Special
Report: Global Financial
Crisis
BEIJING, Jan. 20 -- Along with drastic tax
reductions, almost all nations have resorted to an expansive fiscal and a loose
financial policy over the past four months to tackle the global financial crisis
that broke out in the U.S.. However, the global economic situation has not
turned better as expected and the crisis continues to exert a deepening impact
on the global economy. Thus, it is particularly important at this time that all
countries should reach an extensive consensus on the cause of the ongoing
financial tsunami and then gauge their macroeconomic policies. It is regrettable
to see a responsibility-evading attitude from the United States, the epicenter
of the global financial crisis.
U.S. Treasury Secretary Henry Paulson recently
accused China and other emerging economies of kindling the global crisis, saying
that their long-term high bank deposits have caused a serious imbalance in the
global economy. Federal Reserve Chairman Ben Bernanke even attributed the bubble
in the US property market to China's high saving ratio.
From a financial and economic perspective, the
ongoing financial crisis is a combination of securities and banking problems in
the U.S.. After the outbreak of the U.S. subprime mortgage crisis in August
2007, the securities market in the world's largest economy got stuck in a
disorder and its stock- and bond-dependent financing means came to standstill.
The New York Stock Exchange did not issue new stocks for 10 consecutive weeks.
Since last October, the number of new shares issued
in the bourses of Frankfurt, London, Paris and Tokyo has also suffered a drastic
decline. As a result, funds-thirsty enterprises are deprived of financing
channels, which hindered their new business development and expansion plans.
Also, no country can find new growth points to bolster its economy. That is why
the global economy is still in slump even four months since the outbreak of the
financial crisis.
The 10-year-long vigor the U.S. economy enjoyed in
the 1990s should be attributed to the large-scale inflow of global funds to the
largest economy. The "Star Wars" program launched by the Reagan administration
in the 1980s greatly boosted the development of new technologies in the U.S.,
thus attracting large volumes of worldwide funds in pursuit of profit-yielding
technological dividends.
Such kinds of capital movement have helped form a
global capital circulation with New York as the center and dollar as the main
currency. Also, since the "Big Bang" in the British financial system, Washington
has replaced London as the dominant player in leading the financial
globalization and liberalization process and then succeeded in developing New
York into the center of global capital and fund concentration.
The large-scale inflow of international capital
greatly beefed up U.S. capital capability and thus contributed to the formation
of the country's dominant status in the global capital market.
However, things changed after mid-2000. With the
complete release of its information technologies in the previous years,
technological innovation in the U.S. suffered a decline together with a fall in
capital draw level. Since then, Japan's new-generation key technologies
represented by digital electrical home appliances, LCD screens, semiconductor
devices, IPV6 and wireless network technologies have experienced a boom and have
become a new destination for global funds.
Also, the September 11 terrorist attacks in 2001
exposed the investment in US homeland to new risks. The Bush administration's
anti-terror strategy caused oil-rich nations to find other havens beyond the
U.S. for investment. Also, some emerging economies chose to flow their funds to
the United State via the European banking system, thus reducing U.S. capital
profit. There is no doubt that all these new developments have contributed to
the discounting of the value of the New York investment.
Since the euro zone became a reality, unprecedented
changes have taken place to challenge the Japan-U.S.-Europe financial
configuration. The US-dominated global fund circulation structure has been
rocked to the bottom. The U.S. allies' changed financial policies in the
European nations and Japan have played an inestimable role in fueling the
outbreak of the global financial crisis.
The U.S. financial crisis lies in its ill-conceived
financial capital mode and was directly ignited by the burst of the bubble in
its housing market. The busting of its property bubble also helped trigger
anther inflated bubble in the consumption market.
It is well known that the U.S. economy has long been
driven by robust consumption and even by individual and government overspending.
Individual consumption accounts for 70 percent of the country's gross domestic
product. In the wake of the collapse of the IT bubble, the Greenspan-led Federal
Reserve took interest rates to a declining tunnel, thus helping push up housing
prices. Rising housing prices and declining rates attracted huge funds to the
property market and helped produce among people a sense that their assets were
growing. This sense further stimulated people's consumption, burying the new
seeds for the consumption bubble.
The busting of the current housing bubble also
triggered the bursting of the consumption bubble. In the face of a gloomy
economic prospect, the American people, long used to lavish lifestyles, began to
tighten their purse strings and curtail individual consumption, dragging down
global economic recovery and growth.
The lack of strong consumption together with a
defective crediting system, has rocked the foundation of the market economy and
now threatens to have a far-reaching impact on the global economy.
The author is a researcher with the China Institutes
of Contemporary International Relations
(Source: China Daily)
