What Happens In Vegas Doesn’t Stay In Vegas: National Policies Have Global Consequences

“Thus, national policies affecting capital flows can transmit multilaterally. This transmission has not been fully appreciated by national policymakers. Further, they may not have incentives to take full account of the cross-border effects of their policies. Looking ahead, the upward trend in the volume of capital flows can be expected to continue, making it ever more important to address the associated cross-border risks.”

The Multilateral Aspects of Policies Affecting Capital Flows, International Monetary Fund, October 13, 2011.


“These two-way capital flows created a complex web among markets and institutions, some regulated and some not. Against this background, case studies were prepared for European banks and U.S. money market mutual funds (MMMFs) and for German banks and U.S. mortgage-backed securities (MBSs). Another important case is that of the near failure of the American International Group (AIG), which turned out to have complex and systemically cross-border linkages with other global institutions and markets.”

The Multilateral Aspects of Policies Affecting Capital Flows – Background Paper, International Monetary Fund, October 24, 2011.


“Why might we expect a rise in U.S. bond yields to raise bond yields in other countries? First, openness of financial markets and arbitrage opportunities may mean that interest rate shocks are transmitted across economies. Second, a closer real integration of two economies may imply that a monetary policy shock or an inflationary shock in one economy may lead investors to expect similar developments in another, thus inducing a significant transmission of shocks in bond markets and money markets.”

Vivian Z. Yue and Leslie Shen, International Spillovers on Government Bond Yields: Are We All in the Same Boat?, August 01, 2011, Blog at website of the Federal Reserve Bank of New York.


“The trend toward greater diffusion of authority and power occurring for a couple decades is likely to accelerate because of the emergence of new global players, increasingly ineffective institutions, growth in regional blocs, advanced communications technologies, and enhanced strength of nonstate actors and networks.”

Global Trends 2025: A Transformed World, National Intelligence Council, PDF version, November 2008.


The words in the quotes above are dispassionate, but the realities to which they refer get in our faces every day.  The mix of global economic processes and competitive and uncoordinated national policy making creates a bubbling soup of chaotic change.  (Go-it-alone economic policy making by sub-national and regional governments surely contribute to this soup of chaotic change as well.)

This environment makes decision making and planning very difficult and prone to error for the majority of the world’s investors and business owners and managers. It destabilizes the global world of work and damages the families and communities that depend on that world.  And it confounds policy experts because it is not possible to find logic in the illogical.

Moreover, this environment plays into the hands of the bad actors in the world economy, who promote and thrive on the high volumes of misunderstandings and errors that now plague economic and policy decision making at every level of organization in the world economy.

For more on this topic see my post, Fragmented and Weakened Global Governance Perpetuates the World’s Employment Crisis, September 9, 2011. Also see the topic Economics and Economic Policy (under U.S. Economic Policy heading at right).