Investing in precious metals 101

Global Shifts and Faultlines

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  • Sat, Feb 21, 2009 - 05:32pm



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    Global Shifts and Faultlines


 Excellent analysis by Bulent Gokay, Professor of International Relations at the School of Politics, International Relations and Philosophy in Keele University, England.

No real surprises to us CCers but some high quality analysis with referances.

 Some sample paragraphs:

The explosive growth of the financial system during the last three decades relative to manufacturing and the economy as a whole, and the proliferation of speculative and destabilising financial institutional arrangements and instruments of wealth accumulation

Indeed, the subprime crisis is actually a correction to years of debt-driven consumption in the US, revealing the end of unstable economic growth based on ‘spending tomorrow’s income today’.  Therefore, the turmoil in global financial markets is the manifestation of not simply a conjunctural downturn, but rather a profound systemic disorder.  It is the inevitable outcome of the progressive deregulation of financial markets, and colossal growth of the process of shifting investment from manufacturing to ever more exotic forms of financial speculation, the rise of the shadow banking system, initiated by Wall Street and its ‘backyard’, the City of London.(41) The current crisis points unambiguously to the conclusion that it is not possible to revive the level of consumption and investment by artificially boosting demand to fill the ‘output gap’. 

 The rise of new centres and the loss of relative weight of the US as a global hegemonic power

Thanks to its capital controls, its huge saving surplus and its publicly owned and state-controlled banking system, China seems to be well shielded from the Western financial crisis.  China has already become a major actor in world currency and financial markets. The country holds $1.8 trillion in foreign exchange reserves.  In particular, China’s dollar holdings are a source of considerable financial leverage in the global financial markets.  China has an especially effective financial system, which seems to be well positioned to finance the next phase in its economic expansion.  Many observers also agree that the Chinese economy has a much bigger margin of maneuver, because its exposure to those speculative toxic assets, which lay at the root of the recent financial crisis, is much lower than the exposure of the American and West European economies.  In a way, China faces the global crisis from a position of strength.


If one looks at China’s economic figures for the last 20 years, one realises a truly global power rising at a stunning rate.  If one considers that ultimately geopolitical power is built on economic power, then there exist every reason to anticipate that China will soon become one of the two or three superplayers on the global arena.  Former deputy treasury secretary Roger Altman has written in Foreign Affairs: ‘the financial and economic crash of 2008, the worst in 75 years, is a major geopolitical setback for the United States and Europe… No country will benefit economically from the financial crisis over the coming year, but a few states most notably China will achieve a stronger relative global position… Beijing will be in a position to assist other nations financially and make key investments in, for example, natural resources at a time when the West cannot.


In financial terms, China is little affected by the crisis in the West. Its entire financial system plays a relatively small role in its economy, and it apparently has no exposure to the toxic assets that have brought the U.S. and European banking systems to their knees. China also runs a budget surplus and a very large current account surplus, and it carries little government debt.


Resource depletion and ecological crisis

The final and perhaps greatest vulnerability of the world system is that of availability and distribution of critical resources as oil, food, and water.  The very logic of accumulation under the current economic system necessitates that the material elements (resources) of nature are transformed into commodities in an ever-expanding rate.  In this long history of human excessiveness in production and consumption, the stability of the economic order, as an unrestrained structure, is dependent, more than ever, on the continued accumulation in a cycle of never-ending expansion.  This means that more and more materials from the nature must be consumed in the process of production.  So far, the world’s most valuable energy supplies and minerals are being extracted and consumed at a bread neck pace.     


1. While it is difficult to predict events with any certainty, there is no reason to expect that the current crisis will pass quickly, and there is no quick way out of this crisis.  It is difficult to predict the true extent of economic decline.  We are at the beginning phase of the crisis, indeed as crisis progressed through its phases, the situation automatically gets worse. 

2. The historic meltdown of the global capital markets, and sharp economic downturn, is systemic in nature, and is conditioned by the contradictions, and vulnerabilities, of the current level of economic organisation, with the world economy unable to develop further in the old manner. 

3. The global systemic crisis, which itself has built up over decades, will not be overcome until the vulnerabilities/ and contradictions that caused it are resolved effectively.

4. While the crisis is being felt more acutely in some regions, it is a global systemic crisis.  The initial epicenter of the crisis was in the United States, but the crisis is a world crisis which will be affecting the whole world system and will be increasingly disrupting the production process. The crisis is felt much stronger in the USA, and also in countries which are heavily integrated within the US economic and strategic sphere. The crisis is global in nature, and will affect all countries that are part of the world economy, but not necessarily at the same time and to the same extent.  How and when it will affect each country may vary.  Collapse of several large international banks, corporate collapses and industrial shutdowns will occur unevenly and at different times in various countries.

5. The crisis will produce a handful of winners and help to reinforce global powerful monopolies or oligopolies controlling nearly all production, commerce and finance in the world economy. The importance of medium and small-size business will decline still further.  The world economy will become increasingly monopolised, and there will be numerous corporate takeovers. Most small-size enterprises will be unable to survive.

6. As a result of the deepening of the global economic crisis, social inequality will increase, but inequality of incomes between workers in the developed economies and the emerging economies will lessen.

7. After contracting during the crisis, energy consumption will resume its growth. The global revival will need cheap energy, produced in greater quantities than before. The reliance on hydrocarbons, however, will probably decline markedly, simply because the amount of remaining oil resources will not be sufficient.  Therefore, it is logical to expect that under the impact of the crisis there may be greater emphasis on the development of alternative fuels, and eventually some major breakthroughs in this area.

8. There are already indications that the crisis will possibly encourage more internally centered economic growth in China, India, Russia and the rest of the emerging economies, strengthening domestic markets, but hence reducing their contribution to world trade during the crisis.

9. Through the current crisis we will witness the rebalancing of world economic growth further away from the USA (and UK) towards the emerging economies of Asia and elsewhere, especially China.  The depth and severity of the current crisis are likely to signal major global political economy changes that will result in such a major geopolitical shift.  It is clear that the direction of globalization has already changed.

10. A likely outcome of the crisis will be a severely declining role of the US dollar (as global reserve currency) in the global financial and trade system, which will be replaced by a basket of world’s main currencies. 

11. As a result of the serious collapse in global markets, and also because of the relative strength of their banking sector, it is quite possible that the emerging economies will increasingly shape the future of global finance just as they are already shaping the direction of global trade.

12. How Deep and for How Long?  The likely time frame for the development of the crisis is as follows: the economic decline (stagflation (99)) is likely to be most severe (severe decline) during the period 2009 and 2010, depression and restructuring from 2010 to 2013.  From 2011, the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and perhaps the Eurozone, as well as in countries producing energy, mineral and food commodities.    

13. The crisis is destined to bring about fundamental changes in the world economic system.  The world will be different when the carnage stops.  In order to develop further, the world economy needs qualitative changes.  There are limits to reform in the current global economic system, but at no other time in the last half-century have those limits seemed more flexible.




New Zealand.



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