02 November 2008

The Elephant In The Centre Of The Room


There's another reason why those of us outside the US want Barack Obama to win the US presidential election on Tuesday. Imagine the carnage that will eventuate on world markets if the McCain-Palin ticket gets up?

It's almost too frightful to contemplate.

Discuss.

12 comments:

Sean the Blogonaut F.C.D. said...

While I think American dominance may be at an end a Mcain Palin presidency would sink it altogther

Dikkii said...

Maybe it will be a good thing - no more US hegemony.

Ms Chris said...

As a fairly insulated American (and one with little $ to invest), I don't know enough about world market interdependence to comment on your original question.

But I think the end of American dominance is both inevitable and desirable, for all parties concerned. And I think an Obama-Biden administration would accept this and adjust more gracefully than would McCain-Palin.

Dikkii said...

I think that you could be right, Ms Chris.

taj said...

American dominance is not ending for a while yet, too many people* outside the US have too much money tied up in the US economy in one way or the other to allow that to happen. In other words, it's Too Big to Fail.

Get used to hearing that expression often for the next few years. It's going to get bloody ugly for the forseeable future.

* in interest of full disclosure: incl. yours truly

Dikkii said...

"Too big to fail".

I'm really starting to hate that saying, and I know that this is just the tip of the iceberg to date.

Having said all that, whilst the US certainly might be too big to fail, I've reminded readers before of what happened to Standard Oil after it achieved a position of market dominance. Plonka then reminded me of Bell which I'd forgotten about.

Should powerful economies themselves be broken up, Standard Oil style?

Imagine five or six baby USAs.

Disclosure: I probably should disclose that while I don't have direct exposure to US investments, I have more than just a passing beneficial financial interest.

Ms Chris said...

Does being "too big to fail" necessarily equal continued dominance? Current foreign investors have an obvious incentive to support the US economy in the short term, but it's hard to see how an artificially propped-up US could still be considered dominant. And I'd expect to see those investors ssslowly, carefully sell off US holdings to reach a more acceptable level of long-term risk.

The idea of several baby USAs is always appealing at election time. Easy to see where the splits should be...

Dikkii said...

It's hard to say, Ms Chris. I think that you're right about foreign investors eventually selling off their US risk, but it won't happen straight away.

Portfolio theory has never liked the amount of US exposure that most global fund managers have, although it has also encouraged it, as most of the large global corporations are still domiciled in the US. Should the requirement to invest in individual economies override the requirement to invest in individual companies? That's another good question.

I can see why several baby USAs would be popular at the moment. I suspect that the blue states would have no problem if, for example, Alaska was to secede from the union. At the moment, anyway.

Dunc said...

The problem with splitting up the USA is the question of whether Jesusland gets to keep the nuclear weapons...

Dikkii said...

That is indeed a potential minefield, it is true.

Isn't it interesting how the most "Christian" parts of the USA are also the most bloodthirsty?

taj said...

Ms Chris, the problem with the "slowly" part is, each investor wants to disinvest quickly, but hopes others disinvest slowly so as not to drive down the USD in the mean time.

It happened last year due to the fed rate cuts - money flowed into India (offering higher rates) so quickly that the INR gained 20% against the USD in a few months.

Dikkii said...

Taj, and Ms Chris, it's happening in Oz at the moment. Interest rates and commodity prices are plummeting and thus investors in the carry trade are exiting in droves and driving the $A down.

The irony is that Australia is in a much better economic position than most of the world at the moment.

It's not just the naive investors that panic and sell in droves.