From Inflation to Deflation in 1 Month - Is our Interconnected Global Economy Just Too Wired?

Global markets of all sort are moving up and down with incredible quickness and volume. Is the precipitous nature of today's global markets good or bad?

Global markets can turn on a dime.  Everything can happen in a blink - Lehman, Iceland, oil prices, the dollar, the entire global economy - can all move in a dramatic way.  With news travelling in a second, markets can now really move.  A shock-wave in gold prices can move stocks in Brazil, Australia and Canada instantly. Fortunes can be made or lost in seconds these days.

I see some good in this.  For one, markets are arguably more efficient with news travels instantly.  More importantly, economic cycles and corrections such as the current one can hopefully play out more quickly.  This thing might end in a day or two, instead of in a year or two as some others have suggested on this site.  We might just quickly be over and done.  The financial instability and insecurity may end quickly.  I am not sure.

But, I see more bad in this.  In a market as volatile as the current and with such a bias to the downside, fortunes are lost in seconds.  It isn't safe for short-term and long-term investors.  It doesn't build confidence.  People run.  It isn't predictible.   It is scary.  And, contrary to what Warren Buffett says, it may not be a tradeable fear.

What do others think about this?

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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  • Sam Cass

    October 23, 2008

    Interesting thoughts but I disagree that technology will speed up the cycles. For every thing that technology accelerates, there is a countervailing force that slows the world down. For instance, computers can now crunch through enormous amounts of data. It also means there is now enormous amounts of data to crunch through and even more data that is being produced. Now we suffer from information overload. The challenge is no longer in getting information, but in processing and understanding it.

    The length of the recession is a function of when confidence returns. That can't be sped up via information technology.

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