China will get stuck also

Until the Chinese learn how to loosen-up their authoritarian teaching methods, then China will never become the lead country in the world. It will undoubtedly become a very large economic force in terms of GDP — if not the largest — just as Japan almost managed to do in the 1980s (but was then poleaxed when America insisted on the yen being revalued upwards so much that Japan’s export trade became stabilized instead of growing further). Like Japan, China will remain brilliant at reverse engineering almost every advanced product that is made in America, the UK or Germany, but it will never initiate any new industrial or commercial sector on its own anytime soon — other things (parental ambitions and education methods) being equal.

A possible exception to this may occur if China were to send enough of its children at a young enough age to be educated in the West. When they reach their 20s, these Chinese would likely be at least as innovative as Western 20 to 30-year olds. But it would then depend on whether the innovators return to China to advance their ideas there or whether they remain in the West (as many post-Doc researchers do). Also, innovators need supportive friends and colleagues of like (maverick) mind, not to mention rich individuals who are prepared to invest in whacky ideas. There may not be enough of those back in mainland China for many decades yet. Goodness knows, venture funds have taken a long time to become established in the West. On balance, therefore, although Chinese people are likely to be as prosperous as those in the West in 20 years’ time and with wage rates just as high, China is likely to be stuck as fast as Japan now is with nowhere else to go.

There is already too much evidence that biology will dominate man’s next commercial phase. As the ‘metal-bashing’ industrial revolution in the West continues to pause in the coming decades while China catches up, and when no new mass-produced consumer goods appear in the shopping malls or on the internet, when will the biological revolution take place? Whether we are talking of extinguishing mid-life killer diseases, or of breeding better quality children (that is, with fewer harmful mutations), or of carbon-based products (with DNA-based machine tools) far superior in performance to the present metallic or simple plastic ones, or of repopulating denuded ecosystems for our enjoyment, then this is where the West is already clear in the lead with tens of thousands of research scientists exploring every nook and cranny.

Governments in the West ought to be heartened by the better long-term prospects but, of course, politicians and civil servants are almost completely uneducated in the basics of the last revolution, never mind the coming one. As in the 18th and 19th centuries, they’re going to have to run very hard behind new businesses in order to retain even a semblance of seeming to lead their punter-electorates.

Keith Hudson

A highly liveable world

The population of the world will decline to at least a quarter, or even a tenth, of present numbers within the next couple of centuries. The signs are clear in the advanced countries already. Birth rates of indigenous populations in Western Europe are now much less than replacement and non-Hispanic America is on the verge of it.

Nor does it matter how many immigrants — desperate for our consumer goodies — enter these countries, legally or illegally, in the coming years. If they find jobs, their family sizes will continue to adjust to indigenous birth rates within a couple of generations, as they are already doing. If they don’t find jobs, then governmental welfare schemes in one country after another will collapse all the quicker and the immigration from poor countries will obviously then dry up automatically. As to the rest of the world’s population, almost all of it will have been pushed or pulled into the major shanty cities where each family, as now, will spend what little money they have on television sets and dish aerials instead of more than one or two vastly more expensive children.

In a couple of centuries, the descendant well-educated quarter (or tenth, or twentieth, etc) of the present world population who still have well-paid jobs will have already decided whether they want to continue to go extinct, like everybody else, or whether to have 2.2 children per family and thus stabilize their population size (just as ‘primitive’ hunter-gatherers used to do before they discovered the rest of the world outside Africa). There won’t be any excessively rich individuals in those days because the mass markets of consumer goods, on which they presently profit from, will have long gone. In present-day crude GDP terms, however, the economies of countries will be able to ‘grow’ by means of continuously improving the efficiency of their production and transportation systems. Profits will still be available for investment in further infrastructure and scientific exploration (and even, perhaps, in gentler, shorter working weeks!).

All around, nature will reassert itself both in the vast areas of the presently industrialized countryside and urban wastelands (as is occurring in present-day Detroit already). For the highly educated human population remaining in a couple of centuries, the world, including the quantum world below and the cosmological world above, will be even more enjoyable and fascinating than now. Putative parents will also be steadily sidelining the more egregious mutations that we have been accumulating during our present dysgenic phase of medical ‘care’. Yes, the world will be highly liveable in, and my bet is that they’ll certainly want to stabilize their population size.

Keeping quiet about it

Apart from the mobile phone of relatively trivial importance, there are now no new consumer goods of sufficient ‘weight’ to keep economic growth going. This has been so for about 30 years now. Our genes have been responding by reducing our birth rates and neglecting our old folk accordingly. (“Stop treating elderly like objects” says the front-page headline in one of our best-selling newspapers today.) The declining populations of advanced countries are little to do with contraceptive devices on the one hand or atrocious conditions in retirement homes on the other. These just happen to be the modern methods of population control. Man has always been able to adjust his populations to a nicety if his very survival depended on it. The further back we go in time, infanticide and geronticide methods were more immediate, and often far more brutal, than they are now but the effect is just the same.

Of course, the opposite is also true. Whenever prosperity burgeons, and is likely to for at least as long as a human lifetime, then parents have more children than merely replacement numbers. Also, when there have been population reductions due to warfare or epidemic, the surviving womenfolk immediately respond by conceiving and retaining more children than previously.

It’s unfortunate that vastly improved medical methods on the one hand and almost total mechanization of farmland on the other have caused billions of surplus births, surplus elderly and surplus workers. The latter are now crowding into their cities or migrating to advanced countries — particularly to those who also offer welfare and health care benefits. Indeed, in some countries in recent years, such as the UK, officials who have their future index-linked pensions in mind, have been turning a blind eye to the immigration of large numbers of, hopefully, tax-paying, workers.

Because of increasing automation and specialization, advanced countries actually need only a fraction of their populations (a quarter perhaps?) to keep the basic administration and economic system going together with sufficient exports to keep countries’ heads above water. More and more jobs really only exist to recycle low-grade services because we happen, at the present time, to have surplus numbers.

Other things being equal, as economists are wont to say, there are no long term population or economic problems if we are prepared to think in terms of, say a century, or a couple at the most. But, of course, things are never equal in the short term and there’ll be catastrophes on the way. At any one time from now onwards, a billion people will be starving as another lucky billion in countries like China, India and Brazil vastly upgrade their diets. At any one time, the governments of advanced countries will be printing more money and encouraging their banks to extend even more credit in the hope of stimulating their economies. Indeed, we are already on the verge of a world-wide currency catastrophe right now if we are to believe the desperate statements of leading politicians and officials in America, China and the Eurozone.

I believe we have a splendid future ahead of us in which our economies will ‘grow’ by means of more efficient production methods and more in tune with the natural world. But, in the meantime, we’ll have at least two catastrophes. The more intelligent of our politicians, officials and the ‘beautiful people’ (the top quartile) also know this but cannot afford to say so. Instead, they are quietly pulling up the ladder, whispering “I’m all right, Jack” to themselves. Can’t really blame them. Anybody else would also, given the opportunity.

Those dratted Greek epigenes

Unless the climate of the earth were to invert itself in a very strange way, then the Germans, Nordics and other North Europeans will always be more disciplined and harder working than the Greeks and other Mediterraneans where the living is easier.

This is something that the Eurocrats and northern politicians, being insufficiently educated as yet, can’t take account of. Whether they finally force the Greek government into budgetary submission today or whether they manipulate Greece out of the Eurozone remains to be seen. (Or not, if they kick the can down the road yet again!) If the principal negotiators were indeed roundly educated and up to date, then they would know that Greek people are heritably Greek and that Germans are heritably German — that is, when on holiday abroad, they will always be the first to reserve their sun-bathing plots around the hotel swimming pool.

Eurocrats and North European politicians (like their counterparts most everywhere) will be unaware of the conceptual explosion that has resulted since the publication of the first draft of the human DNA sequence in 2003. It is now known that each of us not only inherits genes from our parents but we also inherit the way that genes are set in subtle ways and express themselves accordingly. This phenomenon is now termed epigenetics. Thus each of us are born with predispositions to particular skills and behaviours (and also, unfortunately, to particular diseases — another explosive discovery which has already thrown the large pharmaceutical corporations into disarray and, sometimes, bankruptcy).

Furthermore, these predispositions (epigenes) are responses to the particular environment in which we live. Furthermore, if particular environments are shared by a larger population over a long enough period (several generations) then similar behavioral predispositions (and genetic diseases) will have had time to be inherited from the preceding generation in a fan-like manner and thus will be shared very widely. While the environment remains the same, then the same broad cluster of epigenetic settings will also remain the same.

This is why the characteristic personalities of people who live in particular localities, regions and countries remain idiosyncratic for generations or even centuries. What we call a ‘national stereotype’ in a casual way really does contain many distinct, albeit sophisticated, behaviours. While climate is the most powerful of the environmental forces that has epigenetic effects on our genes there is a host of other subsidiary factors in the surrounding culture which affect our particular emotional and behavioural predispositions. While a country can relatively quickly change its intellectual stock-in-trade by means of education, and make use of it in similar ways to other countries, there are a thousand-and-one other much more sophisticated ways in which different cultures differ from one another and remain stoically different generation after generation.

Back to today and whatever is decided in the short term, the Greek people are never going to act in the Eurozonal ways desired by the Germans, Finns and Dutch unless they were bodily transported at least 1,000 miles north and live there for several generations. They would then experience a different climate, of course, but also many more subtle stimuli (and would also lose many stimuli which keep them Greek). Gradually their epigenetic settings would change from generation to generation until their personalities would become indistinguishable from Germans. (Mind you, the German personality differs enormously from north to south of the country, just as in Italy or even in a small country like England.)

An unlikely migration? I’d say so! Whatever happens today in the formal sense, and whether the Eurozone persists or not, you can be certain that there will always be huge problems between the Germans and the Greeks (and, of course, many more will arise in the coming years between the Germans and the Spaniards, Portuguese and Italians when they start refusing to knuckle under Northern European ways).

Keith

How to save the world

The following is how to save the world economy. It depends on one curious fact which hardly anybody remarks on. This is that while the four major economic powers — America, the Eurozone, Japan and China — are now dangling on the edge of currency disaster which may yet drive us all down into long-term recession, most of the businesses of the world are surviving in reasonably good heart and, indeed, many of the larger ones are thriving with profits piling up for lack of certainty about the future.

All businesses are scientifically based in the sense that they all operate with standard measures (weights, volumes, time, speed, etc) which are also the bedrock of science. This is particularly important these days when millions of businesses operate in different countries with hundreds of thousands joining them every year as the world economy becomes increasingly globalized. However, they operate in over 200 currencies with values which are far from standard and are constantly wobbling about between themselves. In the short term, the values wobble according to the whims of different governments in printing or digitizing them in order to devalue their debts and, in the longer term, according to the innovative ability of different countries as it affects their latest exportable products.

But any idea that over 200 countries would ever be likely to agree on a common world trading currency belongs to another planet, not this one. The last time an attempt was made was the Bretton Woods ‘Agreement’ of 1944 when America imposed a world currency system on 43 other countries. It failed in several stages within a few years, principally when President Nixon went off the gold standard dollar (by then exiguous) in 1971. Since then, the American dollar and all other currencies have proceeded to inflate at a gallop. A moment’s thought is sufficient to convince one that America (or the Eurozone, or Japan or China) will never be able to impose a world currency system again, even if its Treasury Secretaries knew how (although I think that many of them already do know actually).

If and when we descend further into currency uncertainty and when economic depression threatens to unfold, there will come a stage when the most efficient and profitable businesses are going to say to themselves: “Hold on! If this goes on we’re going to go bankrupt just as surely as most advanced governments and most banks are already. Where will we (managers, employees, shareholders, customers, pensioners) be then?” It won’t take a genius among them to say: “If governments can’t do it, then we must create a standard world trading currency.”

It would only take one of the most prolific trading corporations to start the ball rolling. It would say to its suppliers and customers: “We are now paying you or charging you in a new currency. It is valued by dividing the world’s necessary basic money supply by the tonnage of gold. Because the tonnage of gold hardly changes from year to year, then the new currency unit will be a reliable standard which we can use from now onwards. We will also record the amount of new money we have created on a publicly available world database together with brief transaction details (even those between our different departments in different countries). We will also put all our previous moneys and accounts into escrow for the time being (to be sorted out later) and re-start our accounting software from scratch with the new money. From now onwards, if we already have some new money on hand whenever we pay suppliers we will use ‘old’ new money first (to prevent double-counting), making up any balance with ‘new’ new money which we create and then record on the world database.”

The new currency could only start with a single corporation but I am assuming that it will do so only after it has consulted beforehand with half-a-dozen or so other large corporations (this number, due to our long-time small-group ancestry, being the limit of any effective decision-making committee) and have agreed that the new system is a goer. Half a dozen of the largest corporations, together with the rationale that lies behind it, would be sufficient for all the others to follow as transactions flow downwards or even de novo among their own networks.

What would happen? There would be three main consequences. 1. The new money would rattle down like a benign machine-gun to the smallest village shop anywhere in the world within days; 2. The new money would never exceed the basic supply that was needed to keep the world economy going (thus inflation would never happen again); 3. For a while, the new money and existing nationalist currencies (at their previous valuations) would co-exist.

Governments would need to continue with their own currencies for a while in order to continue to pay any additional welfare benefits and to terminate transactions that have already taken place but not completely fulfilled. For reasons of nostalgia they would probably want to retain the names of their previous currencies but their actual value would very soon need to be recalibrated by being tied in some fixed ratio to the new world trading currency. If they did not do so then their own import and export businesses would collapse tout court and the rest would follow. Such dual currency systems — such as the deutschmark and rentenmark which co-existed in 1920s Germany — don’t last long before people (not governments) decide one way or the other, but in the case I’m describing it would last long enough until a the new currency (or a recalibrated old one) would be obligatory in the shops.

One of my friends frequently jibes me with my tendency to make forecasts. As well he might (though I like to think that 51% of my forecasts do in fact come true!) Well, the above is one which will have to await a world-wide currency catastrophe or maybe when only a week-end away. It may be after my time. Maybe my grandchildren will say to their children: “Well Grandad was as mad a coot and never trimmed his hair, but he was right on this one.” Maybe I’ll be watching from some deep quantum level database from which my earthly grandchildren will not hear me yelp, “I told you so!”

Don’t do as I have done

‘Go to US and live in peace’ were the headlines in today’s Sunday Times. This was apparently the advice given by Osama Bin Laden to his younger children. It was quoted by the sister of Bin Laden’s fifth wife so it seems to be authentic. To quote the paper a bit further:

“He told his own children and grandchildren, ‘Go to Europe and America and get a good education’ . . . not to follow him down the road to jihad. . . . You have to study, live in peace and don’t do what I am doing or what I have done.”

This exemplifies the whole dilemma of modern Islam. Scores of millions of young people in the Middle East can now see on television what we have in the West and, increasingly, can communicate their yearnings on mobile phone with others of their age group. A colossal revolutionary force is now building up. But, so far, an equally repressive force of imams in most of their countries is holding them down by means of brain-washing children in madrassas, oppressing their womenfolk, manipulating the inarticulate demands of half-educated young people pouring into the cities from the countryside, denying man’s evolutionary heritage and wishing to continue clamping their societies in the medieval chains of sharia law.

The tragedy is that Islam never used to be like this. At around 1000AD it had some of the most advanced cities on earth — Baghdad, Damascus and Cordoba, for example. They accommodated Christian churches, Jewish synagogues and other religions without hindrance. They had the finest scholars in mathematics and several sciences. They revived ancient Greek ideas of independent thought and introduced them into a still Church-indoctrinated, largely backward Europe.

They’ll have to find their own way. The more the West has intervened in their governmental affairs since the discovery of oil in the Middle East in the 1920s the more reactionary their imams, and thus their cultures, have become. They can’t suddenly adopt our parliamentary ‘templates’ which our politicians so much want them to have (to bolster their own weakening esteem in the West). But our way of life, such as it is, took about 300 years of social distress and revolutions to come about. It is to be hoped that their transformation will be quicker than that but it can’t happen anytime soon.

The best we can do for them is to do what Osama Bin laden wanted for his own grandchildren — an adequate education. Until, by one means or another, and from within their own cultures, Middle East imams are deprived of their power over child education then there’s nothing we can do, except help their efforts when asked.

Really smart bombing

It seems almost certain to many that Israel will attack Iran’s nuclear installations if and when there is clear evidence that they are making nuclear warheads. This is possibly within two or three years we are variously informed. There could, of course, be a radical change in the aggressive anti-Israeli statements made by Iran’s leaderships, both secular (Ahmedinajad at present) and religious (Khamenei), but this seems unlikely anytime soon.

If the attack were carried out as cleanly as possible with minimum civilian loss of life then this would probably not cause wider repercussions in the Arabic world. At least this was the strong implication of the conversation of a senior Saudi Arabian Prince (whose name I didn’t catch) in an hour-long discussion I listened to a few days ago on Bloomberg TV channel. Most Islamic countries of the Middle East, being Sunni-dominated, are very much afraid of what a Shia-dominated Iran may get up to if it ever had nuclear weapon capability. The antipathy between the Sunni and Shia sects within modern Islam is quite as strong as that which existed between Protestantism and Catholicism in late Middle Age Europe.

Saudi Arabia would have reason to fear an attack quite as much as Israel, if not more so. Nuclear missiles delivered into half a dozen of Saudi Arabia’s oil refineries would destroy the economic basis of the whole country as a going concern — at least for a number of years. This would be such a mad act that it’s scarcely able to be imagined but, if anything, this is just as likely to happen as an Iranian attack on Israel.

This morning I fell to thinking about this from an entirely different direction. This was epigenetics, a very recent subset of biology. Israeli researchers are well to the fore in this highly complex subject. Israeli scientists and engineers are also world leaders in electronic software, encryption, satellites, drones (small unmanned airplanes) and similar methods of warfare and surveillance. I feel sure that, sooner or later, the two apparently quite different research areas are going to cross-fertilize.

The reason is that if the genes in our DNA are regarded as hardware then epigenetics can be usefully regarded as the software. According to environmental changes which feed back into our bodies during our daily life then epigenetic agents in our DNA can act rather as a software programmer when modifying the way a computer is directed by its software. The particular gene-variations that each of us is born with doesn’t necessarily trap us completely into the inevitable unfolding of particular diseases. Epigenetic agents, triggered from the environment, can orchestrate our ‘hardware’ genes in clever ways of avoiding any propensity. On the other hand, epigenetic agents that we inherit from our parents can also be triggered from the environment and produce a genetic disease that our parents happened to avoid.

On the other hand — we are triple-handed here! — a brand new epigenetic agent can be triggered by the environment and produce an improvement in our individual skills or body health. If this gives us an advantage in life then it’s more likely to be passed to our children just as useful accidental genetic mutations are. Consider now if a sort of epigenetic potentiality could be written into electronic software. It might mean that the smart code that guides a smart missile could become even smarter as it travels along its path according to features of the environment it meets. There seems to be the chance of true learning software, something that artificial intelligence researchers have so far not been successful at.

There are very few countries in which advanced software development and epigenetic research are going on simultaneously and where respective researchers in both disciplines may happen to cross-pollinate the discoveries and ideas of the other. There are America, the UK and Germany, of course, but there’s also Israel. If electronic epigenetics is ever likely to happen then it could well be in the software code of Israeli missiles or attack drones. If ever Iran’s nuclear facilities need to be taken out then it might be done extremely carefully — extremely smartly — whatever environmental defences Iran might erect.

2075 for future economic growth

All four major economic powers have now arrived at zero economic growth and all for the same reason. America, Europe, Japan and China have not been able to invent or produce any brand new consumer goods for the past 20 or 30 years. The only popular consumer product today is the mobile phone but this is a relatively trivial item in the average consumer’s shopping basket and, in any case, is only an amalgam of inventions of 150 to 50 years ago — oceanic cable, telephone, television, computer and earth-orbiting satellite. The supply chain which has hitherto beckoned the status needs of consumers onwards and upwards, and which has driven economic growth for the last 300 years, has now stopped.

The only factor which has kept up the pretence of economic growth for the last 30 years (besides dubious governmental statistics) has been a massive swelling in consumer credit by both governments and banks. It will take at least another 10 to 15 years for governments and banks to repay these debts (via the consumer) even if they knew how.

How long this period of stasis will last before economic growth can resume is also anybody’s guess. It will depend on a number of trends finally getting into sync. Among these are smaller population size, higher educational standards, replacement of fossil fuel energy with renewable energy, genetic rather than dysgenetic health care, substitution of metal-based products with carbon-based products and, most importantly of all, more energy-efficient production methods.

When economic growth resumes it’s most unlikely that, apart from improvements and changes of fashion, we’ll need or want any more consumer products than now. We scarcely have the time, energy or space to fully enjoy or use those that are already widely available. However, if production methods become more efficient and if high educational opportunities are offered to all classes, then all interesting and well-paid jobs will perforce have to be shared because of job competition. Adults and professionals will no longer be able to enforce their present protective practices against the young and the non-professionals respectively.

Does this sound utopian? Maybe, but the inevitable future job-competition is essentially no different from what happens in due course within any species. Our problem is that we have so far been able to break the mould because, by a mutational fluke many thousands of years ago, we have a brain that is more curious and inventive than has been good for us so far. Some social classes have been able to take advantage of this by means of choosing schools for their children. We haven’t come to terms with this yet. But there’s no reason to think that, in due course, we will be more unnatural than any other species or that there will need to be the continuation of the gross inequalities that exist at present between babies born in different parts of the planet.

My own guess as to when a significant surge of economic growth will resume is in something like 50 to 100 years’ time. This is the usual two-generational lag between original discoveries and their final adoption in economic reality. And the particular science I have my eyes on more than any other is genetics. This is for reasons of both the production of superior materials by DNA-based software and also for better health care by the steady elimination elimination of thousands of harmful gene variations. Genetics is, of course, something like 150 years old already, but it’s only been since the full DNA sequencing of bacterial, plant and animal life-forms at around 1980 and onwards that it’s been attracting many thousands of the very best young researchers. A few applications have already begun to trickle out but it’s a very complex science and it’s likely that really significant developments must await the ‘statutory’ two generations effect. Let’s say 2075 at least.

Encouraging the domino effect

If the high officials and politicians of the Eurozone want the organisation to survive then the answer — the beginnings of one anyway — is easy. It is to let Greece default and depart. All that would be necessary then is for the European Central Bank to continue its practice of ‘lending’ more money to those investors (usually banks) which will thus have to write-off their loans to Greece.

As far as Greece is concerned, its economy could hardly become a great deal worse than it is now, unless it sets about in earnest the necessary task of cleaning up the corruption of its public servants and pinning down the tax avoiding schemes of its professional and rich classes. If its banks threaten to collapse then nationalize them, print enough drachmas to keep the wheels turning (a minimum money supply) and then offer the banks for sale. Any number of rich Greeks and others from all round the world would fall over themselves to buy them, or parts of them, even if the Greek government impose strict — albeit sensible rules — about the new banks having to have 100% reserves when conjuring up credit out of thin air for customers. Banks would then be the same as any other viable business in having true assets in contrast to the fictitious ones they’ve got increasingly used to in the course of the last century.

What then? If the Greek government and its people wish to remain a separate country then it has to do what all self-respecting countries do. This is to have a zero balance of trade every year, or something very close to it. This is achieved by concentrating hard on those value-making industries of which Greece already has great advantages over others within its territory. It already knows what three of its best ones are — shipping (due to its fantastic coastline), tourism (due to its architectural heritage) and agriculture (due to its sunshine and soil).

As to shipping (building and docking), Greece has great expertise already and, besides, the Chinese are already making large investments in redeveloping the port of Piraeus. They’ll only be too willing to invest more in order to give yet more cheaper trading access to eastern Europe and central Asia. As to labour-intensive architectural renovation — for decades much delayed and stymied by corruption — here is a superb opportunity to give employment to large numbers of its urban youth. As to the thousands of urban unemployed who are already flocking back to their rural small-holdings and family plots, there are any number of exotic fruits and vegetables that could be developed and exported, particularly with the enthusiastic assistance of research scientists in food technology who’d like to stretch their wings, particularly from the world-leading labs of America and Israel.

Greece would not be an investors’ pariah for long. To pay for large trade imbalances for a year or two, it could still rely on a loan from the International Monetary Fund. It can also use its relatively sizeable central bank gold for its true purpose — trade balancing (albeit making sure it receives gold as well as selling it for this purpose). Finally, the Greek government could recruit gifted young bankers from other small countries — such as Switzerland, Singapore, Finland, Israel — who already know how to run their trading affairs in a competent way. These could be loaned to the undoubted myriad of new banks that Greece would then have and which wished to run their affairs in competent old-fashioned ways.

None of the above is Shangri La. It is all quite practicable. Nevertheless, I wouldn’t bet my money on it. The chances are that the Eurocrats will find some way of keeping Greece within the fold, thus encouraging Greek politicians to continue not getting their house in order and prolonging the anguish. When Greece finally does collapse then the much-feared domino effect on Portugal, and a long way up the chain ultimately, will be all the more certain.

We don’t need another catalyst

There’s no doubt that the stock exchanges in Asia, America and Europe have been in a dither for the past few months, and particularly in the last couple of weeks. Share prices have been expected to double-dip to new lows by the economic-pessimists, or to rise exuberantly by the optimists who see economic growth ahead of us. Both sets of opinionaters are agreed, however, that we are presently poised in a very dangerous situation. Consumer sales and house prices in America are still sinking. Eurozone problems are still unresolved. China is precariously balanced between making a soft or a hard landing from high inflation. With one or two small exceptions, all advanced governments are seriously in debt, and China probably also if the true balance sheets of its largest city governments were known.

In my opinion, the final straw may be the fate of the largest public flotation ever by an Internet company, Facebook. Now that Facebook has suddenly brought forward its expected 2013 share offering to May this year, hysteria has been growing. Indeed, I think it has been Facebook alone which has caused shares generally to rise in the last couple of days. Consensually valued at $100 billion, a small tranche of its shares is expected to realize between $5 billion and $10 billion and its founder, Marc Zuckerberg, with 24% of its shares, is likely to be able to tuck at least $2 billion into his bank account.

So far, there is every reason to believe that the initial offering will be wildly successful. Large hedge funds and other big investors might be making large purchases and the initial price of the shares might go sky-high. The crucial point, however, is whether they will be buying the shares because of their long-term income prospects or whether they intend to sell their shares fairly quickly afterwards and make a big profit.

If I were a hedge fund investor I would be guided by two facts already known about Facebook. One is that although it is receiving a huge and growing advertising income from, it is said, a million companies, they are mainly banner ads. Few of them are specific product ads as they are on Google which are there as immediate byproducts of specific searches for information by individuals. Furthermore, if any of the billion or more Facebook users want a specific product then they’ll go to specific product websites or to Google, or Amazon or EBay or their equivalent in their country. Because of this lack of specificity, Facebook has a very low ClickThroughRate (CTR) for its ads. Whereas Google has a CTR of 8%, Facebook’s is 0.04%. Moreover, Facebook’s previous Online Sales Manager, Sarah Smith, says that the CTR from even the most successful banner ads falls within two weeks of their initial appearance.

I would also note that since its saturation coverage of America and Canada, Facebook lost 7 million users in 2011. How many will it lose in 2012? I suspect that the reason why Facebook’s Initial Public Offering was brought forward from its expected launch in 2013 was because it will undoubtedly lose even more users from these two countries during this year. I would regard this as ominous. Even though Facebook may still grow in leaps and bounds for a year or two in the rest of the world (though not in China, where it’s prevented), its users might well follow the American pattern.

For these two reasons, if I were a hedge fund investor I would want to learn a great many more up-to-date details from the documentation that Facebook will have to lodge with the regulatory authorities. And, if these don’t fully allay my fears then I’ll not apply for shares in the first place, not only because of the risk I’ll be taking but also because many more potential investors may have come to the same conclusion and the shares may flop from the start.

In short, despite all the fantastic razzmattaz which is now gearing up in the media, Facebook’s launch may well be a disaster for Marc Zuckerberg. Indeed, it’s possible that the present hysteria will start declining in the course of this month and possibly even more so during April when more facts emerge. The Initial Public Offering may never take place at all.

It might already be happening. The mini-exuberance in share prices of the last two days has already subsided. Maybe a few thousand key investment managers and hedge funders have, like me, decided to read more about Facebook on Wikipedia in the last day or two and their mood has already fallen back to their previous ground-state of indecision as to where to invest next. A repeat version of the 2000 dotcom crash is not going to happen until at least the 2008 credit-crunch is finally out of the way. There could still be a world-wide currency catastrophe due to an as-yet unknown trigger without Facebook needing to be the catalyst.