Dollar Circulation, Virtualization Of Economy And American Financial Crisis

In2008, the America Financial Crisis hit the world economy and caused a greateconomic loss. The America Financial Crisis originated in the subprime mortgage crisis，andcontinued to spread and eventually affected other countries. The Financial Crisis is changingwith the economic development, thus the reasons for the outbreak of the American FinancialCrisis is complex.This paper analyzed the formation process of the dollar circulation and the operatingmechanism of dollar circulation in different international monetary system. In the period ofthe Bretton Woods system, the outflow of US dollar via the financial channels, and the inflowof US dollar via trade channels, we call this operating mechanism Dollar Circulation ModelⅠ.In the period of the Jamaican system, the outflow of US dollar via the trade channels and theinflow via the financial channels, we call this operating mechanism Dollar CirculationModelⅡ.In ModelⅡ the dollar circulation caused global economic spiral imbalance and theglobal excess liquidity problems. Global economic imbalance and excess liquidity areinevitable in dollar circulation. As long as the circulation can be sustained, the problem ofglobal economic imbalance and global excess liquidity can not be resolved. In the situation ofglobal economic imbalance and global excess liquidity, the economic operation of the UnitedStates has become more virtualized.The maintenance of global economic imbalance successfully met the material needs ofthe United States, and made worldwide entity economy the support for the development ofvirtual economy in the United States. And the excess of global liquidity ensured the inflow ofUS dollar, generally these dollar are used to buy US financial asset. The inflow of US dollarpromoted the development of the virtual economy of US. Financial innovation and leveragedtransactions are accompanied with virtualization. In modelⅡ the dollar circulation provided aconstant capital inflow which eventually caused the excessive virtualization of US economy.Changes in monetary policy caused an impact on the US economy, made the asset bubbleburst and leaded to the American Financial Crisis.In brief, the dollar circulation caused the problems mentioned before, and it’s the basicreason of the outbreak of American Financial Crises.