Economic policy and politics need to meet in the middle
While economic policy and national politics have always been a couple, sometimes the relationship can be strained by the injection of partisanship. The current crisis requires insight into the actual issues to make policy suggestions. The United States is running a risk by having its economics so colored by bitter partisan divisions, as this is one area where there needs to be solidarity.
In a thought provoking GPS episode, Fareed Zakaria interviews two very different schools of thought on the actions necessary. His conclusions are that we must meet in the middle of the political agendas and look at the economic possibilities. Essentially, his view is that the U.S. government needs to spend more now while also reviewing entitlement programs to make sure each dollar is spent in the most efficient manner – a classic centrist approach.
It is always a risk for a country when political in-fighting colors international economic policy. That is true for Greece, Spain, China, Iceland, and, of course, the United States.
Brazil: A bright future overcomes inflation fears
Welcome to my first of many dispatches as director of economic risk analysis at Competitive Futures, Inc. I look forward to sharing with you some the insights we provide clients on current economic trends from around the world. Jumping right in: Is Brazil’s economy too hot?
These days, the orthodox view is that economic growth is GOOD, inflation is BAD. Most countries around the world have too little of the former and risk far too much from the latter, mostly from profligate spending and “quantitative easing.” Which is why it’s easy to see Brazil as a bright spot in the global economy. Brazil’s GDP growth is at a scorching 9%- which would normally be so hot as to cause worry of inflation. But wait – Brazil’s inflation won’t cause the same problems that the world will see in all the other countries at risk of inflation due to monster deficits. The land of futbol, caipirinhas and Copacabana is more dynamic and innovative than ever before, and will overcome inflation through investment.
Inflation in hot economies is often caused by a lack of sufficient infrastructure to meet growing demand. In Brazil, this won’t be a problem going forward, to listen to the country’s forward-looking economic policy makers. The country’s economic future appears to be poised to grow past any inflation concerns. The consumer market has grown exponentially for the past 15 years; massive investment opportunities such as the 2014 World Cup across Brazil and the 2016 Rio Olympics will see inflows from across the globe; and mass infrastructure projects in energy, transportation, and extraction (Franco fields and Tupí finds) are increasing. In a world where North America and Europe look backward to find their Golden Age, Brazil is looking at the next decades.
Imagine businesses looking for growing seeing Sao Paolo as a better bet for stability than the ailing eurozone or deficit prone North America. Brazil won’t be “one of the BRIC countries” it might be “where we have our headquarters.”
“This isn’t about growth, it’s about fragility”
We couldn’t love Nassim Nicholas Taleb’s work any more here at CompFutures. His book The Black Swan has become an instant classic for its application of scenario planning to financial markets, showing us that humility and constant skepticism are our constant allies when thinking about future. His work shows us that past performance is not necessarily future reality, and that we probably aren’t as smart as we think we are when making predictions about an ultra-complex, superconnected world.
Plus, he called the financial crisis well before 2008. It’s a small group of contrarians who got that one right. (Ahem.)
For a while, Taleb was in a self-imposed media blackout, terribly weary of having expressed the same ideas time and time again about how “eternal growth” isn’t the only scenario nations and companies should expect. Black swans, he contended in endless interviews, were still on the horizon, circling with plans to challenge the orthodoxies of Keynesianism, Hayekian free markets, or any other old fashioned 20th century notions.
With the new round of economic stimulus, bailouts, and other such faith-based superstitious economic rituals, Taleb is back on the scene to discuss why, contra Krugman, debt-based stimulus packages are making us less safe, giving us growth wrapped in a dangerous package of fragility.
A wonderful, weary, frank interview.
Fraying at the edges – Los Angeles out of cash
One of the great economic tensions right now in the Great Transition is between national organizations and smaller bureaucracies at the edge. For example: the economy melts down from an incredibly predictable housing bubble crash after a decade of equity destruction and flat GDP growth. Banks should fall, currencies should be scrambled. At the last minute, national governments step in, flood new printed money into the market, force stronger megabanks to buy weaker ones and – WHEW – everything can go back to normal.
The problem is, not everybody is a national government or a megabank with cellphone access to the Secretary of the Treasury. That’s when we see the smaller organizations at the edge begin to suffer the long term effects of this Transition.
We’ve spoken quite a bit about states, provinces, and smaller countries. Now, cities, municipal corporations, are on the chopping block. Harrisburg, capitol of Pennsylvania, is considering Chapter 9 bankruptcy as it considers its inability to meet the debt payments on critical infrastructure investments.
Today, it seems that a little backwoods village out west called Los Angeles is out of cash, may miss payments to vendors, and is in bad need of emergency financing.
Nation-states have rights that smaller units do not. Nations – provinces – cities – neighborhoods – individuals. If systems don’t work from the individuals on up, we predict an increase in bureaucratic peccadillos that nobody can solve through talent and hard work alone.
Spanish intelligence services: financial crisis is a conspiracy
Usually, it’s the job of tin-pot dictators like Chavez and Ahmedinejad to trot out their intelligence services and declare that the world is out to get them.
But when the Spanish intelligence service says the country is under attack from speculators in a clear conspiracy, it’s a sign of something deeply interesting. First, it’s a telltale sign that people high in the Spanish government are concerned that greater instability is on the way from the sovereign debt crisis, and they are attempting to control the narrative.
For those of us practicing future intelligence, this is a call for us to examine the broader political trends at play. Most views of the future take the Euroland to be a stable economic entity for all scenarios. Generally, a meltdown of the single currency and a brushfire war between Belgium and Portugal are considered far out. At the very least, most people consider the continued operation of the EU to be a given – after all, it has resulted in one of the most successful, peaceful, prosperous times in the history of the continent, especially after the tumult of the early 20th century.
Still, it may be that the success of Euroland has required all countries to play a part for which they are ill-suited. Spain still has 20% unemployment. Greece’s debt is out of control. In the days before the single currency, each country would have been free to fail, unsupported by the largesse of France and Germany. Today, they have been supported through their use of a stable, global reserve currency. Like so much, this may be borrowed equity, and borrowed time.
Imagine a future for your business, and indeed your nation, in a world where Europe re-fragments. It may be less far-out than previously thought.
China’s debt risk management isn’t much better
It looks like the United States and England aren’t the only countries facing billions in bad loans.
When you read “trillions of renminbi of defaulting loans already in China that no one is doing anything about,” you perk up about the coming crises in sovereign debt and realize it is truly global, with global repercussions.
Sign up for the free Competitive Futures Trend Report for more analysis on this topic.
Gregor Macdonald on the future of energy, economics, and society
For those of you who know Gregor MacDonald, you know you’re in for a treat with this podcast- a full hour of some of Gregor’s latest forecasts on energy, economics and society, insights you simply won’t get anywhere else.
For those of you who haven’t discovered Gregor yet, he is one of the top energy analysts in the world, and in our minds, one of the top analysts of anything, period.
This podcast covers sweeping ground:
- Why we’re at peak automobiles
- The end of cheap oil
- Coal’s role in the development of the world economy
- The return to human capital and small towns
- Why waterways are the future
- Our current period of “late phase economic decadence
- Why PAKISTAN holds the key to the Copenhagen Protocol
Crazier still, we could have spend ANOTHER hour talking to him and still not exhausted him of insight.
Enjoy.
The rap battle between Hayek and Keynes
Keynes and Hayek cutting heads, playing the dozens on their economic philosophies. Entertaining, and a fairly accurate breakdown of the Austrian school versus the resurgent Keynesianism which we are all experiencing.
That said, what if both these economic theories are dead and something new is on the horizon? Then this “battle” framework is distracting us from the hard work of original thinking.
Evaluating scenarios in the 2010 – 2020 economy
Earlier this week we examined how to evaluate forecasts, a skill that will be required as 2010 approaches and people get curious about 2020. Forecasts are a component of a much more useful tool, strategic scenarios. Via Zero Hedge
SocGen – Worst Case Debt Scenario
You are not crazy, and forecasting works
If you watch the TeeVee Box, the world and its institutions seem inherently irrational. It’s a world of crazy risk, cataclysmic downfalls, nonsensical solutions from people who ought to know better.
One of America’s high priests, Ben Bernanke, has just been taken on for a second term at the head of the powerful and enigmatic Federal Reserve bank. See my post from yesterday to understand why this surprised me. For a moment I had the all-too-common though:
In a world this nuts, why even forecast? I mean, why study housing prices, water tables, healthcare expenditures, and all the rest if the world comes down to the actions of a select, semi-rational few.
Then I thought it over. The last year has unfolded in a strictly rational way. The trick to understanding the future (and the method I teach) is to analyze a combination of three things:
- structural trends
- actor decisions
- wildcards
Understand what’s happening, the options available to actors in a system, and the crazy stuff that can happen when you’re not looking.
Look at the economics of 2008 – 2009 through that lens and it all makes sense.
This is the subject of today’s podcast, so KEEP THINKING.
About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.Connect with us
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