Global Agenda: Armageddon

For everyone else, an earthquake in Peru or any other distant point on the globe is sad, but not shattering. For the people in the stricken areas, shattering is where it begins.

jp.services1 (photo credit: )
(photo credit: )
The end of the world comes in all shapes and sizes. Individuals suffer tragedies, households or families suffer disaster, communities are destroyed. Just look at the pictures from the Peruvian earthquake on Wednesday night to see an example of the end of the world on a small scale. For everyone else, an earthquake in Peru or any other distant point on the globe is sad, but not shattering. For the people in the stricken areas, shattering is where it begins. Earthquakes, as least, are comprehensible and hence able to arouse the full gamut of emotions, from horror to empathy to pity, and hence to trigger a response. That is one of the reasons the financial press uses terms like "earthquake" and "tsunami" to evoke a parallel with major negative developments in the financial markets and the financial system - because otherwise these would be so abstract as to be meaningless. The physical term conveys some sense of raw power, which would otherwise be lacking. But there remains the problem of scale, which is common to both physical and financial disasters. To say that an earthquake caused a house, or houses, to collapse, is something the average person can easily grasp. To say that an earthquake destroyed an entire city, however, leaves most people's minds numb because it is genuinely difficult to picture and entire city knocked flat. Pictures of Japanese cities after the American bombing campaigns of 1944-45 - and, of course, of Hiroshima and Nagasaki after the bombs - can help, but even they cannot convey the impact of a major earthquake, which doesn't merely flatten, but rips up the land itself and turns it upside down. The same is true of financial earthquakes. Everyone can comprehend losing a hundred shekels or a thousand shekels, maybe even a hundred thousand shekels. Rich people can at least conceive of losing a million. But once you get into hundreds of billions, let alone trillions, you've left behind pretty much everybody. To say "x-trillion was wiped off the value of global equity markets today" may be factually correct, but it doesn't really convey any useful information. You might just as well say "a helluva lotta money" and leave it at that. However, the fact that the scale of what is going on in the global financial system this week and last is incomprehensible to the general public does not detract from its importance. It just makes it harder to deal with. Pretending that what is happening is really not that bad, as so many political and financial leaders are still doing, is also counter-productive. These statements are increasingly divorced from the reality of the collapsing markets so they quickly lose any credibility and hence impact that they might have had in terms of making things better now. They also make things worse down the road, when the time comes for governments to step in and try and turn things around, because people remember that the minister/governor/president/whatever said that things would be fine and they turned out terrible, so ignoring what they say - or doing the exact opposite - seems a more sensible course. The bald fact is that we are witnessing a major financial catastrophe, on a par with the biggest such events in modern history. One of the most troubling features of the present crisis is that it is virtually impossible to know which financial institutions - banks, insurance companies, mutual and pension funds and, above all those mysterious hedge funds - have suffered significant damage, let alone which are actually dead but may not yet realize it, let alone have reported their demise. But what is certain, even at this stage, is that vast, truly incomprehensible sums are evaporating and the loans that financed these speculative investments have been destroyed along with them, leaving both borrowers and lenders sinking. The very idea that a market collapse of this magnitude could somehow not feed through to the "real" economy of production, sales, employment and all the rest, is inherently non-sensical. The fact that this crisis was spawned in the "realest" part of the real economy, namely houses and apartments, means that it didn't have to "spread" to the real economy, because it was there all the time. It would seem that we are observing the end of an era, not just in the global markets but in the global economy. Many still hope for a Greenspan-type rescue, in which central banks pour huge amounts of money into the system to stabilize it. Yet it is doubtful if this would save the day this time, even if there was the will to try it - which, so far, has been totally lacking. The summer of 2007 would seem to mark a watershed and we are now entering a new and very different financial and economic environment from that prevailing over the last five years.