The "Globalization Process" as we know from early 1980s had self-destructed in the "Great Recession of 2008 - 2009". The wholesale collapse of the financial system is only the most visible symptom of the self-destruction. The overleverage of both financial institutions and consumers was not the root cause of the collapse, but a logical consequence of the structure of the "Globalization Process" itself. After the self-destruction of the process, The Federal Reserve has created a wanton amount of fiat money, trying to put a scaffold underneath the collapsed financial system to prolong its life. Thus the economy has entered a new phase. Now is an opportune time to review the rise, the maturity and the self-destruction of the "Globalization Process of Yesterday" to equip ourselves with the essential knowledge to analyze the evolution of the new economic phase.
The "Globalization Process of Yesterday" was built on three pillars, two visible and one hidden. The first visible pillar is to slash tariff and non-tariff barriers in order to allow substantially freer movement of goods across the national boundaries. This pillar, on surface, looks like to allow the goods made in low production cost areas to dominate the global market and forces the manufacturing activities in the places with sustained high production costs to extinct.
The second visible pillar is to make the movement of capital across national boundaries easier. This second pillar supposes to augment the first visible pillar and make the low production cost countries to dominate the manufacturing area more complete and swift. To see the reason of the above statement, let us consider a developing country with an abundant low cost and underemployed labor source, and a backward government that allows wanton environmental pollusions. The production costs of goods in this developing countries will be certainly very low compared to developed countries. However, due to the lack of capital and knowhow, the potential of producing low cost goods in the country will not be utilized. If the capital from developed countries, following the second visible pillar, is allowed to move into the developing country to set up factories and bringing along the manufacturing knowhow, the developing country will be quickly turned into "the factory of the world".
Many may think that with two visible pillars, as discussed above, installed, The U. S. will have a sustained runaway trade deficit, but that is a wrong perspective. The reason of the error is that those people are forgetting about the existence of the free currency market. The free currency market has a vigilante mechanism built in to nullify any significant trade imbalance. The currency of a trade-deficit country will be pushed down, and the currency of a trade-surplus country will be pushed up until the trade imbalance disappears. Thus, in order to have a sustained trade imbalance, the vigilante mechanism of the free currency market must be nullified, that is, the currency market manipulation must be allowed to hold down the currency of the trade-surplus countries. Through this process, The U. S. will be certain to run huge and sustained trade deficit. Since this rule to allow currency market manipulation does not need to be written explicitly, but exist by default, it is hidden from the eyes of the public. That is why we call the design to allow currency market manipulations as the "hidden" third pillar of the "Globalization Process of Yesterday".
To understand how important this third hidden pillar of allowing currency market manipulation is to the "Globalization Process of Yesterday", we will see what happens if currency market manipulation is explicitly forbidden. Let us take China as an example. Through the second pillar of allowing freer movement of capitals, capitals designed to sell goods directly to Chinese populace must also be allowed into China alongside with the capitals that will convert China into "the factory of the world". As the result, many inefficient nationally owned Chinese businesses are wiped out and many workers lose their jobs. On the other hand the prohibition of currency market manipulation will quickly nullify the advantage of China's low cost production, since the free currency market will quickly push up Chinese currency vs. U. S. Dollar. Under such a condition, not many foreign capital will move in to turn China into "the factory of the world". Thus China will be in a lose-lose situation by joining the "Globalization Process of Yesterday". This means China will not join the "Globalization Process" in the first place. Many countries will be in the similar situation as China, so the "Globalization Process of Yesterday would not have taken place without this third hidden pillar that allows currency manipulations.
Some may argue that The U. S. has passed a law to designate important currency manipulation countries as "currency manipulators". But this law is passed after the game of the "Globalization Process of Yesterday" had started, without the consent of other participating countries. The successive U. S. Administrations know very well if they forcefully forbid currency market manipulations, other countries will retaliate and the "Globalization Process of Yesterday" will quickly disintegrate. However, it is the inaction of The U. S. that had allowed the runaway trade deficit to accumulate and eventually led to the self-destruction of the "Globalization Process of Yesterday".
Since the hidden third pillar of allowing currency market manipulations is so important to the "Globalization Process of Yesterday", we start our review in the next section, Section 2, about the free currency market, its vigilante power to curb the runaway trade imbalance, and various currency market manipulation plots to nullify the vigilante power of the free currency market. Readers will learn that besides the straightforward currency market manipulation plot used by China and other newly industrialized countries, there are two other currency market manipulation plots engaged by Japan and Germany respectively.
After the discussion of the currency market manipulations in Section 2, readers probably will be impatient to know why the "Globalization Process of Yesterday" is designed to let The U. S. have the runaway trade deficit. To answer this question, we shift the question somewhat in Section 3, and ask who will benefit from the runaway U. S. trade deficit. Apparently the designers tailor-made the "Globalization Process of Yesterday" for the interest of those special groups.
Once the motivations of letting The U. S. to have the runaway trade deficit become clear, in Section 4 we discuss the logical consequence of the runaway U. S. trade deficit. Many readers probably will be surprised to discover that many factors thought to be responsible for the 2008 - 2009 crash were actually the logical consequences of the runaway U. S. trade deficit.
Section 5 deals with the indepth study of why and how the runaway U. S. trade deficit has inevitably led to the self-destruction of the "Globalization Process of Yesterday". In Section 6 we turn to the more practical side by showing a simple way to explain and foretell the bursts of major bubbles once we focus on the runaway U. S trade deficit.
With our detailed understanding about the structure and the destiny of the "Globalization Process of Yesterday" through Section 2 to Section 6, our attention turns to the actual evolution of the "Globalization Process of Yesterday". Through the globalization era, there had been three bubbles and their bursts. The last burst was the crash of 2008 - 2009 that ended the "Globalization Process of Yesterday". Those three bubbles are called, "Reagan's Junk Bond Bubble", Clinton's "Dot-com Bubble", and Bush's "Mortgage and Housing Bubble" respectively. The major events of each bubble era are discussed in the chronological order in Sections 7, 8 and 9 respectively.
The last section, Section 10, is reserved for the discussion about the new economic phase after the self-destruction of the "Globalization Process of Yesterday".
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