Magazine article Global Finance

Return of the Old World Order

Magazine article Global Finance

Return of the Old World Order

Article excerpt

Barely more than a year ago, when the world was still awash with cheap money, it seemed as if globalization had hit a sweet spot. The financial world was abuzz with talk that the emerging markets had finally decoupled from the West and that, even if the US economy stumbled, the rest of the world would pick up the slack and avert a global downturn. Europe was enjoying strong, apparently sustainable growth. Latin America's politicians were moving to the left as its economies were moving into the black. Trade between developing countries was growing at such a rate that it began to look self-sustaining. Even confirmed pessimists were beginning to believe that universal prosperity was possible after all. The rising tide surely was lifting aU boats.

And then the credit crunch began. A few commentators-swiftly denounced as almost laughably alarmist-voiced their fears that the subprime fiasco might be the beginning of a meltdown of the global financial system. So far, they have still been proved wrong, but the upheaval in the financial markets and in the world's banking system over the past year has been far more severe and farreaching than most expected it would be.

The credit crunch also marked the beginning of a succession of seemingly unconnected events that threaten to throw off the delicate balance of the globalized economy. Rapidly rising energy prices, while causing only mild discomfort to the wealthier nations, are having a devastating effect on the world's poorest. In tandem with the sharp rise in the cost of energy has been a painfully rapid increase in the cost of basic foods-again hitting the poorest the hardest. …

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