Mar. 16, 2011 (Bloomberg) -- A sudden shock to the global financial system has a way of uncovering its true state.
As billionaire Warren Buffett famously said, it’s only when the tide goes out that you learn who has been swimming naked. Two events since Japan’s March 11 earthquake have shown the extent to which our economic reality has no proverbial clothes.
One is that the yen is rising. You would think earthquakes, tsunamis and radiation clouds would have investors actively fleeing yen assets. Not so. On March 14, a Bloomberg News headline proclaimed “Yen Reaches Four-Month High Against Dollar on Safe-Haven Demand.” Some haven, that Japan.
The other is how quickly Timothy Geithner, the U.S. Treasury secretary, got in front of the biggest worry in markets: that Japan will dump its vast holdings of Treasuries to raise cash. This latter one is worth exploring because its implications would travel farther and wider than the radiation leaking from nuclear power plants. It could just happen, roiling world markets like only a Black Swan-event can.
