Those who know me personally will conclude (I hope!) that I am not the type prone to throwing shoes at the television, at least not as early as seven in the morning. So I must confess that, on more than one occasion in recent weeks, I have come perilously close to doing so. The object of my un-desire? The normally level-headed crew that run the Squawk Box morning show on CNBC Europe. Mea culpa; a day hardly passes when I have not been tempted to bung a brogue at the US CNBC crew who – with a few honourable exceptions such as Bob Pisani – are so smug, they cannot see an empty space let alone an empty glass without imagining an overflowing swimming pool. And, for the record, I only watch Bloomberg when I cannot get CNBC; Bloomberg’s Stars and Stripes cheerleading makes CNBC look sober, even sombre!
What is it that so gets my ire up? It is the idea, so widely peddled in the Western media and even sadly in the venerable Financial Times, that we are experiencing a GLOBAL financial crisis. NO! NO! NO! What is happening is first and foremost a WESTERN WORLD financial crisis, a world where Japan is arguably not merely a but the founding member. More people live in countries that will see their nation’s GDP grow this year than live in those that will see it contract. As John Stopford so eloquently put it: “It is the Developed World that is experiencing an Emerging Market crisis.” Yes, of course there have been repercussions for most of the rest of the world, not least in (why am I not surprised?!) that “wagon-still-hitched-to-the-wrong-ox”, South Africa. But in Asia – where the world’s newest economic locomotives are stationed – and Latin America, Russia, the Middle East and much of the rest of Africa – home to the world’s main ‘coal trucks’ – these repercussions are much more akin to the buffetings one might feel when a hurricane passes five hundred miles away: the effects wear off quite quickly.
For completeness however, note that some emerging markets – the passenger cars of Eastern Europe, the Baltic States and Mexico – are marooned in a siding by virtue of being hitched to the ‘out-of-steam’ Puffing Billys of Europe and the US respectively. Unable to be lower cost than Asia, no longer able to sell their migrant workforce into their bigger, richer next-door-neighbours, these emerging markets have found their place in the world’s value adding hierarchy undermined from all sides. In Eastern Europe and the Baltic States in particular, chronically high cross-border, cross-currency debt burdens owed to Western European banking houses mostly in the form of house mortgages are threatening to precipitate maxi-devaluations and sovereign defaults. If Latvia goes, which Eastern European and Baltic houses of cards might tumble down in its wake?
Most other emerging markets however are still moving forward precisely because their houses – be they financial or residential – have not come tumbling down. Of course, as is now well known, in the West, the houses of Lehman’s, AIG, Northern Rock, Fannie Mae and Freddie Mac have been razed to the ground whilst the houses built by the likes of Pulte, Lennar, Horton, Beazer and Taylor Woodrow have crumbled in value. Given the interconnectedness between the financial health of the typical Western banking house with the typical Western residential house, and the fact that the failure of the one has hastened the fall of the other and vice versa, was it any wonder we witnessed a plague on both these Western houses? By contrast, the banks of emerging market locomotives and coal trucks may well be boring but at least in their world, one can still say they are as safe as are their houses (though I fear this simile may have outlived its usefulness! As safe as the Bank of China, perhaps?!)
So why do so many blinkered financial commentators in the West make the mistake of assuming that their current financial crisis is everyone’s financial crisis, that it is truly global?
The first answer is that many hardly recognise that there is a bigger world out there beyond the end of their own national noses – to borrow the title of a Michael Jackson song, they seem to assume “We are the World”! Wrong; they are not, never were and never will be. Indeed, as much as it may gall those who sit in their home-biased business Western TV studios to admit it, there is a whole New World out there beyond the West, a world wherein arguably the greenest pastures open to mobile global capital now lie.
Secondly, these commentators assume that because they are the centre of global finance (which for now they are but, given recent events, this status is now living on borrowed money and so on borrowed time), they jump to the conclusion that what is rotten in the core must by definition be rotten everywhere. Wrong again; yes, the periphery has inevitably been bruised but it is by no means bowed; indeed, much of it is already showing signs of restoring its much higher growth trajectory when compared to the now “Turning Japanese” West. Perhaps their misconception is wrapped up in a naïve and indeed even patronising belief that what afflicts the risk-free (except that it is no longer risk-free!) rate at the centre could not but hurt the higher beta periphery even more. (As a friend in London harrumphed, admittedly in a good-natured jest: “Good God, man, are you trying to tell me that our former colonies are now doing better than we are? What is the world coming to?” What, indeed.).
Thirdly – and Western politicians use this ‘logic’ even more than do its financial commentators – there is a “get-out-of-jail-free” card that suggests if the Browns, Sarkozys and even the late-lamented Bushes can cast their domestic crisis as truly global, they can claim that its causes are largely “beyond us” so, they hope, absolving them of any blame. Like a real tsunami, they must have hoped that if the financial tsunami could be cast as “an act of God”, Western voters would not take out their anger on their Governments. So far, Anglo-Saxon voters are having none of it: “Chuck the incumbents out” has become their rallying call.
As US Republicans have learned and the UK Labour Party has already experienced in local polls and is sure to experience in national polls next year, democracy hath no fury like a house-owner scorned.
But of course, this crisis was not an act of God; it was wholly an act of man and Western politicians of all political persuasions as much as those who elected them in the first place were and are still deeply implicated in this tsunami’s formation.
Our guest blogger is Dr. Michael Power. Dr. Power may be reached at:
email address: Michael.Power (at) investecmail.com