Study On The Formation And International Contagion Mechanism Of U.S. Financial Crisis Under The Dollar Standard

Financial crisis is the most traditional themes in the economic literature.Like a ghost,the development of the world economy has been accompanied by the financial crisis in the long river of human development history.Every time,the financial crisis has left economists endless thoughts.The theme of this paper is the formation and transmission mechanism of the U.S. financial crisis under the dollar standard.Since the outbreak of the sub-prime crisis which has developed into a comprehensive financial crisis,many academic researches have been carried out,and have achieved some encouraging results.At present,people mainly concerned about the causes or formation mechanism of financial crisis.From 2007 to the early of 2008, economists mainly analyzed the occurrence or the formation mechanism of sub-prime crisis.However,with the deepening of the sub-prime crisis which gradually becoming a global financial crisis,economists have begun to amend and develop the original understanding of sub-loan crisis from different perspectives.The explanation of the cause or formation mechanism of financial crisis includes:(1)U.S.financial crisis was rooted in U.S.monetary policy;(2)U.S.financial crisis was attributed to sub-prime and the deluge of financial derivatives;(3)U.S.financial crisis was related to the existence of key regulatory system defects of the U.S.government;(4)U.S. financial crisis was caused by the global economic imbalance,and it was the product of global economic imbalances;(5)U.S.financial crisis was rooted in the serious imbalance in the economic structure of the United States,especially a serious imbalance of the real economy and the virtual economy;(6)U.S.financial crisis was attributed to China's"currency manipulation"or the"over-saving"of the emerging market countries which was represented by China.Among the above six explanations, the first five are comparatively objective and scientific,and they have thoughtful analysis to some extent.It is undeniable that the first five explanations reveal the direct causes or incentives of the U.S.financial crisis.However,they are also questioned:What decides the U.S.monetary policy?What factors are contributed to sub-prime crisis and the deluge of financial derivatives?As the most advanced, perfect and best-regulated financial markets in the world,and the largest and the most international financial sector in the world,why the regulatory system of U.S. government departments now seems so obvious deficiencies?What are the causes of global economic imbalances and the serious imbalance in economic structure of U.S.? If deeply thinking these issues,the first five explanations will not fully explain the financial crisis in the United States.The sixth explanation is only a reflection of bias and ignorance of some scholars and politicians of Western,and it is nothing more than just clearing the charges for Wall Street.The author believes that the U.S.financial crisis is rooted in the dollar standard.Main points are as follows:Firstly,The contemporary financial crisis,particularly the financial crisis in developing countries is closely related to the dollar standard.Reviewing the research literatures about financial crisis,very few analyzes every financial crisis with the perspective of the monetary standard.However,through the analysis of the regulation of dollar standard and operational mechanism,the game rules,as well as the defects in dollar standard,and the frequent international financial crisis since dollar standard was established,the author concludes that dollar standard can not shirk its responsibility for the occurrence of the recent international financial crisis.With this logical starting point,the author believes that dollar standard is the rooted cause of the outbreak of the current U.S.financial crisis.This is not only the basic viewpoint of this dissertation,but also the innovation in it.Secondly,the inherent vulnerability of dollar standard leads to the U.S.financial crisis.Inherent vulnerability of dollar standard is shown in the following:lack of self-adjustment mechanism,new Triffin problems,missing of lender role of last resort, as well as the instability of U.S.hegemonic system.It is such inherent vulnerability of dollar standard that lead to the dollar becoming the world's largest risky factor,as well as dollar exchange rate fluctuations and a long-term down trend.It is just such reasons that triggered the U.S.credit crisis,as well as the dilemma of"paradox of dollars"and eventually led to the outbreak of the U.S.financial crisis.Thirdly,monetary policy under the dollar standard led to the U.S.financial crisis.The author believes that the essence of dollar standard is U.S.hegemony,so the U.S.financial policy under dollar standard also has the characteristics of hegemony. The U.S.financial policy under dollar standard includes:strong dollar policy, financial policy of"heavy inner and light outside",financial liberalization policy, floating exchange rate policy,as well as long-term low interest rate policy.Dollar standard brought about the global credit expansion,in particular,the expansion of dollar assets.The result is a long-term weakening of the dollar.However,it is contradictory with the strong dollar policy.As a result,it is this contradiction that triggered the sub-prime crisis and eventually evolved into a comprehensive financial crisis.Under dollar standard,with the status of currency-based dollar,the United States adopted a financial policy focusing on the domestic economy balance while ignoring the external economic balance.This policy has resulted in excessive supply of dollars,as well as expansion of domestic credit.However,the credit bubble will inevitably burst one day,and the outbreak of the sub-prime crisis is caused by the excessive expansion of credit.The United States leads the global wave of financial liberalization under dollar standard.Excessive financial innovation is one of the most direct results caused by financial liberalization.In the stimulation of excessive financial innovation,sub-prime and related financial derivatives are created rapidly and constantly multiplied.When secondary housing credit assets which are the origin of these innovative products arising problem,market built on the basis of the financial derivatives collapsed down like castles in the air.The United States has taken a long-term low interest rate policy,which is rooted in the dollar standard,as well as the special return mechanism of the dollar standard.Fourthly,the imbalance of the U.S.economic structure under dollar standard caused the financial crisis.Although there are many explanations to the serious imbalance of the U.S. economy structure,the author believes that the structural imbalance of the U.S. economy is most profoundly rooted in dollar standard.Therefore,if we say that the serious imbalance of the U.S.economy structure is the incentive of the U.S.financial crisis,then,dollar standard is the source of the outbreak of the U.S.financial crisis.It is just because of dollar standard that has caused over-consumption and long-term"double deficit"in the United States,and also led to"de-industrialization"and economic over-virtualization.However,regardless of over-consumption or"double deficits"under dollar standard,eventually it will be difficult to maintain.When this situation can not be maintained for long,the occurrence of the crisis is inevitable. Similarly,there is serious imbalance between real economy and virtual economy,and over-virtualization of the real economy also contains huge financial risks.When such risk is accumulated to certain degree,it is difficult to avoid the outbreak of the financial crisis.More and more modern financial crisis is contagious in the international arena. Under dollar standard,the international contagion of the U.S.financial crisis has its own unique characteristics.Under the different monetary standard,financial crisis has different contagion characteristics.Specifically,under gold standard and Bretton Woods monetary system,international contagion of financial crisis is reflected in the regional or global deflation.Based on the dollar standard,as a result of long-term floating interest rates,unsound adjustment mechanism of international balance of payments,as well as the existence of U.S.hegemony,the occurrence of financial crisis,transmission frequency and speed are accelerating,especially in the 1990s,the financial crisis was becoming more frequent and increasingly widespread.Moreover, under dollar standard,international contagion of the U.S.financial crisis shows a economic phenomenon of"United States coughs,the world catch a cold".Under dollar standard,with the economic strength of the United States itself,the U.S. financial crisis,mainly through currency issuance,depreciation of the dollar,bulk commodity prices rising,global inflation,the diminution in value of bond investments, psychological expectations etc.,passed on to the world.