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Collapse In Internet Time - Forbes.com
Common Sense
Collapse In Internet Time
Mallory Factor, 08.04.10, 12:00 PM EDT
Has the accelerated pace in our markets and businesses increased the speed at which nations rise and fall?
During the dot-com bubble we often heard the phrase "competing in Internet time." The idea is that business now moves at the speed of bits and bytes--competition speeds up, and victory belongs to the swiftest to adapt to changing business conditions. Just as business responds on Internet time, so do our markets. The stock prices of companies rise feverishly to soaring heights, only to plunge rapidly when the market determines that they are not winners. So our markets and businesses now run on Internet time. What about nations?
Has the accelerated pace of change in our markets and businesses increased the speed with which nations rise and fall? Historically, when nations fall, they fall quickly and absolutely. The trends leading up to their fall may take many years to develop, but the fall itself happens quickly.
Consider, for instance, the collapse of the Soviet Union. After the countries of Eastern Europe gained their freedom in 1989, some wondered if the USSR could fall sometime in the future. Few realized, however, how soon the monolith would crumble. Before the end of 1991 Gorbachev had resigned, the USSR had dissolved and 15 countries had gained their freedom as independent nations.
One of the world's two superpowers, with thousands of nuclear warheads and a massive army, had collapsed within mere months. Of course the Soviet economy was a literal Potemkin village, with little to show under the military edifice, but that merely proves the point--the system was hollow within, making a quick collapse almost inevitable.
As communication speeds up collapse happens even faster. On the economic front the subprime mortgage bubble in 2007 burst quickly. Many investors already understood there was no way for many risky borrowers to repay their subprime loans. Like our current debt crisis, the system was obviously unsustainable in the long run.
But institutional and private investors continued to buy and hold subprime debt until cracks in the system suddenly appeared. Then money flowed out of that market like a river after spring rains. Similarly this year, investors realized that Greece might be close to a government default and fled the Greek debt markets en masse until Greece's euro partners stepped in to support its credit.
So what of America? What could happen here? In normal times our nation's economy adapts to change and weathers small and large crises all the time. But our country has been weakened by massive debt, unbridled government spending and excessive burdens on our private sector, and there will come a point at which stressful events will be too much for our economy to bear. If our economy reaches this tipping point, we will not bounce back from crisis.
The immediate cause of our demise will be a single event--one of our creditor nations dumping U.S. dollars on the world market, the oil nations switching away from dollar-based contracts, a political crisis, another natural disaster, even a large trading error that inadvertently causes dislocation in our markets. But if the tipping point is reached and the downward spiral begins, our economic collapse will be over before we can take steps to address our weaknesses.
In an age when billions of dollars in securities are traded in nanoseconds, when a 24-hour news cycle seems long, why should national decline be exempt from what the Germans call Zeitgeist, the spirit of the age? The Book of Revelation, speaking allegorically of ancient Rome, states, "Alas! Alas! You great city, you mighty city, Babylon! For in a single hour your judgment has come." Ancient Rome surely did not expect its sudden fall any more than the Soviet Union did in 1991, or than America does now.
This is not prophecy--but it is a warning. America must get its economic house in order quickly. After a collapse historians often look back and write that the seeds of the collapse were already present and evident if anyone had looked for them. In our case it seems obvious that our out-of-control government spending and national debt could bring our nation to crisis, and once the crisis occurs, we will be able to point the finger at this self-destructive trend as the reason our economy collapsed.
Yet Congress continues to increase our federal spending. Just last Friday it passed a bill to fund the departments of Transportation and Housing and Urban Development. The bill will cost us $67.4 billion, which represented a 38% increase over the last three years at a time of little or no inflation in the real economy.
Rather than standing by while our economy continues to weaken, we need to put our nation back on sound economic footing and move us away from the breaking point. We can guard against economic decline by taking the right steps now. The steps are simple in concept but difficult to implement in the current political environment. Cut government spending. Bring down our debt. Reduce the tax and regulatory burden on business, especially small business. Stop growing government.
Internet time has quickened the pace of change for markets, businesses and nations. We cannot wait until the crisis point is reached to make corrective changes for our nation; by then it will be too late.
Mallory Factor is a member of the Council of Foreign Relations, chair of the Joint Chiefs of Staff Economic Roundtable and cofounder of The Monday Meeting, an influential meeting of economic conservatives, journalists and corporate leaders in New York City. He can be reached at Mallory.Factor@malloryfactor.com.You can follow him on Twitter at @malloryfactor.
Common Sense
Collapse In Internet Time
Mallory Factor, 08.04.10, 12:00 PM EDT
Has the accelerated pace in our markets and businesses increased the speed at which nations rise and fall?
During the dot-com bubble we often heard the phrase "competing in Internet time." The idea is that business now moves at the speed of bits and bytes--competition speeds up, and victory belongs to the swiftest to adapt to changing business conditions. Just as business responds on Internet time, so do our markets. The stock prices of companies rise feverishly to soaring heights, only to plunge rapidly when the market determines that they are not winners. So our markets and businesses now run on Internet time. What about nations?
Has the accelerated pace of change in our markets and businesses increased the speed with which nations rise and fall? Historically, when nations fall, they fall quickly and absolutely. The trends leading up to their fall may take many years to develop, but the fall itself happens quickly.
Consider, for instance, the collapse of the Soviet Union. After the countries of Eastern Europe gained their freedom in 1989, some wondered if the USSR could fall sometime in the future. Few realized, however, how soon the monolith would crumble. Before the end of 1991 Gorbachev had resigned, the USSR had dissolved and 15 countries had gained their freedom as independent nations.
One of the world's two superpowers, with thousands of nuclear warheads and a massive army, had collapsed within mere months. Of course the Soviet economy was a literal Potemkin village, with little to show under the military edifice, but that merely proves the point--the system was hollow within, making a quick collapse almost inevitable.
As communication speeds up collapse happens even faster. On the economic front the subprime mortgage bubble in 2007 burst quickly. Many investors already understood there was no way for many risky borrowers to repay their subprime loans. Like our current debt crisis, the system was obviously unsustainable in the long run.
But institutional and private investors continued to buy and hold subprime debt until cracks in the system suddenly appeared. Then money flowed out of that market like a river after spring rains. Similarly this year, investors realized that Greece might be close to a government default and fled the Greek debt markets en masse until Greece's euro partners stepped in to support its credit.
So what of America? What could happen here? In normal times our nation's economy adapts to change and weathers small and large crises all the time. But our country has been weakened by massive debt, unbridled government spending and excessive burdens on our private sector, and there will come a point at which stressful events will be too much for our economy to bear. If our economy reaches this tipping point, we will not bounce back from crisis.
The immediate cause of our demise will be a single event--one of our creditor nations dumping U.S. dollars on the world market, the oil nations switching away from dollar-based contracts, a political crisis, another natural disaster, even a large trading error that inadvertently causes dislocation in our markets. But if the tipping point is reached and the downward spiral begins, our economic collapse will be over before we can take steps to address our weaknesses.
In an age when billions of dollars in securities are traded in nanoseconds, when a 24-hour news cycle seems long, why should national decline be exempt from what the Germans call Zeitgeist, the spirit of the age? The Book of Revelation, speaking allegorically of ancient Rome, states, "Alas! Alas! You great city, you mighty city, Babylon! For in a single hour your judgment has come." Ancient Rome surely did not expect its sudden fall any more than the Soviet Union did in 1991, or than America does now.
This is not prophecy--but it is a warning. America must get its economic house in order quickly. After a collapse historians often look back and write that the seeds of the collapse were already present and evident if anyone had looked for them. In our case it seems obvious that our out-of-control government spending and national debt could bring our nation to crisis, and once the crisis occurs, we will be able to point the finger at this self-destructive trend as the reason our economy collapsed.
Yet Congress continues to increase our federal spending. Just last Friday it passed a bill to fund the departments of Transportation and Housing and Urban Development. The bill will cost us $67.4 billion, which represented a 38% increase over the last three years at a time of little or no inflation in the real economy.
Rather than standing by while our economy continues to weaken, we need to put our nation back on sound economic footing and move us away from the breaking point. We can guard against economic decline by taking the right steps now. The steps are simple in concept but difficult to implement in the current political environment. Cut government spending. Bring down our debt. Reduce the tax and regulatory burden on business, especially small business. Stop growing government.
Internet time has quickened the pace of change for markets, businesses and nations. We cannot wait until the crisis point is reached to make corrective changes for our nation; by then it will be too late.
Mallory Factor is a member of the Council of Foreign Relations, chair of the Joint Chiefs of Staff Economic Roundtable and cofounder of The Monday Meeting, an influential meeting of economic conservatives, journalists and corporate leaders in New York City. He can be reached at Mallory.Factor@malloryfactor.com.You can follow him on Twitter at @malloryfactor.
