How Bad Can This Get, And How Fast?
There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.
And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.
Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.
This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.
It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.
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