There is a bizarre contrast between a UK stock market that last Thursday had lost 13pc of its value in a month and a UK economy that is still growing slightly faster than its long-term trend rate at 3pc with profitability at an all-time high. But in fact there is a perfectly good explanation.

The driving force behind world markets for a number of years has been the financial flows created by the huge balance of payments imbalances that exist in the world economy.

This tidal wave of funds has been searching for assets in which to invest. In the past 3 years they have been running out of good investments and have therefore chased after bad.

The excess of bad loans meant that there was an accident waiting to happen. The standard practice in these situations is for central banks to bail out the markets.

But they are worried about the long-term consequences of doing so for two reasons: first, they risk creating inflation and second, they do not want to bail out individual investors who have simply made a bad judgment.