Much that has happened in the last few weeks in the markets was shocking in its swiftness even to the financially literate. But it shouldn't have been all that surprising. The explosive cocktail of too much debt and too little energy has now had the effect of toppling the already top-heavy world markets.
When the world economy was humming along, nary a thought was given to its enormous complexity. It is only now when it is disrupted that we are forced to notice where that complexity is breaking down. And, perhaps the biggest disconnect is between the scope of the problem which is international and the response which has been largely national. The cowboy capitalism which spread across the globe in the past 20 years is now looking for a marshall to come to town and straighten things out.
But there is no overarching international financial authority which can order countries to do anything. And the national approach is, of necessity, a political approach as Stratfor writes in a recent piece:
Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.Stratfor goes on to write:
If the United States comes up with a plan which guarantees loans to U. S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.
The international just-in-time systems upon which we depend for food, fuel and medicine are starting to seize up. Many in the world could find themselves without enough of one or more of these essentials. The loss of the hallucinated wealth conjured up in the last decade will pale in comparison to the failure of our physical delivery systems if that failure goes on for too much longer. And, for the moment we are stuck with such systems and cannot merely rely on our national systems for our basic needs. We have become too intertwined. In a sense we have become too complex to fail.
This then ought to be the overriding consideration for the present: how to maintain payment systems for essentials moving through the world marketplace. But since those systems have been designed ad hoc by the financial cowboys who are still running the world of finance and since they have no particular government to backstop them, it's not clear how these systems could be administered by anything other than the current frightened private hands. And, given the record so far, how effective will fresh government guarantees be at making those frightened hands more bold?
It is during such times that we come to realize that our seeming mastery of the world through complex systems actually makes our society much more vulnerable to breakdowns. We have power and reach that previous non-industrial societies lacked. But as for resilence in the face of extreme stresses, we are likely to find that we fall short.