Released November 12, 2009
RALEIGH, N.C. – The largest economic recession since the 1930s has prompted much analysis and many explanations. There's a new perspective that puts the spark for the recession on globalization. Please explain that idea.
Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
"Of course, globalization means the process by which we've actually become a worldwide economy.
Many factors went into that, but a big one was in 2000, when China joined the world trade organization. Economists argue that one of the impacts of globalization was essentially to bring three billion more people into the worldwide economic system. These are people in Asia and Eastern Europe who were really outside of world trade. So that's step one.
Step two was that many of these countries flourished. They prospered enormously due to globalization, China being the most pointed example. Those countries accumulated a lot of money, and in many of these countries - again, China is an example - the opportunities for spending that money were either limited or restricted by the government. Of course, the saving rates were very high. Thirty or 40 percent of income in China typically is saved. Those savings had to go somewhere, and they found their way into investments in the U.S. as well as in Europe.
Then, if we fast forward to today, what happened was residential housing markets in many of those countries were doing well, so that money was invested in homes, provided the source for mortgage lending. That created this speculative boom in the housing market, then there was a pull back and a crash, which brought us to the point we are today.
This explanation says that the spark - the impetus, the genesis - for all this goes back to globalization and saving rates and the fact that you have three billion more people participating in the worldwide economy."
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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/11/economic_perspe_489.html
