Tuesday, 20 March 2012

World economy watershed: Three old things have ended. Three new things have started.

Louis Gave's insight titled "Some weeks have decades" will grab your attention if you think about mega-trends and the world economy.  h/t John Mauldin. (Skip Mauldin's chatty intro and go for the meat.)

Louis Vincent Gave
Three old things dating from 2001:
9-11  unleashed bi-partisan "Guns and Butter" policies in the US and a structurally weaker US dollar. (It's over. Spending is declining).
China joined the World Trade Organization     Global production lines were reorganized and China recycled earnings into an investment boom. (It's over.  Spending and growth are slowing in China.)
 Euro notes were introduced.   Excess consumption in the southern half of the Euro-zone followed.  (It's over. Money is heading back to Northern Europe.)

The three new things in 2011.
Internationalization of the Chinese renmimbi. Trade out of China is growing rapidly and it is going  to developing countries. We're not talking toys and underwear, but high value earth-moving equipment and telecom switches. More world trade will bypass the US dollar. "The internationalization of the RMB and the birth of the RMB bond market is likely to be one of the most important developments of the decade."
The rise of robotics, cheap and flexible. Did you read Foxconn in China is putting in a million robots in the next few years.  These robots are multi-tasking and re-programmable.  Cheap labour is going to be losing its competitive advantage and many jobs will shift back to developed countries for shorter shipping routes and to be near the customer base.  Combined with the renmimbi internationalization, China will bite the financial reform bullet and make their currency more desirable for trade.  Deregulation in China will trump manipulation.
The third is cheap US energy.  We are just seeing the beginning of the surge in new oil and gas.  Production will go where energy is cheapest instead of where labour is cheapest.  The US trade deficit will shrink greatly and this makes US dollars more scarce and more expensive to buy.

The article left me feeling smarter than I am.  The author takes you on an overflight of the world with a view down on the clouds of policy and competition.

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