Wednesday Morning

The Argentinian crisis has helped trigger significant overnight falls on the Asian stock markets which could signal a fall across Europe and the US later today. More importantly, the US Dollar continues to strengthen which, as I discussed yesterday, is going to need to unwind. The unprecedented extra liquidity added to the world's financial system and an unwinding dollar, poses the greatest threat to the stability of the world's financial markets at this time. It is quite incredible that the Dollar continues to strengthen but we are living through uncharted, unprecedented times - we are like explorers in a new land and we have no idea what we are going to find over the next hill.

It is interesting to see oil continue to fall; the oil exporters do not need to wait until their emergency meeting to cut production or send signals to the market. Part of this fall is undoubtedly due to the strength of the Dollar but the main influence today seems to be the growing realisation that the Far East - particularly China - is not going to escape from this deep recession. Indeed, this might de-rail China's economic miracle.

It seems probable that gold will rise as the Dollar unwinds although, as I discussed yesterday, there will be a huge intervention by central banks to try to keep gold low. Nevertheless, gold is now oversold and the conditions for a strong rise to challenge $1000 are in place.

The Argentinian seizure of private pensions will send shivers around the world. Free market economies cannot exist unless private property rights are vigorously protected; free markets depend, to a great extent, on trust between people and between the people and their governments. When this breaks down so does the free market. In today's environment, such things might be highly contagious.

I am seeing serious fault lines developing in the capitalist free market system worldwide. The part-nationalisation of the banks is going to delight naturally interventionist, left wing governments such as France, Italy, Canada, Australia and, more recently, the United Kingdom. Those governments are not going to hand back their ill-gotten gains to the people without a struggle, if ever. Those of us who still believe that despite the present problems the free market system is the best system available need to keep focused on the political implications of each and every government action. You'd better believe that every right, freedom and privacy you give up will be lost for ever. People do not win back rights and freedoms other than by revolt. Revolt is becoming less possible in an age where central governments can (and do) scan every phone call and email you make and, with a network of mobile phone locators, CCTV cameras with facial recognition and car licence plate recognition, the ability to track individuals wherever they go. Political dissent is going to be very difficult in any society whose government chooses to suppress it. This is a situation that the UK has been sleepwalking into over the last five to ten years. Other EU nations are a long way behind but the technology is easy to replicate and install, given the will to do so. For those who haven't noticed the extent to which this has been happening have now been warned.