Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold's latest "Buy" signal...

Commodities / Gold and Silver 2010 May 28, 2010 - 06:12 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleMartin Hutchinson writes: You can see signs of de-globalization everywhere. Just look at the intense shareholder opposition to Prudential PLC's proposed takeover of the Asian operations of American International Group Inc. (NYSE: AIG).

And that's just one example.

The market scare on news that North Korea had, indeed, sunk a South Korean Naval vessel was another. The "flight to safety" in U.S. Treasuries - sparked by the increasing concern about the future of the euro and the viability of Greek government finances - is a third.

All over the world, little by little, the apparently inexorable tide of "globalization" - making the world "flat" in the words of Thomas L. Friedman - is retreating. If a full-scale financial crisis breaks out in the next few months, that retreat will become a rout. And the world will become de-globalized.

Prior Periods of De-globalization
De-globalization has happened before. In the 50 years before 1914, the world had become increasingly globalized. That trend included some developments that are hard to imagine today.

Passports had become unnecessary for most travel. Tariffs in some countries - most notably the United States and Kaiser Wilhelm II's Germany - remained punishingly high. But there was a system of global finance very much like the one we have today. That system provided ready capital to the "emerging markets" of that era. And that, for example, transformed Argentina into one of the world's 10 richest countries.

New barriers against trade and finance were followed by a world war and protectionist policies.

Then came the Great Depression. Before any real recovery had occurred, that global downturn caused most countries to raise barriers to imports. The international capital markets disappeared. And the volume of international trade declined by two thirds.

During the quarter century from 1950 to 1975, the world remained largely atomized. One-third of the world's population lived under political systems that did not allow markets to operate. Even outside the Russia/China bloc, international capital markets were very limited even for debt. And exchange controls in most countries outside the United States prevented all but a sliver of international equity investment.

Globalization Returns
The forces that would finally cause world-capital and world-trade markets to open got their start in 1979 with the emergence of British Prime Minister Margaret Thatcher (who that year removed British price controls). The election of Ronald W. Reagan as U.S. president shortly thereafter also was key, as was the fall of Communism a decade later.

In the 1990s, most countries were open to world trade, with free-price mechanisms and relatively low tariffs. Public and private equity investments in the "emerging markets" soared in popularity, in spite of the "Asian contagion" and Russian financial crises of 1997-98.

These developments were justified by the formerly socialist intellectuals as a new, moderate "Washington consensus," under which governments retained a role in moderating the forces of the market. The Washington consensus tended to fall apart under stress, as it did in Argentina, because of the excessive government spending to which it led. But it didn't hinder globalization in the form of free trade and free movement of capital.

With the 2008 financial-system crash, the "Washington consensus" fell apart. The intellectuals had been getting very bored with free markets and had moved on to "global warming" environmentalism. They seized the opportunity to blame free markets for the crash. That change in philosophy allowed protectionist forces in most countries to raise barriers in the form of subsidies and "anti-dumping" actions.

It also gave rise to the "stimulus" - thumping big increases in public spending and budget deficits, all of which were pushed through panicky legislatures. Banking systems were bailed out in a big way. But little was done to address the excessive leverage and ultra-low interest rates that had caused the problem.

We are now seeing the results. Trade barriers, in the form of anti-dumping actions and ecological subsidies, are far higher than they were a few years ago. Government finances are a mess. And investors are becoming more and more nervous about taking on foreign risk. Banks and hedge funds used cheap money to invest aggressively once the initial crisis was past. Now they're scared again.

Moves to Make, Moves to Avoid
There is right now a strong flow of funds into U.S. Treasury bonds. But investors will soon discover that "safe haven" is one of the world's more dangerous investments.

If the panic over government debt leads to another financial crisis like that of 2008, further bailouts of the financial system are inevitable. And if that happens, be assured that we will move even closer to de-globalization.

Further trade barriers will appear, reducing the interchange between economies that is a major engine of world efficiency. But that's only part of the damage. Even worse will be the huge decline in international investing activity. Governments will either limit such investor activity, or investors will be unwilling to do so due to the perceived risk.

Investment will be largely domestic, but the United States will have lost much of its cheap capital advantage over other countries because of its persistent balance-of-payments shortfalls and budget deficits.

In that case, many of the economic advances that globalization has brought to the United States - and the world as a whole - will be reversed. The world economy will have to adapt to a much lower level of efficiency, with higher manufacturing costs and less outsourcing. Both inflation and unemployment will be high. The result: We'll be looking at a decade of inflationary recession, with declining living standards.

We have already traveled a considerable distance toward de-globalization and should work towards reversing this trend. We should keep trade barriers down and international capital markets open. As protection against the possibility that governments and markets will fail in this attempt, investors should look in one direction - at gold.

In a world of inflationary recession, in which international investment opportunities are blocked and government bonds are dangerous, gold remains the most reliable store of value. Others will realize this. So investors with gold in their portfolios will at least have the satisfaction of increasing their capital, while others are losing theirs.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules