By Dr. Michael Lim Mah-Hui in the THIRD WORLD RESURGENCE #203/204 (JULY/AUGUST 2007) Magazine.

The volatility in the financial markets caused by the sub-prime crisis has been compounded by the speculative trade known as the ‘carry trade’. In the following article, Michael MH Lim explains how this practice of borrowing money in one currency with low or no interest and investing in another currency or financial instrument with a higher yield adds to the turmoil.

Dominance of finance capitalism

THE age of finance capitalism has eclipsed the age of productive capitalism. The amount of financial assets held worldwide and the volume of financial transactions, from currency trades to swaps to equities and bonds etc., dwarf the traditional measures of national capital.  According to the McKinsey Global Institute, the ratio of financial assets to annual world output tripled from 110% in 1980 to 316% in 2005. Even more astounding is the volume of financial transactions: the notional outstanding value of interest rate swaps, currency swaps, and interest rate options reached $286 trillion (about six times the global gross product, and up 82 times from a mere $3.5 trillion in 1990). Today currency rates are determined more by speculative trading than by the underlying movement of goods and services.

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