Global Socio-Politico Trends

Post the Great Depression the global socio-economic trend among political elites was toward greater government involvement in the economy. That trend finally came to an end, shipwrecked on the rocks of the 70s recession. But by the time it had run its course, it had blended opposing socio-economic ideologies into indistinguishable political forms. Turning, so-called "conservatives," such as Richard Nixon, Edward Heath, Helmut Schmidt, Valery Giscard d'Estaing, Malcolm Fraser, and Robert Muldoon into quintessential socialists. Such is the pressure of a trend and a supportive ideology (Keynesianism).

The natural backlash to the expanding Statism of the 50s, 60s, and 70s, was the countermove toward deregulation and financial liberalization in the 80s and 90s, led by Margaret Thatcher and Ronald Reagan (supported incidentally by ideological liberals Francois Mitterand, Bob Hawke and David Lange in France, Australia, and New Zealand respectively). This trend now appears to have run its own course, shipwrecked on the shoals of the Global Financial Crisis, with Tony Blair and Bill Clinton the best examples of political actors who melded their opposing ideological disposition to the dominant ideology of the time (monetarism). Whether Democrat or Republican, Labour or Liberal, the times and the culture might change, but the dominant political parties seem to move symbiotically together.

Interestingly, the role that President Carter played (serving in the transitional flux between periods) might serve as a template for the role that President Obama is playing, as socio-political forces work out a new direction.

"plus ça change, plus c'est la même chose"

Sovereign Debt Crises Have A Long Fuse

About the only thing Greece* has shown us is that sovereign debt "crises" have a long fuse. The Greek crisis erupted in early 2010 and has yet to reach its ultimate zenith.

In recent days, Italian bond yields have risen above 7%, throwing into question the sustainability of Italy's fiscal position, and the potential collapse of efforts to bailout the eurozone.

Equity markets have appeared to ignore the current "crisis." I suspect it is because they see it as a long term problem, with only a small likelihood of a catastrophic collapse any time soon. With Greece as the blueprint for this thinking. This may, or may not, prove correct, but it has frustrated the bears no end. They have been betting upon a rapid conflagration, and are perplexed by the market going up in the face of supposedly rising risks. The greater possibility is for more "can kicking" and the prospect of a long dripfed erosion in confidence. Periodic fires (aka crisis of confidence) are likely break out, but the system can go on for a long period of time before the piper ultimately comes calling.


The real problem in this whole equation is structural fiscal/current account imbalances co-mingled with massive long term contingent liabilities due to generous promises made at various points in the past. In the absence of any serious address of those problems, we know how this story will end. Even when the market is signalling the ultimate end, a bankrupt country can make interest payments on its debt for a long period of time before it eventually calls it quits.

*And let's not forget Japan.