Author:
Dan Keeler
The Teflon Economy
There is no disputing the fact that the world’s economies are confronting some unsettling forces. Oil prices are surging, international terrorism is on the rise, there is political turmoil in Brazil and an ongoing tangle between China and the US over exchange rates, textile exports and, latterly, China’s desire to buy American companies. Natural disasters, such as the Asian tsunami and the increasingly frequent hurricanes in the US, create enormous financial stresses, disrupting the economies of entire regions.
Despite these—and the countless other threats to global financial stability—the world’s economy is proving remarkably resilient. As we find out in this month’s cover story, the global economy seems to have developed both a protective shell and the ability to heal itself. When some catastrophe or another sends investors fleeing for safety, others quickly swoop in, hunting for bargains in an oversold market. Vast increases in global liquidity, dramatic advances in communications and an ever-growing hunger for yield are combining to create a safety net that can help to stop a crash before it happens.
This self-sustaining protective web is one of the unexpected consequences of globalization: With so many connections and interactions between so many economies around the world, markets are becoming inherently better balanced and more robust. We’ve seen in the past few years, for example, how the world’s central bankers have been able to utilize the vastly increased amounts of information available to help them maintain stability in their own economies. This effect is being replicated in banking and corporate activities. And while corporations may be howling about the growing regulatory burdens they are carrying, they are also finding that a well-run business with clean accounts and good corporate governance is likely to be a more successful business—one that can better weather the bad times as well as enjoy the good times.
Essentially, the changes that are taking place in the world’s economy are the result of just one thing: better risk management. With greater transparency, more information and increasingly effective risk management tools at their disposal, markets, governments and corporations can adjust quickly to unexpected events. It also means there are fewer unexpected events, and that should be good for all economies, large and small.
Until next month, Dan Keeler
dan@gfmag.com
There is no disputing the fact that the world’s economies are confronting some unsettling forces. Oil prices are surging, international terrorism is on the rise, there is political turmoil in Brazil and an ongoing tangle between China and the US over exchange rates, textile exports and, latterly, China’s desire to buy American companies. Natural disasters, such as the Asian tsunami and the increasingly frequent hurricanes in the US, create enormous financial stresses, disrupting the economies of entire regions.
Despite these—and the countless other threats to global financial stability—the world’s economy is proving remarkably resilient. As we find out in this month’s cover story, the global economy seems to have developed both a protective shell and the ability to heal itself. When some catastrophe or another sends investors fleeing for safety, others quickly swoop in, hunting for bargains in an oversold market. Vast increases in global liquidity, dramatic advances in communications and an ever-growing hunger for yield are combining to create a safety net that can help to stop a crash before it happens.
This self-sustaining protective web is one of the unexpected consequences of globalization: With so many connections and interactions between so many economies around the world, markets are becoming inherently better balanced and more robust. We’ve seen in the past few years, for example, how the world’s central bankers have been able to utilize the vastly increased amounts of information available to help them maintain stability in their own economies. This effect is being replicated in banking and corporate activities. And while corporations may be howling about the growing regulatory burdens they are carrying, they are also finding that a well-run business with clean accounts and good corporate governance is likely to be a more successful business—one that can better weather the bad times as well as enjoy the good times.
Essentially, the changes that are taking place in the world’s economy are the result of just one thing: better risk management. With greater transparency, more information and increasingly effective risk management tools at their disposal, markets, governments and corporations can adjust quickly to unexpected events. It also means there are fewer unexpected events, and that should be good for all economies, large and small.
Until next month, Dan Keeler
dan@gfmag.com
