Global Imbalances and Global Financial Turmoils

Dr. Sompop Manarungsan

Faculty of Economics

and Chinese Studies Center

Chulalongkorn University

Bangkok 10330, Thailand

Regrouping of Countries According to Their Economic Structure :

- Collection Economy

- Production - based Economy

- Service - based Economy

- Speculation Economy

Causes of Global Imbalances :

- Expansion of Speculation Economy due to Excessive Money Supply

- US$

- other currencies

- Increases of Speculators

- Types of Speculators

- Hedge Funds

- Mutual Funds- Pension Funds- Private Equity Funds

- Sovereign Wealth Funds

- Investment Banks and Finance

Companies

- Other Fund Managers

- Speculation Activities

- Money Market

- Capital Market

- Commodities Market

- Property

- etc.

Sources of Excessive US Dollar Supply

- US’s Expansionary Monetary Policy

- Reduction of Federal Funds Rate

- Reduction of Discount Rate

- US’s Expansionary Fiscal Policy

- Deficit Budget

- Extremely Low Household Savings in the USA Owing to High Domestic Consumption

- Injection of US$ Supply into Economic Cycle.

- Increases of “Petro Dollar” due to Rising Oil Prices

- Causes of Rising Oil Prices:

- Increasing Oil Demand

- Speculation

- Increases of “Basic-Commodities Dollar” Owing to Rising Basic – Commodities Prices around the Globe

- Huge Increases of Foreign Reserves

- Increases of Property Prices

- Speculative Bubble Boom in Real Estate Sector

- Increasing Roles of Property Funds

- Rising Speculation in the Financial Sector

- Money Market

- Currency market

- Capital Market

- Stock market

- Bond market

Unprecedented Increases of Money Supply, Particularly the US dollar

Quickening International Capital Flows

Rising Global Global Financial

Imbalances Turmoils

Major Causes of Global Excessive US Dollar Supply

1. US’s Expansionary Monetary Policy

2. US’s Expansionary Fiscal Policy

3. US’s Speculative Bubble Expansion

- Property Sector

Causing “Subprime Crisis”

Triggering Speculation in :

- Basic Commodities Market

- Energy Market

- Money Market

- Capital Market

- Others

China’s Roles to Rebalance the Global Economy

- China’s Domestic Demand

- China’s Internal Economic Development

- China’s Roles as the Center of Global Supply Chain

Decoupling of World’s Real sector Economy From the US Economy:

- Less Dependent on US’s Imports

- Less Dependent on US’s Exports

Less Dependent to US Dollar