The Global Financial Crisis is an event that has been floated around for a while know but there is a great number of people who do not understand the topic. This article will focus on giving you a basic understanding of some key aspects and might encourage you to do further or at the very least be able to understand and perhaps contribute to conversations in regards to it.
Why does America have such a huge effect on the rest of the world?
This conversation crosses a wide spectrum of topics from finance, culture, technology, media and politics, and to cover them in any real efficient detail would require thesis papers from academic areas such as finance/commerce, sociology, psychology, IT, Political studies, science, engineering to name a few.
To put it simply America is a young country in the scheme of things, and they were able to improve upon the ideals and systems of the European or ‘old world’ nations which in themselves were built upon the progress of the various empires throughout history, Rome, Greece, The Mongols, an Egypt. With their distancing themselves from England they were able to create a new identity for themselves, and the fact that they were able to defeat the British Empire at this time, instantly placed them in a position of power within the new world order.
The Americas compared to Britain were rich in resources, and now had a powerful economic tool in both the slave trade, and child labour through factories; both facts that other emerging countries have noted about progress. If people were to look at America’s progress throughout time, we see that they had less restrictions on how they could push their economy, and thus make America the economic powerhouse that it still holds today. When compared to emerging nations like India and China, they are now having more UN sanctions and Humanity demands placed upon them, which is progress for the Human condition, and rights, but it has to be noted it seems a little ironic that America can gain benefits and then demand that others can not use the same- even if it is morally and humanely wrong- system.
World War 2 came around and it you learnt your history from Hollywood you might be surprised to learn that America was actually a late entry, preferring to trade with both sides of the battle. They did not feel any threat from the Axis powers. This is not to say that there were not a select few who understood the ramifications of the war, and that America should not be profiting through their beloved free trade system and sitting on the sideline. It was not until Pearl Harbour that America decided to really become fully involved in the war. A famous quote in regards to Japan causing America to engage in the war, that they have ‘awoken a sleeping giant’, a similar phrase has recently been stated about China.
America had a lot of economic power and resources to back up their technology, and they gave the Allies a much needed boost. America then ended the war with the bombing of Hirosoma and Nagasaki, and so reaffirmed their position as the dominant superpower.
Of course there was another possible superpower and America took the view that from the East was the evil, the Soviet Union. Thus the Cold War emerged where these two titanic nations engaged in chest beating, comparing of toys, and name calling, whilst getting other usually developing nations to fight out their battles for them. America with capitalism was following the free market where capitalism and the dollar were the engines, and the wheels that were used to keep this going were the concept of the American Dream and that anybody could obtain success- ‘The Land of Opportunity‘.
America through free trade and through their vast output of cultural media made their actions clear to others, whereas the ‘Iron Curtain’ of the Soviet Union created a position where all the world could do is guess and speculate about the wonders, and what few items that were released- I’m guessing they were picky about what they showed- suggested that they were always a step in front of the Americans. This lead to further increases in arms and of course trading to get resources to make arms, a nice little circle. Of course we know now that what we though about the Soviet Union was not in fact reality for the common man, and through this battle of wits and waste of resources to obtain nothing really in the end, caused the Soviet Union to collapse.
Without their major nemesis the Americans were able to keep their progress going and impose their imperial ideology through their trade deals, and because they were the major exporter of culture- film, music, literature, the whole world was already thinking in a similar fashion and hey who wouldn’t want to be like America? Of course this has also caused America to have a few enemies, which dislike various aspects of America’s foreign policy, and their at times selfish and arrogant behaviour. America at times does not agree with the UN decisions, and you have to wonder why UK Prime Minister Tony Blair received trouble regarding his contribution to the War in Iraq, whilst President of the USA, George W Bush did not. Because of their domineering position the rest of the world has taken their cues on many major institutions, such as Business, and of course finance. Thus when the GFC occurred and rocked the US economy it was nearly instantaneously felt within the stock market, and then more gradually in the actual economy- where people order and trade resources and stock, and from this area the vast majority of jobs were lost. Globalisation has many benefits but this was not one of them, thus what normally would have been a more reduced instance was felt worldwide within a few months.
But if America was the cause why do we still use them as our basis?
Well the G20 meeting in London in 2009 is actually being sited as the start of a new world order. The G20 Summit is a group of 19 nation’s finance ministers, central bank governors and the European Union and was started in 1999, who come together to discuss financial problems and global economic governance. As like most of these meetings there were groups advocating for free markets- because you know its not like that led us into this- and others who wanted the State to greater intervention- and no the State is not like the ‘Man’, it means that the Government would have greater control over the system- this limit’s the possibility of growth sure because you have more prying eyes, and people that you have to past ideas through, but in the end some nations including the USA needed to change the way they would handle the situation.Luckily the USA had President Obama, a much more collaborative Diplomat compared to the more dictating style of Bush Jr, and this allowed for the group to power forward.
The G20 Decided that they were going to create a new Financial Stability Board that would unite National Regulators with the IMF to provide more efficient early warning systems, and placed more money into the IMF so that nations in trouble would be able to borrow money to help them. Also it was decided that more emerging nations would be given a say on how the IMF would implement the money, and how the Global Economy will deal with the GFC. Hence instead of using America as the focal point of Global Finance, the new world order will sort of function as an external body- similar to the UN, and the IMF that works for the Global betterment. Because they are separate from a single country they are able to react more quickly than a single nation because they are less tied to communicating with the wide variety of departments, pushing bills and policy through houses, and the minefield of politics in quite the same degree. This however does not mean that the world is out of the metaphorical woods, because those same International Bodies have been criticised for acting with the same ideology of the USA or UK and not Global, or have been implementing items that benefit the developed and only impose on the developing, or even using outdated methods for evaluation. This is probably why there has not been much noticeable change for the everyman.
Another major reason why we still use America as our global financial base is because a lot of different nations have invested money or resources in American Dollars. Because a large portion of some nation’s GDP comes from their investment in American facilities or banks, or resources, it is in their best financial interest to try to keep the American Dollar strong, so that they in themselves are not financially hurt, so holding the other nations to ransom. This creates a paradox of where you are trading in a Currency to make it stronger, so that you can retain a profit whereas usually you would be trading in a currency that is already (or if your crafty about to become strong) so that you gain profits. For example quite a few countries are investing in Australian currency because they see it as a backdoor into investing with the Rising Dragon, China- Australia has a strong economic and trading deals with China, and thus if you invest in the Australian currency which is then fed into China, they can gain benefits.
It might seem a little off putting for those who do not know about banks, but they are nothing like Scrooge McDuck with the vast vaults of money. In fact most banks are investors, hence your money is invested into the stock market, the currency market, the commodity market (the trading of resources such as oil, gold, tin, beef) and banks perform best when they are all interlinked through trading and borrowing between each other. However when the GFC hit banks, like all businesses needed liquidity- translation: Cash. But how are they going to get the cash if they cannot borrow from another bank? This is one of the major reasons that banks or financial institutions of various sizes were in trouble. To make it appear to other institutions and to the public that they were still strong, or in some cases, just not weak banks tended to save. But if the banks are loaning, then other banks, businesses (both large and small) and individuals (including couples) caused a lot of people and businesses to do it hard- or fail, not necessarily through bad business practice but through the need of business for credit to grow and prosper.
But then you have Governments trying to get people to spend, so that the economy would be better. A good example of this for the Australians is when Kevin Rudd gave out the $900 stimulus package to people- did you spend it? Really, you went out and spent all of your $900? Right (Oh by the way when dealing with individuals the paradox is referred to as the Paradox of thrift). Banks did not want to loan because they thought they would fail, but this then made people start to think that banks as a whole would fail- which then lead to the much criticised bail out of the banks. Perhaps the banks will start to save more now, or maybe if we wish hard enough the money back that we paid them.
So in the end America is still important but they are no longer the Giant who could dictate to other countries, they are starting to come into the fold of a new world order, where more countries have a say in finance, and hopefully this will mean that there will be less situations like the GFC in the future.
