Remember the $700 billion bailout sponsored by the Bush administration? The markets digested the news and then kept falling. Western nations are bailing out-and in some cases nationalizing-banks, insurance companies, and industrial concerns, but nothing seems to be helping. Today, as Jennifer Rubin notes, the Federal Reserve, the European Central Bank, and the central banks of Britain, Canada, Sweden, and Switzerland implemented simultaneous interest-rate cuts, the first time that has ever happened. The People’s Bank of China, although not formally part of the move, also cut a key rate at the same time. The Dow Jones Industrial Average, the broader S&P 500 Stock Index, and the NASDAQ Composite today mostly shrugged off the coordinated action by the central banks.
Is there anything that can be done at this moment? Not really. “History is replete with waves of self-reinforcing enthusiasm and despair, innate human characteristics not subject to a learning curve,” Alan Greenspan writes in his memoir, The Age of Turbulence. “Those waves are mirrored in the business cycle.” And now that business cycle-and panic-is global.
“If globalization really works, then what is the endgame?” asked Kenneth Rogoff, the American economist, in 2004. Today, we have an answer. The prospect of simultaneous economic collapse is, paradoxically, made possible by the global mechanisms erected to prevent economic failure. Across the world we have, since the end of the Second World War, developed mutually supporting systems, an international network designed to defend itself and therefore achieve stability. Yet if the shocks to this global system are too great, the network’s interconnectedness, normally a strength, becomes its weakness as one part brings down another. As in an overstressed electrical grid, problems can ripple, then cascade, and finally lead to total collapse.
Once, analysts thought that economic growth in Asia would pull North America and Europe through a difficult patch. Now, panic in the Asian markets, triggered by today’s 9.4 percent selloff in Japan’s Nikkei, is helping to pull the rest of the world down. The global financial architecture is collapsing one region at a time. Financial contagion is the fastest spreading of all epidemics.
Neither John McCain nor Barack Obama can say this, but there is not much that either of them can do in a highly integrated world at this point in the crisis. “We have no sensible choice other than to let markets work,” Greenspan has noted. And now that we have connected ourselves to peoples around the world, we are sharing a common market-driven fate.