Future News in 2030s: Global Economic Crisis Makes a Comeback

  Predicting an economic crisis is both a challenging task and also a risk worth taking. There are economists in history who rightly predicted the crises. Robert Shiller bluntly warned about a dot-com bubble in his famous book “Irrational exuberance.”

In 2006, Nouriel Roubini told audiences at International Monetary Fund that America was about to face a housing bust, a sharp oil shock, a sharping declining consumer confidence and inevitably a deep recession.[1] And he is right.

 We have Crash Proof: How to Profit from the Coming Economic Collapse(2007) by Peter Schiff and John Downes and America’s Bubble Economy: Profit When It Pops(2006) by David Wiedemer, Robert Wiedemer and Cindy Sptizer that sent a clear message that America’s economy was about to pop. Most economic laureates failed to predict or at least give hints on so-called the most severe economic crisis since the Great Depression. 

Reader, I got a sense that we will meet another severe global economic crisis in somewhere around 2030s. There are, you know, reasons to believe that the world economy will meet the crisis in the next two decades or so. That crisis might originate from either US or today emerging markets. Is the crisis inevitable? In a nutshell, it does.

The practices of American capitalism make the crisis inevitable and it is in her best interest to do so. In America, the laws don’t follow the greediness and competition quick enough. Traditionally, American politicians won’t make law regulating the birth of Fresh Business Environment. One may remember the dot-com bubble in early 2000s. The fresh business environment is the Internet. Internet is something new and profitable at the time.

Investors were competing for investing in bonds and shares markets. Their greediness inflated the true value of the asset and the Internet market eventually failed. When there is a new business environment, there is a crisis. Dr. George Friedman, authored The Next 100 Year: A Forecast for 21^st Century observed America meets a crisis every fifty years. An economic crisis is like a cancer, it needs about 20 to 30 years to be born.

At longest 2015, America will see a real and strong recovery from recent crisis. Bubble in 2000s caused by a new business environment in the Internet market and economic crisis in 2008 caused by a new investment opportunity in housing market. I have faith that American politicians know well when their economy would meet the crises in the past years but they were not in a position to stop it.

Does it sound silly? Nope, it doesn’t. They allowed investors to compete without any interference.  Google, Yahoo! Inc. and Microsoft got rich and strong because of suppressing American middle class[2]. And the government let it be.  They created second generation the rich and made the rich crate the jobs for the poor. The bubble will eventually pop and then comes the law.

 This has been American’s economic cycle and it won’t be changed. Again, American’s economy will bounce back by 2015. At the eve of President Obama term, there should be a short recovery.  And the new business environment will come. I’m not sure about what’s kind of new business will look like. American’s economy will be seeing a great boom from 2020s to 2030s driven by that new business environment.

 Robert Shiller recently wrote that the next bubble’s driving force is farmland, reasoning that that a high demand for foods in the future will make investors interested in that field. Then, the investment will spur economic growth for years as increasing people are keeping investing in the hope of gaining profits.

History doesn’t repeat itself but it does rhythm. The next bubble’s driving force may have its root from stock market or Internet market. Recently, US have a law regulating the occurrence of bubbles in both markets. In the future, the politicians may change it as they used to do in the past or they just loosely implement and enforce it. The crisis will happen again after the bubble reaches its peak. In 2030s, the World economy is not as dependent as on US ‘economy as today. However, it still gets the strengths to bring down the whole global economy.

I’m afraid that that crisis is the most severe one. In 2030s, economies are very much connected to one another. The domino effect resulting from the crisis is very out-of-control, I’m thinking. There are things that all leaders in every country need to do to reduce risks in global economic system for the sake of all.

We should the take into account the risks in emerging markets that have the same potent to bring down the world economy in 2030s. Speculation is also high that the crisis in 2030s will come from China. By 2030s, most coastal regions will be industrialized and rural areas will be being developed rapidly. As Chinese people are getting richer, they need a more comfortable place to stay. At the same time, the houses in coastal areas will be old enough to construct new ones .So, investment in housing market will be ubiquitous in China at that time.

 After a while, all people will put their eyes in housing market. China’s economy might be the largest at that time but it is a slow-growing one after reaching the peak.[3]  To solve the slow-growing economy, China’s central bank should lower the interest rate to spur growth and thus further push up the investment activities. China’s economy might be of the same style of those of US.  The next bubble may also be driven by a property boom in China in 2030s. When the bubble burst, we are down with China. Stock and Internet bubble are also likely candidates. It is also likely that the next bubble comes from India or Europe. I will update this article as trends warrant.

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[1] Crisis Economics: A Future Crash in the Course of Finance by Nouriel Roubini and Stephen Mihn.

[2] During the Internet bubble in the late 90s and early 2000s.

[3] International Monetary Fund’s Prediction

Coalition Government of the World 2.0: The Future of 21st Century

  Coalition Government of the world   is a phrase I coined to describe current state of the world unfairly dominated and set the rules of the game by a small group of rich nations.  Victories of the World War II and their allies met in Bretton Woods to set up IMF and the World Bank, two institutions which are running in favor of the interests of the West.

Other many inter-governmental organizations/institutions are also the products of the West. There are instances that the West-dominated institutions such as IMF and WB are just new version of Western colonization.  When financial crisis came to East Asia in 1997, IMF asked the affected countries, in return for loans, to devalue their currencies, to open banking system to foreign competition, to ease restrictions on doing business

It has been a view getting widespread support that IMF dealt unsuccessfully with Asian Financial Crisis. IMF actually did a good job for the West.  The problematic countries must devaluate their currencies in order to get financial support. Some Asian countries were very much indebted to the West. When they devalued their currencies, the debts became larger than it should be

. Opening banking sector to foreign competition allowed other strong competitors to enter and dominate the host countries. IMF failed to contain effect of Russian financial crisis in 1998, Mexico tequila effect etc. IMF fails to effectively manage crises in virtually everywhere except in the West. IMF is doing a modest job in term of European sovereign debts.

World Bank focuses on only economic growth as a parameter of measuring poverty reduction of a country. Growth in some countries is occurring without covering the poor and sometimes even at the expense of the poor.[1] Some suspects World Bank of generating world poverty. Other the West-dominated institutions/organizations are doing the same job.

Western governments, by all accounts, are democratic both in soul and body. However, they have joined together to formed a Coalition Government.  And they have become a Government of dictators since then. Developing countries have been suffering endless suffers from sources of Western conduct.  One of my friends explained to me that the West is kind now. I say “Nope, they are not kind. They really are being kind only. They need more consumers from Sothern world to buy their goods and services.

The World is not as peaceful as it has been. At the dawn of 21^st century, the world is in a big chaos. America is no longer a dominant power. Brazil, Russia, India, China and South African collectively known as BRICS, will account for over 50% of world output by 2050, according to IMF’s prediction.  This group of countries is qualified enough demand for changes to the rules set by the West since the end of World War II.   

American is in transition, so does the world. Things are evolving faster than we expect. Exorbitant privilege of dollar is now in doubt. Dollar is no longer an unquestionable currency. Many world-class economists believe the pillars of global economic growth are based on three currencies, US dollar, Euro, and Yuan. India will be soon added to the group, I think. IMF used to hint that India will be both the third largest economy by 2050 and world fastest growing economy after slowdown of China’s economy in coming decades.

Michael Spence, a Nobel laureate in economics, provocatively puts: “By mid-century, India and China will account for 2.5 billion of the 3.5 billion additional people with advanced-country incomes. By themselves, they will cause global GDP to at least double in the next three decades, even in the absence of growth anywhere else.”[2] Developing countries will play a significant role in setting anew rules for Government of World. I would love that one to be called “Coalition Government of the World Version 2.0. And Government 2.0 will write the history of 21^st century.

The current selection of IMF managing director best describes changes done to a global institution. Developing countries rally behind a voice, although not behind a candidate, that the next IMF director should not be someone who comes from Europe. It is an unwritten rule that WB is headed by an Americans and IMF is headed by European.

China is now functioning as World’s Factory. India is now world IT’s center. Russia has long been world’s gas station and Brazil is now World’s market. Developing countries were included in a new-formed government and it is no doubt that a greater say, willing or unwillingly, will be given. I believe it is the end of the beginning not the beginning of the end. ^_^

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[1] Creating a World without Poverty: Social Business and the Future of Capitalism by Dr. Muhammad Yunus.

[2] http://www.thenextconvergence.com/op-eds/18-op-eds/238-asias-new-growth-model

The Clashes of Capitalisms and the Birth of a Globalization with Evil Face

  Nandan Nilekani, a former CEO of Infosys, made an international alarm when he said “The World Is Flat.” In fact, it is a metaphor he used to describe the force of globalization leveling the round world to a level playing field in which all people have more opportunities than ever to compete in global economy.

Thomas Friedman took that clause as the title for his ground-breaking book “The World Is Flat: A Brief History of the Twenty-First Century” which later earned him a Pulitzer Prize, a highly respected award for Journalists in USA.

 I agreed with him on most parts of the book. There are some sticking points that I can’t. It is true globalization makes people more connected than before; the world is being flatten but it not flat. Globalization intertwines economies amongst countries.

 Anyway, it hasn’t reduced the possibilities of war. We didn’t change the war by giving peace a chance and what we did change was nature of war. Some readers might question: What did you exactly mean by the change of nature of war? Since the end of the Cold War, the world, on the surface, has been overall peaceful.

It is very wise of superpower leaders that they have made the war very much invisible so that the pressure, both from domestic voters and outside world, is not that much. In the ancient war, Generals led the troops to conquer enemies to snatch natural resources, labor, and territory. In 21^st Century, the Generals have reincarnated as who we now call CEO of Multinational Corporation.

The CEO of a corporation sets up strategies to invade, dominate and exploit over the advantages of the host countries. In the past, the invaded would use defensive forces to protect their countries. At present time, they use taxes and regulations to protect their market and producers. And that’s why I say we didn’t change the war but we changed the nature of one. >_<

Thomas Friedman divided globalizations into three versions. He called the period between 1492 to 1800, during which Columbus set sail for a discovery ended in opening the trade between new and old world, Globalization 1.0. The world shrank from a large size to medium size and the main driver of the move was Governments.

 He called the period between 1800 to 2000 Globalization 2.0 that shrank the world to a small one. Multinational corporations were its momentum.  And the period from 2000 until now he called globalization 3.0 in which new-found power for individual to collaborate and compete globally.[1] According to him, the world in globalization 3.0 is a small flat one.

My perspective is that Globalization 3.0 nearly comes to an end. A small and flat world makes the capitalisms meet and clash with one another. I divided capitalisms into three categories[2].  We have America-style capitalism, the value of which we are already familiar with.  We have capitalism with Chinese characteristics. Last but not least, we have capitalism with Arab countries features.[3]  

For Chinese capitalism, the leaders take temporally their people liberty and give them an increasingly higher standards of living and a good education. For Capitalism with Arab countries features, the leaders take their own people liberty and give their people the ignorance and absolute destitute.

I am here today to dismiss a fatal fallacy about globalization[4]. Some people think that the West is trying to shift their industry-based economy to service-based one. It doesn’t make any sense. For example, an air company must buy planes to serve its consumers. A car driver must buy a car before starting doing business. If they shift to service-based economy, the will run a large trade deficit with developing countries that are fast developed in term of industry sector. I’m sure that they won’t let it happen. By reading previous articles, you might get a sense that developed countries are trying to revitalize their disadvantaged industry sector via economic crisis.

I see the clash between American-style capitalism with that of China. The problem is about the competition. American cannot compete with China in term of manufactured goods. CEOs of will cut social benefits and wages and so on they used to offer to workers to make sure that they are more competitive. And countries with China-style capitalism will do whatever it takes to outsmart their competitors.

As a result, all workers of the world will suffer from that competition and the winners are CEOs of giant companies. Globalization connects people but it divides the society. The rich is getting richer and the poor is getting poorer. The clashes of capitalisms give birth of a globalization with evil face. I call it “Globalization 4.0.” Each country is seeking export space with decreasing consumers. And the world economy will eventually fail. My insight is that the world will meet another economic crisis somewhere between 2030 and 2040. Why? How? I will explain to you in next article. 

                                                                                                                                 

We are badly in need of Globalization 5.0. It should be a globalization with divine face which will benefit all members of global village. For sure, we need a revision of capitalism. Thanks for reading dear reader(s).

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[1] He refers to the outburst of Information Technology. He mentioned about the using of email, using of social networking, Google translate and so on. It is not only connecting people but also giving more business rooms to people.

[2]I borrowed some ideas from Thomas Friedman.

[3] I refer to only some Arab countries seeing protests for changes.

[4] War for Wealth by Gabor Steingart.