Thursday, 25 September 2008

The quiet contagion

The World’s complacency is deafening.

The ‘explanations’ coming in from around the Globe take a surprising range of forms. All kinds of factors, all kinds of reasons, why that one country, that one region, or even that one city will be spared by this crisis. The denial is the only common element.

For instance...

No, China is fiiiinnnne. More of a problem is the domestic slow-down, if anything, really. But you know what, we’ve been worried about overheating so long. A bit of slow-down is great.

Or: Australia has an excellent banking regulatory system, unlike the US. This is not going to hit us here. We are not worried.

Or: Ah, Japan is a different case. The Americans’ crisis is more of a buying opportunity.

Or: Hey, the Brazilian economy is taking off. The momentum is domestic. Maybe the export markets will get rattled a bit, but there won’t be much lasting effect.

The first thing you learn in the emerging markets business is to suspect arguments about exceptionalism. If everyone is making such arguments amidst a global crisis, that should sound alarms.

My forecast is that there will be a slow, quiet contagion. For a while the (primarily US) policy alternatives will dominate the agenda. A lull of complacency will come in. We will hear a lot about the situation-being-not-so-bad.


Can you assume that this crisis is not going to impact consumer confidence in every place on Earth with a TV? If you are to decide to buy a new car now or delay, what would you do? How about real investment? Would you jump into a new venture at this moment? Or, would you finance one? If you were a retailer, what inventory strategy would you go for? Would you pile up as much as possible, leaving orders for more, or rather risk running out of the current stock first and see how people react to the new realities?

At one point, the hit to the real economy will become undeniable, and the global macroeconomic elite’s hope-bubble will burst.

This might be a good point to recall that the first life-boats to leave the Titanic were two-thirds empty, for lack of interest…


  1. This all sounds very convincing. But what to do? Where could you go if you were to sit on one of those life-boats?

  2. A Brand New Tuesday...

    The banking crisis has reached Europe. The schedule of cash withdrawal from hedge funds programs the further contagion for sure. While the direction of the confidence-trend is not exactly north... So here is a cheerful outlook...

  3. In response to the question above:

    What to do?

    Have a way of bridging over the coming trough is the best answer, although I can see how that is not a particularly interesting or original one.

    The "fundamentals of our economy are strong" actually happens to be true, of course with the caveat that 'economy' refers to the 'global economy' and 'strong' assumes that there will be some kind of efficient global economy policy setting and enforcing institution, and 'are' means 'will be at one point'....