Living the Impossible
“I can’t believe that”, said Alice.
“Can’t you?” the Red Queen said in a pitying tone. “Try again: draw a long breath and shut your eyes”.
Alice laughed. “There’s no use trying”, she said: “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
Alice Through the Looking Glass
We live in a looking-glass world – at least from the point of view of everyone who was born or grew up in the post-WW2 era. The pillars of the socio-economic order which defined that era are shaking and a large number have already collapsed. The speed with which this is happening, at least in the economic and financial spheres, is breath-taking; what’s worse, the rate of disintegration is accelerating. The inevitable consequence of this process is that it will spread to the social and political spheres, with attendant upheavals in countries and societies around the world.
A simple, yet chilling, example of the extent of the upheaval that has already taken place in the way people think and speak came to my attention a few days ago. A friend sent me an item in an online daily investment newsletter called Daily Wealth, run by a guy called Steve Sjuggerud. The article itself was written by Tom Dyson. I don’t know either of these gentlemen, nor indeed have I ever heard of them, so I can’t say anything for or against them or the newsletter. That’s why I’m using this example.
An investment newsletter is, woodjubleave, about investments. The publisher, editor or writers may have weird or extreme ideas – some newsletters are really far out – but they have to discuss ideas that their readers can relate to. Obviously, these can cover a wide range of topics, but they must be germane to investing. One of the most basic – until recently, humdrum, if not downright boring – investment topics is government bonds. These are the bedrock of the financial system, and each government’s bonds are the foundations on which rest that country’s banks, insurance companies and stock markets.
That is how the-world-as-we-knew-it worked, until 2008 – when that world began spiraling out of control. One year ago, the collapse of Bear Stearns moved the crumbling process of the global financial system into higher gear. Since then, pretty much everything in the system has gone haywire – including government bonds. What Tom Dyson wrote about was about countries going bust, meaning a situation in which a sovereign state is unable to pay the interest and capital due on its bonds.
Of course, countries are not supposed to go bust and if they do, there must be a crisis. However, for most people, a country in South America — let alone Africa — going bust is not an earth-shaking event. Russia’s collapse and effective bankruptcy in 1998 was earth-shaking, but the speed of its subsequent recovery and return to financial grace made the panic at the time seem overdone in retrospect. In any event, even Russia is not a major economic power, despite its pretensions. Certainly, the recent spate of crises in countries such as Ukraine, Pakistan and Latvia are not the stuff of which global apocalypses are made.
But the focus of discussion in investment newsletters — and even, to a frightening extent, in the mainstream media – is not on the stability or otherwise of the Ukraines and Pakistans of this world. Few people have even a speculative interest in the bonds of those countries. But virtually everyone who has any money at all, with a broker or at least in a pension fund, is invested in bonds issued by the governments of the US, Japan, UK, Germany and France. Tom Dyson’s article was about which of the US, UK and Japan were in the worst trouble and which of these countries was most likely to go bust.
Far more important than his conclusions – which, obviously, represent his opinion and can be argued against – is the very fact that this is now a legitimate, necessary (sorry, make that vital), topic of discussion. In March 2009, kicking around the possibility of the US going bust is not grounds for incarceration in a loony bin, or even a basis for labeling the writer a conspiracy theorist or scare-monger. The probability that the US and UK will lose their triple-A ratings is accepted in mainstream circles; the possibility that they will go bust is regarded as remote, but is now within the parameters of normative debate. Whether Japan is in better or worse financial shape than America or Britain, and hence more or less likely to default, is a more sophisticated level of analysis – but things have reached the point where you can bring it up at the dinner table, without causing everyone else to bring up dinner.