First the tremors - now the tsunami

In May 2003 I visited Brazil and was astonished when the street kids, out to make a buck from the foolish tourist, were unwilling, unlike any of my other trips to developing countries, to take the US dollar. I'd being travelling for many years in South East Asia and all people ever wanted was the dollar so I was stunned to suddenly find this shift. They had noticed the downward trend in the dollar and were sure it was going to continue for long enough to make the euro the rational choice. The market may be difficult to grasp in its entirety but the action of its participants is the only way to grab a foothold of understanding. What I had felt, I was positive, was a tremor which could only herald some big event that was sure to come. As I watched the dollar decline over the next few years I wondered how these children, with less access to information or financial training could have known what was to come. Though in a way it is clear for they are at the coal face and part of the front line of the results that happen from the ivory towers of economic policy making. It takes a long time before a central banker gets the data or is affected by the big decisions and in many ways with their government paychecks they may never feel the results at first hand.

More and more tremors have come and debate has raged if they were the totality or worse was to come. The economists have taken action over the past few years to avert a disaster and save us from recession and have even denied that there were any problem beyond a few sectors. However, despite all of this people can now see the tsunami offshore as it is prepared to strike. As it has become closer more and more damage is being wrought throughout the economy but it is unclear how much damage will be done when it finally hits shore. The hope is that the massive monetary and fiscal policy will be enough to prevent landfall and a serious fallout but there is no proof that this barrier wall be enough. It is here that the natural disaster analogy fails because these policies, particularly the monetary pumping, have actually been the cause of the tsunami in the first place. So it looks like a flame thrower in the hands of an arsonist is being used to put out a fire that was caused by an arsonist with a flame thrower. The story has always been, particularly by economists who are keen to sell their services, that the lack of remedial government economic policy was what caused the 1929 downturn turn into the great depression. Now as the central bankers kick into action with the full backing of world governments and their flame throwers on their backs, which we know they will only used more and more if things get worse (a problem in itself for predictable human action is incorporated by the market) we will just have to hope that a fire can be used to put out a fire.