Global Interconnectedness and the Financial Crisis

Alexander Dawoody

No 213, Apas Papers from Academic Public Administration Studies Archive - APAS

Abstract: To some degree, nation-states still operate autonomously while dictated by demands of their local particularities. The interconnectedness of the global economic dynamics, however, requires nation-states to morph beyond their traditional capacities and adapt into the new environment that was created by globalization. As a consequence, the economic spheres of nation-states that manifest themselves in government-regulated private financial systems must also morph to adapt to these new realities. The financial systems that adapt to these new realities are better able to remain competitive and contributing to the fiscal health of not only the involved nation-state, but also to the health of the global network associated with it. On the other hand, the financial systems that remain outdated and continue operating within the pre-globalization of older structures will exhibit crisis that not only impact the financial health of that particular nation-state, but also the global financial network connected with it. Bailing out these outdated structures by governmental initiatives will only buy-out some time to artificially prolong the lives of these outdated structures and delay their ultimate collapse. This paper will examine the U.S. financial crisis that was illustrated in the 2008 failed mortgage investments, and the Bush/Obama bail-out remedies to sustain the U.S. financial system as a whole in order to prevent it from collapse. Based on lessons learned from chaos theory, this paper will address the fallacy of such approach in creating a catastrophe through artificial engineering, and it recommends the imperative of collapse in order for new financial system to emerge that is better capable in dealing with changes in the new global environment. The paper will structure scenarios during which government can play as a "kick" in generating de-equilibrium in the outdated financial system, and allow for the system to restructure itself with random, uncontrolled, and autopoietic phase-shift. From this phase, a new equilibrium will emerge that, although unpredictable, yet determined and capable of dealing with changes in the interconnected global environment.

Keywords: Complexity; Systems; Collapse; Financial Crisis; Interconnectedness (search for similar items in EconPapers)
Date: 2010-07-20
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