this is why you cannot have a fiat reserve currency in a globalised world, - and this is what happens if you try :
a certain quantity of money is required to lubricate trade in any economy. this can be a larger amount circulating slowly, or a smaller amount circulating more rapidly. it is not so much the money, as the volume of transactions, that is the lifeblood of an economy, closely analogous to the circulation of the blood in the body.
if you pour in more money than is needed, you get both inflation, and speculation with surplus money.
if borders are open, capital searches out the investments with the best return, but the very excess of funds causes the yields on all investments to fall. it also causes bubbles, which is to say when an investment is no longer based upon the expected income yielded - i e the rent from a shop - but a capital gain - i e the presumed profit upon the sale of the premises in the future.
a bubble is when the investment itself is helping to create the capital gains that it is chasing. a circular process.
if the authorities hold interest rates lower, to ward off a crash (the collapse of a bubble) - a situation develops where the interest rates are tending towards zero, and the return on investment worldwide is also tending towards zero.
whereas authorities permit investment capital freedom to move across borders, they tend to limit their response to inflation to what is arising in the home country. ( asset bubbles also tend to escape the governments' definitions of inflation.) the danger is that money created by lending/borrowing in, say, america - may cause inflation in, say, china. further funds are then sucked in to ride on the resulting waves and bubbles.
this is hard for authorities to react to, in a world where the political units remain compartmentalised, but the economic sphere is open and globalised.
eventually, as money is lent into being, interest rates at near zero cannot be lowered further, and returns at near zero, drive investors into greater risk tolerance in search of positive results.
perfect globalisation can only end in perfect and instantaneous collapse, as all of the mechanics of investment bubbles go into reverse. even if a computer programme could be devised to
identify the onset of a bubble - short term, thick skinned, and risk taking insiders would pile in, hard and heavy, to take a profit while the spike lasted.
in the ensuing inevitable bust, borrowers and lenders blame each other. since borrowing and lending come under the eternal rule that 'it takes two to tango' - they should be lumped together under the unified term 'blenders.'
- and as every boom is followed by a bust, just as every spring has an autumn, boom and bust should also have a common term - a 'boost.'
protectionism is decried by conventional economic wisdom, as causing a brake on trade, and on economic growth.
too many green economists manage to have 'growth' as an evil and at the same time as a long term objective. which is it ?
protectionism, or the world divided into economic compartments, just as it is divided into political compartments, does not bring the natural pattern of exponential-growth-plus-collapse, to an end. it merely ensures that some economic zones are growing at a time
when others are collapsing, and vice versa.
perfect and total globalisation, with fiat currency, at first stimulates growth, secondly synchronises growth, thirdly maximises the opportunities to search out highest possible yield upon investment, fourthly threatens to go into reverse, causing the authorities to create a stimulus, or serial stimuli, and fifthly and finally exhausts all possible roads to profitable investment so that a simultaneous global bust ensues, after which there is nowhere to go, except to collapse all financial assets, and to declare the then current holders of real assets (freehold land, property, gold, commodities, grain stocks, seed banks, tools of trade etc. ) - to be the winners.
as public order is one of the things that disintegrates in a severe collapse, the next question for the 'winners' is how to hold on to these proceeds of their luck or foresight . . . .
the project to maximise trade and development on a global scale is a nonsense project, and is like a gold rush in mountains where there is no gold, that can only yield a profit to the nimble and lucky sellers of shovels, boots, and whiskey.
it is a subset of the project to create infinite growth in a finite sphere.
those who imagine that the balance can be tipped by military hardware are living in a pre globalised world. on a battlefield an aggressor can prevail by throwing hand grenades, and if the opponents have only swords and staves, all the better. but resorting to force in a globalised and specialised and integrated world, is more like throwing hand grenades in a helicopter.
in a world in which population expands, while resources are finite and the availability of energy in decline - wages, the cost of labour, will fall - while energy prices will either rise, or more likely decline but just not quite as fast as wages.
the real economy, even before civil unrest, will therefore contract in per capita terms, and after a while, in any terms.
the appropriate lubrication for trade in a contracting global economy, is a gently contracting money supply.
whereas a contracting global economy, plus an expanding global money supply, will together expand the parasitical financial world in relation to the real economy. capital will flow to any viable investment that has been overlooked, until all seats are taken, and overall investment return declines towards zero, at which point banks refuse to play the game any longer.
the survivors of the ensuing crash may then wonder if slower progress under protectionist policies, might not have been the tortoise that outpaced the hare. they will have learned a lesson.
but the folk memory will fade, the lesson will then be forgotten by some future generation, and mindless boom will again take its turn on the economic world stage.
optimists maintain that the greenspans, bernankes, and other holders of the levers of economic power, have failed to understand the (worse than) zero sum nature of economic expansion within a finite biosphere.
pessimists believe that they do understand.