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Understanding the Economy: Part 2: The Rise of the Global Economy from WWII

By: Steve Johnson

1/23/2009 - 14 Comments

This is a summary of part 2 of a six-part class that I’m teaching at my local church.

As mentioned in my 2009 goals, I’m going to begin public speaking and have decided to start by teaching a six-part class at my local church titled “Understanding the Economy”.

The class is on Monday nights and the second class was on Monday night. To share this class with my readers, I’m writing a article after each class to summarizing the class.  

Introduction 

This six-part class is not just about the economy from an economist’s point of view, but from a Christian worldview with a prophetic understanding that we are living in the last days before the return of Jesus.

The primary theme of this class is to help people understand that the global economic crisis is part of Gods plan and He is in complete control. He will sustain us. We shouldn’t panic, and instead should get ready to help many people - the Church will need a tremendous response.

The title of the class was; Part 2: “The Rise of the Global Economy, from WWII”

The Class

I broke this topic into three periods of time, much of this is a summary of a series of article that I wrote last year.

Period 1: 1945-2006
Period 2: 2006-2010/2012
Period 3: 2012 -beyond

Period 1: 1945-2006

I talked about how the major push for globalization started after WWII, because world leaders were determined to not allow any single nation to form an extreme form of nationalism like Hitler had created by forming economic partnerships between nations. 

The idea was to create trade agreements to couple together the economies of independent nations – which increased GDP in exchange for lowering the risk of war, because a nation is much less likely to go to war with another nation whom their economy depends upon.

This movement led many nations into ‘free trade’ agreements and reduced trade tariffs with neighboring nations. NAFTA, the biggest ‘free trade’ treaty was signed by President Clinton and came into law in 1994.

The complexity and history of policy changes and trade agreements which have coupled together the economies of the world over the last 60 years cannot be quickly undone.

And there is really no going back. To reverse economic globalization, tariffs would have to be put into place to block free trade between nations – which would result in a major recession for each nation that could no longer export products they build or import the many products they consume at very low prices. If tariffs are increased, we could see trade and currency wars, compounding the problem.  This is why President Bush was always so against protectionist ideas – they compound the problem.

In the last 10 years, globalization expanded very fast, because of the advancements of computers and the digital integration of financial markets, enabling money to move around the world much faster.

Along the way, major financial banks around the world lowered their standards for evaluating risk when evaluating loans from other nations, because of their trust for each other which was established with free trade agreements.
When a loan was sold several times across several nations, the financial institutions no longer had any reference to determining the risk of the loan. All they had was a security institution from another nation rating the risk of the loan. 

The US government supported rating agency S&P rated sub-prime mortgages AAA+ and banks all over the world bought them. If the rating was wrong, the loan was worthless – and as it turns out, a lot of ratings were wrong.  So the risk of bad loans was spread across the financial institutions of the world and many foreign banks lose a lot of money. 

The globalization process of ‘free trade’ agreements like NAFTA changed the economy of America from a once-proud exporting nation, to the world’s biggest importer – as a large part of our manufacturing sector moved to other nations with lower paying workers in China and India.  In only 15 years, from 1992 to 2007, the US balance of trade deficit surged from $84 billion to $700 billion.

Globalization has been the biggest factor in the last decade of increase in productivity and growth around the world and the financial benefits have all been consumed.

Period 2: 2006-2010/2012

Globalization will likely continue as adjustments are made for the losses due to over trusting rating agencies of other nations.  Nations that have suffered during the learning curve will need to eat their losses and create new policies to strengthen their currency, education and ultimately their production.

America is likely to suffer the most, as its standard of living and currency is reduced to its level of production.

Period 3: 2012 - beyond

In an effort to recover from the global financial meltdown, world leaders will likely try to reduce the number of currencies in the world because reducing the number of currencies will provide several critical benefits.
Globalization has pushed many large companies to become international, like John Deere, Dell, Sony, Honda, GMC, etc.

Currency fluctuation will be a major problem as investor’s panic they will move large amounts of money between currencies - which will cause many problems for international organizations that need to sell their products and purchase their supplies at predictable prices. (This is already happening in the UK and Russia)

Without predictable prices from stable currency values, millions of jobs will be at risk, because large international organizations are the largest employers in the world.  To reduce these risks, a global financial authority is needed. The establishment of a global financial authority will need at least the following authorities to oversee and global financial system.

  • Become the global regulatory authority over all national authorities – so that all banks have to follow the same regulations.
  • Become the global rating agency to rate the risk of assets sold throughout the world – so that one nations rating agency does not lie about the risks of assets within its nation as happen with the US mortgage meltdown.
  • Become the global interest rate regulators over all national authorities – so that one nation cannot rob the world by increasing the availability of their currency.
  • Become the global authority of currency supply management over all national authorities – so that one nation cannot rob the world by increasing their supply of money by printing more of it.

Of course, no sovereign nation would want to give up the power to manage their financial banking system without a fight.  But, as the global financial crisis unfolds over the next few years, many nations may find themselves in a very difficult situation which may lead them to agree to the terms of a global monetary authority – in exchange for a pegged currency or some other provision to stabilize their financial crisis and save them from national bankruptcy.

A global financial system is likely to be established, leading to the introduction of a single global currency at some point in the future.

Class Organization

As I mentioned in Part 1, I had 18 slides to get through.  I knew I wouldn’t be able to get through all 18 slides that I had prepared, so I skipped over slides 2-10, which reduced the number of slides to 10.  I still covered the content on the skipped slides, but just didn’t have the added distraction of flipping through 18 slides and expecting the students to follow along and be able to listen to me.  I also included all 18 slides in the class handouts so that the students could review all the information that I covered.

This strategy worked very well and allowed me to get through the material within the one hour time frame.  The class was fun and the students had lots of questions, which led to good discussions.

I also felt much more comfortable and relaxed compared to the first class.  The flow was better and I was not as nervous.  This is a great class to practice on and improve my speaking skills.  I also started reading a few books on public speaking and next week I’m going to experiment with a few things I have learned.

 

Previous article: Part 1: God has a strategy for establishing His kingdom on Earth

Next article: Part 3: America Must Fade from prominence as a superpower (Prophetic)

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