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Top trends for 2012 (economic, political)

2012/02/23 in Europe, Great Debate - Economics, macro trends, political economy, Rebalancing Global Finance

2012 Trends

In no particular order, here are the global macro trends that we think will be most significant in the current year (2012):

Continue reading here: Visit our Wiki to see the rest of this article.  Community involvement:  This document is dynamic, so any of our community is welcome to contribute, and to help shape our views of these important developments.  Please log in to our wiki, and feel free to comment…

See also: Top Trends for 2009

 

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by Brian Butler

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The debate of Big vs Small-government (part 1)

2009/03/01 in credit crisis, Great Debate - Economics, macro trends

This blog was originally posted in March of 2009 and is placed here on our homepage for all to see.  The idea is to stimulate philosophical debate on the role of government.  Which way do you see the world heading? The USA? Europe? Latin America?  Please login and post your comments below…

A hotly debated topic these days is in regards to the proper role of government in stimulating the economy.  The worry on one side is that without government spending, the economy would fall into a deep recession.  The worry on the other side is that government would become overbearing and crowd-out private enterprise.  In my opinion, both arguments are compelling, and probably each are ½ right.

To defend the position of increased government spending, I previously argued that if private investors only wanted to give their money to the government (by pouring money into Treasuries, and shunning all forms of risky investments), then the government had a responsibility to recycle those funds and reinvest them back in the private sector.  I also argued (here) that if the credit markets were frozen and if the financial system was broken (as it was), then traditional monetary policy wouldn’t work, leaving only the only tools of fiscal policy to shock the economy out of a crisis.

But, to defend the second position (that fiscal stimulus was dangerous in the temptation to increase the size of government, and decrease the role of free enterprise), I also argued repeatedly that the stimulus plan (as passed) was (a) not going to work, (b) too small and misdirected, and (c) just a bandaid: a temporary measure to buy time to fix the root of the problem: the deleveraging of the financial system.  See my suggestions of what to do here.

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Urbanization in the USA: a driver for global growth?

2012/04/17 in macro trends

An important global trend is “urbanization“.  But, while we often think of  the rapid urbanization of the developing world, we often forget of the importance of urbanization on the developed one.  Case in point is the recent article posted online by the consulting company McKinsey looking at the impact of urbanization of the US economy on global growth:

Exploring urban America’s economic clout

In a world of rising urbanization, the degree of economic vigor the US economy derives from its cities is unmatched by any other region of the globe. Over the next 15 years, large US cities are expected to generate more than 10 percent of global GDP growth—a bigger share than all their peers in other developed countries combined. McKinsey Global Institute’s new report, Urban America: US cities in the global economy, profiles their dominant role in US economic life and gauges how large they loom in the urban world overall. Read the report on mckinsey.com.

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Three trends for the next decade

2012/03/20 in macro trends, political economy, Rebalancing Global Finance

We just finished reading one of the most thought-provoking and interesting articles related to Global Trends.  It was written by Louis Gave of @GaveKal Research titled “Weeks When Decades Happen“.   I originally found this article posted on John Mauldin’s Outside the Box newsletter.  We recommend taking a serious look at these predictions of future trends.  A brief summary of the main points are highlighted below…

The three big events of 2001 were:

  • The terrorist attacks of 9/11. This unleashed a decade of bi-partisan “guns and butter”policies in the US and produced a structurally weaker dollar.
  • China joined the WTO in December 2001. China’s full entry into the global trading system signaled a re-organization of global production lines and China’s emergence as a major exporter. Export earnings were recycled into the mother of all investment booms, which drove a surge in commodity demand and a wider boom in emerging markets.
  • The introduction of euro banknotes. The introduction of the common currency unleashed a decade of excess consumption in southern Europe, financed unwittingly by northern Europe through large bank and insurance purchases of government debt.

     

All three trends have ended.

For the future, he indicates the following three important trends:

Instead of lamenting over the past, investors should be coming to grips with the trends of the future: 

  1. the internationalization of the RMB, 
  2. the rise of cheaper and more flexible automation, 
  3. dramatically cheaper energy in the US.

Why these three trends are significant was very well presented in his article.  We suggest reading the article in full here:  ”Weeks When Decades Happen“.  Some interesting comments are highlighted here:

  • “the creation of the offshore RMB bond market in Hong Kong, a development which may go down as the most important financial event of 2011.”
  • “ yesterday China’s trade mostly took place with developed markets, was comprised of low-valued-added goods, and was priced in dollars. Tomorrow, China’s trade will be oriented towards emerging markets, focused on higher value-added goods, and priced in RMB.”
  • Over the coming decade, cheap labor may not be the comparative advantage it was in the previous decade, simply because the cost of automation is now falling fast “
  • “one aspect of policymaking which makes China unique: the country’s leaders wake up every morning pondering how to return China to being the world’s number one economy and a geopolitical superpower in its own right (few other world leaders harbor such thoughts).”
  • Hence we are convinced Beijing will eventually bite the financial reform bullet, and RMB internationalization is the leading edge of that reform. In that light, the creation of the RMB offshore bond market is an event of much greater significance than is currently acknowledged by the general consensus.”
  • “This does not make for a stable situation. And given that the RMB is unlikely to replace the dollar as the principal global trading currency for many years to come (see History Lessons and the Offshore RMB), the likely combination of expanding global trade and a shrinking US trade deficit should mean that either the dollar will have to rise, or US assets will outperform non-US assets to the point where valuation differnces make it attractive for US investors to deploy dollars abroad (since US consumers won’t). “
  • “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 closest analogy is the creation of the junk bond market by Michael Milken in the 1980s. Interestingly, just as in the early 1980s, few people are taking the time to work through the ramifications of this momentous event. Understanding this new market will prove essential to understanding the world of tomorrow.”
  • “The likely evolution of the US from record high twin deficits to much smaller budget and trade deficits should help push the dollar higher over the coming years. And this in turn will have broad ramifications for a number of asset prices.” 

 

 

Trend: “economies moving backwards”? see this interesting analysis from @theeconomist  (

2012/02/23 in Tumblr blog imports

Trend: “economies moving backwards”? see this interesting analysis from @theeconomist (

United States’ economy: Over-regulated America | The Economist

2012/02/17 in Tumblr blog imports

“There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.” @theeconomist

Trend: increased regulation

read more here… http://www.economist.com/node/21547789?fsrc=nlw|hig|2-16-2012|editors_highlights

Economists’ Forum | Economics blog from the Financial Times – FT.com

2012/02/15 in Tumblr blog imports

Do you think it’s true?…”from Greece to Iceland, governments are acting as enforcers or even as collection agents on behalf of the financial sector — and Iceland stands as a dress rehearsal for this power grab.”.

Read more on ft.com here…