Mesmerized by the Osama bin Laden drama, the world's attention has swung away from economic issues.
That may not be for long. A three-ring circus of instability matching P.T. Barnum's extravaganzas is in full swing. But unlike Ringling Bros., where only the viewers attention connects the acts, so intertwined are these convulsions that even the most astute market punter is having difficulty telling us what is going on — much less how to invest.
Ring No. 1 is the soap opera — to change my metaphor — playing out with Europe's common currency. It is becoming increasingly clear, as some of us predicted at the beginning of the crisis, that the euro cannot survive in its present form.
With Greece near civil war, the markets are telling anyone listening that there is no confidence in bailouts, even as a new one is under way for Greece and one is just being put together for Portugal. Because default could come at any moment, borrowing rates are too high for recovery even where politicians have the courage to inflict the pain of austerity on voters. Along with Ireland and soon probably Spain, the fact that Greece and Portugal still cling to the euro vitiates the kind of belt-tightening their separate currencies once forced on earlier regimes.
The threat of a taxpayer revolt grows for German Chancellor Angela Merkels increasingly shaky federal coalition, wounded recently by an electoral loss in the country's largest state — after 34 years of conservative rule — and facing four more state elections soon. Public opinion sees Berlin doing the heavy lifting for the EU's spendthrifts, but ignores that it was those miscreants that gobbled up German exports. Unfortunately, the rescue stratagems of the Brussels EU-rocrats only invite a future dramatic euro crash. By procrastinating, they increasingly are making the common currencys fate synonymous with the whole "European project" of creating a united continent to avoid wars and preserve prosperity.
In another ring, Chinese delegates have decamped from Washington after another annual talkathon with a befuddled Obama administration, which is left trying to spin what is in reality a dismal impasse. Just as everyone was being lulled into the idea that Beijing was boosting consumption, April produced record Chinese trade surpluses. Even the combination of higher imported commodities, slackening appetite for its subsidized exports and growing concern about China's real estate bubble did not stem the tide.
Beijing's humongous and escalating dollar holdings show where big chunks of the Feds "quantitative easing" (i.e., printing dollars) have gone. Meanwhile, Chinese officials further tighten their political repression. China's announced internal security costs are larger than its understated defense budget. On the eve of a generational transfer of power, there is paranoia about an "Arab Spring" contagion and much shin-kicking among leaders.
The Communist Politburo is in no mood for "experiments," but keeps on digging its financial hole ever deeper. That is now leading to inflation (if paused for the moment), especially in food prices, the overwhelming concern for most Chinese. Thus, recruits to the tiny school of China-will-implode prognosticators, among them yours truly, are growing.
Back in Washington, our third ringmaster (or perhaps snake-oil salesman, to mix our metaphor again) proclaims that greedy oil companies are the cause of high gasoline prices. Mr. Obama's own clamp on Gulf offshore drilling as well as on Alaskan oil production are the real culprits. Of course, as markets showed in mid-May, a sudden stronger dollar and lower commodities prices could at least temporarily sink notoriously unpredictable crude oil prices — but probably only as a sign of a descent into double-dip recession. For the moment, relief seems unlikely for Memorial Day weekend drivers, with Louisiana's refining capacity threatened by the Mississippi River floods. And continued high prices at the pump, rather than the current concern for fiscal discipline, could just be the election-deciding lollapalooza for an American electorate burdened with joblessness and high home foreclosure rates.
Interconnections among all these phenomena are infinite and mostly unpredictable. But the 1997-98 crash apparently did not teach us that clever derivatives and exotic algorithms are not going to give us a road map to recovery. Just as the self-immolation of a single fruit vendor in Tunisia — the least likely tripwire in the whole Muslim world — set off a wave of revolutionary unrest among 300 million Arabs, the world economy, too, is at the mercy of unforeseen events and unanticipated consequences.
Tighten your seat belts.
• Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the convergence of politics, business and economics. He can be reached at firstname.lastname@example.org. He also blogs at http://yeoldecrabb.wordpress.com.
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