The BDI is also really obscure, which is why you don’t see it mentioned in many news reports. This is a great shame, because it’s a preview of what the world’s economy is going to be doing in 2-6 months time. This is because the amount of goods being shipped now defines how much economic activity is going to be happening when those goods finally reach their destination.

It’s therefore extremely worrying to see a graph like this:

The BDI is at the lowest that it’s been for a loooooooong time (at least a decade) – down from an all-time high a mere 6 months ago – which means that the global economy is dropping like a stone. Note that this drop is so precipitous largely because of previously high levels, and that high was most likely due to China’s increased demand for bulk imports. The woes of the BDI might be largely due to China facing a significant drop in growth – but for some reason I don’t find that much consolation.

Of course, shipping companies are going to be the first to feel the pressure, as Der Spiegel reports, but if I had any doubts about the rough ride that 2009 is going to present, those doubts are now gone.

In the last week or so, the mattress has been the clear winner. I went to my bank on three occasions to find the lobby packed and stacked with people withdrawing large chunks of their money. The ATM was running out of money as fast as they could fill it, and the bank manager had declared a cap on the amount of money that could be withdrawn daily (which kind of screwed me, to be honest – the workers need beer money, financial crisis or no).

One reason for this is that many adult Montenegrins remember a time when they really did lose all their money as the economy collapsed. After sanctions were imposed by the UN in 1992, accompanied by the collapse of Yugoslavia as an economic entity, the economy basically went to the floor, including some heavy heavy hyper-inflation (4667% in mid-1993 – more details roughly here). When Djukanovic took Montenegro away from the Serbian economy by switching to the Mark in 2000-2001, Montenegrins suffered again, this time from internal sanctions imposed by Serbia.

So, unlike us pampered westerners (with a banking system that actually worked, up until a few weeks ago), their mistrust is well-placed and their response entirely rational. Of course that response is also one reason that banks collapse, as everybody rushes to withdraw their money and the banks fail to shoulder that burden – so the response is also irrational in the sense that it’s a self-fulfilling prophecy. Which brings me around to Stumbling and Mumbling’s post on recent rationality.

While I agree that Nicholas Nassim Taleb’s writing is trivially true¹², I don’t think that Stumbly (as a fully paid-up member of the economists’ conspiracy) really gets it:

It looks like we were wrong and Taleb right. But this isn’t because Taleb had any great insights into the nature of risk. It‘s because he thought banks‘ risk managers were idiots, whilst economists didn’t think so – not even me. In doing this, however, we were just following economists’ standard procedure – of assuming that agents were if not rational then at least not wholly stupid. For me, all this is very troubling.  It suggests that what we economists have to learn from Taleb has nothing to do with the nature of risk – we‘ve all known that – but about others’ rationality. We should ditch the assumption – which in a sense is mere courtesy – not only that others are rational but even the weaker assumption that they are nearly so. Perhaps we should indeed regard them merely as “empty suits.

1. He’s basically a Gladwell.
2. A Gladwell being a writer who has a gift for taking other people’s insights and, while not claiming those insights for themselves, makes it appear as if they’ve developed an entirely new hypothesis.

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