ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Tuesday, March 08, 2005

 

sinking globalization


niall ferguson in foreign affairs essays on the similarities of the modern global order to the belle epoque years.

From around 1870 until World War I, the world economy thrived in ways that look familiar today. The mobility of commodities, capital, and labor reached record levels; the sea-lanes and telegraphs across the Atlantic had never been busier, as capital and migrants traveled west and raw materials and manufactures traveled east. In relation to output, exports of both merchandise and capital reached volumes not seen again until the 1980s. Total emigration from Europe between 1880 and 1910 was in excess of 25 million. People spoke euphorically of "the annihilation of distance."

Then, between 1914 and 1918, a horrendous war stopped all of this, sinking globalization. Nearly 13 million tons of shipping were sent to the bottom of the ocean by German submarine attacks. International trade, investment, and migration all collapsed. Moreover, the attempt to resuscitate the world economy after the war's end failed. The global economy effectively disintegrated with the onset of the Great Depression and, after that, with an even bigger world war, in which astonishingly high proportions of production went toward perpetrating destruction.
ferguson points out several similarities between the conditions that accompanied the end of that globalized period and our own -- namely, imperial overstretch, great-power rivalry (now with china), an unstable alliance system (symbolized by a declining nato and un), rogue regimes sponsoring terror and the rise of revolutionary anticapitalist political organization. he outlines the deceptively unstable nature of a global financial system based on an american fiat currency which is very irresponsibly managed. parallels are made to higher tariffs (notably today in agriculture), restrictions on migration, an uptick in inflation (then beginning in 1896) and chronic vulnerability to banking crises.

the point ferguson is making is that "a doomsday scenario is plausible." i think the hardest part for most people is envisioning, in their complacency, even the possibility of a similar collapse in globalization recurring today seemingly out of a clear blue sky -- and ferguson rightly goes out of his way to emphasize how surprising 1914 was for the vast majority. though there were voices in the wilderness,

... most investors were completely caught off guard when the crisis came. Not until the last week of July 1914 was there a desperate dash for liquidity; it happened so suddenly and on such a large scale that the world's major stock markets, New York included, closed down for the rest of the year. As The Economist put it at the time, investors and financial institutions "saw in a flash the meaning of war." The Down Jones Industrial Average fell by about 25 percent between January 1910 and December 1913 and remained flat through the first half of 1914. European bond markets, which had held up throughout the diplomatic crises of the 1900s, crashed only at the 11th hour, as the lights went out all over Europe.
what is the point? maybe nothing -- after all, knowing that the crisis may come is not knowing when it is coming, and hiding in a cabin in idaho until that day is of no use. and yet, i cannot help but think that such historically-grounded reminders regarding the fragility and fallibility of western man serve us all well, defusing hubris and arrogance, leaving us clear-eyed and better informed as to the probabilities and outcomes with which we tinker when we make the decisions of our lives.


This page is powered by Blogger. Isn't yours?