A fragile nervous world

In the past few weeks we have been getting a steady run of news that the US economy might be back on track. Retail sales have grown quickly lately to be posting positive improvements on this time last year; jobs are being added again; and pretty soon we may see the US dollar gaining some value.

For those who thought we were settling in for a nice cosy ride on the road to prosperity, there’s been a few updates in the past couple of weeks. A new word has slipped into the vocab as Europe has steadily been engulfed in the Greek tragedy – “contagion” – a welcome new term that has replaced the overused “toxic”.
Some financial media reporting of the Greek Tragedy suggests we should accept that this is a new crisis, not to be confused with the mortgage crisis that was born several years ago in the US. Sorry, this is a new chapter. The GFC showed how highly interconnected are the fortunes of people around the globe.

European leaders and their investment banking advisers are trying to convince the world that they’ve got this one under control and there’s nothing to worry about. When they start saying that, you know they are waist deep in smelly stuff.
In the first chapter of the GFC, the system was taken down by poorly financed, modestly-styled houses. The only thing that is different with this next phase is that poorly financed countries known for their very old ruined houses are taking a continental financial system towards the toilet.

It’s extremely hard to summarise and unravel just what is happening in Europe at present and why financial markets are fluctuating so wildly over a little country that has a balance sheet that is only about 2% of that of the US. Europe’s financial institutions didn’t quite have the dream run out of the mud slide that we’ve been lucky to have in this country. We’re sold on the line that if the Greek mess drags in a few others on the Med, the world is in strife.

At least this chaos is happening in Europe where despite the strange marriage of cultures and political differences, there is a much better chance of decisive action than the morass known as the US Congress.

On the other side of the Asian land mass from the Greek Tragedy, the Chinese government is attempting to slow down its economy to an expansion rate of less than 10% per annum. By itself this event should not cause a calamity, except nervousness about the ongoing demand for commodities would arrive at a time when traders are already in a lather of fear. That might get nasty.

Last week’s crazy meltdown of share markets in response to paranoia shows that the world has taken some medicine but is still very light-headed from its recent last illness. Legend will tell that it was a fat finger that plunged the share markets into free fall. The massive speculation that immediately followed shows us that those who run the money trades around the world are living very anxiously indeed.
This will play out with potentially enormous impact on currencies and potentially the value of export commodities. There are as many theories as speculators on where the value of the $A will be and what it might mean for dairy, beef, wheat and other trades.