Friday, October 9, 2009

The Global Confidence Game

This morning the world was shocked and awed when Barack Obama was awarded the Nobel Peace Prize.

The first reaction was a collective puzzlement. For what?... people around the world asked.

The answer was quickly forthcoming. For injecting hope into international diplomacy and for resetting international relations.

Surely this is a first in human history. Obama was awardedd a prize for what he has not yet achieved. Is this the ultimate vote of confidence? Or simply a desire to promote a collective illusion?

Back down on terra firma the real world of markets has been telling a slightly different story. The dollar has been collapsing; the price of gold has been advancing.

What does this mean? According to the Wall Street Journal it means that the world is voting no-confidence in American economic policies. The world is no longer willing to invest in America.

The withdrawal of confidence has not yet become a complete rout, but the direction is clear enough. Link here.

Perhaps we are learning that winning at the ballot box is not enough. As Robert Rubin famously said, when it comes to economic policy, the bond market has a vote too. Nowadays, we are still waiting for the bond market to cast its ballot. But the foreign exchange markets seem already to have cast theirs.

Is this a simple contradiction? Is there a conflict between the judgment of the markets and the judgment of the cognoscenti, or, whoever decides things like the Nobel Peace Prize?

Perhaps the contradiction is more apparent than real. If the Nobel Peace Prize committee was really so confident in Obama's diplomacy would they not have been willing to wait for its achievements to start rolling in. If they are not really confident in Obama's ability to bring peace in our time, better to award the prize now before evidence to the contrary starts piling up.

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