January, 2011 Archives

31
Jan

The Contagion of Popular Discontent

by Riaan Nel in Global Economy

Earlier in January weeks of street protests brought down the government of Tunisian strongman Zine al-Abidine Ben Ali.  Now we have the events in Egypt – a much larger, and politically and economically a more important country than Tunisia.  The political scientist in me asks is there a broader revolution brewing in the Middle East?  Can we see popular uprisings against dictatorial rule spread to other Middle Eastern dictatorships?  Is this akin to the revolutions in 1989 throughout eastern Europe which eventually culminated in the implosion of the Soviet Union?  In short, I think the uprisings in Tunisia and now in Egypt could spread to other dictatorships in the region – let’s call it the “contagion of popular discontent”.  (In economics “contagion” occurs when an economic crisis in one country’s bond or equity markets spreads to other countries which experience the same problem.)  Could this popular discontent with Mideast dictatorships catch on in other countries? 

The economist in me asks what will the effect of such a scenario be on the current fragile global economic recovery?  Destabilization in the Middle East always has negative economic effects because of oil.  Oil is already trading at $92 per barrel, the highest level since October 2008!  A contagion effect of popular uprising throughout the Middle East will significantly increase the price of oil, resulting in a significant drag on our own economic recovery.  Some analysts point out that if oil crosses $140 per barrel our economy is in trouble. 

The investment strategist in me asks what effect will such a scenario have on investment portfolios.   The equity markets are overdo a correction.  This could just be the match on the tinder box. 

Conversely, if there is no broad destabilization of the supply of oil due to what happened in Tunisia, and what is happening in Egypt, then I don’t think the global economy will be impacted too negatively.  The key is if there will be a different kind of “contagion effect” – the contagion of popular discontent spreading throughout the Middle East.  Are we on the brink of a potentially historic revolution?

23
Jan

More Asset Bubbles in the Global Economy – The Register Guard

by Riaan Nel in News

I have an earlier posting about this theme.  However, here is the link to the actual Op-Ed article in The Register Guard: http://www.registerguard.com/csp/cms/sites/web/opinion/25383495-47/dollar-rates-interest-assets-carry.csp

23
Jan

1st Draft of Chapter Two

by Riaan Nel in Graduate Research

I have not yet posted my first draft of Chapter 2 of my thesis.  Here it is.  Please feel free to comment.  It is a theoretical discussion on how to explain the 2008 Global Financial Crisis.  (Some of my friends recently complained about insomnia –  this might be the remedy :) ).  

 Chapter 2:  The Financial Instability Theory – The Theoretical Discussion 

 “A sophisticated, complex, and dynamic financial system such as ours endogenously generates serious destabilizing forces so that serious depressions are natural consequences of noninterventionist capitalism:  finance cannot be left to free markets”  (Minsky, 1986:292)

 

          Hyman Minsky’s research has become a prominent source of reference by commentators, policy makers, and academics in their efforts to explain the 2008 Financial Crisis.  For decades Minsky’s work was outside of the mainstream Economic and Political Economy paradigms.  The 2008 Global Financial Crisis changed this.

          In this chapter I will explain and motivate the use of the Financial Instability Theory (FIT) as an explanatory model for the 2008 Global Financial Crisis.  I will start with a discussion regarding the evolution of Political Economy as a field of study, differentiating Political Economy from Political Science, Economics and International Political Economy (IPE).  I will define the delimitation and limitations of the study by defining my conception of political economy, differentiating between the global political economic system and the national systems of political economy. 

          Finally, I will motivate the use of the FIT as the study’s explanatory framework, and discuss the evolution of the theory – its roots in Keynes’ General Theory, the Post-Keynesian institutional reinterpretation of the General Theory by Minsky, Minsky’s theory of capitalist development, Minsky’s formulation of the Financial Instability Hypothesis, Kindleberger’s expansion of the hypothesis, and the centrality of government policy as a remedy for financial instability.

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