The zaibatsu were the pre-war and wartime holding companies. The keiretsu were the multilateral groupings that succeeded them post-war.

McArthur reversed the effective break-up of the zaibatsu (which some wanted to end in the de-industrialisation of Japan) with the onset of the Cold War and Korean Wars in the interests of having a strong ally/unsinkable aircraft carrier in East Asia.

It doesn’t change the sense of the post but it is worth correcting the impression that the zaibatsu/keiretsu change was (a) much of a change and (b) a result of the 80’s bubble popping rather than 40’s geopolitics.

That is the greatest risk. The last global upheaval of this magnitude ended with WWII.

It seems we’ve reached a point where it is impossible to make any forecast about where the global economy goes from here. There’s an interesting article (http://cowles.econ.yale.edu/P/cp/p07a/p0710.pdf) that shows that the Great Depression could not have been forecast using economic data either. We seem to be in a chaotic process where the usual causative principles break down. So the normal economic motives of hope and fear are no longer relevant. We can do nothing which will have a reliably predictable effect.

Perhaps that guy that keeps on about the Large Hadron Collider is right, and the economy is already entering a black hole, from which it is well known that neither electromagnetic radiation nor, consequently, information can escape.

I am so glad that some are beginning to see the triggers for nationalisim and the financial disaster that will follow. At some point even the best efforts at cooperation will cease due to various countries internal political pressures.

The IMF will not succeed with band aids applied to gushing arteries. Globalisim will rapidly decline. Multinational Corporations will be caught astride finger pointing countries. All in all, a recipe for disaster.

Has the possibility for an international financial meltdown been averted? Some forces; hurricanes, tornadoes, earthquakes, tsunamis…Cannot be stopped by man. It might turn out that the current financial leverage tsunami unwind will be in the same catagory. Winding up leverage was a many years process, unwinding is happening too rapidly for governments to cope.

Post unwind after a number of currencies have tanked and significant damage has been done to various economies there will be little to support the differences in interest rates between countries. Unless the US treasury recognises this then a new carry trade may start up around the dollar.

This is all happening while US investors sell stocks in emerging markets which is causing a significant impact on the emerging market stocks and ultimately economies. At the same time the dollar is rising shutting down the export driven manufacturing in the US.

We now have multiple countries all issuing debt to raise money for bailouts and I cannot help but think the source of finance for those debts is finite. I conclude that some countries will get into difficulty and be forced to balance there budgets as a result with the UK and others in Europe probably seeing that fate. Eventually I guess the financing for even the US deficits will dry up as foreigners use their resources to solve their own problems.

One of the conundrums will be what happens with commodities. Everyone expects commodity prices to fall as demand drops, but I am not so sure. China is using up iron ore stockpiles as it tries to renegotiate prices (this will end eventually), corn prices are below production costs, gold comex values are below prices that bullion fetches, oil demand has not yet dropped by 1.5 million barrels that OPEC is cutting production by.

Just as individual countries are providing liquidity to their banks where does liquidity for the global community of governments come from (IMF is not big enough – see Brad Setser’s blog)?

A hypothetical for you: if most western banks end up being nationalized, how long do you think the real economies of western nations will take to get back on their feet? What steps will need to be taken? Second New Deal and the like?

Thanks in advance. Love your blog.

Cheers,
Scrappy

Dow futures lately under 8,000.

Euroland futures all looking pukey, -5+%.

Aggregate debt matters, but its relationship to internal savings also matters, We are in a precarious position with both a very high debt load (public + private) and a savings rate that in the last couple of years has hovered around zero.

Can you clarify how government debt and citizenry debt is different? I’m sure that’s what you are referring to with respect to Japan as their government debt is something like 180% of GDP.