People do not need to hide all their savings in an old sock, in spite of signs of financial panic this week, across the Western world and beyond. Investors should, however, develop more sophisticated interpretations of the phrase "safe haven."
The fall in the financial markets of the United States reversed itself somewhat on Friday, apparently thanks to rumours that the European Central Bank would buy some government bonds – no great sign of economic health, as that would be a stimulative measure of inflationary tendency. Moreover, fresh U.S. data showed a drop of one-10th of a percentage point in the unemployment rate in June – not so good as to be positively encouraging, but good enough to fend off despair.
This week's disproportionate distress can be attributed in part to a melancholic hangover after the nervous excitement of the debt-ceiling crisis – a realization that the United States government's credit rating may yet be somewhat reduced, although default was averted. There has been a paradoxical habit of resort to American financial instruments as a safe haven, even when the U.S. is the very epicentre of economic crisis. Australia, Canada and Switzerland are increasingly being praised as havens, but none of these economies are big enough to accommodate large numbers of financial asylum-seekers.
Nonetheless, that basic principle of investment, diversification, should be respected on the international scale, as well as in individual portfolios. The U.S. can no longer serve as the haven above all havens. Middle economic powers such as Canada – "loonie" is now a word well known far beyond this country's borders – are much better places to invest than any mattress that has yet been discovered.