We all knew this day was coming

ARTICLE: Global Stocks Plunge as U.S. Crisis Spreads Sell-Offs on All Major Exchanges, By Neil Irwin and Zachary A. Goldfarb, Washington Post, January 22, 2008; Page A01

America has lived through an era of unusually cheap money thanks to a confluence of global economic trends, none of which were sustainable ad infinitum (a statement that approaches cliche in this global economy that now features so many moving parts).

So now the corrections and rebalancing come, the trigger being almost irrelevant, the point being there had been a lot of innovative securitizing of debt in recent years, which--as with all such innovations--is both good and bad. Good in that it creates new instruments for additional people to discount costs and risks over the long haul as they build their futures, but bad in that whenever innovation strikes in financial markets, somebody always runs too far with that ball--hence new rules are triggered.

To globalization's critics, this rebalancing-triggered-by-crisis signals the inherent instability of the global economy, or the "death throes" of this or that aspect of America's "global dominance" or what have you. The reality is more plain: our globalized economy is simply becoming more multipolar even as it becomes more interconnected and interdependent. "Coupling" and "decoupling" happen in the same breath, across too many avenues to count.

So it's not who's up and who's down that matters, but who's drawn closer together and who's driven more apart.

But yes, expect much useful and useless chatter on this subject in coming weeks, especially from the Davos conference. Be prepared to be bombarded with shocking declarations of a "new order."

Then remember how many "new orders" you've lived through over the past 20 years and relax.

Comments

[desiree fox]

"Then remember how many "new orders" you've lived through over the past 20 years and relax."

Exactly!

[moishe]

unfortunately doom and gloom sells and what we are seeing is becoming a self fulfilling prophecy. the markets always come back and there is always a new new thing. this time will be no different. it should also be noted that there is tremendous opportunity out there for savvy investors (sovereign wealth funds, hedge funds, private equity, distress debt guys and the like who have a ton of dry powder) to make smart bets and hit grand slam home runs when the markets stabilize and begin to grow again.

[Jarrod Myrick]

Dobbs and the i told you the sky is falling crowd are partying. Are Gates and Buffet wasting the two greatest fortunes in the history of the world?

[Louis Heberlein]

One problem we should deal with is the need for pragmatic economic courses for the general public that has to sometimes deal with the occasional inconsistencies and irrationality of a market economy. That was true from the tulip mania to the present. Even if we only have to deal with it just once a decade the long term psychological affects can be profound.

I was a 'nuts and bolts' logistics guy, but had to take economics and business theory courses for the degree. The macroeconomics instructor would not accept student questions involving problem examples that seemed to show flaws in the 'superior' market economy theory unless they were posed in the context of an alternative economy model. Then we went down the hall to take a business course on how to manipulate micro markets. That instructor would not take questions concerning longer term consequences involving customer confidence.

The experience gave me a new insight on the true meaning of a university type BS degree ... rather than the pragmatic approach of private business schools and community colleges. I gather that many media commentators and politicians were university graduates.;-)

[farhad]

DR Barnett, the new orders,is actually asprin to a cancer patient.thereality is this;the tumor is getting bigger & bigger,and the effect ofasprin is wearing sooner and sooner.just like Greenspan that created 2 large bubbles in order to increase the power of purchase(effective demand)by basically trying to give more credits to their credit cards,low interest for housing(or refinancing).during all theseeconomic crisis,none of the theories can explain why this is happening,they all ran back to the clasic economist and one who canexplain why the trend is a self-resulotion,and the realization of surplus value brings about this "natural" problems.the formula is this: C+V+S. C=constant capit(resources,machinery,buildinngs,cost of production,overheads) V=variable capital(cost of labor) S=surplus.contrary to lord keynse who bleived Govern has to interfier,and distrbute money among people (to bring spending),becuase here youhave a succexful production,and you have included all the cost+ theprofit,but you don't have buyer,what can you do?.the classic economists like adam smith, marx,... see the problems and the rootsin the production sector of the economy,and not the distribution part.C(constant capital)is not going to make you S(surplus),it is the V(variable capital)that make you the surplus.let imagine the applied sience makes it possible that machinery take over and that you don'tneed labor no more,but you still need people to buy the products,where are they going to get the money.it is a facinating subjects.

[Ted O'Connor]

Don't forget all the "Wars" we have been through. The "War on Crime", the "War on Drugs", the second "War on Crime" and the current "War on Terror". I think there was a "War on Poverty" in there somewhere but I have forgetten when that was.