The end of the beginning

More evidence on the reversion towards a new age of incrementalism and subsidiarity as the post war bubble of Globalization is and its obligations are jettisoned in the name of expediency.

It was always thus. Every treaty in history is broken. The speed of this deflation is actually exacerbated by democracy as politicians must cater to local constituents and no longer can afford to outsource power to super sovereign entities. The benefit is a greater probability of peaceful resolutions. I shudder to think what quagmire we would be in if the world was mostly comprised of monarchies.

This is a good and natural thing, and will usher in great opportunity for those firms who profit from higher friction costs of trade.

So now we see our ministers advising their counterparties to avoid the pratfalls of mercantilism without full knowledge of their relative predicaments. And of course, the reason why there is no full knowledge is that we are witnessing a great reallocation of trust. Just as the Banks in Europe no longer wish to lend to one another for similar reasons. What was a friendly game of cards has now turned into a no-limit game of texas hold'em with every marker burned to the house limits.

June 7 (Bloomberg) -- Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.

At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand. European Central Bank President Jean-Claude Trichet said fiscal tightening in “old industrialized economies” would aid the expansion by shoring up investor confidence.

Each strategy carries threats for the global rebound that the G-20 said faces “significant challenges.” Continued stimulus risks bondholder revolt over rising debt burdens, while spending cutbacks could worsen unemployment. Relying on exports leaves the world prone to trade wars and competitive currency devaluations as countries seek to give their companies an edge.