The real problem will be if people follow the same herd instinct going down as well as up. The strong United States dollar kept prices and inflation low, so Alan Greenspan kept interest rates down and the surging economy meant budget deficits became anachronisms, and everyone got used to a stockmarket that went in only one direction. Now it seems as if those forces are not just stalling but going into rapid reverse, accelerating the impact as they do so. Irrational exuberance in the stockmarket has been replaced by rational panic. All that debt it looked smart to build upon while prices were rising now looks more like a house of cyber cards.
Future profits are on paper, current losses are for real.
Even Greenspan panicked enough this month to alter course and cut interest rates again after increasing them last year. Economists will give all sorts of reasons why Australia wouldn't necessarily follow the US into a recession. But globalisation means that everything is connected to everything else almost instantly. For better or worse. So far, what is clear is that the confidence that pushed the small US investors unscathed through the Asian crisis three years ago has now turned into a debilitating attack of nerves that is proving contagious.