The North-South shift occurring in the international market economy has created resurgence in analyzing market cycles, such as Arun Mortianey’s Supercycles: The New Economic Force Transforming Global Markets and Investment Strategy. The desire for more analyses inspired economists to focus on fluctuations in world commodity markets, particularly agriculture. The transformative periods that have defined the contemporary market systems have been rife with boom-bust cycles, and many analysts, including Mortianey, can trace these cycles to the overinvestment and/or overproduction of one sector in a domestic economy; the market’s interest in one aspect if an economy has a destabilizing affect on other sectors.
Many nation-states are in contention with themselves when discussing the reformation of certain policies; a few, powerful individuals remain interested in reinforcing the status quo over the interests of others. This has caused some in the private sector to consider investing or moving into the developing world, touting the global South as a bastion of hope for the beleaguered North. Interest in these nations stems from their laxer tax laws, potential growth prospects (read: younger population), and minimal representation in the global economy. Theories stating the developing world is incapable of handling increased economic expansion effectively (failing to lead to positive returns on investment) has been rebuked by a recent analysis from the London School of Business. In the publication Credit Suisse Global Investment Returns 2010, the study illustrated the “limited correlation between an individual country’s GDP growth rate and the returns to investors”. The primary reason for the result is that the market is not a genuine representation of an economy since numerous companies can flourish while remaining unquoted.
Developing countries are not immune to the boom-bust cycles – as witnessed in the late-1990s Asian financial crisis – since many remain reliant on successes in the developed world. However, the collapse of the developed world has led to the possibility of an economic boom in the global South, which is becoming apparent with increased displacement, credit creation, and strong debt to liability ratios. These three dynamics have prompted the developed world to invest. The rising foreign direct investment has caused numerous trans- and multi-national corporations to broaden their position in the world market, which will inevitably anger individuals at home. Some will demand corporations end the exploitation of developing nation-states for their own gain, while others will insist on a cessation of job exportation; few will deem the shift in interest legitimate or necessary – with good cause.
In either case (exploitation of the global South or the exportation of jobs) the public sector will be blamed by both sides of the political spectrum for either their willing adherence to corporate influence or neutered response to substantive issues. Popular criticism has already begun to shift from where it should be (CEOs) and is being directed, by private influence, toward public sector workers. The transition began in 2010, with the assault against the actions of the Federal Reserve, which has spilled over into 2011 against a completely different ‘adversary’ – public sector unions.
The assault on the Federal Reserve – domestic and international – began, most recently, on 3 November 2010 as it initiated another round of quantitative easing. The Fed was blamed for (among other things) devaluing the dollar, creating bubbles in asset markets, and spurring inflation, though a majority of the criticism has been (similar to the past) driven more by ideology than fact.
Posted in the Wall Street Journal on 18 February 2011 was the following new story :
Federal Reserve Chairman Ben Bernanke offered his most pointed rebuttal yet on Friday to foreign critics who say the U.S. central bank's easy-money policies are causing inflation and asset bubbles abroad. The rest of the world has an interest in the U.S. recovery that his policies are spurring, Mr. Bernanke argued. He added that surging growth in developing economies, spurred in part by their own economic policies, were causing trouble for America.
Shifting monetary policy should always introduce new critiques from those in which the policies are intended to serve; however, most concerns regarding the Fed are shrouded in misinformation and disinformation. The most pervasive criticism against the Federal Reserve is that its actions will fail and spur inflation, which is impossible to occur simultaneously; if inflation did occur it would be because the programs being initiated by the Fed are successful.
Quantitative easing – printing money in order to purchase U.S. Treasury bonds – has been under attack by many individuals that supposedly understand American economic and fiscal policy. This process has been sold to the American people – by politicians and media personalities alike – as disastrous for the nation, even though the easing being initiated parallels the standard monetary policy being implemented during regular, stable financial periods. Because current interest rates are virtually non-existent, the Fed is utilizing the process of quantitative easing to trim down long-term rates by reducing interest rates related to long-term U.S. Treasury bonds. It is not currency manipulation or a step toward hyper-inflation, as charged, but a way to loosen monetary conditions over the medium- and long-term.
For all the ill-will being directed at the Federal Reserve, the quantitative easing initiated last November has been deemed the factor that aided in stabilizing the American market. Long-term U.S. Treasury bonds have rising yields, which is the sign needed to ensure the American economy is headed in the correct direction. The process has allowed the Federal Reserve to underwrite the United States’ economy and stymie fears of deflation. The solutions being put forth by the Fed, such as quantitative easing, may not hold firm for the long-term, though it is a step in the proper direction that will enable the United States to construct a viable medium-term economic plan.