Monday, January 21, 2008

A Quick Question

On the back of some pretty nasty behavior by global markets while the US is closed in observance of MLK's birthday, I have a single question to ask those that believe in "decoupling":

If the global economy has become highly integrated, as so many say ("globalization"), isn't it illogical that parts of it will decouple by a wide margin and just keep going strong, despite weakness in the US, EU and Japan (70% of global nominal GDP)?

Eh?

Maybe decoupling enthusiasts are just "having a dream"?

17 comments:

Anonymous said...

We just need to find soon some billion of wealthy new customers...
regards ;)
JJ.

Anonymous said...

m3anon said....

I read this yesterday - it seems the Chinese CB itself doesn't believe it can decouple from the U.S. - but they could be goofing too.

http://www.reuters.com/article/businessNews/idUSPEK23740620080120

Anonymous said...

One would also have to wonder how it could be that global stock and credit markets are increasingly highly correlated but their underlying economies are not. Boggles the mind how anybody can accept such a ludicrous notion. But in this topsy turvy world where subprime mortgages are originated with no money down and no income documentation it seems people in the financial market would accept the existence of a tooth fairy if they thought they would find money under their pillow when they woke up in the morning. However, maybe not when they wake up tomorrow morning.

Edwardo said...

Decoupling is for trains not global economics.

knilpi said...

H,

I think you pretty much answered with the question.

I take unconventional approaches to things and often find little compatibility with 'mainstream' or even 'sidestream' stuff. But I generally do not comment publicly and prefer private email.

In brief, isn't it the case that Asian countries, with a few exceptions, have decoupled near maximum? Maybe, it is NR and Setser who said Asian countries learned the wrong lesson in the previous crisis. Perhaps, just perhaps, Asian governments should surrender their economy to them so they can re-prove the 'recoupling theory'.

By the way, by using 'perhaps', I could sound more conversant with economics and finance. I prefer to do more rigorous stuff.

So, wouldn't it be a bit less stupidity if we first precisely DEFINE what exactly is 'decouple'? To just avoid Greenspan righteousness that, whatever the outcome, there always exists at least one interpretation to get us correct? And quantification in economics gives me constant headache.

Of course, to take it to an extreme: when nuclear weapons start flying, who cares whether it is decoupling! :)

Cheers
k

P.S.
Enjoy your writing.

Camellia said...

The decoupling theory was just a stall tactic to keep the sheeple satisfaied while the market was really crashing. It crashed months ago, but no one was paying attention.

Eva Peron said...

As the huge billboard in Terry Gilliam's Brazil says, "We're all in it together!"

TV said...

Yes!

Yoski said...

The Asian economies might indeed not fare as bad as many here envision. South-East Asia has a huge construction boom, factories, infrastructure, housing you name it. The only laggard seems domestic consumtion in favor of export to the US & Europe. Once exports start sagging some of that loss will/can be made up by domestic consumtion in Asian countries. Trust me there're a lot of consumers that have to make up for lost time. Maybe they won't be buying as many AAA rated bonds from us anymore and instead spend their money on domestically manufatured salad shooters and widgets.
As for Europe, they're just as fubar-ed as we are. The real estate bubble in Britain, Ireland, Spain and Netherlands is even worse than our own. They're just about 6-12 behind where we are.
In summary, China & India will be hurting, but not nearly as badly as the western economies.
...and then of course there's Mr. Putin.

Anonymous said...

"Maybe decoupling enthusiasts are just "having a dream"?"

Can we say "cognitive dissonance" or maybe just wishful thinking?

Anonymous said...

Suppose that we are experiencing the structured finance implosion (I believe we are). Also suppose that the U.S. government is going to engineer a massive multi-trillion dollar bailout aka BOE and Northern Rock. Included in this is bank and broker bankruptcies. Where would one put their money to be safe. That's the only question that never seems to be answered.

Camabron said...

Everything tends to revert to it's mean - so the process is underway in which living standards in the US and other well off countries will go lower while those in 3rd world countries will rise.

Usually 3rd world countries produce commodities which are on a secular bull cycle and that will tend to elevate their incomes.

garyalan said...

Decoupling from the US is not possible as long as the dollar is the reserve currency.

Edwardo said...

Suppose that we are experiencing the structured finance implosion (I believe we are). Also suppose that the U.S. government is going to engineer a massive multi-trillion dollar bailout aka BOE and Northern Rock. Included in this is bank and broker bankruptcies. Where would one put their money to be safe. That's the only question that never seems to be answered.

Allow me:

The government is highly unlikely to
organize a bailout of the sort you allude to other than the de facto bailouts they have been encouraging since late last year that matched up Sovereign wealth funds with failing, excuse me, failed institutions like Citicorpse and Merrill. Why?

Three words, the bond market. If the government were to make the private liabilities of the aforesaid, or any of the other myriad insolvent outfits, public, the bond market would immediately spike in anticipation. After all, who would loan money here
with such a public debt burden without the risk premium being mightily adjusted?

No, I am afraid that the government and quasi government authorities have no special tricks up their sleeve. What we have seen, and are seeing, namely rate cuts and ludicrous inadequate fiscal stimulus packages are about it. So, what does that mean? Deflation and lots of it, aka A depression. There is no avoiding it this time. There will be no new bubbles blown this time for a long time. I'm sorry to be so bleak but that's how I see it. Cash is king.

Anonymous said...

Creative destruction is at work.

Let's see what mangy rabbit Ben Bernanke and Hanky "Panky" Paulson pull out of their hats on Tuesday.

eh said...

Asia Seen Weathering Any US Recession

"The U.S. economy is not that important anymore," Hans Timmer, a World Bank economist, said in Singapore earlier this month.

wkwillis said...

Where would you put your money to be safe?
Inventory.
Standing timber. Cars. Household goods like detergent and canned food and Wheaties. Physical gold and silver, that is, gold and silver that is physically in your possession in a hole in the ground in some quiet patch of woods near the highway.
If you are paranoid and think that the powers that be are about to do something really, really, stupid, how about sending your kids to boarding school in Australia just now?