Using my newly bestowed powers I thought I’d take up an issue that I and our Mystic disagree on.
It may be interesting, as we seem to be doing, to plot out the gradual decline of the west, constantly looking for new cracks developing and pouring out “oh dear, oh dear! Whatever will they try next? This is not working”. I cannot see any solution and it all gets depressing.
I want to take up a more optimistic direction, to a region where I believe a bright future lies. The East.
First here is a summary of where the Western consumer has got to.
“This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).
Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.
When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.”
The article then goes on to possible solutions, but in the current age of instant money movements across the globe it is increasingly difficult to spread the jam more thinly by removing it from the rich.
So let’s now take a look at what is happening in the East.
“No longer mere low-cost production centres, China and India are leading the Asian buying spree. Say hello to a new giant, the Asian consumer”
I’m not going to cut and paste bits because I believe the whole article is worth reading.
And then here’s a link to a publication by the deutsche Bank
Which covers the topic a little more critically.
The table in figure 1 showing the private consumption demand should be looked at with reference to a previous post I made quoting figures from the SF-FED, whose analysis showed that the US was largely a closed market and only (from memory) 14% or so was imported stuff. This is important, because with this topic I am not interested in the health of the western consumer market, but rather the ability of the Asians to absorb their own productive capacity thereby improving their own lives, and not relying on the Western consumer. The Asians do NOT have to take over the whole global pile of consumer goods, only a much much smaller part.
The Asian middle class is growing, salary levels are rising and with a controlled rise in the Yuan, which will also life up the other Asian currencies, they can restrain the imported inflation that is being created through the devaluing USD.
Can they do it?
Can they avoid the mistakes of the West?
Will the peak stuff knock the stuffing out of them?
Nobody really knows for sure, a lot depends on the Chinese. But I have a lot of respect for them, they are not stupid, they suffered in 1997 due to taking out foreign currency debt, but have recovered, and they have vast quantities of USD’s.
My money is on Asia. The journey won’t be easy, but the transition is happening.
(on a different topic, this is interesting reading