Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
This is not the entire first world but let’s look at some of the main players:
The UK had staggered back from WWII now became the connector between the USA and the rest of
Europe
Japan
Japan began to be challenged by other Pacific-rim countries and the US began a decline
Unfortunately for them, Japan did their accounting wrongly and did not respond to bad debts. Their
investments were made in the USA but they did not really understand the environment. When the
challenges came from other Asian countries, Japan's economy deteriorated. Their Debt/GDP ratio in
2017 is bad bad bad - Debt >2x GDP
USA
The main market of the world was the USA - whose purchasing power was seemingly unlimited So what was happening to the USA during this time? Manufacturing makes only small profit margins whereas retailing achieves a much greater markup. So profit was made in the US and everyone was happy. The US changed emphasis to being a Service-based economy. Then came the information age – the tech revolution. The world moved onto a track towards globalization. Distances meant less and less – cheap labor became the desired resource of industry. USA's debt ratio is now >1x GDPChina
China took over as the number one manufacturing nation. Growth was huge and China geared up to meet the challenge. Looking back, they misjudged. They felt that the growth would always be there and they projected (by extending their forecast line) based on past growth, into the future and then designed factories to meet this demand. Unfortunately this growth could not continue. The US proved to be not the infinite market and then the recession hit. China was over capable – they could produce many times the demand. This resulted in spare capacity or underutilization Growth slowed but China is ruled by a Politburo who 'required' a 7% growth. This was achieved by expanding infrastructure - since China has a Command and Control economy. Of course there is only so much infrastructure that can be built, so this could only have a limited effect for a limited time. A killing factor is that this infrastructure growth was financed by debt (with little or no return/earnings) Then it hit the fan. China is now in a desperate situation with insufficient demand for its products, no more buildings, bridges and railways to build. During the last year or so, China has generated debt which the Government will not be able to resolve without a change in their method of governing. Chinese banking is not sophisticated enough to deal with their crisis. The growth of the middle class is the best way for their need for demand pull. Push side economics cannot prevail – China is following in the path trod by Japan, Korea and the Pacific Rim countries but information is supressed by the government so it is difficult to determine (we have to speculate) the extent So let us consider the 3 traditional paths to growth – More labor, More capital or More productivity. The path China has followed is 'more labor' – it will probably be countered (in the future) by the US with more productivity (through robotics). China has an aging population – China will be old before it achieves 'rich' and 1 worker will be supporting a larger number of people. The China’s proportion is 4-2- 1 (4 grandparents, 2 parents, 1 child). China's debt is greater than its GDP (by 2x) and growth in debt is greater than growth in GDP. Now China has lots of concealed debt – the figures supplied by China simply cannot be relied upon. The growth in infrastructure has been a wasteful exercise. There is now not much demand pull and the home grown burden of its demographics (caused by its 1 child policy) will cause stagnation Maybe a war would help and they WILL blame President Trump as the scapegoat for their woes. However, China does not have to fear an invasion by the US but, in turn, it cannot win a war against the US and the best defense China has against the USA is their distance from the US. Confrontations with US battlegroups seem to be iminent If China wants to sell its products it has to find customers. Oversupply has hit and also, customers have to be able to pay for the products. In the USA banks are printing money. Recently Wells Fargo executives have been charged with violating banking regulations by faking customer deposits in false names. The reserve requirement under BASEL II means they can lend the created money out 31 times (Reserve requirement = 3%). Interest is earned on the phantom money (but is it a 'real' profit?) it's just an entry in a ledger and not represented by any 'real' assets/investments. Derivatives and hedge funds are now created as a phantom economy ($700Trillion in derivatives - how’s that for a phantom) Where does all this take us? I have been really unhappy because I was unable to see where all this is headed. I seems to me that excessive speculation has perhaps contributed to the undoing of the present capitalist systemGlobal
Globalization results in Governments losing control - as global companies move across jurisdictions. The free market is a leveler that means the economy of the world becomes one playing field and the final level is an average This tends to causes the top to regress to the average. Unfortunately, the problem cannot be solved by bringing down the top layer. Wisdom suggests that rescuers should never put themselves at risk - this just challenges their ability to help others. The so-called free market is unregulated and chaotic. There is competition in the worst way – competition, unrestricted, is a race to the bottom. Control is not a bad thing – it can provide guides towards the objective of quality, fairness and results in structured balance between outputs - however it comes with dangerous problemsUSA now
The end to keep in mind (the objective) is: 1. Full employment 2. Acceptable standard of living for all 3. Happy population? happy country? (happiness for all? – depends on the first two) Governments can only govern within their jurisdiction. While we have separate nations we need to control our own nation – we have no control except in agreements between countries. Companies who operate in many countries will always seek to maximize their profit – that is what they do. If we do not think of our own country then nobody will – certainly not our competitors We only have control over ourselves and if we wish to preserve our standard of living we have to interact with other countries by agreements that do not damage ourselves. It does not benefit us if we export jobs and end up with a great unemployment problem. This way of thinking is called economic strategy. We have to maintain a strong economy or we will not be able to help others – if the world descends into economic collapse it will benefit nobody
Call Cliff at
Tel: (949) 813-1349
First World?
Cliff Beacham CPA | email cliffbeacham@cpa.com |
California | Tel: (949) 813-1349
This is not the entire first world but let’s look at some of the main players:
The UK had staggered back from WWII now became the connector between
the USA and the rest of Europe
Japan
Japan began to be challenged by other Pacific-rim countries and the US
began a decline
Unfortunately for them, Japan did their accounting wrongly and did not
respond to bad debts. Their investments were made in the USA but they did
not really understand the environment. When the challenges came from
other Asian countries, Japan's economy deteriorated. Their Debt/GDP ratio
in 2017 is bad bad bad - Debt >2x GDP
USA
The main market of the world was the USA - whose purchasing power was seemingly unlimited So what was happening to the USA during this time? Manufacturing makes only small profit margins whereas retailing achieves a much greater markup. So profit was made in the US and everyone was happy. The US changed emphasis to being a Service-based economy. Then came the information age – the tech revolution. The world moved onto a track towards globalization. Distances meant less and less – cheap labor became the desired resource of industry. USA's debt ratio is now >1x GDPChina
China took over as the number one manufacturing nation. Growth was huge and China geared up to meet the challenge. Looking back, they misjudged. They felt that the growth would always be there and they projected (by extending their forecast line) based on past growth, into the future and then designed factories to meet this demand. Unfortunately this growth could not continue. The US proved to be not the infinite market and then the recession hit. China was over capable – they could produce many times the demand. This resulted in spare capacity or underutilization Growth slowed but China is ruled by a Politburo who 'required' a 7% growth. This was achieved by expanding infrastructure - since China has a Command and Control economy. Of course there is only so much infrastructure that can be built, so this could only have a limited effect for a limited time. A killing factor is that this infrastructure growth was financed by debt (with little or no return/earnings) Then it hit the fan. China is now in a desperate situation with insufficient demand for its products, no more buildings, bridges and railways to build. During the last year or so, China has generated debt which the Government will not be able to resolve without a change in their method of governing. Chinese banking is not sophisticated enough to deal with their crisis. The growth of the middle class is the best way for their need for demand pull. Push side economics cannot prevail – China is following in the path trod by Japan, Korea and the Pacific Rim countries but information is supressed by the government so it is difficult to determine (we have to speculate) the extent So let us consider the 3 traditional paths to growth – More labor, More capital or More productivity. The path China has followed is 'more labor' – it
Japan
Agriculture
Industry
Services
Information
Technology
Finance
