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Weekly Comment by Dr Cees Bruggemans, Chief Economist First National Bank

As every South African knows, the first principle in burglar proofing is pre-emption.

Thus, the trick in upgrading (in walls, dogs, electric wires, armed guards, crocodile infested moats) is to do so pre-emptively, ahead of the crowd, thereby deflecting the crime wave onto slacking neighbours and neighbourhoods.

Not very neighbourly, but certainly effective, as decades of experience have shown.

Central banks operate on a similar principle. When the neighbourhood gets unsafe, be sure to pre-empt rather than find the neighbours deflecting onto you.

Interestingly, the first 400 points of US rate tightening didn't do much. The global natives remained quiet, asset price volatility at historic lows.

But the last four months have been like a slow motion journey from hell.

It started with Iceland trying to regain the plot by raising their interest rates quite aggressively from late last year. But instead of being rewarded for that, it must have drawn attention to their overheated condition, especially its 15% of GDP current account deficit.

With the Japanese interest rate outlook changing, and with it the carry-trade attractiveness, New Zealand with its large trade deficit encountered foreign withdrawals, sinking the currency. Reducing Euro carry-trade sunk Iceland.

Other countries watched in dismay, but didn't do anything. Yet the global neighbourhood was already showing signs of going to the dogs.

By early May the Fed signaled that all wasn't well, in the process confusing and upsetting markets enough to invite risk aversion and generalized selling off. It was especially frothily priced emerging equities and commodities that got it in the neck. Currency sell-offs weren't late in coming.

By early June, a global contagion of sorts was underway, and the first batch of central banks turning defensive showed their hand, even as signals out of the Fed, ECB and BOJ hinted at further rate tightening.

Instead of getting caught in the growing backwash of the leading central banks, the more exposed emerging brethren considered it prudent to go to the next level of protection.

Sold as inflation targeting, higher interest rates also serve to signal a slowdown in growth and improvement in current account deficits. It suggests corrective medicine being taken that eventually should turn the tide in a world of growing risk averseness.

The panic was greater in some parts than in others. Two weeks ago Turkey raised by 175 points (while half that had been expected). South Africa, Thailand and Korea raised rates as well, in some instances more than expected. India took the drastic step of an intra-meeting (outside the planned series of Monetary Policy Meetings), raising by an unexpected 25 points.

Yet these actions didn't buy much peace. Equity markets and currencies remained under pressure as foreign capital kept panicking outwards (and local exporters and importers kept repositioning, the so-called leads-and-lags). Simply put, the rot deepened.

Time to go to the next level, or so the Turks must have felt as they were singled out for bad news stories requiring more attention (or inviting more selling off).

And so the Turks surprised this past weekend by calling their own intra-meeting, and raising the ante by another 225 points, for a cumulative 400 points in two weeks where previously the market had thought less than 100 points tightening would be enough.

Just goes to show how these things can feed on themselves. Unfortunately Bernanke and friends at the Fed haven't sat still either in recent weeks, sending out so many unnerving signals that global markets have steadily raised their expectations bar by 50 to 100 points in the leading markets.

In the process, risk-prone emerging markets looked progressively naked. And what, my friend, are you going to do? Doing nothing while the neighbourhood is clearly going to pot, with some neighbours getting really defensive, means the growing band of prowling predators are being deflected onto still respectable looking innocents who as yet haven't fallen onto their own swords fast enough. In the process, their market positions are weakened as they attract attack, of the kind in which George Soros sunk the Bank of England back in 1992.

Where is this leading, you may ask, safely ensconced behind your latest Margot line, thinking yourself safe from the riff raff out there?

Where this is leading may yet become obvious shortly. With the Fed blundering to higher interest rate levels, with the ECB uncertain of following too quickly (because none likes an overvalued Euro), and with the Bank of Japan also in two minds (be careful of financial markets selling-off in too wild a fashion), the bar for exposed emerging markets is steadily being raised.

Turkey has now stolen a march on its competitors by raising rates again, and aggressively. Admittedly its fundamentals are weaker than most, but in a ruthless global environment (as much as in an euphoric one) there tends to be less attention on fundamentals than on appearances.

Have you had your haircut yet? Have you had your second haircut yet? By the way, crew cut US-army style?

The emerging market pleading sound fundamentals and a cautious pre-emptive policy stance may think it looks good, but all that shines through is a certain innocence most loved by predators on the move.

So who wants to be the next meal, alternatively raise the Turks and go to the next level of defensiveness, even if it comes at a growing domestic cost?

Don't look over your shoulder now, but there must be about 50 central banks out there getting very nervous, and 100 000 hedge funds getting very hungry.

Even if Bernanke doesn't quite get the picture yet, I am sure you do. But then what would one expect from South African crime veterans? You don't hang round too long, waiting for the riff raff to recognize weakened defences and pouncing ere long. Instead, do the Romans before they do you. Raise the state of alertness ahead of the curve.

That could point to more SARB interest rate increases. Not as in 2002 way after the event, but this time well ahead of the curve (as a learning or experience curve is operating). Noticed any cancelled leave? Fugitive intra-meetings being arranged?

We have yet to see the end of this global crime wave as central banks keep scrambling to stay ahead of their crowding neighbours.

Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics