What is The Fusion Economy?
The converging world economy has produced a whole new paradigm for the 21st century. Global warming, credit crunches, money meltdowns, food crises, and trade wars are just a few examples of how our everyday lives are being changed by a myriad of forces, many of which are economic in character. And like nuclear fusion, which joins together hydrogen molecules and releases enormous amounts of energy in the time of action, the converging global economy is releasing a lot of new energy- we just need to figure out how to use it.
This new fusion economy brings together forces and responses in ways that are impossible to understand using normal linear forms of approach. It used to be that we could follow a fairly simple path to arrive at an economic conclusion: a better product or a more efficient company meant more productivity, which meant a higher standard of living for all. But today, things aren’t so simple. How can we say that economic growth in China or India is a good thing if it increases global pollution or leads to food shortagen? How can we say that increased access to mortgage financing is a good thing if it entices sub chief borrowers to buy houses they can’t provide to pay for, leading to failing edges in Europe and the United States, stock market crashes in Asia, and a worldwide credit crisis?
With hundreds of billions of dollars worth of mortgage backed securities being traded yearly, the market for sub chief debt became, at one point, bigger than the complete market for U.S. Treasury bonds- the biggest bond market in the world. When edges and mortgage companies realized they could pass on the risk of the mortgages they were issuing, they became more concerned about increasing quantity and less concerned about whether the borrowers could pay back their loans. consequently, credit standards were relaxed and many poor and low income borrowers were given mortgages to buy homes- leading to ever- increasing home prices. Many borrowers bought homes they knew they couldn’t provide, but assumed that rising home prices would cover their loan commitments, allowing them to refinance at a later date, once the house’s value had gone up.
When the housing market began to cool, many sub chief borrowers were unable to refinance their loans and were unable to make the interest payments on their original loans. Delinquencies-borrowers’ failure to make their mortgage payments-began to rise, and the value of the bonds that were based on sub chief mortgages began to decline. When large numbers of these sub chief borrowers started going bankrupt, the sub chief mortgage securities had to be revalued downward. In the end, the edges and investment houses around the world that had bought these mortgage- backed securities were forced to write off large portions of their debt- up to 80 percent of their original value in some situations- leading to a credit crisis that spread around the world as other edges and investment houses refused to provide the cash that the world’s companies and financial institutions need to keep running. edges around the world had to be rescued by cash- strapped governments. In the United States, Lehman Brothers, one of the largest investment edges in the United States, was forced into bankruptcy, and another investment bank, Bear Stearns, had to be sold off with help from the U.S. Federal save- for a fraction of its past value. AIG, the largest insurance company in the United States, also had to be bailed out by the Federal save. Once the financial meltdown had started it was hard to stop.
In addition to financial meltdowns, already cataclysmic events such as hurricanes and global warming are influenced by the expanding 21st- century economy, which is bringing forces to bear that are making it impossible to predict what will happen in the future. For example, the destruction of the Amazon rain forest, chiefly for economic reasons, has led to a sharp increase in the release of carbon dioxide into the air. And industrial pollution in the United States, Europe, and China has contributed to the shrinking of the Arctic ice cap and an unheard of melting of the permafrost, releasing already more carbon dioxide and methane gas into the air, leading to already more global warming. This greenhouse effect has led to ever higher temperatures- literally a “meltdown” in some parts of the world. And no one seems to know where it will all end.
already efforts to reduce global warming, such as the promotion of biofuels, have led to unintended and unforeseen consequences. In addition to the use of enormous amounts of water to produce sugar- or corn- based biofuels, the reduction of farmland for the production of food for human consumption led to rising shortages of rice, corn, and wheat on the world markets-resulting in riots in some countries and calls for increased protectionism in others.
The converging global economy is also shaking up traditional patterns of trade and investing. Before the 21st century, for example, people tended to limit their investments to purchases of domestic stocks and bonds. They then waited patiently for their investments to increase in value or provide a safe, fixed income over time. But in today’s fusion economy, our money is being invested- whether we’re aware of it or not- in pension funds, governments, and edges in an increasingly complicate range of securities and investment vehicles. The 21st century economy has brought strange new correlations between investors and between markets. And the results can be extreme. Investors who are losing money in one sector tend to sell investments in another sector- or another part of the world- to pay their debts. When stocks fall severely in the United States, and Europe for example, emerging market funds from Brazil to Bangladesh often decline severely- as investors sell their shares oversea in order to raise cash to pay for losses at home. Currencies in before healthy economies around the world crash as speculators rush to safe haven currencies such as dollars and yen.
It has been said that a butterfly flapping its wings over Tokyo could cause a rainstorm over New York’s Central Park several days later. The 21st- century economy has taken this linear correlation to another level. Causes and effects are converging, fusing together in a complicate web that no one- not already the experts- are able to fully understand. Just as Metcalfe’s Law, which says that the value of a network is proportional to the square of the number of its users, the expanding global economy is growing and expanding in ways we are unable to control.