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POL208Y1 (500)
Lecture

POL208.JAN18.docx

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Department
Political Science
Course
POL208Y1
Professor
Jean- Yves Haine
Semester
Fall

Description
INTERNATIONAL POLITICAL ECONOMY - Financial meltdown of 2008 o A bubble burst o 2006 economic output of the world 48.5 trillion, same year capitalization of stock markets was 50 trillion dollars...5% larger, total value of domestic bond was 68 trillion dollars, 40% larger than world economic output; planet finance was bigger than planet worth o Since 80s new financial instruments were created, most of these financial instruments were unregulated, in early 90s attempts were made to regulate that type of market o Financial world was taking an even bigger place in western economy, 1947 total value of financial sector to usa gdp was 2%, in 2007 it had became 8.5%...financial market multiplied by 4 in regard to us gdp o 2007 housing gdp burst, everyone should be/could be homeowners was the mantra during that time, loans were cheap and the system was geared to a framework where actual value were you buying didn’t matter, because loans were cheap, everyone could borrow money and the only hope was based on the rise of the other market...when people started not paying payments the us housing market exploded o Led to chain reaction, all kind of securities summed in values, banks balance sheets were affected...banks were looking for liquidity when Lehman brothers broke the entire market was fearful that money stopped to flow and banks stop lending money to each others, therefore small businesses couldn’t borrow money, all the local banks even in Germany, France, south America they found themselves lacking liquidity, in some cases some banking industries the banking system broke down (Iceland) o Collapse of financial factor quickly spread, world trade decreased...what happens in one market affects others, interdependence - Globalization; process by which production and market in different countries are becoming increasingly interdependent because of dynamics of trade of goods and services and flows of capital and technology, on top of that process it is also the increase of transnational corporations it crucial element of globalization - Lower transportation costs, travelling around the world is cheap, communication costs has also decrease reflects globalization - Financial meltdown shows how interdependent we are - Poverty is not the result of financial bankers exporting ignorance, poverty has much more to do with lack of financial intuitions, financial system reflects and magnifies what human beings are i.e. social animals with bounded rationality and high emotions, globalization even with its “dark side” has improved lives...China has stopped poverty in less than 2 decades - The financial crisis 2008 shown the limits and borders of states in the world economy, one end the crisis has demonstrated that economic policies from a state may affect capitals, reinforce the role of the state as a lender of last resort, bailout as regulator of economic behaviour, fiscal manager, it has reinforced the role of the state as the ultimate printer of money and guarantee money supply, emphasis the need for international cooperation’s, one of the key consequence of financial crisis has shown the necessity to move to a G20 intuition instead of G7, we are not immune from the world of finance - China has attempted to shape the rules of the game in its own way, notably by having the definition of copyrights and trying to play with the value of its currency - Modern states need to answer to financial sector - The first modern cooperation as we know it was invented in Netherlands in 1602, United East India Company, first time this company offered stocks of limited liability, absolutely crucial development, this company was government sponsored enterprise, monopoly on all trades...that system of shares, i.e. stock w/ limited liability allowed the company to raise an enormous amount of money...first system of limited liability stocks help developed the first stock market...investors who wanted to have their investments back had to sell their shares, people interested in this transaction started to gather on the street and in 1608 the city decided to build a stock market whereby people can trade that paper, since the stock market cannot function without financial system, Dutch banks started accepting shares to lend money...start of the modern capitalistic economy - Regime of free capitalization intertwined with state power - With development with free capitalism, the first bubble appeared in France 2 decades later, the bubble affected financial institutions - Toward the 17,18 century, expansion of trade fuelled by development of overseas empires and constant wars among European powers, every monarch in Europe had its own banker to finance wars and conflicts - Economic globalization was intertwined with mercantilist policies - Mercantilism developed as a set of practices geared toward increasing state military powers, accumulation of gold and silver for financial war, economic activities where every sponsors subsidies constraints by state power...eventually restricted trade by setting up monopolies with colonial power, international payment th became more and more power, mercantilist policies were challenged by liberal economic theorists like Adam Smith, Ricardo, by 19 century mercantilist style was starting to diminished, technology notably transportation and communication fuelled development of commerce, UK was the first to dismantle mercantilist ways, by th end of 19 century what we know today as globalization was a reality throughout Europe, Atlantic and South - In 1913 after half of the volume of trade was between English nations and the South, trade consisted mostly
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