IN MONEY
Why this is even truer now than 20 years ago.
Forty-five years ago, in a world unlike now, I loved exploring old books from libraries’ back stacks.
Among my favorite finds was Wesley C. Mitchell’s 1927 opus, “Business Cycles: The Problem and Its Setting.” Mitchell, a visionary, spearheaded the National Bureau of Economic Research (NBER), which pioneered economic data collection to understand recessions and expansions.
In Mitchell’s book, I found a crazyfun chart I highlighted in my 1987 book, “The Wall Street Waltz,” called “Conspectus of Business Cycles in Various Countries, 1790-1925,” which lines up U.S. and other nations’ economic cycles.
Starting with America and England in 1790, it expands to include major European nations in the 19th century. By 1890, it covers Europe, Australia, Asia, Canada and big Latin American nations. It demonstrated that recessions and expansions worldwide lined up globally earlier than anyone thought (via data that weren’t perfectly accurate but basically correct).
Long before globalization became a buzzword, the world was pretty darned global. The global business cycle linkage always was stronger than commonly perceived – still is.
Throughout the 18th and early 19th centuries, America paralleled England. Maybe European nations’ cycling together in the 19th and early 20th centuries isn’t so shocking.
But China, India and Japan paralleling them, along with North and South America? All had long, 1890s recessions. All suffered recessions paralleling America’s infamous Panic of 1907.
Individual nations wiggle a ways occasionally, but major trends are global. If you understand this, then you understand why and how what goes on overseas affects you directly here at home.
Old books demonstrate the same global patterns for interest rates. Country to country, both long-term interest rates and inflation tracked each other more than people thought 150 years ago or still think now.
U.S. and Western European bond rates typically have aligned since World War II ended. And A.C. Pigou’s 1929 classic, “Industrial Fluctuations,” showed retail prices in Germany, England and the U.S. moving in virtual lockstep from 1860 through 1910.
A brutally fun fact? Since our Revolutionary War, inflation spiked routinely, here and overseas, during and right after major wars. People remember the Vietnam-era 1970s’ high inflation but forget prices spiked surrounding the Korean War and the two world wars. Even the Civil War and War of 1812 brought inflation spikes. We don’t have those big disruptive wars anymore, thankfully.
These old studies demonstrate that today it’s highly unlikely interest rates soar and bond prices plunge unless the cause carries global heft. Wobbles in one country don’t ripple globally. It’s the reverse. The bulk of the world pulls wobblers back toward average.
This is truer now than 20, 50 or 150 years ago, due to technology. The biggest global banks from every continent can borrow in one country and lend to another faster than you can read this column. Any huge American bank can arbitrage long-term interest rates globally, effectively ensuring ours move parallel to overseas. So if you’re worried about mortgage rates, bank borrowing or interest rates’ business impact, think global.
Ken Fisher is the founder of Fisher Investments, author of 11 books and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher. The views expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.