global agenda 88.
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The bout of heavy selling that rocked global equity markets for a week and fed into virtually every other financial market, as well, seems to have subsided. Does that mean that the alarm bells can be turned off and the all-clear sounded? Is it back to business as usual for the markets, and can the global economy breathe a sigh of relief that no massive financial crisis will disrupt the longest and strongest period of growth the world has enjoyed since the early 70s?
As can be imagined, there is no consensus on these issues. There is, of course, a very large group of analysts and commentators with a vested interest in spreading the message that all is now well, there is nothing to worry about and everyone can relax - and preferably go back to the gaming tables, sorry, the business of leveraged speculation in financial markets.
There is another group, comprising government and quasi-governmental people, whose message is very similar but whose motive is different - they just need people to not worry and be happy. Inevitably, therefore, most of what you hear and read has a soothing tone and optimistic approach.
There are also the doom-and-gloomers and the inveterate worriers who, equally inevitably, are saying that what happened last week was just a foretaste of the great meltdown that will take place in due course. In between are "moderate pessimists," who claim to be realists, who say that the boom was excessive and so had to end, but that no system-wide disaster is impending. Instead, they expect a mild recession in the US that will serve to cool off the rest of the world, too.
Not good news, but not terrible, either. Kind of negative Goldilocks stuff.
Perhaps the most interesting "clash" between realists and pessimists has occurred in the least expected place. The former Federal Reserve chairman, Alan Greenspan, was quoted immediately before the correction took place as saying that there was a fair chance of the US entering a recession before the end of this year. That was the headline, at any rate, and it was then widely cited as an "explanation" for the sell-off that followed.
This cause-and-effect claim is almost certainly nonsense, but the facts are that a) Greenspan did say more or less what the headline implied b) he didn't retract the essence of his remarks subsequently and most important c) this approach flew in the face of reassuring statements from current Fed Chairman Ben Bernanke. All of this meant that Greenspan and Bernanke were saying diametrically opposite things about the state of the US economy - and that made many people uncomfortable.
The assumption is that Bernanke's reassurances were the kind of thing that the Fed Governor has to say when the markets are in a tizzy. Greenspan, however, is seen as being able to speak his mind and, hence, is more credible. Better yet, since he's now a private citizen, he speaks sentences that people can understand, instead of impenetrable Fed-speak.
But perhaps the real reason that Greenspan's remarks resonated so loudly and for so long is that they reflect what many analysts actually believe, whether they say and write so openly or not. The current period of expansion in the US economy is in its sixth year and is showing growing signs of fatigue. Its former primary driving force, the housing market, is in very poor shape, with a huge volume of mortgage loans - made to the wrong people at the wrong price - hanging over the financial markets and the household sector. To make matters worse, corporations are not using their record profits to indulge in the kind of investment boom that had been hoped for - rather, corporate investment is tepid.
The most positive thing in the American economy is now the export sector - meaning that the world is pulling America, rather than the opposite, which was the case for several years. That is a good thing, on condition that the world can keep it up. However, no one is sure whether it can, or even who exactly is doing the main pulling: is it China and East Asia, or Europe or the oil-producing countries?
In short, there is considerable confusion as to the outlook and as to the interplay between the US and the global economies. Confusion breeds nervousness and nervousness breeds volatility, as people jump into and out of the various financial markets, none of which can be considered cheap and some of which are still very expensive. These themes, of nervousness and volatility are the immediate legacy of the shake-out and are likely to remain prominent for the next few weeks and perhaps months.