Globalization and Financial Crisis Impacts on Scale, Distribution, Efficiency and Democracy

US Current account balance

Fixed and Floating Exchange Rates Quantitative easing Quantitative easing Floating Floating Impact on exports? Impact on exports? Fixed Fixed Liberalization Liberalization

Theories about Financial Stability EMH EMH FIH FIH Hedge Hedge Speculative Speculative Ponzi Ponzi

EMH or FIH?

How long is a stock held? 1970s and before 1970s and before Now Now High speed trading 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. 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 $5 trillion per day

Financial Liberalization What is it? What is it? Why did we pursue it? Why did we pursue it? What is current status? What is current status?

Asian flu (1997) Real estate bubble Real estate bubble Financial speculation, Soros and devaluation Financial speculation, Soros and devaluation Impacts of devaluation on debt Impacts of devaluation on debt Impacts on trade competitors Impacts on trade competitors IMF role: interest rates, taxes, government spending, bailouts IMF role: interest rates, taxes, government spending, bailouts Malaysia’s response Malaysia’s response

Current Crisis Deregulation Deregulation Increasingly concentrated wealth Increasingly concentrated wealth Obscure financial instruments Obscure financial instruments Biophysical limits Biophysical limits Positive feedback loops Positive feedback loops Profound failure of economic theory Profound failure of economic theory

Contributing Factors to Financial Crisis Leverage Leverage Moral Hazard Moral Hazard Adverse selection Adverse selection

Contributing Factors to Financial Crisis Speculation Speculation Inelastic supply Inelastic supply Inelastic demand Inelastic demand Concentrated wealth Concentrated wealth Full and unequal planet Full and unequal planet ‘Innovative’ financial instruments ‘Innovative’ financial instruments Credit derivatives ($1.14 quadrillion  $700 trillion) Credit derivatives ($1.14 quadrillion  $700 trillion) Credit default swaps (naked) (~$25 trillion?) Credit default swaps (naked) (~$25 trillion?) Mortgage backed securities Mortgage backed securities Collateralized debt (mortgage) obligations Collateralized debt (mortgage) obligations Systemic risk and correlation Systemic risk and correlation

EE Explanations Biophysical limits Biophysical limits Oil Oil Food Food Positive and negative pigs 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]” “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 Speculative bubbles and positive feedback loops Pro-cyclical monetary systems Pro-cyclical monetary systems Is the global economy a complex system or equilibrium systme? Is the global economy a complex system or equilibrium systme? Liberalization increases likelihood of FIH Liberalization increases likelihood of FIH

Finance and Distribution Concentrated wealth and speculation Concentrated wealth and speculation Too big to fail Too big to fail Too big to jail Too big to jail Growth rates greater than economic growth Growth rates greater than economic growth

Policy Options Tobin Tax Tobin Tax Speculation tax Speculation tax Restricting capital flows Restricting capital flows Forcing banks to hold more reserves Forcing banks to hold more reserves Reducing leverage Reducing leverage Higher marginal tax brackets and more equitable distribution Higher marginal tax brackets and more equitable distribution Problems with national approaches Problems with national approaches