How Globalization affects Interest Rates

As it was well discussed in many previous articles of mine, the high interest rates
of the Capitalism may well workout in times of growth and self adjusting short
recessions of a pro supply economic environment, but it is well beyond handling
marginal economic environment or long recessions. It became obvious that
Governmental interference in the Economy was paramount in the last recession to
save the financial structures because of the financial structures inability to self
adjust by using relatively high interest lending, thus infusion of monetary quantities
and serious tax brakes were substituting so called “natural economic self adjusting”
of the past. It became also obvious that the Small Businesses and Small Investors,
and the overall Economic Structures of the Middle and Lower Classes
sustainability of a longer recession as the last one was not possible without such
governmental interference either. I dare to question the ability of high interest
lending to maintain adequate financial stability in the most recent developments of
rapid Globalization and rising Productivity that brought China’s manufacturing
capacity that added to the already Most Industrialized Countries tipped off the
possibilities for many other countries to develop such industrial production,
therefore when Industrial Production basically appropriates GDP’s of almost any
developing or developed economy the consequential of this new Global imbalance
directly affected many countries Fiscal Reserves and thus how brought deficit and
national debt almost everywhere.

A very few approaches against these new developments followed:

• in the US stimulus packages and tax breaks,
• in Japan same measures plus financial measure to keep their currency
undervalued and thus export up,
• in Europe same measures plus so called austerity measures to reduce
spending and balance budgets,
• in everywhere else countries and economies deepened in fiscal
shortages, deficit, rising poverty.

It became very obvious that same economic instruments of the self adjusting
Capitalism that worked in the past at its best in economies such the US one that has
had a consistent 20% + every 20 years for the last Century, now under the new
conditions brought rising poverty rate, disappearing Middle Class and prompted
exodus of industrial production that keeps unemployment high and fiscal reserves
empty, other economies such as the European Union most developed once are
margining low economic growth of 1 to 2.5% mostly relying for such on their
export to China when the rest of EU is in Fiscal disarray and ever rising poverty
rates, others as Japan are using their Monetary and Fiscal policies simultaneously
running highest national debt ever to maintain somehow under these new
conditions their exportability.
Some reasons that are in the beginning of all appointed ongoing upheaval could be
easily located at the high interest lending rates practiced by the Capitalism of the
past: the quickly accumulated individual and national debt cannot be avoided in a
slow growth marginal economic environment, and when such marginal
development is becoming consistent the consequences from high interest rates
could be deadly.

National and International financial structures, Commercial Banks, the World

Bank, IMF are setup to work based on high interest rates, that keeps
Governmentally issued securities having high interest rates too. The whole system
of financing, lending and even rising public capital is maintaining high interest
rates, same is the international financing. When some governments are keeping
their interest rates very low of lending to large financial institutions the final
products coming especially to small to medium size businesses, to individuals and
countries such interest rates are becoming relatively high so the effect on the
overall development of these entities and markets in the conditions of long
economic recessions and marginal economic development is negative.

However, high interest rates lending is a consequence of lower security and high
risk, thus if lending is to lower interest rates the security must get higher, so the
question will become:

How to higher security of SMB, small investors, individuals, and even markets and
countries?
Than it comes the Philosophy of the Market Economy: to higher security business
laws of contracting, project bonding, enhanced personal liability of corporate
structures, and regulated financial markets and exchanges etc., there it comes the
enhanced role of Small and Medium Businesses and Investors being able to access
global marketplace, there it comes the enhanced role of the Social Policies and
Infrastructural Expenses that could balance reduced employment by private sector.
Thus in the new pro-demand economic environment the security to the borrowers
may go up then the lending interest rates would come down. The governments of
the most developed countries should play an active role in all of these but the
business and individual entrepreneurship should carry on this new development.