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Stock Markets Are Down, But Not Out

One day in 1997 I received a most unwelcome letter from my bank.

The interest rate on my mortgage, which varied with South Africa's version of the Federal discount rate, had increased from below 8% to 24%. Since I had bought my house only two years before, interest still made up a large chunk of my monthly payment. The price of gas and other imports also rose massively.

Suddenly, my monthly budget was in complete chaos, as funds allocated to life's necessities were now required by the bank and my gas tank. What was the reason for this sudden reach into my pocket? I hadn't defaulted. The fundamentals of the local mortgage market were unchanged. In fact, there were no immediate reasons — those connected to my personal environment — at all.

Instead, the cause lay in a country 6,300 miles to the east … the financial markets of Thailand. That's why yesterday's stock market decline reminded me what it's like to be on the developing-market end of such an event…

Instant on Paper, Not So Much in Real Life…

Sometimes, life is a waiting game. Now, with global stock markets in turmoil, is one of those times.

Economics is deceptively simple. Supply and demand set prices. Production gravitates toward the lowest-cost environment, where wages rise and profits fall to match those elsewhere. If nobody touches anything, everything balances out and everybody prospers. Models can be made to “prove” this instantly.

Of course, the “do not touch” rule in economics is observed about as faithfully as it is when my wife bakes a batch of fresh cookies and leaves them to cool in reach of my daughter and her...