The wild swings in the North American financial markets this week serve as yet another reminder of the weakness of any linkage between levels and changes in financial asset values and levels and changes in real economic variables. This is apparent for both bonds and equities.

The Great Recession was followed by an anaemic recovery in the advanced economies, which threatens to be followed by a double dip or worse now that the fiscal stimulus measures of 2009 and 2010 have been succeeded by austerity programs.

Now we face a new financial crisis, or at least a stock market correction of major proportions, which may precipitate a new phase of the crisis.

The financial markets seem to suffer from acute schizophrenia, with the bond markets demanding more fiscal austerity in much of the Euro zone, while stock markets are panicking at clear signs of slowing U.S. and global growth.

How should governments be responding to the panic in the markets?

Not, as they have, by caving in to the bond markets.

Headline: "Key oil figures were distorted by U.S. pressure, says whistleblower"

The Guardian newspaper

Why would Western industrialized countries want to downplay the arrival of peak oil? There are two related reasons: First, as consumer nations they want to keep the price of oil low and second, they want to delay taking any action on climate change including spending hundreds of billions on shifting their economies to alternate fuels.

The recently announced sale of New Brunswick Power to Hydro Quebec is another alarm bell for the Canadian economy. The sale is aimed at enhancing the transformation of Hydro Quebec into an export industry -- selling power into the U.S. market. It's part of a bigger picture.