Tuesday, February 27, 2007

Market economies don't fight each other

News broke around 4pm that the Dow had lost some 400 points on the day, the worst single-day loss since September 2001. Explanations for the drop generally point to a single starting point: China. Specifically, the market in Shanghai seems to be the proverbial butterfly flapping its wings, and its crash has largely been attributable to a standard "correction." Simply put, the Shanghai market (which DeTocque knows absolutely nothing about), had been going so strong, so fast that it was just time to bring things down to earth (9 percent today). Year of the pig, indeed.

The News Hour with Jim Lehrer explains that the disasterous effect on the NYSE is because so many American companies are doing such booming business in China and are tied so heavily to its market. China has a cold, and America's starting to sneeze.

This bears a larger world-view: If a relatively minor stock market shock in China could produce such an adverse effect half-a-world-away in New York, what would happen in an American-Sino war? Would all trade just stop? How many trillions of dollars would disappear over night? How many lives would be distroyed?

Perhaps the old international relations adage needs to be revised -- instead of "democracies don't fight wars against each other," maybe it should be "market economies don't fight wars against each other"? But let's not get ahead of ourselves here. China has a long way to go before being truly considered a free market economy, but one could hardly argue that millions of Americans aren't getting rich off Mao's present incarnation.

And could this situation give China an upper hand? What if it decided to retake Tawain? Would Bill Gates, Steve Jobs, William Ford, and Donald Trump suddenly show up at the White House begging the White House to let bygones be bygones?

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