Global Imbalances, Financial Sphere and the World Economic Crisis

Abstract

The recent global financial crisis, although initially manifested itself in the field of mortgages in the USA, spread to the international banking system and the stock markets, led to the introduction (mainly by governments of strong economies) of monetary measures, had serious implications on the "real economy" and finally led both the decision-making of economic policies (particularly of European countries) and the theoretical understanding of the whole phenomenon into an impasse. This specific description of events does not, however, necessarily mean that there is also a similar coherence in the theoretical interpretation of the crisis, despite the fact that such an approach became dominant, even among academics. As a first step, we attempt to analyse the arguments of the prevailing theoretical foundations of globalization which could explain the recent crisis. Our conviction is that modern international economic reality cannot be successfully interpreted with the help of traditional economic theory; whether it is Ricardian analysis, the later neoliberal HOS approach, or the more recent dynamic models of the advantages of international trade. On the contrary, we could find useful assistance in the Keynesian principles. Observing the empirical findings concerning the world economic crisis of 2007, we are in a position to claim that the causes of this systemic crisis are in the area of the "real economy", as it has been shaped during the last three decades, where national economies affect one another in an environment characterized by the process of growing globalization. The two main aspects of the present stage of globalization -that is, on the one hand, the network organization of firms at a global level, and, on the other, the gradual autonomization of the financial sector are not in a position anymore to interpret the hypotheses upon which the normative theory of international trade is based. According to that logic, as a second step, we proceed with an analysis of the features and dimensions of the financial sphere as well as of the macroeconomic imbalances of the globalized "real economy", seeking to establish the relationship between them and the global economic crisis. This approach permits us to assert that despite the excesses or the omissions of economic policies that could be viewed as contributing factors to the eruption of the crisis, the main cause lies in the way the process of globalization is materialized.