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From the Editor
July 29, 2011   
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The boat is rocking, indices going down, currencies going up. It took no more than a meow from a cat, though admittedly quite a large one, for the mice to scurry to their hole.

This is not a very revealing remark, but dramatically true: reality is not what it is but only what it seems to be. However forcefully the rationalists may invoke the inexorable logic of facts, emotions will always win out. We can see it in all the attitudes and behaviors of people and, obviously, in the behavior of societies.

Economics is a great, wonderful, wise science; the best proof is that they hand out Nobel Prizes in it. Nonetheless, a professor from the economics department of the University of Amsterdam replied “no” after a long moment of reflection when I asked him the ignorant question of whether there is any correlation between a management’s decisions and a company’s results. Unquestionably, though, there is a correlation between people’s moods and beliefs and the economic situation. A herd consumed by panic will unhesitatingly trample everything in its path, even the only safe escape route. Unfortunately, people are the same. Once we realize this, it will be easier to see who is responsible for what.

We rode the first wave of the financial crisis, collapsing banks and financial injections from government coffers, quite smoothly. Despite people’s substantial dislike of politics, the strength of the world’s economic leaders, confidence in the unwavering position of countries and a sense of security built up over many years yielded sweet fruit. The intravenous drips for Ireland and Portugal didn’t faze us too much, either. The old saying “before the fat person loses weight the thin person will die” sprang to mind. Greece became a tougher case, mainly because of the Greeks’ behavior as they seemed to ignore reality and demonstrated how strong emotions bear no relation to rationality.

The ground was laid. Exposed nerves were in evidence. Then came Italy. Italy? The EU’s third-largest economy, six times bigger than Greece? The dispute over a cost-cutting program between the prime minister (who is against) and the finance minister (who is for) suddenly placed a very big question mark over this economic powerhouse. Nothing bad happened in Italy’s economy, public finances and bank debt have been at a stable though mediocre level for years. What about the rating agencies, those economic oracles, their power comparable to the Delphic Oracle who also said whatever she liked. Moody’s and all the rest did not disappoint, their accusing finger pointing at the latest victims.

And the wave started rolling. It has yet to achieve self-generating levels, it is still subject to external influences, but it has quite substantial dynamics of its own. How many of us have loans in Swiss francs, how many play the stock market? But everyone else is nervous, too. The former are affected by the trembling of the latter, the latter by the former. The vigilant tabloids yell at the top of their voices because fear is what sells best. Meanwhile the economy waits, lies low and counts. It’s also counting on people coming to their senses.
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