How Globalization affects Interest Rates

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.

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4 Responses to How Globalization affects Interest Rates

  1. Pingback: Effects of shared governance on perceptions of work and work environment.: An article from: Nursing Economics | Best Environment Books

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  3. Ron Rose says:

    One must start with the premise that productivity means producing a desirable product. To produce this product one needs Capital + labor + overhead to establish the cost of the product. So it is a competition between labor and Capital, but a competition for what? For the demand price set by the market place, which set by the necessity to most and desirability to some and ability of those parties to pay a price. When recent advances in methods of production by automation are added to the competetion prices become more complex.
    Take housing. All mankind needs a roof over their head, direct cost of production interms of manhours has been reduced but government regulations and fees and taxes have become the largest single cost. It is a capital intensive industry and is directly proportional to the price of money, interest. This comes because 95% of the new home buyers buy on a how much cash down, and how much a month, price is only important as it effects the monthly payment.
    When a first time homebuyer takes a 30 year mortgage, as we have seen they sometimes don’t even know or care how long, they are 27 and indistructible, everything is up. But it is the interest rate that dictates the quality of home they can make the payments.
    This is true thruout the world.

    • joshuak2077 says:

      Dear Mr.Ross,
      your conclusions are all correct…, but as Newton was totally “correct” in “Physics”, which moved into the Quantum Physics showing much more complicated picture; in the Economics the conception must move, too… from a Capital+Productivity currently used approach that cannot prevent from the decay of the US Middle Class and the overall Global indebtedness into an Economics much more complicated I called Market or Quantum Economics in which Inflation+Employment+Globalization are added to Capital+Productivity to rule these new World, in where the “invisible hand” has a proactive role to move these markets into Market Development…, what about the necessary Capital and means of production the word I will only mention is China…, the capacity for manufacturing and innovation and industrial production in this new Globalized World is unlimited. In the Real Estate and related Lending the system will go toward Environmentally friendly housing and construction… the value of pure air will rise, in terms of the Urbanization, the process is unstoppable. too…

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