With the continuing volatility of global warkets that started with the substantial US housing loan defaults, some people are asking if globalization is to blame. Yes, we can blame globalization for the current market volatility in major markets around the world. The same way that globalization should be credited for to the expansion of the same markets around the world.
Are the markets entering a new era? No. The era of market interconnection on a global level will remain because that’s what people around the world need and they work for it. Otherwise there will be no international trade, no international mobility of people and their talent and services.
Will fluctuations continue to snowball from market to market, or is this just a tempest in a teapot? Snowball into something bigger turbulence, possibly not. The turbulence has been around for the last 4 or 5 months, and major market players have already instituted some mechanisms to curtail any major damage to their companies and their markets.
We need market turbulence. Those who are complacent need to be jolted with the entry of new players who are very adventurous and innovative. And those who are irresponsible in managing their corporate or personal finance should be jolted too. Market turbulence then will adjust markets to a higher and more responsible level. Until another round of turbulence as new breed of innovators come up and new breed of irresponsible guys fall down.
More then that, globalization has prevented real damage. Globalized has helped stabilize economies by spreading the risk around. One reason why the US stock market has not completely tanked -- it has only declined by a few percentage points -- is because companies and investors are not limited to a single, rather small, economy. They are diversified. Across the entire globe, the problems of the US housing market are much smaller.
ReplyDeleteCompare that to the Great Depression. When that hit, national government increased tariffs and duties, sealing off national economies into more distinct units. It was because of Smoot-Hawley and other tariffs that the Great Depression was a deep and devastating as it was. As the world economy globalizes it becomes more bigger and therefore more stable, not unlike the difference between a small pump boat and a larger supertanker.