Wednesday, September 24, 2008

Financialization

I just posted a brief section on financialization, taken from my recent book: The Confiscation of American Prosperity.
financialization

1 comment:

Myrtle Blackwood said...

Thanks for posting this Michael. What seems to be clear is that Governments have also been busy ensuring that new laws and regulations will increase these fictitious 'savings' to their maximum extent possible.

The new privatised pension funds. What we call 'compulsory superannuation' in Australia. A lot of this has found its way into the housing market, pushing up prices relative to people's income. (How ironic). In China the government has paid directly for a continued rapid expansion of production in furniture, plywood and other wood-based industries. This has been done without regard for the state of the world's forests and the economic viability of such production because the goal has been simply to increase employment.

"China continues headlong (profitless) expansion based on need to create jobs.

See:
Impacts of China on the Global Value (Supply) Chain: The wood sector. Dr David Cohen 2005
http://www.forest-trends.org/documents/meetings/china_2005_protected/documents/presentations/second_workshop/china%20June%2005%20dave%20cohen%20presentation.ppt

+ some history from 2005:

2005 – January – March. Economists now begin talk of a global savings glut. A rethinking of the rules governing the world economy begins. Something major has changed. The theory that low interest rates are the result of a US Fed (and other central banks’) easy money policy becomes less tenable after two years of central bank rate increases and a global economy growing at 5.1% in 2004. The forecasts predicting a rise in long rates failed to materialise. A January 31st article in Business Week noted that a “global glut of savings” could explain low interest rates. In March 2005 US Fed governor Ben Bernanke gave a speech on the “global savings glut”. The IMF estimates global savings in 2005 to be $11 trillion, almost the size of the US economy. Most of the savings is going to one country. According to Harvard University's Rogoff, the U.S. alone is soaking up as much as three-quarters of the excess global supply of savings. The result: a current-account deficit totalling $668 billion last year, or 5.7% of the country's GDP. Economists fret that at some point foreign investors and governments may tire of putting big sums into the U.S., triggering a steep decline of the dollar and a jump in U.S. interest rates. In search of better returns, investors have piled into a host of risky assets, from high-yield bonds to credit derivatives to emerging-market debt. If global growth slows, such indiscriminate buying could backfire.

Too Much Money. A global savings glut is good for growth -- but risks are mounting. 11th July 2005.

By Rich MillerWith Jack Ewing in Frankfurt, Stanley Reed and Laura Cohn in London, Frederik Balfour in Hong Kong, David Henry in New York, and bureau reports
http://www.businessweek.com/magazine/content/05_28/b3942001_mz001.htm