Robert has invited me to write a blog twice a month to share my views on developments in the global economy and to discuss how these developments could impact everyone’s financial future. I am very happy to have this opportunity to communicate with such a large and highly motivated audience that extends literally all around the world. With our economic system in crisis and teetering on the verge of collapse, there should be no shortage of important issues to consider.
Let me begin by introducing myself and by telling you about what I intend to write about during the months ahead. Professionally, I think of myself as an economic historian and investment strategist – in that order. I have written three books. All three have been about this global economic crisis. The Dollar Crisis, published in 2003 and updated in 2005, explained why the crisis was inevitable given the flaws in the post-Bretton Woods international monetary system. The Corruption of Capitalism, published in late 2009, described the long series of US policy mistakes that led to this disaster. I have just finished the third book (and thank heavens for that, it was hard work). Its title is The New Depression: The Breakdown of The Paper Money Economy. It focuses specifically on the role that fiat money and credit creation have played in bringing about this economic tragedy. It should be in the bookstores in March.
I am an American, however I have spent almost all my adult life living outside the United States. I began my travels as a backpacker after graduating from Vanderbilt University in 1983. After an eye-opening year travelling around Europe, the Middle East, and South-East Asia on the cheap (which I financed by working as a chauffeur in Paris), I went to business school at Babson College outside Boston. In 1986, I flew to Hong Kong and found a job as a securities analyst at a Hong Kong Chinese stock broking company called Chin Tung. I had plenty of time to settle in and begin speculating wildly before the Crash of October 1987 knocked 50% off the Hong Kong stock market (and 90% off my super-leveraged portfolio) in one day.
I have worked in the investment industry ever since, as an analyst, an economist, or a strategist, with jobs in Hong Kong, Singapore, Bangkok, Washington (The World Bank), and London, where I was global head of investment strategy for ABN AMRO Asset Management. I also took a couple of years off and lived in Paris during the second half of the 1990s.
Today, my wife and I are once again living in sunny Bangkok. Most of my income is derived from making speeches and consulting. I also work as an adviser for a fund management company in Singapore. I hope to write more books in the future, but not the near future. After the last one, I need to take a break from that.
I find Macroeconomics very interesting. Over the long run, economic developments determine the kind of society we live in. And, in the short run, a relatively small number of economic factors has an enormous impact on the value of stocks, bonds, property, commodities, and currencies.
Honestly, the subject is not that complicated. Every economy can be broken down into a small number of component parts and the really big forces that affect those component parts are relatively few. Having said that, predicting the future is never easy. The best chance of getting it right results from having a clear understanding of the past, an understanding of the direction in which the most important factors are moving and the momentum with which they are moving.
If a person has a good understanding of what the important factors are, their history and their momentum or force, then he or she will have a much better chance of understanding how those factors will shape the future. In a sense, it’s like standing beside a train track and watching a train move toward you. If you can see where the train is coming from and how fast, then you have a very good idea about where it’s going (in the short term, at least) even if you can’t turn around and look to see where the track leads.
In that case then, what are the major factors or forces that determine the direction that the macro economy (and asset prices) will take?
One is credit/debt. Credit and debt are two sides of the same coin. One person’s debt is another person’s asset. Credit growth has been driving economic growth for the last four decades. It is certain to have an extraordinary influence on the direction of the economy far into the future.
Next is government spending. It is generally believed that the economic system in which the United States’ economy functions is Capitalism. It isn’t (more on that next time). The federal government spends $25 out of every $100 spent in the United States. Therefore, government spending is far and away the single most important factor affecting US economic output and, therefore, global economic output since the United States is the largest economy in the world.
Paper money creation by central banks (not just by the Fed, but by central banks all around the world) is another of the most important forces affecting the size and direction of the global economy.
Globalization is another. Not only has Globalization brought about enormous changes in how and where goods are produced, it has also caused a 90% drop in the marginal cost of labor, which has resulted in intense deflationary pressures.
Income and income distribution are also incredibly important as factors that will determine the future. Ultimately, the change in the median income of a society determines that society’s level of economic output and growth.
Technological change is also enormously important as a factor affecting economic growth. Moore’s Law – which holds that the processing power of computer chips doubles every 18 months while their price halves – seems to apply to all technology. That means our world will be unrecognizable within 50 years as a result of the tech revolution now underway.
These are among the topics I plan to write about in this blog over the months ahead. I hope to do more than simply comment on developments in the business world. My goal is to build a framework that will enable readers to analyze events for themselves and thereby make better decisions – both as investors and as citizens. For me, macroeconomics is not just a tool for finding the right investments, it’s also a tool for finding the right policies to promote global prosperity, or rather, in light of our current situation, to prevent complete economic breakdown. Until we as a society come to understand the true nature of this global crisis, we will not be able to overcome it. I hope you will give me feedback and share your thoughts with me along the way.
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