Ali’s blog

Mostly quant stuff with occasional digressions

World financial order ‘has no clothes’

Posted by alifinmath on January 9, 2008

A riveting piece of analysis here:

The current financial turmoil is rooted in paradox.

1. No consensus about currency systems.

2. Poor countries that lend much more money to rich countries than vice-versa.

3. U.S. debt service payments that are still positive despite large and growing net liabilities to the rest of the world.

4. Global imbalances in capital flows that cumulate for years rather than gradually adjust via market mechanisms.

5. Sovereign Wealth Funds

6. Asset bubbles (high-tech equities, now real estate) that burst and spread from country to country, despite central banks’ remarkable success in stabilizing good and services inflation almost everywhere.

This is an insightful piece of writing — coming from someone who is grudging with praise. My own perspective differs in places (being as I am a creature of the New Left), but I can’t fault the writer with his analysis of the symptoms of a fundamentally irrational and unsustainable global system.

Marx taught us that increasingly serious crises are an integral part of global capitalism, built as it is on various contradictions, and his analysis is (in my humble opinion) eminently relevant to the current world situation even though in his time he couldn’t have anticipated the ascendancy of finance capitalism and the consequent subsuming and eclipse of industrial capitalism.


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