Wednesday, December 15, 2010

Yale: The Coming Global Order Out of Economic Chaos

Brace for Change as the Global Economic Order Crumbles Yale Global

"...The old order had to die also because the United States – its creator, rule enforcer, market of last resort and chief cheerleader, now racked by deficits, debts, and a polarized and inward-looking political system – can no longer shoulder the burden of these roles. No one country is remotely capable of replacing America, and effective collective leadership is nowhere in sight.

All these factors havebeen dramatically aggravated by the global credit crisis of 2008-2009 and subsequent recession in the West – obvious convulsions of the old and now discredited economic order. While an impressive international effort to bail out financial institutions and stimulate economies with government spending stopped the disaster from reaching 1930s proportions, the debacle revealed a number of fault lines that may be worsening.

...As the old economic order withers, the financial markets – and not governments – will be the arbiters of how capital and trade move, and how severe government adjustment policies need to be. This situation will be accompanied by more than one major financial crisis and more difficulty for global traders and investors moving across the world.

This very chaos could, however, provoke a shock effect that compels a sharply elevated level of cooperation among key governments. They could work more closely with their globally integrated firms, to advance a design of a new order. That could encompass new currency arrangements, a strengthened World Trade Organization, an International Monetary Fund with enforcement capabilities, a high authority with serious oversight for global financial regulation. A new order could involve a G-20 that has a vision and some clout, and establish a comprehensive regime to deal with climate change. Most importantly, it could be characterized by a mindset among governments that takes full account of the interconnections among national economies."

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