[OPE] The Fed doesn't believe the "decoupling" thesis either

US Fed Governor Krozner recently made an interesting speech:

Some commentators suggested last year that the rest of the world would remain relatively unaffected by the housing slowdown in the United States. However, as turmoil emerged in financial systems around the world in the late summer of 2007, it became clear that this was not the case.
 http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm

What is remarkable here is that for some two decades, the world has been awash with talk of "globalisation" and the growing unification and interdependency of the world economy, about which many learned studies have been published by the scholars. How then could anyone believe that a country such as the United States can be disconnected from the rest of the world in its economic problems? You might well say, either the "decoupler" theorists are blind to the problem in hand, or they have a difficulty allotting blame, or they are deliberately trying to fool people, or they operate with VBT (very bad theory).

Mr Obama remarked "this is an American problem", indicating that he feels Americans "own" this problem, that it is their problem to solve. Well and good, but obviously it is not only an American problem but a problem for the whole world. Bad loans exist in Europe and elsewhere as well, we have to get rid of them resolutely, I can tell you that now. But actually, you might argue that is precisely a reason why Mr Obama (age 47) deserves to be US president, insofar as he is at least prepared to communicate in a rational and ethical way with the rest of the world.

The press reported how "fear" swept the markets in the last days. Isn't it remarkable how the very same people who for years extolled their confidence in the system can suddenly be very scared of it?

I have to think of FDR's 1933 remarks:

"This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself - nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life, a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory." (First Inaugural Address).

I think in the present situation if people are too afraid to speak the truth, this provides no orientation we can trust in, and that generates only more uncertainty.

Well... as regards the gullibility stakes, historians still debate e.g. whether FDR had advance warning of the Japanese attack on Pearl Harbour, and in fact goaded them into it...

Jurriaan

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Received on Tue Sep 30 17:24:59 2008