So much for the impregnable economy and the iron-man solid aussie dollar. Perhaps our rocks are coming home to roost, as the world’s biggest investors (not you or I, dear reader) scramble for more secure positions by juggling their baskets of world currencies.
What does this volatility portend? No crystal ball here, but Blind Freddie tells me that this is not the end, and that even greater swings and upheavals are more, not less likely in future. (don’t know why people have stopped using ‘the’ in front of future, but I am sensitive to linguistic as well as economic evolution). Neither the EU rescue nor the US financial reform package will provide serious long term dampening of this inherently unstable global financial system. The answers, like in any good mystery drama, lie elsewhere and our eyes are being shunted away from the real action.
As systems progress to the point of bifurcation, they swing wildly and show ever greater whiplash extremes. A new system emerges, and eventually things might settle down with a new underlying set of assumptions and baselines.
The job statistics give a better view of the underlying problem than the stock markets and exchange rates. There simply are not and never can be enough jobs to produce the endless abundance of social goodies that Europe and all other developed countries have come to expect. That doesn’t mean I would argue for their elimination, far from it. But it is just silly to look only at the financial markets to try to understand why the world is currently so unstable.
Certainly it is the case that stock trading has become much more fragmented, leading even the regulators to scratch their heads wondering where the real nervousness comes from. Following the first big market drop and near recovery within the same day a few weeks ago, the New York Times published a chart of how trading has seeped into multiple pools, including nearly 18% done exclusively within 200 companies of broker-dealers. Another 8% is done by ‘dark pools’ (like dark matter, but even less understandable). Both these blocks, which amount to over a quarter of total trades, ‘ hide their pricing information from the market until the trade is completed’. I don’t even fully grasp what that means, but then people like me aren’t meant to. Fodder is not just for cattle and cannons.
However, the real source of the volatility lies deeper. Well, actually, it is now gushing on the surface in the Gulf of Mexico. And that gush (it would be like calling small-pox an outbreak of pimples to dismiss it as a mere ‘spill’, as is now sheepishly being revealed) is just one of many fundamentals that are hidden in plain sight.
Of course, you need a good set of eyes to find the news about the oil mess these days, at least in the good ‘ol USA, where I sit in amazement at the nonchalance being exhibited by the mainstream media about the progress of both the oil and the cleanup. There is mundane coverage about the drubbing that various congressional committees are giving to BP, who is part of a relay race rapidly passing the buck to, eventually Haliburton, who is of course never responsible for anything. Even this has slipped to page 7.
Time for me to stop before apoplecty takes me to aphasia, but just one more tickle for you: The Death and Life of American Journalism, by McChesney and Nichols, (2010) does the analysis of why the American public is getting progressively dumbed-down and therefore less able to comprehend, much less respond to, events determining (sic? or m i sick?) future . McChesney has long been one of my heroes, because he consistently does the research on the links between democracy and public communication, which is ultimately why Graham and I bother to blog. I am reading it, and nearly weeping. Look to the corporate satans.