem? This from the Financial Times blog, FT Alphaville:

The biggest problem now though is that “bad loans” just sit where they are – with the banks – quietly impairing balance sheets but not posing an outright threat because of various government support actions. This would be a Japan-like scenario. And it’s one that has quite a lot of currency, not just because of similarities in monetary and fiscal policy. Take the saving of Citi on Monday for example. The $300bn odd of problem assets are still there on Citi’s balance sheet… Citi is still exposed to take significant first losses on them. The government’s actions seem more a sop to shareholders – more specifically the share price – than anything else.

- Today, the last words go to the financial titans at Monty Python’s Flying Circus. It’s about as good an appraisal of the current economic blowup as we’ve come across.

This financial system is no more! It has ceased to be! ‘It’s expired and gone to meet its maker! ‘It’s a stiff! Bereft of life, it rests in peace! If you hadn’t nailed ‘it to the tax payer’s perch it’d be pushing up the daisies! ‘Its metabolic processes are now ‘istory! ‘It’s off the twig! It’s kicked the bucket, it’s shuffled off its mortal coil, run down the curtain and joined the bleedin’ choir indivisible!! THIS IS AN EX-FINANCIAL SYSTEM!!

I’m not a big fan of Metro “newspaper”, but I think their headline sums it up — ‘We are worse off’.

But… you knew there’d be a ‘but’, didn’t you? Dig a little deeper, and there is some good news to be found.

Well, at least it seems like good news at first blush. In actual fact, it confirms why I’m telling investors to avoid letting their portfolios be dragged down by Britain’s economy. My stance on that hasn’t changed. I’ll explain why, and what I am recommending, in just a second.

First, let’s dig into the numbers. Specifically, let’s look at the figures for output and input price inflation.

Output prices first. Year-on-year, output price inflation rose to 10.2% in July. No change in trend there. Factory gate inflation, as its known, is still on the rise. This is a clear sign that more consumer price inflation is in the pipeline.

But look at input prices – the cost of the raw materials used to make the outputs. Annual input price inflation fell from 30.8% in June to 30.1% in July.

Not an earth-shattering drop, I grant you. But it is a sign that inflation may soon top out. The run up in prices has been fuelled not by rising demand here but by the bull market in commodities. As raw materials became more expensive, it pushed up input prices, output prices and, at the end of the chain, consumer prices.

Higher prices are still working their way through. But what we know from the global commodities market – and not from the input price data – is that a breather is on the way.

Good news… or so you might have thought. There are two important points I want to make here.

The first is that while the inflation rate will fall back, the actual price level will remain high. Since I don’t expect wages to suddenly shoot up, living standards will not only fall – they’ll stay fallen.

And why don’t I expect wage growth to recover? Well, that brings me to the second point I want to make.

I had a chat with our commodities watcher Garry White this morning. He agreed with my thinking on why commodities prices have slipped. It’s not just speculators cashing out – there are fundamental concerns about real global demand.

The fear is that the whole world economy is heading for a slump. Those fears have hit commodities prices. This should put a limit on how high the rate of inflation gets.

But, sadly, this is scant consolation. Because Britain is right at the heart of the global slowdown.

It’s the nature of things in today’s economic climate that this silver lining comes with an even bigger cloud attached. Britain’s economic ills make it a bad place to do business. As a rule of thumb, if a company gets all its earnings from UK consumers and businesses, you should stay away.

UK consumers and businesses have less money than they had. And what they do have they’re scared to spend.

So what should you do? Well, we advise seeking out companies with established foreign earnings streams. Because while Britain is struggling, there are other economies that are still growing well.

That’s obviously what Tesco (LON:TSCO) is thinking. Today we read the supermarket is finally making its long-awaited move into India. It launched Fresh & Easy in the US last year, now it’s going after another huge market. Makes sense to me – now is not the time to have all your eggs in the UK basket.

But while Tesco is still getting its emerging markets pieces in play, we’ve found three companies that have already established their presence. They’re British companies, but – crucially – they have good exposure overseas.

Find out more about why we think these three stocks look well placed to weather the UK storm.

Source: This Is Why I Tell Investors, ‘Avoid Britain!’