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* Threats to Globalisation Geoff Riley A2 Economics, February 2009 Who wrote the following? “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages...The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion...were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice.” Has globalisation contributed to the crunch? Globalisation initially helped to usher in decade of low inflation Rise in global growth and increase in the value of world trade Positive sum game for many But rising trade imbalances Emerging market current account surpluses USA – spender and borrower of last resort And contributed to sharp rise in commodity prices Shift of income to ‘high saving’ countries Rise in global savings led to fall in long term interest rates Cheaper money stimulated: Property bubble Search for higher yields among lenders (riskier) The genesis of sub-prime? Rising inflation in 2008 must not be discounted as a factor behind the current crisis Expanding Trade – what will happen in 2009? Globalisation initially brought low inflation But then a spike in commodity prices Long term interest rates World Property Boom and Bust Including the USA China’s Mounting Surplus And mountainous FOREX reserves Gains from globalisation Traditional approach Exploitation of comparative advantage Gains from specialisation and trade Higher output Lower real pr