Global Economy (merged)

[Raxozanne]

Well its about time they read the writing on the wall.

[gg3]

Political & economic leaders have known this for at least two decades but have not admitted it in public.

Starting with Reaganomics, the clear understanding that continued growth is not possible, so the pie will not be getting bigger, so the goal becomes a question of distribution: how big a slice for each person at the table.

And we've seen the answer: the ruling elites go "mine all mine!" and try to grab as much as they can for themselves, while letting everything else go to hell on a sled.

Consider that Congress was still talking about more tax cuts for the rich during the very weeks that corpses were floating in the sewage-flood in Louisiana.

[syncline]

I read the article as saying that "expansion" has peaked. That's a long way from admitting that the world economy may face actual contraction.

[ohanian]

I read the article as saying that "expansion" has peaked. That's a long way from admitting that the world economy may face actual contraction.

If you can not expand any more then you must either

A) Contract

B) Stay at a steady state forever

Given that cheap oil is finite, I will place my bets on (A)

[FrankRichards]

I read the article as saying that "expansion" has peaked. That's a long way from admitting that the world economy may face actual contraction.

If you can not expand any more then you must either

A) Contract

B) Stay at a steady state forever

Given that cheap oil is finite, I will place my bets on (A)

Ahh, but the folks at FT think the contraction is only temporary, and expansion will resume in a year or so.

[BO]

Still, I have never heard the World Bank or the IMF admit limits to growth.

[MrBill]

Still, I have never heard the World Bank or the IMF admit limits to growth.

I think they are clearly referring only to the current economic expansion and not the end of growth period. Just like 1991-1999 ending in March 2000 marked the end of the previous expansion.

[peaker_2005]

Still, I have never heard the World Bank or the IMF admit limits to growth.

I think they are clearly referring only to the current economic expansion and not the end of growth period. Just like 1991-1999 ending in March 2000 marked the end of the previous expansion.

My view is that they think there is about to be some serious smackdown, at least that's what I take "significant fallout" as meaning. The article appears to be being tentative. It seems like they're trying their hardest NOT to trigger a collapse.

In nature, I believe that these people are suffering the disease of the sheeple: denial.

[MrBill]

The IMF, World Bank, OECD, G8, etc. are not in denial. They have all pointed out the dangers of the US' record budget, current account and trade deficits. And, the dangers of having a record debt, but a negative public savings rate.

The US government and its citizens are in denial because they do not believe they have to make any sacrafices and everything will be okay? That Asian central banks will go on refinancing the US' budget deficit. That interest rates will not rise far or quickly. That housing prices will remain high. That energy will remain relatively cheap & plentiful.

Who is in denial?

[Doly]

WTF does "the global economy has peaked" mean?

I understand that oil production can peak, but what kind of economic measurement is peaking when they say something like that?

[MrBill]

WTF does "the global economy has peaked" mean?

I understand that oil production can peak, but what kind of economic measurement is peaking when they say something like that?

I can't and I won't put words in their mouth, but what I assume they mean is that world economic growth in 2004 was 5.1%, and that recently they have downgraded the growth forecast to 4.3% in both 2005 & 2006.

In simplest terms, the population is expanding, say in China as an example, they need 8% growth per year just to absorb the number of people reaching the working age and migrating from farms to the city. If they fall short of 8% growth they have a serious dilemna as the social safeety net is essentially zero. Popular unrest maybe even revolution. The Chinese economy has been growing at 9-9.5% so any less would be hard as expectations have been raised.

So if world growth slows due to high energy prices, either more people live in poverty or less people climb out of poverty. Certainly world growth in the magnitude of 1.2% per year as expected in W. Europe, which feels slow, would be a disaster for the developing world who's population is expanding much quicker.

[Kez]

3. People work with the system because they believe one of the following:

i. they have no option
ii. they are working towards a better tomorrow.

So how can all have a better tomorrow, be more wealthy, if we live on a finite planet? Or is the goal to delude enough of the people so that they don't revolt?

I think you're missing some things. Some people work because they enjoy working. Some people work just to make a difference in other people's lives. Some people set themselves up with a very expensive lifestyle, and are stuck working because of their own materialistic choices. Some people have no option, simply because they made horrible decisions that are 100% their own fault, and now must pay alimony, child support, or some other set of bills and therefore must
stay in the system. Others have no option because of no fault of their own, like a car accident or death in the family.

Conversely, have you thought about why people don't work with the system and just fight it constantly?

a. They're lazy
b. They don't understand how the system works, so they fail constantly - they don't understand credit cards, or saving money, or managing their money
c. They think that they are entitled to things they didn't earn
d. They don't like to work and don't want to spend the time and money getting an education
e. They work hard but never seem to get anywhere, so they give up
f. They have been screwed over by people and corporations and feel that they will be screwed again by the system. For example, working for a long time somewhere expecting a decent retirement or benefits, only to get nothing.

In my experience, there are a lot more lazy, ignorant, and just plain materialistic people than there are people who have been screwed over unjustly. Any system, no matter what you call it, which rewards those who can work but choose not to, and punishes those who do work, is not just.

[falser]

The article is dead on. Liquidity contraction is indeed probably the biggest problem facing the US economy, it cannot go on forever. Once the easy money (free debt) disappears there will inevitably be some hard times for anybody that owes money, or lends money. Banks won't have increasing cashflow, average income people won't be able to afford million dollar homes, no more big screen TV's, no more 0% financed SUV's.

[MrBill]

The article is dead on. Liquidity contraction is indeed probably the biggest problem facing the US economy, it cannot go on forever. Once the easy money (free debt) disappears there will inevitably be some hard times for anybody that owes money, or lends money. Banks won't have increasing cashflow, average income people won't be able to afford million dollar homes, no more big screen TV's, no more 0% financed SUV's.

I think the IMF & others are more worried about the cheap money policy exported to the rest of the world. Easy money has not only buoyed housing prices while keeping long term rates low, but has been a shot of adrenillin for the world economy. Either countries have issued debt in USD carrying a low coupon or in search of yield money managers have bid up the price of debt in local currencies, in essense taking on more risk for less premium. Rising rates reverses that dynamic. It goes beyond the US consumer, but it starts with cheap money Made in the USA.

[threadbear]

3. People work with the system because they believe one of the following:

i. they have no option
ii. they are working towards a better tomorrow.

So how can all have a better tomorrow, be more wealthy, if we live on a finite planet? Or is the goal to delude enough of the people so that they don't revolt?

I think you're missing some things. Some people work because they enjoy working. Some people work just to make a difference in other people's lives. Some people set themselves up with a very expensive lifestyle, and are stuck working because of their own materialistic choices. Some people have no option, simply because they made horrible decisions that are 100% their own fault, and now must pay alimony, child support, or some other set of bills and therefore must
stay in the system. Others have no option because of no fault of their own, like a car accident or death in the family.

Conversely, have you thought about why people don't work with the system and just fight it constantly?

a. They're lazy
b. They don't understand how the system works, so they fail constantly - they don't understand credit cards, or saving money, or managing their money
c. They think that they are entitled to things they didn't earn
d. They don't like to work and don't want to spend the time and money getting an education
e. They work hard but never seem to get anywhere, so they give up
f. They have been screwed over by people and corporations and feel that they will be screwed again by the system. For example, working for a long time somewhere expecting a decent retirement or benefits, only to get nothing.

In my experience, there are a lot more lazy, ignorant, and just plain materialistic people than there are people who have been screwed over unjustly. Any system, no matter what you call it, which rewards those who can work but choose not to, and punishes those who do work, is not just.

You're crazy if you think people are "rewarded" for not working. Let's give this idea a decent burial, shall we? If you really think this, you simply don't know anyone who is out of work, long term. I don't mean recently laid off tech employees, who's best strategy is to wait and see, rather than take to the cornfields, either.

[cheRand]

Or maybe people mostly learn about the world around them from the cues that they get from other people and from TV. T

hey try to do their best at meeting their needs, but failures such as personal debt are pretty much isolated to a handful in their realm of intake at a time, mostly.

When others around them are successful, they have encouragement to plug along. But when a lot of people in close proximity are dissatisfied at the same time, it creates "hot spots" of dissatisfaction that can spread to other people also at the tipping point.

There are some patterns like this in other things: Viral marketing on the internet; disease epidemics; street riots; fads; political transformation.

But regardless of human character and motivation... (back to topic)...

The research coming out of the Institute for Strategic Competitiveness at Harvard Business School is encouraging local regions to find clusters of industry that are interrelated and share a competitive advantage based on location. They don't talk about peak oil, but do talk about availability of the "pieces" needed within an industry. So I'm guessing that smart corporations will begin to marshal in the components of their processes into regional areas. Another group, IMPLAN, says labor is usually the decisive cost factor in production. Course, that's way overgeneralized. But the point is:
1. Find your biggest cost. Find the place you can meet it cheapeast.
2. Surround yourself with the infrastructure to do it all in that area.
3. Create a regional powerhouse.

I'm reminded of the ordering of peasant society in Mexico, where ie, the musical instruments are from informal artisans in Michoacan, the pottery from Oaxaca, the fiber arts from Chiapas... and they all went to market in Market centers. Only today, market centers are not needed. These are just distribution functions. I think prices will reflect transkportation from the complex production center.... and that small local companies will get in under the transportation cost niche.

[threadbear]

Cherand, Interesting post. I'm looking forward to hearing from you more often.

[SHiFTY]

Gerard Lyons, chief economist at Standard Chartered, said the global economic cycle had peaked, pointing to rising interest rates, the potential for slower growth in the US and China and the fact that the Japanese and eurozone economies were not in a position to take up the slack.

"The next six months will be a challenging time, dealing with the high oil price, and global imbalances loom. The global economy has peaked and liquidity conditions are set to tighten. When things turn around you can have significant fallout."

The interesting thing about recession is that governments can usually borrow and spend to stimulate the economy. However the US has been maxed out on its credit card for some years now; and is unlikely to be able to finance any stimulatory expenditure. In fact it will probably be forced by creditor nations to do the opposite, cut spending and raise taxes in an attempt to balance the budget.

That didn't work very well in the 1930s.

[Barbara]

From a journalist point of view, it looks very funny how they used the word "peak" (economy).
I'd expect it from a peakoiler, seeing peaks here and there, but how this word came to mind of those flat earth economists?
I bet there's a lot of "peak" talks behind the FT curtain... they are getting used to the word without using it in their oil articles.

[khebab]

The article is dead on. Liquidity contraction is indeed probably the biggest problem facing the US economy, it cannot go on forever. Once the easy money (free debt) disappears there will inevitably be some hard times for anybody that owes money, or lends money. Banks won't have increasing cashflow, average income people won't be able to afford million dollar homes, no more big screen TV's, no more 0% financed SUV's.

I think the IMF & others are more worried about the cheap money policy exported to the rest of the world. Easy money has not only buoyed housing prices while keeping long term rates low, but has been a shot of adrenillin for the world economy. Either countries have issued debt in USD carrying a low coupon or in search of yield money managers have bid up the price of debt in local currencies, in essense taking on more risk for less premium. Rising rates reverses that dynamic. It goes beyond the US consumer, but it starts with cheap money Made in the USA.

You're right, there are basically two ways to influence economic growth:
- interest rates (cost of money);
- oil prices (cost of energy);
Low rates have allowed cheap money to inflate the housing bubble but rising energy could jeopardize the economic growth and burst the bubble.