Round and Round the Mulberry Bush…

il_340x270.480855993_30qp (1)Pop goes the Weasel.

In olden times those down on their luck would pawn their coats or their tools on Monday and hope to redeem their pawn by Sunday when they needed to turn up in church properly attired.

Richard Fernandez, writing at PJ Media, talks about the musical chairs of the Greek Crisis:

Eventually the physical world starts to change to reflect the payments that have to be made to the players. Trade begins to contract, stores start to close and desperate individuals start to riot. In the naive days of the 20th century, when faith in angels and demons began to wane, it was fashionable to regard matter as primary. Wars were fought by burning actual buildings, killing physical people. But today we know that information has physical force. Computer programs, genetic instructions, memes — and financial data — are to all intents and purposes actual things, rather than airy nonsense.

Unfortunately we still live in a world governed by ancient 19th century Marxian ideas, where politicians regard information as infinitely corruptible, in a world where lies are not only common, but the stuff of power, the very sinews or privilege.  A financial crisis occurs when information goes so far out of whack with the physical world the music has to stop, and those without a chair must be booted off. belmont club

Greece is not a big deal. 2% of the EU economy. The entire place could sink into the Aegean and the world would be little worse off.

China is a bigger place. The factory of the world and its stock markets are in the process of collapse. A lot of companies which we have never heard of have shed 2.5 trillion dollars in market cap in the last three months. Unlike the Greeks, the Chinese have lots of hard currency with which to intervene and there is every reason to believe that the possibility of a Chinese crash will be averted. For now.

Infinitesimal interest rates and overbought markets are, at the moment, haunting the US, the UK, Europe, Japan and China. Fernadez thinks that “the players” have figured it all out and have comfy armchairs waiting when the music stops.

I am not so sure. The players have always counted on governments to step in when there is a cash crunch. When the derivatives have been drawn against busted counter-parties, when the “too big to fail” surprise us by failing. To date, that assumption has been true. It has been true because the governments have had the means – usually the printing press – to literally paper over the flaws in the system. At the moment the Greeks do not but the EU does and I suspect will. At the moment, the Chinese market is in free fall but the Chinese government has the cash to bail them out. But cash, however abstracted, is a finite resource. If you print more than your economy can sustain your cash begins to lose its value against real assets, against food, against bills of lading which must be settled on arrival.

The music is still playing and only the smallest children have been denied seats; but now the scramble is on to secure a seat for the next round.

The one thing which the world seems incapable of doing right at the moment is making more chairs.

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