"Financial De-globalization"

There is probably no more important story in the world than this. The informal system which has governed the world's economic operations (often referred to a 'Bretton Woods II', in which saving nations finance debtor nations) has abruptly ended.

As always, look to Brad Setser for authoritative analysis thereof: Financial de-globalization, illustrated

I urge you to dig in, as this is one story we will all live with for a decade or (much) more, and is one poorly covered in most media, as it's (as you'll see) rather technical

Excerpts:

• The financial world has changed — even if the scale of the change isn’t obvious in the financial sector’s 2008 bonuses.
• Judging from the data on net flows, Bretton Woods II has in some sense come to an end. The world’s central banks are no longer building up reserves and thus are no longer a net source of financing to the US.
• Words cannot really capture the sheer violence of the swings in private capital flows that somehow produced a a rise (net) private demand for US financial assets.
• it is hard to look at these charts and conclude all is well in the world. Cross-border financial flows rose to crazy heights during the credit boom. Thank the shadow financial system. Over the past year those flows have collapsed with stunning speed.
• To date, the United States “sudden stop’ has manifest itself as a credit crisis not a currency crisis (that qualifier 'to date' scares the hell out of me)
• And it is also striking, at least to me, that financial globalization collapsed of its own weight, not because of any political decision to throw sand into its gears. That may yet happen. The political reaction to the financial excesses of the past few years is just beginning. But the fall in financial flows to date largely reflects the unwinding of a a host of leveraged bets made by the City and the Street — not demands from Whitehall or Washington.