What Is Globalization?

This article contains a definition of globalization that was written after the dot.com bubble burst in the late1990's. It links Minsky's theory of finance with the process of globalization.  The author of the article believes that it was written too early. Steps were taken to increase liquidity, and to encourage a new wave of investment in real estate.  He believes that our current global economic crisis is much deeper than the dot.com crisis and its aftermath.  We could be in for a much deeper reaction to globalization.

The author believes that globalization is primarily a monetary phenomenon.  Throughout history we have seen increases in liquidity that have induced investors to take risks.  Investments in new technologies in communication and transportation increase capital flows to every part of the globe.  Globalization is viewed as inevitable and advantageous by the public. The appetite for risk eventually creates problems in the banking system.  Bankers take on risky investments, and they are forced to turn the money spigot off  to rebuild reserves needed to cover the bad debts that ultimately result. Liquidity contracts and the globalization process goes into reverse.  In other words, the globalization cycle is a function of the monetary cycle.  The reactions tend to be similar during each cycle. Debt deflation is usually painful, and it often reveals problems that were not visible during periods of debt inflation and globalization. Bankers, who led the globalization process, become public enemies, and a new wave of populism, and reaction to globalization ensues.  We are in the middle of a debt deflationary period today in many parts of the world.  Financial flows are being reversed, and risk aversion is more apparent.  We will have to see how this affects the globalization process.