Since Bretton Woods the world was divided into two economic blocs. On
one side the soviet bloc, on the other side the rest of the world that
could be called Western bloc as non-Western economies were rare.
Economic trade between two blocs was limited and not relevant for any
of those economic blocs. We could say that whatever Soviet Union did
had impact into their bloc, but no economic decission among members of
its bloc had important consequences on the Soviet Union. Same can be
told about US economy into its bloc. US economy was the bigger economy
in its bloc, its difference with the second one was big both the US
dollar

In the nineties, two facts changed. On the one side, the Soviet Union
collapsed. At that time  whatever US economy did had huge impact into
their bloc, but no economic decission among members of its bloc had
important consequences on the US economy because they were small yet
compared to US economy. It gave a huge politic power to US governments
but, also, unintended economic consequences.

Regarding economy, something more important happened. The collapse of
the Soviet Union made that most Eastern European countries became part
of the Western economic bloc in terms of trade. Even the Soviet Union
itself. And, in particular, all those countries became important trade
partners of the European Union.

On the other side, in 2002, the Euro was introduced as a single
currency available for hundreds of millions. Under the European
Central Bank (ECB). Thereinafter, decissions taken by the ECB became
more and more important. Thereinafter, whatever the ECB decided had
important consequences in US economy. Higher and higher consequences
as the Eurozone´s economy grew dramatically as more countries joined
its currency. Reaching a point where ECB decissions have stronger
consequences on US economy than US government decissions on the
Eurozone, because the Eurozone economy became bigger than the US
economy and remain bigger today.

Economic techniques that American economists used, and still use
today, do not take into account external influences (1). It worked
while Western and Eastern economies were not big enough to produce
relevant influence on US economy. Once economies in Europe, Japan,
China and others are able to produce important influences in US
economy, the ceteris paribus (1) assumption does not work any longer
and their techniques do not produce any longer the results that US
economic authorities expected.

This is what has changed in the global economy in the last years. It
is not a unipolar world any longer. Any mistake by any economy
rebounds and hurts back as a boomerang and makes the problem even
worse for that economy. Techniques that do not count on external
factors become useless, even more during crisis.

Peace and best wishes

Xi

*** Somehow this thread follows the thread "Videogames, economic
predictions and gurus"
http://groups.google.com/group/world-thread/browse_thread/thread/10132d6c34bf9620?hl=en#


(1) Cēterīs paribus is a Latin phrase, literally translated as "with
other things the same." It is commonly rendered in English as "all
other things being equal." A prediction, or a statement about causal
or logical connections between two states of affairs, is qualified by
ceteris paribus in order to acknowledge, and to rule out, the
possibility of other factors which could override the relationship
between the antecedent and the consequent.

A ceteris paribus assumption is often fundamental to the predictive
purpose of scientific inquiry. In order to formulate scientific laws,
it is usually necessary to rule out factors which interfere with
examining a specific causal relationship. Experimentally, the ceteris
paribus assumption is realized when a scientist controls for all of
the independent variables other than the one under study, so that the
effect of a single independent variable on the dependent variable can
be isolated. By holding all the other relevant factors constant, a
scientist is able to focus on the unique effects of a given factor in
a complex causal situation.

Such assumptions are also relevant to the descriptive purpose of
modeling a theory. In such circumstances, analysts such as
physicists,
economists, and behavioral psychologists apply simplifying
assumptions
in order to devise or explain an analytical framework that does not
necessarily prove cause and effect but is still useful for describing
fundamental concepts within a realm of inquiry.

http://en.wikipedia.org/wiki/Ceteris_paribus



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