How Globalization affects Interest Rates
September 18, 2010 2 Comments
How Globalization affects Interest Rates
As it was well discussed in many previous articles of mine, the high interest rates of the Capitalism may well worked out in times of growth and self adjusting short recessions of a pro supply economic environment, but these are well beyond handling marginal economic environment or long recessions. It became obvious that the Governmental interference in the Economy was paramount in the last recession to save the financial structures, because of the financial structures inability to self-adjust in an environment of using relatively high interest lending. The infusion of monetary quantities direct governmental interference into business and the serious tax brakes were substituting so called “natural cyclical economic self-adjusting ” of the past. It became also obvious that the Small Businesses and Small Investors, and the overall Economic Structures of the Middle and Lower Classes sustainability in a longer recession, as the last one, was not possible without such governmental interference either. I dare to question the ability of high interest lending to maintain adequate financial stability under the most recent developments of rapid Globalization and rising Productivity that brought China’s manufacturing capacity, which added to the already Most Industrialized Countries capacity that tipped off the possibilities for many other countries to develop such industrial production, which Industrial Production basically leverage the GDPs’ of almost any developing or developed economy in the world. The consequential of this new Global imbalance directly affected many countries Fiscal Reserves and brought deficit and national debt almost everywhere. There have been very few approaches against these new global developments: in the US lowering interest rate, quantitative easing, stimulus packages and tax breaks, in Japan same stimulus packages plus financial measure to keep their currency undervalued and export up, in Europe same plus so called austerity measures to reduce spending and balance budgets, in everywhere else countries and economies deepened in fiscal shortages, deficit, rising poverty. The same economic instruments of the self adjusting Capitalism that worked in the past at its best in economies such the US one maintaining a consistent 20% + growth every 20 years for the last Century, now, under the new conditions brought rising poverty rate, disappearing Middle Class and prompted exodus of industrial production keeping unemployment high and fiscal reserves empty, economies such as the European Union most developed one with averaging economic growth of 1 to 2.5% rely for such on their export to China while the rest of EU is in Fiscal disarray and rising poverty rates, others as Japan are using their Monetary and Fiscal policies simultaneously running highest national debt.
The fundamental reasons, in the beginning of all modern days economic upheaval, could be located at the high interest lending rates practiced by the Capitalism: the quickly accumulated individual and national debt cannot be avoided in a slow growth marginal economic environment, and when such marginal development is becoming consistent the consequences from high interest rates could be deadly. National and International financial structures, Commercial Banks, the World Bank, IMF are setup to work based on high interest rates, that keeps many sovereign issued securities relatively high interest rates, too. The whole system of financing, lending and even rising public capital is maintaining high interest rates, same is the international financing. While some governments are keeping their interest rates very low of lending to large Tier I financial institutions the final products coming especially to small and medium size businesses, individuals and countries the interest rates are becoming relatively high so the effect on the overall development of these entities and markets in the conditions of long economic recessions and marginal economic development is negative. However, high interest rates lending is a consequence of lower market security and high risk, thus if lending is to lower interest rates the markets security must get higher, so the question will become:
How to higher the market security of small and medium enterprises, small investors, individuals, and even markets and countries? Than it comes the Philosophy of the Market Economy: to higher security by enhancing business laws of contracting, project bonding, enhanced personal liability of corporate structures, and regulated financial markets and exchanges etc., there it comes the enhanced role of Small and Medium Businesses and Investors being able to access global marketplace, there it comes the enhanced role of the Social Policies and Infrastructural Expenses that could balance reduced employment in the private sector. Thus, in the new pro-demand economic environment, the security to the borrowers may go up, while the lending interest rates would come down. While the governments of the most developed countries should play proactive role to prompt market development and low interest rate lending, the business and individual entrepreneurship should carry on these new developments.