"Aftershock" or Shockwave? What Comes After the Next Bear Wave

Now that we have seen that the Fed will act as the lender of last resort for all and sundry (regardless, in the case of Bear Stearns (BSC), whether they have paid their dues or not), pundits have been scrambling for their dictionary looking for words that describe the next bear wave driven by the consumer downturn and the resulting loss of earnings. "Aftershock" seems to be the word de jour (for example, see the headline of Stephen Roach's article in yesterday's FT).

Let's not deal in semantics, but even Chambers Online defines aftershock as "a small earthquake that follows the main shock of a large earthquake... ." If commentators think that the follow-through will be small in comparison to the main shock, they've another thing coming. The word they should be reaching for is "shockwave," as in nuclear explosion. Using the nuclear analogy, let's just complete the picture.

Electromagnetic Pulse – this is the flash of light when everyone gets their eye brows singed. Since light travels faster than sound, let's equate this to "liquid instruments," i.e. securities on the balance sheet of banks.

Shockwave - according to Wikipedia, this is when 30-50% of the damage is done. This is the one coming down the turnpike as we speak. The electromagnetic pulse has knocked out all electrical circuitry (think in terms of the credit crunch knocking out inter-bank liquidity) and nothing is operating. Consumer, corporate and (now we see) municipalities cannot raise finance, GDP growth stalls, layoffs occur, and the vicious cycle sets in.

Thermal Radiation – this is the damage that comes after the main shockwave. It moves at a slow speed both on its way in and on its exit. It is residual and takes years for its effects to wear off, even across generations. I have no idea what the analogy for this might be.

I'd like to think that we could avoid the economic equivalent of the Dark Ages and snap back into life. Only time will tell.

Comments

[thel337]

Well, too bad the FED used all our emergency supplies up before the shockwave hits. Now, many more will perish than need be.

2008 Apr 16 05:42 AM

[Ames Tiedeman]

We will be in deep recession by 2009.

2008 Apr 16 07:18 AM

[sivere]

It is not too late to act. We can still save ourselves if we take immediate action, contact our allies, nationalize the Fed, and initiate an international program to save the world economy. Pelase link, ciirculate (the proclamation), spread the word about, sned (the proclamation to your representatioves):

TakeBackTheFed.com

2008 Apr 16 12:23 PM