Stopping the Syria Contagion

Third, and no less important, is the speculative contagion that underlies any bubble. The current boom has seen contagion

There's emotional contagion that takes place in human populations.

And, in fact, emotional contagion can be broader still.

In my view, bubbles are social epidemics, fostered by a sort of interpersonal contagion. A bubble forms when the contagion rate goes up for ideas that support a bubble.

Disclosure I am an investor in Contagion Health, and am considering investments in MedRewards and HealthRally.

On the Y axis is the cumulative instances of contagion, and on the X axis is the time.

And, not only do they protect the people who sleep under them, but they have these great contagion benefits.

Despite the lack of significant financial contagion risk, a renewed Greek crisis, stemming from a lasting and serious breakdown of negotiations between the new government and EU institutions, would constitute a major problem for European cooperation. The absence of financial contagion would not rule out serious political repercussions.

Second, countries must move together. Otherwise, one country s restructuring will heighten expectations that others will follow, giving rise to contagion.

Bitter experience has shown us that instability in one State can have a powerful contagion effect far beyond its borders.

If half of a community sleeps under a net, the other half also benefits because the contagion of the disease spread.

Concerned about the excessive volatility of speculative short term capital flows and the contagion effects in financial markets in times of crisis,

It would seem that bid offer spreads are falling, which we might regard as positive. But volatility has risen, as has cross market contagion.

Since the crisis, the Asia Pacific countries have looked more closely at developing greater financial cooperation to prevent a contagion and to assist the affected countries.

And we see this when lovers walk down the street, when a crowd in Egypt or Tunisia gets caught up in an emotional contagion, the deep interpenetration.

We know from influenza that a new epidemic can suddenly appear just as an older one is fading, if a new form of the virus appears, or if some environmental factor increases the contagion rate. Similarly, a new speculative bubble can appear anywhere if a new story about the economy appears, and if it has enough narrative strength to spark a new contagion of investor thinking.

Contagion effects, which may not reflect a deterioration of fundamentals but just a common investors base, can be damaging to countries that are highly dependent on foreign financing.

Societies should be willing to go out and subsidize the net, give them for free, or, for that matter, pay people to use them because of those contagion benefits.

In contrast to the other two psychological causes, speculative contagion has a natural end. A speculative bubble, sustaining itself solely by reaction to price increases, cannot go on forever.

The European Central Bank s outright monetary transactions scheme provides an important backstop for debt sustainability. And a banking union, once completed, should contain the risk of financial crisis and contagion.

Thailand in particular is leading the charge to insure against the vulnerabilities of the contagion that broke out in South East Asia and spread to other parts of the world.

After all, by allowing people to spend more than they have, borrowed money can fuel growth. But today, Africa s pay as you go practices are a powerful defense against financial contagion.

For starters, Chinese officials should be under no illusion that the country will be immune to financial contagion. A Grexit would hit European banks that hold peripheral eurozone countries sovereign bonds.

China moved to current account convertibility in 1996, but retained a substantial number of controls on capital movements, which have served as a shield against financial contagion. Are these still needed?

It also appeared that since the Russian crisis there has not been a contagion effect in the forms of drying up of credit or higher spreads for other emerging market countries.

Indeed, while less ominous and dramatic than financial contagion, trade spillovers profoundly influence global growth prospects. Failure to recognize their impact implies that export and, in turn, growth projections will continue to miss the mark.

Yes, financial markets in troubled countries for example, Russia s currency, equity, and bond markets have been negatively affected. But the more generalized contagion to global financial markets that geopolitical tensions typically engender has failed to materialize.

Greece is both small and in a uniquely desperate position. So it is possible that other fragile members Spain, Portugal, and Italy would be spared from financial contagion and the euro's viability would not be dramatically affected.

A strong fiscal framework is indispensable to achieve this, and protects countries from contagion. But the crisis experience suggests that, in times of extreme market tensions, even a sound initial fiscal position may not offer absolute protection from spillovers.

In a world where capital is free to flow across international boundaries, the crisis in the US has spread to Europe. This is a new form of contagion, which transcends national boundaries and is amplified by an international crisis of confidence.

If Spain and Italy do look sound enough at the end of two years, European political leaders can allow Greece to default without fear of dangerous contagion. Portugal might follow Greece in a sovereign default and in leaving the eurozone.

All of these phenomena form a part of the dark side of the globalized world contamination, contagion, instability, interconnection, turbulence, shared fragility, universal effects, and overexposure. In this respect, one might speak of the epidemic character of our contemporary world.

The ECB s newfound ability to print money, essentially without limit, to support both banks and governments has reduced Greek contagion to insignificance. That represents a profound change in Europe s financial environment, which Greek politicians, along with many economic analysts, still fail to understand.

TOKYO Financial markets have greeted the election of Greece s new far left government in predictable fashion. But, though the Syriza party s victory sent Greek equities and bonds plummeting, there is little sign of contagion to other distressed countries on the eurozone periphery.

Since this scheme would imply losses for bondholders, substantial official muscle and peer pressure is needed. But gaining time for a more orderly resolution, mitigating contagion, and reducing the size of an eventual write down do indeed add up to a superior outcome.

Such self reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 2008 2009. The question now is whether the vicious circle that began in China over the summer will continue.

Should contagion prove to be limited, with Greece the only casualty, the drop in eurozone output may be severe, but not catastrophic. Nonetheless, the EU is China s most important trading partner, and China must be braced for serious job losses in the export sector.

It is a question that I am repeatedly asked at seminars and conferences. After all, participants in the housing and equity markets set prices with a view to prices in the bond market, so contagion from one long term market to another seems like a real possibility.

As a result, the debtor countries bond prices would collapse, interest rates would soar, and banks would be threatened with collapse. If the contagion from Greece intensified, the next weakest country, probably Portugal, would find itself unable to support its banking system or pay its debts.

Back in 2010, creditor countries were concerned about contagion to the rest of the eurozone. If Grexit had succeeded, the entire monetary union would have come under threat, because investors would have wondered whether some of the eurozone s other highly indebted countries would have followed Greece s lead.

Embassies have issued warnings to tourists and their citizens living in France television news programs have shown hours of footage of burning cars. Other countries governments, it seems, have been trying to distance themselves from the problem, fearing a contagion that they know is likely to spread.

In this combustible environment, policymakers are desperately using various vehicles including the ECB, the International Monetary Fund, and the European Financial Stability Facility in an attempt to stem the financial panic, contagion, and risk of recession. But are officials going about it in the right way?

This approach has several advantages by leaving the face value of the debt unaltered, EU officials could argue that restructuring Greece s debt did not amount to a default, thereby limiting contagion. European banks holding Greek government debt could keep pretending that it is worth its full value.

Mistaken beliefs, on the other hand, are reflected in metaphors like contagion and domino effect, which imply that financial markets become blind, virulent, and indiscriminate when they are disturbed. Such terms provoke fear that, once confidence in any one country is lost, all others are in danger.