WHEN THE HERD PANICS
17/8/2007
A BRIEF COMMENTARY ON FINANCIAL CRISES
10/8/2007
17/8/2007
What will the herd do when its values collapse?
The first word that comes to mind is “panic.” It is a word closely related to the word “pandemonium,” defined in Webster’s Dictionary as: “1) The abode of all the demons; in Milton, the capital of Hell or the palace of Satan; 2) a wildly lawless or riotous place.”
It has just been announced that the Fed is approving a half-percentage cut in its discount rate on loans to banks. “In other words,” noted one analyst, “despite saying they wouldn’t bail out the markets, the risk is so high it looks like the underlying U.S. economy is at stake.” The first sign of panic, the first indication of pandemonium, is the application of desperate measures in an increasingly desperate situation. As St. Louis Federal Reserve President William Poole recently observed, “There’s no need for the Federal Reserve [to cut the discount rate before the next meeting] unless there’s some sort of calamity taking place….”
Last week the financial crisis was seen as “spreading.” In response, central banks poured out tens of billions. Alice Rivlin, a former Fed vice chairman, noted: “The Fed has almost unlimited ability to supply liquidity if they feel that it is appropriate.” But this statement doesn’t take panic or pandemonium into account. All the liquidity in the universe cannot quench the fires of Hell. The flames subside for a moment, but then they flare up anew.
Panic is something that spreads. It begins in one place and moves outward, in every direction. “There is no fence against a panic fright,” wrote Thomas Fuller in 1732. When the herd fall prey to a pack of wolves, the herd begins to panic. Who will stop the panic? The government is expected to stop it. The government must do something. But the government is part of the herd. It shares the herd’s mentality. So who will save the government?
The first word that comes to mind is “panic.” It is a word closely related to the word “pandemonium,” defined in Webster’s Dictionary as: “1) The abode of all the demons; in Milton, the capital of Hell or the palace of Satan; 2) a wildly lawless or riotous place.”
It has just been announced that the Fed is approving a half-percentage cut in its discount rate on loans to banks. “In other words,” noted one analyst, “despite saying they wouldn’t bail out the markets, the risk is so high it looks like the underlying U.S. economy is at stake.” The first sign of panic, the first indication of pandemonium, is the application of desperate measures in an increasingly desperate situation. As St. Louis Federal Reserve President William Poole recently observed, “There’s no need for the Federal Reserve [to cut the discount rate before the next meeting] unless there’s some sort of calamity taking place….”
Last week the financial crisis was seen as “spreading.” In response, central banks poured out tens of billions. Alice Rivlin, a former Fed vice chairman, noted: “The Fed has almost unlimited ability to supply liquidity if they feel that it is appropriate.” But this statement doesn’t take panic or pandemonium into account. All the liquidity in the universe cannot quench the fires of Hell. The flames subside for a moment, but then they flare up anew.
Panic is something that spreads. It begins in one place and moves outward, in every direction. “There is no fence against a panic fright,” wrote Thomas Fuller in 1732. When the herd fall prey to a pack of wolves, the herd begins to panic. Who will stop the panic? The government is expected to stop it. The government must do something. But the government is part of the herd. It shares the herd’s mentality. So who will save the government?
10/8/2007
The West doesn’t seem to understand, as yet, that the emerging financial crisis isn’t merely a financial crisis. In Beijing and Moscow it is seen as something more. It is seen as part of a strategic sequence in which U.S. power is eclipsed. It is a sequence that leads to massive global changes. The Russians and Chinese want to replace America as the world’s dominant military and economic power. They want to transform the global economic system, but the transformation won’t be a friendly one. Their game is not to build an inclusive system in which “a rising tide lifts all boats.” Theirs is a zero sum game in which their triumph comes at other’s expense.
By comparing the sentiments of Putin and the Chinese leaders with those of former Soviet and Chinese leaders, we see that little has changed. Consider the text of Soviet Military Strategy, published in 1963, which put forward the view: “[that] American monopoly capital has seized the basic sources of raw material, the markets and spheres of capital investment: It has created a surreptitious colonial empire and has become the biggest international exploiter. American imperialism today plays the role of world gendarme, opposing democratic and revolutionary changes and launching aggression against peoples fighting for independence.” [Soviet Military Strategy, p. 279 of the Rand translation.] We hear this old Marxist-Leninist line from Putin’s Kremlin today.
By comparing the sentiments of Putin and the Chinese leaders with those of former Soviet and Chinese leaders, we see that little has changed. Consider the text of Soviet Military Strategy, published in 1963, which put forward the view: “[that] American monopoly capital has seized the basic sources of raw material, the markets and spheres of capital investment: It has created a surreptitious colonial empire and has become the biggest international exploiter. American imperialism today plays the role of world gendarme, opposing democratic and revolutionary changes and launching aggression against peoples fighting for independence.” [Soviet Military Strategy, p. 279 of the Rand translation.] We hear this old Marxist-Leninist line from Putin’s Kremlin today.
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