On Economic Solutions, the Relevance of Hope and The Miserable Reality of Inflation

Especially in the Forum at Rick Ackerman’s website, the debate on the fate of global economics continues daily. Today Rick posed a theme on whether there are any actual “solutions” and if there is “hope”. Rick writes great articles and this one evoked a treatment from me that goes like this:

While the issues of the day are unfortunate in many ways, there is neither a solution nor is the idea of hope even relevant. Hope for who? Hope for what? We are facing more debt and inflation, we are facing a global economic/societal shift marked by the decline of the U.S. led western region and the rise of the China led APAC region. That’s life in the history of the world’s economics today. Nadeem Wayalat, founder of the MarketOracle website posits in his latest article with his point that U.S. debt default of trillions won’t ever happen; the debt will ultimately default by “stealth inflation”. agree completely. In a recent article, he points out for example, one of the many China-related topics I often write about; 50% wage increases to Chinese workers who are facing inexorably rising food costs…just check the stats.

I’ll posit the following model of the future just with respect to the U.S. and European continent:

1. Currency purchasing power will decrease by 30% to 50% in the coming decade. Nothing new here, just a continuation of what’s been happening, although it seems accelerating of late.

2. Then, in the U.S. and Europe that continuing currency/inflation trend will make the life of approximately 300-500 million lower and middle class people’s lives more and more difficult. Why? Because wages and salaries in their sector of society certainly won’t keep up, and for various other reasons we can list.

3. The OTHER 300-500 million people in the western world, you know who I mean, the ones who are richer than ever, will feel the pinch but still live comfortable lives. They won’t go broke, they will be able to maintain reasonable lifestyles, send their kiddies to college, drive nice cars, take holidays, buy what they need and even what they want.

That’s it. So what? The impending crisis so many speak of is essentially a slow cycling non-event, a continuation of history where large groups of people across the globe are on the upward/happy side of change while other groups are on the downward/unfortunate side of change.

The above model of the future can be applied as well to the APAC region with China/India leading the way, and where inflation is and will be the most pervasive across the globe.

Knowing all of this, in this persistently critically necessary low interest rate environment where will the rich folks, the smart money put their money? Places like the stock market, oil, gold, new technology, agriculture commodities and other resources seems like reasonable and obvious choices.

Good luck and have a great week. With tomorrow’s elections, let’s see which way the market’s will pop…

Mario Cavolo
Shanghai

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