Global New Equilibrium Path Will How to March Forward
- By Christina Xia
- Published 02/8/2012
- Latest
- Unrated
Christina Xia
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One from the formation of the disintegration of Soviet Union and since 1989 the global equilibrium is sub-prime crisis broke, and the new equilibrium has not yet formed. All the current global economic condition, including the continued downturn in the U.S. economy and high unemployment, one after another debt crisis in Europe, the various structural problems in the Chinese economy are balanced by the old balance of the transition to a new concurrent performance.
How will the new equilibrium path of evolution? When will form a stable new equilibrium? All depends on the constraints change.
Greenspan's term of office, the golden age of the old balance, low interest rates create virtually unlimited supply of liquidity, the inflation rate remained low, rapid economic development, free movement of capital in the world, although the occasional outbreak of the regional financial crisis, but does not enough to shake the entire balance system.
The core of the system is balanced: China, Southeast Asia and other manufacturing countries as in developed countries to undertake direct investment in the host country to cheap labor in the global division of labor, directly reduce the level of inflation the U.S. and Europe; resource countries participate in international resource products division of labor, accumulated large dollar reserves; Europe and the United States and other forms of FDI by transnational corporations and to enjoy the benefits of vertical division of labor, and capital gains by Wall Street, enlarged, and ultimately the national capital cycle or from the manufacturing and resource investment in the national foreign exchange reserves, the U.S. bond market by the way return to the United States.
This system does for the global economy have a role in promoting the rapid development, but it is also a self-excitation of self-reinforcing cycle - eventually far beyond the capital cycle required for the real economy, and finally collapse of the old cycle, the outbreak of the sub-prime crisis.
How to establish a new equilibrium, which will be suffering through a long process, any equilibrium can not generally like the textbook IS-LM one go. However, the current limitations of the conditions are changing, or we can see the point from which the new balance the next clue.
From the labor force structure, the world's largest labor market in China and India the second labor market has joined
the global competition, while China's labor force structure, Turning Point has experienced the challenges of rising labor costs have been formed. Currently there is no worldwide political stability, infrastructure, manufacturing base for a complete replacement of China, therefore, the long term, wage labor in China will gradually transfer to the upward trend in the developed countries in Europe and America, we believe that the future long term cost-push inflation will dominate the economy. A long-term inflation cycle will inevitably come.
From a resource perspective, if new technology does not appear sufficient to affect the global energy structure of the Great Leap Forward, the national and regional units of self-protection group of the resource will become increasingly strong. Similarly, the new technology as the main body of the United States and other developed countries and the energy structure of the resource-based conflict countries will continue to deepen. In this context, resources, product prices will remain high at least in the medium term, the dollar because the Federal Reserve to raise interest rates after long-term strength, this trend is likely to be high into a middle price of platform motion - there will be global demand considerable support for efforts - it will bring to the upward trend in inflation in some fuel.
From the perspective of capital, the old system has been very volatile capital cycle - starting from the western developed countries, flows to emerging markets, and through the form of foreign exchange reserves in emerging market countries in the bond market back in Europe and America - the cycle in the sub-prime crisis and debt crisis, the EU has been very unstable. But no new financial system and regulatory approach, all countries can only be struggling under the old system of capital cycle support. Once recognized by national high inflation, interest rates will be the only option. As a result, global capital will be an unprecedented tightening cycle. Global capital flows may be changed: to the U.S. Treasury market and the Chinese stock market, and these two markets will ever closer contact, and reinvestment of surplus capital-source countries and emerging manufacturing base. But Europe and Japan will further decline. Europe is still a lack of new economic growth model, while the European Central Bank clearly deviated from the original theoretical model of Mundell, political, economic and market much larger than, each time for a separate state aid, and the lack of more ambitious monetary union positive framework. This is bound to suffer more punishment. As for Japan? In the aging of the decade it may lose more.
How will the new equilibrium path of evolution? When will form a stable new equilibrium? All depends on the constraints change.
Greenspan's term of office, the golden age of the old balance, low interest rates create virtually unlimited supply of liquidity, the inflation rate remained low, rapid economic development, free movement of capital in the world, although the occasional outbreak of the regional financial crisis, but does not enough to shake the entire balance system.
The core of the system is balanced: China, Southeast Asia and other manufacturing countries as in developed countries to undertake direct investment in the host country to cheap labor in the global division of labor, directly reduce the level of inflation the U.S. and Europe; resource countries participate in international resource products division of labor, accumulated large dollar reserves; Europe and the United States and other forms of FDI by transnational corporations and to enjoy the benefits of vertical division of labor, and capital gains by Wall Street, enlarged, and ultimately the national capital cycle or from the manufacturing and resource investment in the national foreign exchange reserves, the U.S. bond market by the way return to the United States.
This system does for the global economy have a role in promoting the rapid development, but it is also a self-excitation of self-reinforcing cycle - eventually far beyond the capital cycle required for the real economy, and finally collapse of the old cycle, the outbreak of the sub-prime crisis.
How to establish a new equilibrium, which will be suffering through a long process, any equilibrium can not generally like the textbook IS-LM one go. However, the current limitations of the conditions are changing, or we can see the point from which the new balance the next clue.
From the labor force structure, the world's largest labor market in China and India the second labor market has joined
From a resource perspective, if new technology does not appear sufficient to affect the global energy structure of the Great Leap Forward, the national and regional units of self-protection group of the resource will become increasingly strong. Similarly, the new technology as the main body of the United States and other developed countries and the energy structure of the resource-based conflict countries will continue to deepen. In this context, resources, product prices will remain high at least in the medium term, the dollar because the Federal Reserve to raise interest rates after long-term strength, this trend is likely to be high into a middle price of platform motion - there will be global demand considerable support for efforts - it will bring to the upward trend in inflation in some fuel.
From the perspective of capital, the old system has been very volatile capital cycle - starting from the western developed countries, flows to emerging markets, and through the form of foreign exchange reserves in emerging market countries in the bond market back in Europe and America - the cycle in the sub-prime crisis and debt crisis, the EU has been very unstable. But no new financial system and regulatory approach, all countries can only be struggling under the old system of capital cycle support. Once recognized by national high inflation, interest rates will be the only option. As a result, global capital will be an unprecedented tightening cycle. Global capital flows may be changed: to the U.S. Treasury market and the Chinese stock market, and these two markets will ever closer contact, and reinvestment of surplus capital-source countries and emerging manufacturing base. But Europe and Japan will further decline. Europe is still a lack of new economic growth model, while the European Central Bank clearly deviated from the original theoretical model of Mundell, political, economic and market much larger than, each time for a separate state aid, and the lack of more ambitious monetary union positive framework. This is bound to suffer more punishment. As for Japan? In the aging of the decade it may lose more.
