Piggy Banks to Power Plays [Part One]: Globalisation and its impact

******Firstly, however, A UPDATE ON MY PREVIOUS ENTRY: “The American Government Shutdown Explained!”*******

The Democrats, [Obama and his Government] have the majority in the Senate, not House of Representatives. The Republicans have the majority in the lower house [the HoR] – but the Democrats have the majority of seats over the total seats in both houses: 332 [to the Republicans 206]. US politics is a very different kettle of fish to Australia. Legislation doesn’t usually originate from the Upper House in a Westminster system [Aus, UK, Canada], but in the case of the US Presidential system, it can. But because the Americans are Bicameral [two houses of Parliament] it needs the approval of the other house, despite where it starts, so Obama is dealing with a hostile [Opposition majority] House of Reps. 

Some Perspective:

There are 535 Seats across both houses in the US – 435 in the HoR, and 100 Senators.

Australia has 226 – 150 in the HoR, and 76 Senators.

The UK has 650 seats in its lower house, the House of Commons, and 755 members of the House of Lords. Apparently there are an additional 53 ‘Lords’ on a leave of absence or have been disqualified from the house.

Australia stacks up rather neatly, don’t you think?

**End Update**

Globalizationpic

In the wake of the American Government shutdown being resolved this week, [with two hours to spare, no less], I thought I would explore how Globalisation has changed our global economy, and the way we think about money.

What is Globalisation, PIK?
Globalisation is a word so often used, but not properly understood.  It is a broad term which encompasses, and can be studied from many perspectives: the political, the social/cultural, the economic , and the environmental just to name a few.

A formal definition: “A historical process involving a fundamental shift or transformation in the spatial scale of human social organisation,  that links distant communities and expands the reach of power relations across regions and continents”
[‘The Globalisaiton of World Politics’ Third Edition, J. Baylis and S. Smith, p.773]

Translation: Over time, the change in size and way of interacting by the human race has developed a ‘global’ way of thinking and relating to each other  – I.e. through diplomacy and economics for example [international trade].

cycle

Once upon a time, we didn’t always trade internationally!

That is the long and short of why Globalisation has become such a phenomenon on a economic level. International trade has been a revolutionary notion for many countries, economies were always sustained by internal trade.

I.e. if the Queensland Government wanted to build a railway track in 1906 they might get timber from WA, and steel from a QLD Steel mill, and bring in some extra workers from NSW.

International trade, in IPE [International Political Economy, a study area in Int. Rel.] can have its roots all the way back to 1860, or even earlier – in rudimentary forms like trade routes like the Silk Road, places like the ‘Spice Islands’/Dutch East Indies [Indonesia].  In order for Governments or Authority groups placed Tariffs/Taxes on trade in order to claim x% of each sale.

Different countries specialise in different things – Raw Materials and Resources, Manufacturing, [Human] Services, Financial/Banking etc and it was only in 1947 that international trade got properly established through the creation of GATT, the General Agreement on Tariffs Trade. Say if Australia wanted to build a train track from Brisbane to Cairns, they could get the raw materials like timber from WA, get the steel produced in China, but they might contract specialist workers in from Vietnam. Outsourcing is often the case because foreign workers can be hired or materials produced for less.

Wars are great industry stimulants!
Countries can’t always produce all of what they need for a War. For example, in World War One, the British  exported the Germans barbed wire which they used to line their trenches. So the Poms got caught in their own wire.

America and Germany in War time had booming manufacturing sectors. America’s entrance into World War One was a large contributing factor to its economic boom in the 1920s, it created thousands of manufacturing and military jobs for its population. The reason why the War Industry has continued to boom with technological developments, demand and production. Profit can be found in the strangest places, most often in violent places. Money will always be spent to defend.

There have been a heap of international wars in the 20th century – Boer War, WW1, WW2, Malaysian Konfrontasi, Korea, Vietnam, Russo-Japan, Gulf War, Afghanistan [2001], Iraq [2003], Falklands. All have stimulated the wider need for certain war resources, which results in increased trade and or production internationally.

Understanding the Lassiez-Faire System:

Our current global economy is a Liberal [not Tony Abbott liberal!] one. A ‘Free’ market economy means the value of a country’s exports and imports is tied to the global market – exchange rates, demand; it is not regulated by the Government. It can make a country very vulnerable – if the price of their exports is too much [$$$$] then noone will buy them and they won’t get an adequate amount of revenue  – which the Government uses in its annual Budgets, what it uses for everything – to fund schools, build bridges and donate in foreign aid.

But the Free Market also presents the potential for huge profit; high risk and high reward. Inversely, a country who doesn’t trade much internationally, lowers their risk, but lowers their potential for reward. You can win big or lose big.

Peaks and Troughs are the hallmarks of this system. The market goes through high points and low points – The Great Depression of 1929, The Market Crash of 2008.

When America sneezes, the rest of the world catches Pneumonia!
Globalisation has created a spider’s web – everyone is connected. America has the largest GDP in the world and is at the centre of this ‘web’. This metaphor helps you understand how bad the American Government  Shutdown could have affected the rest of the world. Why? Because when you pull the middle out of a spider’s web, it becomes irreparably unstable. Which could have meant a recession or another market crash for the rest of the world.

Being in the state of hyper-connectedness also has a big downside, from an economic perspective.

Is spending the solution?

They Keynesian [After Economist John Keynes] solution to debt crisies is to stimulate the economy through spending. So borrowing money from an institution like the IMF [International Monetary Fund] to pay your debt, but leaves you in more debt, which can build up over time. It’s like owing $10 to your friend, but you borrow $15 from them to pay them, and you end up owing $15. What Obama has done to avoid a default has been to borrow more money, to “kick the can further down the road”. If you ever hear the term ‘glass ceiling’ being raised or  standing on a ‘fiscal cliff’ it  refers to America increasing their spending outside their means, and how vulnerable their financial situation is becoming.

How has Globalisation changed the way we view money?

Money has become an invisible, fluid entity. There seems to be a psyche that it will always be replaced through our connectedness. The approach to money is more causal, in that the amount of millions, billions or trillions a nation is in debt becomes normalised – I.e. The US are $17 trillion dollars in debt at the moment. We say it but don’t or can’t properly comprehend it?
That’s $17 000 000 000 000.
17 Million Million dollars.
Trying to wrap my brain around how much that is!

Would love your thoughts or questions!

Hope you enjoyed reading as much as I enjoyed writing!

– PIK

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