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The World is Curved

〜 Hidden dangers to the global economy 〜

Cat: ECO
Pub: 2008

David M. Smick


The World is Curved


  1. Prologue
  2. The end of the world:
  3. A dangerous ocean of money:
  4. Enterpreneurs in a world of private equity and hedge fund troublemakers:
  5. Tony Sprano rides the Chinese dragon:
  6. Japanese housewivees take the Commanding Heights:
  7. Nothing stays the same: the 1992 Sterling crisis:
  8. The incredible shrinking central banks:
  9. Class warfare and the politics of globalization:
  10. Surviving and prospering in this age of volatility:
  1. 序文:
  2. 世界の終わり:
  3. 金融の危険な海:
  4. 個人株主とヘッドファンドの中の企業家:
  5. 中国龍に乗ったトニー・を占めた:
  6. 日本の主婦が管制高地を占拠:
  7. 同じではない1992年のポンド危機:
  8. 驚くほど縮小する中央銀行:
  9. 階級闘争とグローバリゼーションの政治:
  10. 不安定な時代における生存と反映:
; Bottom 50%; Bubble economy; Commanding heights; Deflationary spiral; Export-dependent; FRB; German unification; Global long-term securities; Great Credit Crisis; Human capital; JGB; Knowledge capital; Market volatility; Middle 40%; Productivity revolution; Rapid-aging Japanese society; Securitization; Ugly decade; Under-consuming;

>Top 0. Prologue:

  • Tom Friedman's best seller "The World is Flat" describes globalization as it is, with concentration on the global supply chain for goods and services.
  • From the perspective of the financial markets, the world is not flat. Financial markets have been plagued by uncertain and incomplete information - a lack of transparency.
    • The playing field is bigger, the stakes are higher, and the system, because of its size and complexity, is unbelievably fragile.
  • 1870-1914: Today's world economy bears a striking resemblance to the integrated markets and overwhelming prosperity of the period; John Maynard Keynes described as an extraordinary episode in the economic progress of man.

0. 要旨:

  • "フラットな世界"フラットな世界"は財やサービスのサプライチェインを描いた。
  • しかし金融分野は"フラットな世界"ではない。
  • 現在は、1870-1914の世界経済の時期に酷似。

>Top 1. The End of the World:

  • 2007/8/10:
    • The industrialized world was facing a full-fledged liquidity crisis, the Great Credit Crisis of 2007-2008.
      • In a flash, the world's banks and financial institutions had stopped making loans.
      • The global financial system was slip sliding away. It was as if the body's blood had stopped pumping.
    • Within days the crisis had spread to the commercial paper market, long considered on e of the safest investment.
      • the very foundation of the financial system faced a crisis of confidence.
      • The Federal Reserve responded by injecting $19B into the banking system to keep it afloat. This followed the previous day's Fed injection of $24B.
      • European Central Bank injected a whopping €240B.
      • The Dow continued to plummet - first by 207 points, then 167 the next day, then by 280 less than a week later.
  • 1980-2008:
    • global financial assets jumped from $12T to $140T.
    • in 1975:
      • 25% of 147 countries were considered democracies.
      • 2008; the figure is 58%.
  • Global economy:
    • post 1980s period: the golden age of poverty reduction, declining 20%.
    • after 25 years of dramatic economic performance, we still do not know all of globalization.
    • every 3 months, 7-8M US jobs disappear and roughly an equal or greater number are created.
    • large corporations are forever threatened with obsolescence by a risk-taking venturesome entrepreneurs.
  • Since 1995:
    • $6.5T foreign capital has flowed into US; which is $1.7T more than the trade deficit for this period. ($43B in 2017)
    • US economy will depend on foreign investment.
    • US needs to reduce its budget deficits and dependence on foreign oil; other countries need to stimulate domestic demand and rely less on exports.

1. 世界の終焉:

  • 2007/8/10: リーマンショック
    • 危機の急速な拡大
    • FR: $19B+24B注入
    • ECB: €240B注入


  • 1980-2008:
    • 世界の資産増加: $12T→$140T



  • 世界経済:
    • 貧困減少: 20%
    • 3ヵ月毎のに7-8M仕事交代


  • 1995年以降

>Top 2. A Dangerous ocean of Money:

2. 金融の危険な海:

>Top 3. Enterpreneurs in a world of private equity and hedge fund troublemakers:

3. 個人株主とヘッジファンドの中の企業家:

>Top 4. Tony Sprano rides the Chinese dragon:

4. 中国龍に乗ったトニー・スプラノ:

>Top 5. Japanese housewives take the Commanding Heights:

  • In mid-1980s, Japan was fully expected to own 21C:
    • Japanese interest rates are far lower than the rates throughout the rest world, global investors borrow huge amounts of capital from Japanese financial institutions to invest globally.
    • What happens when a financial bubble burst, when price level actually drop too low, and when central bankers become powerless to come to the rescue.
    • How Japan's big corporations almost alone have benefited big time from this deflationary, low interest rate period.
      • Successful megafirms represent half of the stock market.
      • The market itself reflects only 10%; the other 90%, the neglected part not reflected in stock market valuations.
  • >Top In Japan, the yen exchange rate is a driving force in everyday life.
    • The Plaza Accord to allow the dollar to weaken to reduce global trade friction with US. The yen jumped from254 in Jan. 1985 to127 by late 1990.
    • The bubble economy: from 1986 to 1989, supercharged Japan purchases Rockefeller Center in NY. The Emperor's Palace was worth more than the real estate value of the entire state of Californio.
    • Nikkei stock index nearly hit 39000 yen high mark.
    • Nosedive by too little too late policy: By 1987, the short-term interest rate had been dropped to 2.5%. By 1989, it raised to 6%.
    • Liquidity trap: Interest rates are so low that bonds and cash are virtually interchangeable. Thus the central bank is unable to expand liquidity by buying bonds.
    • >Top Deflationary spiral: during the lost decade, relative prices dropped by 25% compared to US.
      • Ever worse, the central bank lost its ability to affect long term interest rates. Long term interest rates had been 7.5% in 1990; which dropped below 1% by 1990. BOJ had no choice but to cut its overnight interest rate to 0%,
      • By the late 1990s, Japan's zero interest rate policy also allowed the large banks to start to clean up their disastrous balance sheets.
      • >Top Then the banks took those deposits and bought risk free JG debt (JGB) 1.5-2% higher than the interest paid to savers.
      • In Japan, an aging, high-saving country, a lot of people traditionally have deepened on savings account returns to supplement their income. Household interest income from saving accounts, ¥39T in 1991, plummeted to a mere ¥3T by 2005.
      • >Top 2005-2006: the bottom 50% of Japanese actually saw their incomes drop. The middle 40% experience flat annual income.
      • Here's where the housewives come into play. The housewife has assumed the role of financial matriarch; began to find for a greater return on their savings; found more robust returns in foreign bonds and other overseas investments; today 1/5 of all currency traders worldwide, are Japanese private individuals, many of them women.
      • Tokyo became the last resort for a Western financial system desperate for liquidity.
  • >Top In Japan, there is something unnatural about the market volatility of a liberalized financial system. Bureaucrats are bred to prohibit failure; who don't know how to deal with the entrepreneurial uncertainty and failure that are essential to economic success.
    • Japanese-style market economy culturally has no choice but to be a bit less open, less transparent, and more regulated.
    • High profile individual risk-taking within an Anglo Saxon style open market is somehow inconsistent with the Japanese psyche.
    • The tiny number of large Japanese banks today, having merged and merged again, are hardly interest in investing in unknowns; this si particularly the case after the bank balance sheet debacle of the lost decade.
    • While the outside world often perceives a lack of transparency within the Japanese economic and financial system, the Japanese elite ironically seem to know everything about each other.
    • Innovation entails risk and potential failure, which are not easily accepted in Japan's tightly controlled system.
  • >Top Productivity revolution:
    • Several years ago signs of Japanese structural reform excited the world financial community; raised the prospect that this could be the beginning of a productivity revolution.
    • The under-consuming economic system, heavily export-dependent, would be highly vulnerable in the event of the bursting of the Asian bubble; Japanese economy is experiencing a downward drift as even the healthy export sector is being seriously squeezed by the strengthening yen.
    • Psychological factors stemming from the rapid aging of Japanese society and a growing sense of risk aversion.
    • Japan's national public debt load resulted during 1990s era of cheap money.
    • Monetary authorities know that today's absurdly low interest rate climate represents a dangerous distortion for the Japanese system; its mountains of hidden debt have placed the economy in a policy straitjacket.
    • There wil be limits to the level of debt an economy can carry.

5. 日本の主婦が管制高地を占拠:

>Top Commanding heights:

  • Speech by V. Lenin describing the parts of an economy that effectively control and dominate the other parts.
  • In the economy of 21C, Japanese housewives find themselves perched atop the commanding heights. They unwittingly have become big player in the Japanese and world financial system.


  • Commanding heights:
  • 日本のバブル経済: 1986-89
  • デフレスパイラル
    • 日銀の低金利政策: 1990までに1%
    • 国債
    • 高齢化社会による消費減
    • 日本の構造的な貧困化:
    • 主婦層による金融取引参入: 預金金利減による対抗策
    • 世界の為替取引の1/5相当











  • 日本の市場変動率(Market volatility)への抵抗:
    • 消費減
    • 輸出志向
    • 急速な高齢化社会
    • 国債
    • 金融当局の矛盾

















  • 生産性革命:

>Top 6. Nothing stays the same; the 1992 Sterling Crisis:

  • Change:
    • Change is not merely necessary to life - it is life. (Alvin Toffler)
    • For most of us, the staus quo, dominates our thinking.
      • US will forever continue as the dominant economic power in the world.
      • China will serve only as a positive influence for global eo¥conomic prosperity.
      • Central banks will foreever tame inflation and deflation.
      • Global investors and traders will foreever emain optimistic.
      • Our institutions and freedoms will last foreever, or financial assets forever secure.
      • The purring sound of the global wealth machine will foreever remain a constant.
  • Collapse of British pound:
    • Why the British people still use their own currency, the pound and not the euro.
  • >Top To understand the economics of Europe, past, present, and fture, look to Germany.
    • Oct. 1990 unification with East Germany.
    • German unemploymentt rate is nearly twice as high as US. In other parts of Western Europe, the jobless situation is worse.
    • This is largely because of their highly counterproductive labor laws and overregulate eonomies.
    • They understand the importance of a flexible, more efficient, entrepreneurial economy with more flexible labor laws.
    • Today more than 50% of the shares of German stocks are owned by foreigners.
    • German companies were allowed to hire from a second tier of available 'rental' (nonunionized) workers not covered bythe onerous labor regulations. Real unit labor costs decreased while productivity modestly increased.
    • As Germany continued to become more globally competitive, the reest of Europe risked falling behind.
  • Continued strengthening of Euro:
  • not all Eurpean economies are created equal.
    • because of the differences in competitiveness among various economices, serious economic tensions will remain.
    • Germany sucessfully competes globally head-to-head with Japan in luxuary automobiles (Mercedes and BMW), precision equipment, and other sophisticated industrial products.
    • The dangerous ocean of capital was about to confront face-to-face the tiny, largely unaware European central banking community.
    • A stubborn German central banker, a collection of hapless Italian finace officials, and a group of British officals who failed to accurately read a stiatuon crucial to their currency's survival.
    • Exchange Rate Mechanism (ERM): Integrating European courrencies would both enhance monetary stability and reduce the likelihood of the kind of economic tensions.
    • A number of big players in the financial market had already turned a skeptical eye towards the British currency.

6. 同じではない1992年のポンド危機

  • 変化:
    • 変化は生活に必要なだけではない。生活そのものである。

  • 英国ポンド危機:

World financial system as a giant swimming pool: 'Maastricht Treaty 1992'

  • The largest ball is US dollar, which expands and contracts based on the US economic policies, interest rates, and overall economic efficiency.
  • If interest rates are raised, the ball expands
  • After an interest rate cut, the currency falls and the ball contracts.
  • Europeans connected various smaller currency balls together (ERM).
  • European governments could intervene in the markets by buying or selling the currency; if all else failed, policy makers could call for a realignment of the currency bands to reduced the currency ball permanently.
  • The government-intiated realignments were intended as a relief valve from market pressure.
  • After a realignment, now weaker currency again would allow the traded goods and services of the devaluing economy to compete more effectively with those of the other EU members.
  • DM wa the largest European ball in the swimming pool
  • The Bundebank was led by President Helmut Schlesinger, who saw things mostly in black or white.
  • By joining the new ERM club, Britain's exchange rate woulf fluctuate within a narrow range of 6%; the hope was that by raising rates, the sinking £ would stabilize.


>Top 7. The incredible shrinking central banks:

  • When a financial market crisis develops, the Federal Reserve lowers interest rates.
    • Declining power of central banks may be the most convincing argument for why the world is curved.
    • >Top In early 2008; the Federal Reserve faced a nasty combination of rising inflation, a housing collapse, and lending crisis, and a weakening dollar; all of which threatened a complete meltdown of the American economy.
    • A devil's choice: if they moved strongly in one direction and the would lose if they held back and did nothing.
      1. bold interest rate cutting: US Treasury bonds decline in the yields; or could successfully boost the economy.
      2. more restrained interest cutting; limiting dollar weakness, and stimulating the economy.
    • 1979-1987 Paul Volcker: the Fed chairman:
      • too many bubbles have been going on for too long. The Fed is not really in control of the situation
      • the style of almost 19C patrician
    • 1987-2006 Alan Greenspan: the Fed chairman:
      • the dividends from the fall of the Berlin Wall and rise of globalization gave the Fed enormous flexibility in monetary policy.
      • In 2007, US long-term bond yields were 5.3%; dropped below 4%
      • While, oil price was about $65/bbl to over $125/bbl.
      • Historically, bond yields don't drop in an environment of dramatically rising oil prices.
      • the world's financial markets held not only the aces but all the picture cards as well.
      • more modern, attuned to the latest advancement in technology.
    • 2006-2014: Ben S. Breakneck: the Fed chairman:
      • more restrained and collegial style
      • >Top globalization has reduced central bankers' capability as lender of last resort; today the value of all global long-term securities exceeds $100T.
    • 2014/2-: Janet Yellen: the Fed chairman:
  • Greenspan: "In theory, central banks can expand their balance sheets without limit. In practice, they are constrained by the potential inflationary impact of their actions."
    • Today's central banks remind me of a fire department with much weaker water pressure and ladders that can't reach above the first floor. The question is how much good they can do.
    • Global financial capital continues to move across borders relatively freely in search of new investment opportunities.
    • Today there are o simple solutions, but there are a lot of simple mistakes to be made in a world where heretofore unheard of amounts of capital move around the globe dangerously at will.

7. 驚くほど縮小する中央銀行:

  • Currency share in exchange trade (2016):
  • extradecurrencyshare

>Top 8. Class warfare and the politics of globalization:

  • Globalization and liberalized capital markets began as a result of politics, as an answer to the stagnation of 1970s.
    • There was not much difference in economic policy making between Bill Clinton and Ronald Reagan.
    • Both political parties in US today are quickly backing away from pro-globalization policies.
    • NAFTA became on e of the major advancements of globalization.
    • >Top Median-aged voters in US don't remember the difficulties of this 1970s (the ugly decade); everything about 70s - the economics, the foreign policy, the music, even the fashion (after the Vietnam War) was ugly
    • Today median-aged voters in US can't imagine a less than fully employed economy with low inflation and low interest rates.
    • In 1970s, 'the Club of Rome,' theorized that the beleaguered world economy was bumping up against limits to growth.
      • Post-Vietnam/Watergate era: people lost confidence in government; two oil cutoffs forced US into gas lines. FRB produced mortgage rats of 20%, and unemployment rates topped 10%.
    • Clinton surpassed Ronald Reagan as a free trader; surrounded with Robert Rubin, Larry Summers.
    • Aging society 2000-2030: 65 over US population will more than double as the baby boomers continue to retire.
      • Retirees will expand from 35M to 72M (20% of the population)
      • Spending the big programs geared to the needs of the elderly - Social Security, Medicare, and Medicaid - today cost $1.1T or 40% of the federal budget (more than twice defense spending)
      • By 2030, the cost of these programs will jump dramatically, more than $2T, or 75% of the budget.
  • Class warfare:
    • US top 10% income earners account for a 75% of federal income tax revenues.
    • It is a dangerous game because class warfare policies that restrict global capital can led to the loss of entrepreneurial risk taking; thus bring about less job creation and less overall economic vitality.
    • In today's financial system, where the wage-earning sector itself ( middle class wages) is shrinking.
    • More over, the gap between the haves and have-nots will likely continue to grow if globalization is allowed to continue.
    • politically untouchable Fannie Mae enjoyed an implicit assumption that US treasury guaranteed its huge portfolio of low-income mortgage loans; 1111created a dangerous market distortion by encouraging excessive borrowing.
  • Service sector produced 70-80% of GDP, while manufacturing accounts for about 13%.
    • 50 year old measuring techniques may be insufficient for measuring new economy.
    • Because of the rise of globalized markets, the link between GDP and national wealth has been weakened, widening the income gap.
    • American Birthright Account: provide $1000 to each newborn an amount of money to be invested in the financial markets for use later in life.
    • UK encourages newborns to become capitalists by giving them a platform for investment; $500-$1000 each from the government.
  • >Top Human capital:
    • Although the stock of such capital has become large, and even though it is obvious that human capital depreciates and entails maintenance, our tax laws are all but blind on these matters.
  • Knowledge capital:
    • Knowledge capital is becoming even more important than physical and financial capital.
    • a skill-based educational inequality throughout society is rising .
    • The skills gap results often from the different parenting approaches at various income levels.

8. 階級闘争とグローバリゼーションの政治:

  • グローバリゼーションと資本市場の自由化は、1970年代スタグネーションの結果
    • クリントン・レーガン時代
    • NAFTA成立
    • 米国の1970年代 (険悪な十年)
    • ベトナム戦争・ウォーターゲート後
    • 1970年代: ローマクラブ


  • 米国医療保険制度:


  • 米国高齢化社会
    • 社会保障費増加 (軍事費の2倍)





  • サービス分野の比率: GDP 70-80%


  • 人材資本:


  • 知識資本:









>Top 9. Surviving and prospering in this age of volatility:

  • The properity created by the spread of globalization produced greater competition in global manufactring and sserviced:
    • The reduce real wages globally; lower inflationary expectations and thus declining long-term interest rates.
    • Families in the industrialized countries bought houses too aggressively, producing a broad-based housing bubble.
    • As bubbule grew larger, loan officesr offered subprime mortgages to people who couldn't remotel qualify and found themselves in deep financial trouble when long-term interest rated later returned to their higher leves.
    • The story starts in 1998 after the collapse of the hedge fund Long-Term Capital Management.
  • >Top Using the new financial instruments of securitization, the bankers faced no risk once they had sold the securitized mortgage packages to the off-the-bank vehicles.
    • Worried about repeating the mistake made by BOJ in early 1990s, Chairman Bernanke slashed rates faster and deeper than at any time in history.
  • US would also have to fine a new source of domestic demand; housing and autos.
    • US and Europe would use environmental investments as the new source of demand; new standards of energy savings and environmental protection.
  • In the new global economy, controlling bank panics has become extraordinarily difficult because speed is a killer:
    • Today money moves in an instant.
  • In this new global economy, policy makers desperately need to engage in collective forward thinking about the nature of the global financial safety net, and about risk in general.
    • FRB, president Gerald Corrigan; You can't hedge the universe. You can't eliminate all risk.
  • Success won't come easily.
    • Today there are no short-term advantages commiserate with the danger of not coming up with long-term solutions to the challenges of growing fiscal imbalances, the entitlement nightmare, the Chinese juggernaut, class war fare, and the lack of trust in our financial architecture.
    • The world is dangerously curved.

9. 不安定な時代における生存と繁栄:

  • グロバリゼーションによる物とサービスの過剰生産
    • 賃金抑制; インフレ懸念なし; 長期金利低下
    • 住宅需要上昇
    • バブル経済の発生
    • バブル崩壊開始は1998のLTCM破綻


  • 証券化によるリスク回避
    • 1990年代初期の日本のバブル崩壊過程の学習


  • 米国における内需の主役: 住宅と自動車
    • 欧米は環境投資によって、省エネと環境保護を進めるべき


  • 新たなグローバル経済は、銀行パニックを防ぐことは困難に; 資金は瞬時に移動する
    • 制作党きょっくは、グローバル金融セイフティネットを検討すべき
    • 世界全体や全リスクのヘッジは不可能



  • 成功は容易ではない
    • 長期的課題への短期解決の方策はない。財政赤字、福祉予算、中国経済、格差問題、金融制度への信頼等
    • 世界は危険なほど歪んでいる。
  • This book foresights revival of mixed economy - NEP in 21C.
  • 本書は混合経済の再来、21CのNEPを予感される。

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