Outlook: Markets hit the Russian buffers

FINANCIAL MELTDOWN in Russia has already rattled Western markets very badly. As our news analysis below shows, we are now very definitely in a bear market for equities, both in the UK and the US, even though there is as yet not much selling going on. But what is the long-term meaning for Western markets and economies of this ghastly implosion?

The view that gets the greatest mileage is the comforting but complacent one - which is not very much at all really. Since time immemorial, Russia has been a land and law largely unto itself and, except in times of war, its perennial miseries and the hopelessness of its condition rarely impinge on us. Why should it be any different this time round? The pathos of the food queues, the resigned and endless suffering of the Russian people - no one can have anything but sympathy for Russia's plight. But it doesn't really affect us, does it?

Well, not directly and immediately, of course, but like Asia, it may be a slow burn and the long-term impact could be profound. This is not simply because, as has often been said, Russia is Indonesia with nukes. The geopolitical consequences of the collapse are certainly worrying in the extreme, but they are not the reason shares are plunging. Nor is it because rash investment bankers and Brooklyn-born speculators seem to have lost their shirts playing these markets.

Rather it is the fear that we are on the edge, that the contagion of financial markets will tip the whole world into recession. The steady advance of American-style capitalism, led from the front by the shock troops of its capital markets and supported by the prop of the IMF, seems suddenly and decisively to have been brought to a grinding halt. All over the City and Wall Street, investment bankers are saying Russia has had it, it's on its own and we'll never touch the place again.

One leading emerging markets specialist was quoted in yesterday's Financial Times as saying: "I don't think anybody's going to lend these guys a dime now." Russia may be an extreme example, but after the traumas of the last year, much the same thing is happening in the Pacific Rim countries and to other developing economies all around the world.

As fast as Russia and others can impose exchange controls - their only realistic option given the scale of the flight of money - the international capital markets are in any case packing up their stalls and sticking their money into Western bonds. And there appears to be nothing the IMF or anyone else can do about it.

What we may be witnessing, then, is the end of the globalisation process, or at least a severe setback to its progress lasting possibly many years. Globalisation is all about the free movement of capital; that is its big driving force, and over the last 10 years the financial markets have pushed out the boundaries as never before, feeding the great US bull market on a wave of American triumphalism as they went along.

Is this now all coming to an end? That's the real worry about Russia: not the collapse into political anarchy or economic meltdown in the East, but rather that it is symptomatic of a wider contraction that will end up embracing us all. We must all pray that this is too alarmist a take on events; that it is wrong, or exaggerated.

But it is the reason why equities are plunging, bonds are soaring and the pound is once more climbing back to the three Deutschmark level. These are frightening times we live in, and the end game is still far from clear. No wonder there's such a flight to safety going on.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Fans take a selfie with Ed Miliband in Kempston, near Bedford, on Tuesday
election 2015
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power