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Globalization and the crash

In The Crash of 2008 and What it Means, George Soros makes the most eloquent critique of globalization that I’ve ever read.

In a nutshell, he argues that starting in the 70s, rich countries forced Washington consensus austerity measures on poor (“periphery”) countries, while at the same time reserving for themselves the right to enact countercyclical measures to keep their own markets stable and attractive for investment.

The status of the U.S. dollar as a reserve currency coupled with this globalization of financial markets allowed the more attractive markets of rich countries (in particular the United States) to suck in the savings of the less-stable “periphery” markets, generating large current account deficits – that is, we borrowed heavily to spend beyond our means and fuel our prosperity.

This finally catches up to the rich countries. A series of government bail-outs starting in the 1980s coincided with the rise of “market fundamentalism,” the result being broad deregulation of financial markets coupled with a massive, throbbing moral hazard.

Now, the super-bubble has popped, and your average American is screwed. In addition, Soros predicts a prolonged move away from the dollar as a global reserve currency, ending the unlimited line of global credit that the United States has enjoyed over the last 30 years.

The “market fundamentalism” that Soros refers to is the orthodoxy that unregulated financial markets tend toward equilibrium. He places it alongside several other fundamentalist philosophies that ultimately ended badly: communism, national socialism, and  fascism.

He might have a point. We’ll see.

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