Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Where can the west go from here? With a GDP per capita in the region of USD 35,000, how is the life of the midle class going to change in the next 20 years?
Besides, Asian emerging countries with GDPs ranging from 1,000 to 3,000, where will they be in 20 years?

The argument is clear that in a global economy, emerging countries will catch up and benefit from the goods and services that are available in the world. Assuming the finance instruments to allow the consumption are there to support it of course.

But the assumption that the life of the standard western citizen is not going to improve dramatically is too short minded. Who coul dhave predicted what happened in the west in the last 30-40 years? From the development of the information technology and it's impact in all areas of economic activity, improved productivities, telecommunication, health, transportation,...What lies ahead of us in terms of innovation?

There is of course a big difference in the growth of developed countries versus developing countries. The latter just need to emulate and copy the innovation that others create. The former need to continue innovating in order to keep the growth. This is the most important task for governments in the west: ensure we have a framework and an incentive structure that keeps innovation alife so it can bring the growth and job creation that is needed.

Barack Obama and the Nobel peace prize: Even greater expectations | The Economist

Barack Obama and the Nobel peace prize: Even greater expectations The Economist

A prize that recognised intentions, not achievements. This is bad for Mr Obama. It's bad for him because the expectation is now defying gravity. No matter what he achieves, there will likely be disappointment. Besides, I guess it will make it difficult for the US to use it's military power in the future, even in circumstances that justify it. Is this not an incentive that can ignite Iran or terrorists from around the world to attack the US? More so, in a weak economic circumstance that will make it more difficult to react.

Global government for a global crisis

One of the topics I frequently discuss regarding the current crisis, is that we do have a global financial system, but we do not have a global government model. The implications are profound. The impact of the capital markets in everyday life are huge, and indeed they are not going to diminish.
However, there is an obvious need to define global coordinated actions. Yes, we do have G20, IMF and the like, which are adapting their governance models to a more balanced world, with bigger roles to superpowers like Brasil and China. But, I always struggle with one issue:
Q:what's in the agenda of a politician? 
A.The next election.
Q: is this the best motivation to solve global and enduring issues like the global financial crisis?
A: obviously not.
Q: then, what are they going to do to solve the issues?
A: focus on what can give them an easy headline for domestic political consumption, i.e., limit bonuses of bankers, impose regulation to imports,...
You see what I mean.
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BBC NEWS | Special Reports | Global recession

BBC NEWS Special Reports Global recession

In an interesting debate on BBC held in Istanbul after the IMF meeting, the two most important questions that remained with an unclear answer where:
- Are we going to see growth soon, and what type of growth will that be?
- Are we going to create jobs again soon, and what type of jobs?

Clearly, both questions are related. The conclusion was that in order for growth to resume and jobs to be created again, it needs to be driven by private sector. But, with unemployment on the rise and not a clear sign of when it's going to start declining as Greenspan said yesterday, expect consumption to be weak for a while.

This is the recipe for continued stimulus packages. Although most of the first package has not been utilized, some voices like Paul Krugman, start advocating for more stimulus. Clearly, we've not seen it all in terms of fiscal deficit.

The G20 and Why Export Dependency And Global Imbalances Matter | afoe | A Fistful of Euros | European Opinion

The G20 and Why Export Dependency And Global Imbalances Matter afoe A Fistful of Euros European Opinion

In a previous post I mentioned that the post-crisis macromindset is going to be a very different one and that this is going be a multi year process. Now, here is an article that explains why the imbalances we've seen in the past need to change 180º before we see a recovery in the world economy that is not driven by the fiscal stimulus. In other words, only a coordinated more balanced economic growth in the future where surplus economies like China, Germany raise their domestic demand, and deficit countries like US reduce their budget and trade deficits.

The difficulty to execute this, is related to the lifecycle of savings. Countries with young adult median ages have a strong deficit fueled by domestic consumption and lending booms (US, Spain, Ireland, Eastern Europe,...). Countries with a mature median age have surpluses and their tendency to exports grows as the population ages (Germany, Japan, China,...).

This is the trick: how are we going to get surplus countries with ageing populations (in other words lower fertility rates) to increase their domestic demand? Anyone approaching retirement age in Germany is not going to start spending like crazy now. And for sure, they are not going to give birth to another kid.

What is the way out? Getting the young countries, with high fertility rates and high domestic demands to consume more. The name is Emerging Economies. The interesting challenge is how are we going to channel the lending funds that those countries need to absorb all the exports from the mature countries? Nice puzzle in the current re-regulation of the financial markets.