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The following article was published in our article directory on December 24, 2010.
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Chaotic Financial System Pattern and New Classical Economics

Article Category: Business

Author Name: xia zihui

Chaotic pattern of today's financial system advocated by the new classical economics theory with the free market close. Over the past 30 years, the neo-classical theory under the guidance of the free market, financial market practitioners designed and built out of a transactions are frequent, a high degree of leverage of the very complex financial markets, the market is highly concentrated within the closely linked, high level of activity and the system is very unstable. Construction of the financial markets who have not only succeeded in forcing the central bank launched a series of rescue measures and thus lead to moral hazard, but also the development of financial regulation and accounting standards are also becoming "worship market", financial regulation and accounting standard setters have shown pro-cyclical - the benefit of access to immediate risks and costs will be pushed to later.

Designers of the original dream of the financial system has become a nightmare. Since the existence of deposit insurance, all the bank losses eventually become quasi-fiscal deficit. Government rescue measures, and ultimately the loss of the bank into sovereign debt. Today, the debt crisis in Ireland has evolved into a crisis throughout Europe, the euro area member states also suffered other losses. Banking system has been transformed into crisis Who pays the bill on political issues, which inevitably caused changes in the pattern of the international financial system. Suffered the loss of the banking crisis will affect the voters vote the politicians of the arena, and this political game will be the formation of future financial situation we can not predict the impact of play.

In short, such as management guru Peter Drucker referred to "structure follows strategy", we build the global financial system must be synchronized future development of the real economy. If the theory is not correct, then the entire framework is fundamentally wrong. Worth Ironically, if a physical building collapse, building designers and architects may face jail time.

In developed markets, deleveraging, due to an aging population with low growth, more stringent regulation and financial innovation continue to re-establish the financial structure is an important channel. In emerging markets, relatively young people are becoming middle-income groups, which will lead to rapid growth, many regulatory measures are gradual convergence with international standards, in addition, financial innovation and the real economy needs to be adapted.

Why do I say this? Because I feel the financial development of the developed economies of scale is too large, too wide impact.

As an Asian, I think that is a derivative financial industry, it should be for the real economy, but should not override on the real economy. The financial crisis originated in the developed countries, developed countries, the output of the financial system is more than five times its GDP, the financial system is too powerful that it can not fail. Iceland and Ireland's experience shows that when the country's bank assets is the 5 to 7 times the GDP, the bank's bankruptcy losses is not for the local residents to bear the pain, so when the bank experienced a crisis, the need for external assistance to .

After a discussion of Europe after the debt crisis, and now the most interesting issues related to loss of shared areas of political economy, that is who should pay the bill for the losses? In Europe, Germany, should the share of the surplus countries caused by the deficit of the country's debt losses? In the world, should the oil-producing countries in Asia and other surplus countries bear the losses caused by the deficit country?

In fact, if the Asian market to allow hot money inflows, allowing asset bubbles to form, causing a banking crisis. Then the global imbalances will be able to resolve the crisis in the form of the ultimate outcome is that all people have become more poverty.

12 years ago, precisely because of mistakes in our own policy decisions, leading to hot money flows and thus led to the Asian financial crisis. The creed was "all the sins that do not open", and today, the truth becomes "all sins is the globalization." Two views are biased. Neoclassical synthesis error is that it believes the market outside of the country or can be ignored. In today's high population density, abnormal close contact with each other the world, national and world market behavior will have a very large external effects, and vice versa. We Masachika team in a global collaboration, whether large or small countries can not be completely about the results, but we need the collective wisdom accumulated together to build a better, fairer and more sustainable New World.

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