Tuesday, January 22, 2008

The Market Panic in Perspective

Does anyone else see the irony in the ongoing panic in global asset markets? Last week we feared global imbalances; this week we fear they may dissipate.

Don’t get me wrong — the last thing I want to see is global rebalancing by way of a massive US recession. But why are investors from Hong Kong to Frankfurt getting spooked? They are signaling that they don’t think their economies are decoupled from ours, and that a US downturn means the global buyer of last resort is putting away his credit cards. The US will cease to be the bottomless export market, and sellers everywhere will stumble.

Maybe so, but drastically curtailing the US import habit is a necessary part of rebalancing; it is not possible for US exports alone to do the job. So the contagion we’re seeing demonstrates that the current imbalances have become addictive on all sides. (OK, rebalancing via recession lacks a terms of trade sweetener, but is that what the markets are freaking about?)


Myrtle Blackwood said...

"..it is not possible for US exports alone to do the job. So the contagion we’re seeing demonstrates that the current imbalances have become addictive on all sides.

From my observations the reason why the asset and financial markets are failing is because there is a lack of governance; both domestically and globally. The current imbalances are not a result of 'addiction' but as a result of force and corruption. Our social institutions have broken down, the rest merely follows from that.

There has been:
- a refusal to regulate;
- widespread fraud;
- resultant lack of trust;
- forced savings and forced investments with no associated control over either;
- unbalanced global capital flows and trade;
- long-term political corruption;
- a lack of democracy;
- public service appointments according to ideology rather than merit.
- a notable lack of a viable mainstream media;
- a refusal to employ more appropriate technologies or use resources more efficiently;
- a long-term shift to massive inequality of income;
- unmeasured inflation and other dubious statistical methodologies related to
- incessant and ubiquitous spin doctoring;
- dominance of the world economy by a smaller and smaller number of people and institutions;
- unpunished treasonous crimes by repeat offenders in high office and in large corporations;
- business ethics and laws that mimmick mafia behaviour.

Sandwichman said...

I agree with Brenda. The failure is endemic and systemic. It's not something that can be fixed by fiddling with interest rates, tax rates or even trade balances. The soothing effect of Helicopter Ben's 3/4 point federal funds rate cut will be short-lived. He would have had a more enduring impact if he had hijacked a jetliner and flew it into the Empire State Building.

Anonymous said...

I'll ditto on Brenda's observations. It's sobbering to read the list of accomplishments of two successive administrations that have catered to wealth, waste and mismanagement, albeit that the Clinton administration was ever so much more covert in its efforts. There may be some distinctions between the two, especially regarding the treasonous activities of the latter group.

But what if the current market
"disruptions" are some how part of the plan. We're reading that a few large pools of capital are coming to the "rescue" of some big financial institutions, like Citibank. Rescue?? The media are not stating clearly what these rescuers are getting for their investments. Is Mr. Weil putting in $20 million in personal funds out of the goodness of his heart? Or, is he getting in cheap after the shares have taken a beating that many were in a good position to know was coming soon? Who suffers the greatest loss in the disintegration of market value? How's your IRA and 401K doing, bucky? Aside:Is this the perfect argument for privatization of Social Security? Remember back to the '80s and the savings and loan "crisis." Is this deja vu all over again? Who were the winners and losers then, after the smoke cleared? Is it any different now? Just a few random thoughts on the culpabililty of the free markets and the major capital holders behind that free market.

Anonymous said...

---Remember back to the '80s and the savings and loan "crisis."

--- To me this is the most 'on the ball' comment so far. Banks were bound to fall apart because of inflation, as they get paid back in cheaper dollars than they lent out. To make up the shortfall, they do shady, risky deals.

rosserjb@jmu.edu said...

The "irony" has been staring any astute observer in the face for some time now as a massive and ineluctible contradiction. We have been riding on a tiger that has basically been China (and some others) lending the US money so that the US could buy their goods. Everyone has known that this was ultimately unsustainable, but nobody wanted to get off the tiger and get eaten...


Myrtle Blackwood said...

Barkley: "We have been riding on a tiger that has basically been China (and some others) lending the US money so that the US could buy their goods.."

US President Nixon, Henry Kissinger, George Bush Sr, James Baker, Warren Christopher (the latter under Clinton). All had key roles in creating such a situation with China. Most are probably still actively involved in perpetuating it. They are big businessmen after all.

Kissinger has ongoing and very lucratived contracts in China.

I don't know how appropriate it is any more, to look at trade imbalances as being a distortion of 'national' trade. When it appears that it is actually intra-corporate trade using public subsidies from the various (relatively inferior) national governments.

Kissinger: "..I must point out that the consulting company I chair advises clients with business interests around the world, including China. Also, in early May, I spent a week in China, much of it as a guest of the government...

Conflict is not an option. Henry A. Kissinger
Published: THURSDAY, JUNE 9, 2005