Over the past decade the condition of the international financial markets has changed radically. The international financial markets have evolved from a carefully regulated global system to a near free market driven system, causing a great deal of uncertainty and consternation in the global economic community. Ever since the Great Depression it had been widely believed that the safest approach to international trade and economic growth was through structural management and carefully planned state intervention. But with a significant slowing in global economic growth in the 1970s and 1980s, a new attitude in international financial markets soon emerged. That attitude has been resulted in dramatic movements away from managed global markets and toward greater laissez fare capitalistic markets in the financial sector. While the movement toward free markets has produced measurable growth, it has also worried many economists because of the potential instability free markets poses to the global economy.
This research examines the current situation of international financial markets, emphasizing the international debt crisis. Current trends in the global markets will be charted and possible scenarios for the future of the world economy will be discussed. The financial instability hypothesis will be closely analyzed, and an alternative to the traditional theory will be offered. Prior to this analyses, it will be useful first to discuss the recent regulatory framework of international financial markets from which the world has emerged.
Bretton Woods and the Regulatory System
Prior to the Great Depression, American domestic as well as international economic relations were rather clearly defined as laissez fare capitalistic relations with exceedingly little state regulation. At that time, there was no coherent intellectual alternative to the capitalist system. Even among the poorer countries of the world, there relationship to the global ...