Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: russwinter who wrote (21426)	1/16/2005 1:00:23 PM
From: Haim R. Branisteanu	Read Replies (3) of 116555

There are few things that have changed over the last several years which many ignore due to the intensive confetti printing by most CB’s to avoid recession. What happened in the big picture is the hollowing of the manufacturing base of the “industrialized nations” who converted into service industries and manufacturing of “financial derivatives” which were bought also in big part by those countries who started to be the “new industrialized nations” who actually manufacture the various “widgets” we need. Due to the lack of need of heavy investments in industry and the printing of money to avoid a deep adjustment recession a phenomena, which I found that few talked about happen. Less production of widgets generated more layoffs, recession and low inflation due to lack of demand. Printing money in the “industrialized days” brought about inflation and currency depreciation. What actually happen was that the shift to the service industry were investments to generate a workplace are a small fraction from the cost in real manufacturing avoided the pressure on interest rates as funds were ample. Further the growing pool of pension funds and annuities generated by itself a new self-sustaining “industry” and heighten the money velocity in the market were every intermediary takes a cut on the expense of the “real pension / compensation of recipients in the future - actually societies deferred the payment of the loans taken form recipients to pay for those financial alchemist who produce nothing except to purloin their salaries from the savings of others.This stolen money is part of the reson higher prices and more demand in housing. - after all it is "free" money. On the other hand as manufacturing moved to low pay countries even with the exceptional growth in money supply the “added value” to manufacturing goods remained the same only costing a fraction form let say doing the same thing in Europe or North America – and by thus keeping inflation in check in the developed nation at the expense of high inflation in the low cost countries. Another factor that added to the low prices of widgets was computerization and automation which are nearing their full potential whereby, substantial improvement in computing or automation will add very little to lower widgets cost (think about word processing – how much faster is a document created today with double computing power?). OK and what that has to do with housing ? Well it has to do a lot as interest rates remained low at huge increases in money supply, inflation tame on the expense of coming years, service wages increasing on the expense of the future compensation of savers which enabled payment of ever higher mortgage payments for bigger homes. Further the spurt in new born survival rate and substantial population growth in developing countries put a further buffer on wages but fueled the demand for shelter world wide. In a way it is a great world wide ponzi scheme who no one keeps checks and balances with loans for present consumption and pay back not in the foreseeable future. The signs of this scheme coming to an end is reflected in certain but not all commodity prices which commodities we actually need and are not easy replaceable, like crude oil, industrial metals coal and the like – next we will see the price of water going up and as a follow up crops who need irrigation. The process may take several years do make a real dent in buying power and inflation but the collapse would be inevitable if stringent measure will not be taken immediately – which I speculate they will not. IMHO the most important task at hand is forcefully lower the birth rate around the world and the printing of money. Well it is much more to add to that but will stop for now, one thing is for sure the future will not be as rosy as many anticipate and the what people call today money will prove to be what it is color printed confetti or worthless electronic bytes stored on computers as money to be exchange in worthless confetti..

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