The danger hiding in this map
HAVE you ever been to a party where everyone seems to be having the time of their lives at the same time? That's what the global economy is like at the moment. Nobody is sulking in the corner. Nobody is having a bitter argument or worrying about the babysitter. Everyone is cutting loose.
For the first time in many years, every major country's economy is growing. The map below is full of calm blues, in stark contrast to the blood-red of 2009 (and the years between).
This synchronised upswing makes life easier for everyone. America's growth helps China. China's growth helps India. And so on. As each country grows richer, it buys more from everyone else. A big network of positive feedback warms the global economy.
Everyone pitching in helps explain why so many signals look good at once. US stockmarkets rewrite the record books on a daily basis. European stocks are going well. Even Japan, where the Nikkei index has been in the toilet for decades, is showing a bit of pluck.
This is wonderful news for Australia. We are a trading nation. As the tide lifts, our boat is raised off the sand and bobs happily in the waves. The result of an improving global economy can be seen in our unemployment rate, which fell from 5.7 per cent to 5.4 per cent over the last year.
Why are the world's economies linked together these days? Partly because companies are so global. Ford, Amazon, H&M, Google have operations all over the world, for example. But even companies that are located in one country engage in ever more importing and exporting.
You can see how in sync things are in this next graph. Parts of the world that have little to do with each other are choreographed like Bruno Mars's backing dancers. Global bond yields are moving together these days as the global economy acts increasingly like one big economy.
HERE COMES TROUBLE
If the synchronised upturn doesn't give you the shivers, just think about the party where everyone is cutting loose at once, then fast-forward about eight hours. What happens to a synchronised global economy if there is a downturn? A big synchronised hangover.
Global crashes happen. The Great Depression was one of them. In the 1930s, the economies of the US, UK and Australia shrank dramatically and at the same time. The global financial crisis was another. Australia and China dodged that one but most of the rest of the world went bad. Millions of people lost their jobs.
If inter-linkages are now greater than ever we could have an extra-large serving of strife. Evidence suggests they are. The big new factor is China, and its links to many parts of the world. In the past China has been a small part of the world economy so it didn't have much ability to cause rises and falls. Now it is a behemoth.
China's economy is very hard to judge because it is not a market economy. The country is still technically communist, and so the government is able to cover up any problems at major state-owned companies. Big Chinese banks don't go broke even when they have a lot of bad debt. They are owned by a government that won't let that happen. That means big risks can build up in the system and stay nearly invisible for a long time. The first sign of trouble could be the emergence of a full-scale catastrophe.
China is certainly not the only entry on the list of risks. Global problems like the risk of nuclear war loom. Cyber attacks that exploit common infrastructure, like the recently revealed bug in Intel chips are another. A constitutional crisis in the United States would certainly not be helpful, while big weather disasters also seem to be becoming more common and could rain on our parade.
As individuals, there's not much we can do about the euphoria, or the fact that it could end all of a sudden. The trick is to enjoy the party as much as possible while also doing the things to make sure your own personal hangover is not too bad.