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Globalization’s Aftershocks

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What might happen if a global bank fails? A 1929-like depression?
In 1929, no one realized what to do. This time, I'd expect four to five years of zero growth for the United States and the European community. The world's economy will move East. For example, after 9/11, fear of pipeline disruptions sent oil prices up from $18 a barrel to $100 and there's been an accumulation of money in the sovereign funds of Kuwait, Saudi Arabia … and Chile. They're keeping that money outside the balance of payments. It's true the Arabs invested in Merrill Lynch and the Chinese bought a share of Blackstone. But a lot of that money is in gold, and they will increasingly be investing among themselves, or in China, not in the West. They may as well wait until Wall Street reaches bottom.

So how will the West climb out of the rough period?
The West will have to rebuild and clean up the criminal economy that is contaminating everything else. It will have to regulate. Take Liechtenstein: it has been operating like an offshore bank providing shelter for tax evaders. Now Germany, Great Britain and the United States are all going after tax evaders [that may have used Liechtenstein as a haven]. Germany had to pay an informant to get information, but the cost was small compared to the money it will bring in.

How does rogue economics affect us as individuals?
It transforms all of us into the unwilling partners of rogue entrepreneurs, a disturbing thought. But the way forward is to become conscious of the new reality. As consumers and as voters we can say no to rogue economics and demand regulation. Globalization is a great thing, but it needs a legal framework in which to blossom.

I may agree that the problems Loretta Napoleoni cites exist. However, the main contribution to the current financial situation is still the US subprime market, opacity in vehicles attached to the toxic loans and very poor management at the top financial institutions. The rogue economic environment is a big problem, especially in the emerging and still closed markets, but the size of the problem is still no match for the subprime problems. The size difference of the underlying markets is still too great for rogue economics to be a major factor today. Her contention that unemployment went from virtual 100% to 0% at the Berlin wall collapse is economically impossible. Besides, if there had been 100% employment the Soviet bloc would never have collapsed in the first place. The doubling of the labor supply in the west clearly doesn't apply to the US. I live in an area with a huge immigrant population, and about 20% of the population here is first generation immigrants, including many from southeast Asia and Africa. How much of that doubling is from Soviet bloc countries migrating to NATO? Rogue economics is a problem that involves the maturing of currently developing economies. We need better regulation to bring transparency to the financial markets worldwide. We need central bank regulation to keep the normal economic cycles under control. Much of the economic swing is due to trying to artificially extend the normal upswing. The market in sex slaves may be repugnant, but is a drop in the bucket of the global economy. I notice there were no numeric analyses in this article to back up her contentions. Without those analyses her arguments are hard to either defend or deny. Without those numbers I really can't see justifying her conclusions. The numeric information she does give seems to have no basis in reality.

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Posted By: Braes @ 04/26/2008 6:07:02 PM

While your reply may be posted repetitively, I think it should be read repetitively. I have read neither book. I am off to go get them..
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Posted By: Holly Garfield @ 04/25/2008 10:15:51 AM

I may agree that the problems Loretta Napoleoni cites exist. However, the main contribution to the current financial situation is still the US subprime market, opacity in vehicles attached to the toxic loans and very poor management at the top financial institutions. The rogue economic environment is a big problem, especially in the emerging and still closed markets, but the size of the problem is still no match for the subprime problems. The size difference of the underlying markets is still too great for rogue economics to be a major factor today. Her contention that unemployment went from virtual 100% to 0% at the Berlin wall collapse is economically impossible. Besides, if there had been 100% employment the Soviet bloc would never have collapsed in the first place. The doubling of the labor supply in the west clearly doesn't apply to the US. I live in an area with a huge immigrant population, and about 20% of the population here is first generation immigrants, including many from southeast Asia and Africa. How much of that doubling is from Soviet bloc countries migrating to NATO? Rogue economics is a problem that involves the maturing of currently developing economies. We need better regulation to bring transparency to the financial markets worldwide. We need central bank regulation to keep the normal economic cycles under control. Much of the economic swing is due to trying to artificially extend the normal upswing. The market in sex slaves may be repugnant, but is a drop in the bucket of the global economy. I notice there were no numeric analyses in this article to back up her contentions. Without those analyses her arguments are hard to either defend or deny. Without those numbers I really can't see justifying her conclusions. The numeric information she does give seems to have no basis in reality.
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Posted By: Braes @ 04/25/2008 2:41:48 AM

We had no Marshall Plan. We called a peace dividend and unbuilt our defenses