Transcript Globalisation 2

16 October 2009
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Hollowed Out State – does State becomes less
relevant
Economic Policy dependence on global
sentiments and financial markets
Control over domestic currency
US dollar appreciated 13 per cent after 2009
now fallen 12 per cent in last two months
Good for the US exports grow imports more
expensive US move towards export oriented
economy rather than consumption
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Forecast UK Deficit PSBR to reach 12 per cent
of GDP and national debt 75 per cent of GDP
Why worry?
S Brittan there is no worry look at past
histories deficits to pay for war
Also compare with other countries Japan 170
per cent most of Europe above 80 per cent
Worry is about buying government bonds and
inflation expectations pushing up interest
rates
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Financial Markets close to collapse after
bankruptcy of Lehman Brothers and also near
collapse of AIG Financial Markets 3 times size
of world GDP
Governments worried about financial
meltdown all stock exchanges lost 35 per
cent of value
World GP 60 trillion dollars world financial
markets 175 trillion dollars
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IMF argument that governments needed to
avoid repeat of Great depression of 1929
Needed Global response
Governments guaranteeing deposits of
investors US Government guarantee of
250,000 dollar accounts through FDIC
UK monetary easing 175 billion pounds
Partial nationalise Lloyds Bank
US bank TALF 750 billion dollars
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The Gold Standard conversion of currency
into gold 1925 US main depository of Gold
UK Bank of England returned to Gold
Standard 1925 increased interest rates made
UK less competitive increases in
unemployment
Collapse of US Stock Exchange 1928
US Unemployment reached 25 per cent
Election of Roosevelt 1933
Banking Act 1933 Glass Steagill
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Retreat from Globalisation
Protection and Tariffs barriers to trade
Protect infant industries
The Rise of Racism Anti Jewish sentiments
The BUF Mosley Communist and
Unemployment Marches
Fragmentation
Weakness of Weimar Republic Nazis win
elections 1931
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Worry about inflation when economy has
problems of deflation unemployment rising.
Government is a problem even though
government can create jobs through stimulus
Banks must act though on credit when credit
is needed to boost demand
Ideology of markets
Ideology of Keynesian demand managment
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Market liberalism concern with inflation
Keynesians concern with unemployment
Market economists unemployment should be
left to labour markets – workers reduce their
wage demands
Decline of manufacturing and high paid jobs
in the process of globalisation
New technology and job replacement
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1950 to 1970 Wages rising inequality falling
Full employment trade unions
Lates 1970s return to markets tax reductions
for high incomes
Return to inequality
Decline of trade unions
Wages stop rising
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122 recessions since 1945 on global scale
UK eight recessions
US seven recessions
All start in financial sector
Falling house prices bubbles
Falling equity markets bubbles
Ripple effects financial to real economy
Banks too big to fail
Moral Hazard