Globalization and Financial Crisis Impacts on Scale, Distribution, Efficiency and Democracy
US Current account balance
Fixed and Floating Exchange Rates Quantitative easing Floating Impact on exports? Fixed Liberalization
Theories about Financial Stability EMH FIH Hedge Speculative Ponzi
EMH or FIH?
How long is a stock held? 1970 s and before Now High speed trading
Understanding the Risks of Currency Speculation (investorguide. com) Currency speculation involves buying, selling and holding currencies in order to make a profit from favorable fluctuations in exchange rates…. It is estimated that 95% of forex participants are currency speculators, with players that include large multinationals, investment banks, hedge funds and professional traders. $5 trillion per day
Financial Liberalization What is it? Why did we pursue it? What is current status?
Asian flu (1997) Real estate bubble Financial speculation, Soros and devaluation Impacts of devaluation on debt Impacts on trade competitors IMF role: interest rates, taxes, government spending, bailouts Malaysia’s response
Current Crisis Deregulation Increasingly concentrated wealth Obscure financial instruments Biophysical limits Positive feedback loops Profound failure of economic theory
Contributing Factors to Financial Crisis Leverage Moral Hazard Adverse selection
Contributing Factors to Financial Crisis Speculation Inelastic supply Inelastic demand Concentrated wealth Full and unequal planet ‘Innovative’ financial instruments Credit derivatives ($1. 14 quadrillion $700 trillion) Credit default swaps (naked) (~$25 trillion? ) Mortgage backed securities Collateralized debt (mortgage) obligations Systemic risk and correlation
EE Explanations Biophysical limits Oil Food Positive and negative pigs “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”
Energy and Work
Positive Feedback Loops and Self-fulfilling Prophecies Speculative bubbles and positive feedback loops Pro-cyclical monetary systems Is the global economy a complex system or equilibrium systme? Liberalization increases likelihood of FIH
Finance and Distribution Concentrated wealth and speculation Too big to fail Too big to jail Growth rates greater than economic growth
Policy Options Tobin Tax Speculation tax Restricting capital flows Forcing banks to hold more reserves Reducing leverage Higher marginal tax brackets and more equitable distribution Problems with national approaches
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