Saturday, 26 January 2008

Economic Insanity

ESPECIALLY to the younger ones among us, the events of last week must have been one of the worst in their living memory – in economic terms, that is.

All around the world, going around the time zones like some dark and insidious plague, stock markets plummeted to their lowest levels in years, with each successive opening spooked by the results of the one before it.

Billions of dollars in market value were wiped out in a matter of minutes.

But then like some white knight to the rescue, the markets of the Far East sprung into action, buoyed partly by the response of the U.S. Federal Reserve, as well as confidence in their own economies to withstand the possibility of an economic slowdown in the West. And from that wellspring of optimism, a reversal of sorts took place in the major markets, recovering most of the value they lost in that single day of pandemonium. By week’s end, though still fragile, much of the damage seems to have been repaired, at least momentarily.

Difficult to explain sometimes, the financial markets. But perhaps not so strange when you think of who’s behind this amorphous thing called the “the market.”

That’s we, the people, of course.

No wonder then that markets act so strangely sometimes –- being the collective sentiment of thousands upon thousands of individual sellers, consumers, financiers and financial intermediaries interacting with one another in all sorts of ways.

It’s hard to explain the reasons behind these movements most times. If we really think about it, nothing much seems to have changed in our world from, say, a couple of years back. The planet is as populous as ever, climate change is still a major challenge of our time, and peace in the Middle East remains as elusive as it has always been. So why the sudden shift in our economic prosperity between then and now? What has happened to the world that has made us collectively poorer than we were a couple of years ago?

In tangible terms, perhaps nothing much has really changed. But our sentiments have shifted significantly. With the war in Iraq dragging on with no end in sight, worries have started to creep up concerning the future supplies of oil, thereby pushing prices up and putting pressure on costs for all manner of businesses, as well as ordinary consumers.

In response to rising costs, businesses reacted by slashing their organizations, or else exporting parts of their businesses to lower cost overseas locations, displacing thousands of their employees in the process.

Of course, the possibility of losing their jobs has unsettled a lot of consumers, causing them to hold back on their spending in order to prepare for an uncertain future. And guess what? Less consumer spending means lower corporate earnings, which lead to more rounds of layoffs, which lead to even lower consumer spending, ad infinitum.

The global economy is into a deeper and deeper spiral of despair, with no one seemingly able to pull it away from its downward course.

It is safe to say that if the economy were a person, it would have committed suicide a long time ago due to a severe mental disorder, or perhaps it would have already been interred into an asylum for the mentally deranged, for which person could afford to live with the ups and downs that the global economy undergoes every now and again?

The truth is that no person could live a life with the ups and downs of the world economy. But like it or not, we all have to live with the consequences of such seemingly insane economic behavior.

Published in the Sun Star Daily, Saturday, January 26, 2008

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