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March 2016 Economic Overview

How does a demagogic opportunist exploit a divided country? How did Hitler come to power in Germany or Mussolini in Italy? Watching Donald Trump’s fashion show, I am beginning to suspect, or fear I understand. The danger is that the electorate becomes de-sensitized to his absurd outbursts. Trump must be taken on by one electable candidate and the contenders know which is best placed to complete this task. It is time for several of them to fall on their swords.

Though the US economy seems to be a brightish light on the horizon, there seems to be a growing fear that the rich world’s weapons against economic weakness no longer work. Despite central banks’ efforts recoveries are weak, and few on the ground, and inflation is low. For all the cheap money sloshing around, growth in bank credit has been dismal. More can be done but central banks will need help from governments. It’s time for politicians to join the fight alongside central bankers. Public spending could be financed directly by printing money; Wage and prices could be mandated through government incomes policies; while this involves risks, waiting raises the specter of having to rely on extreme action. Multi years Infrastructure projects to fix bridges, roads, and buildings would add predictability to worker expectations. Deregulation would also help. Cut the red tape. Zoning laws are barriers to new projects and tax codes are too complicated. America remains the world’s indispensable economy, dominating the brightest, brainiest and most complex parts of the human endeavor. Its capacity to influence will linger and even strengthen though its economic weight as a percentage of world trade declines. The growing gap between its economic weight and its power will cause instability and conflict if not handled properly. Given its present political atmosphere, expectations are dimming. America’s grip on the global economy helps organize, provide access, enrich bosses and annoys the rest of the world. And here comes China.

Euro Zone

happy-days

The migrant crisis sweeping Europe is likely to get worse before it improves. Tempers on all sides are shortening. Head of the Bank of England has dampened expectations of an interest rate rise this year. Meanwhile Euro Zone business activity fell to a one year low, suggesting a slower rate of expansion; the service sector also fell implying first-quarter growth in the bloc would be less than 0.3%. Having said all that, Europeans can seem miserable; its produced writers and philosophers that are downbeat. Paradoxically, Europeans are happiest, today, than they were since the financial crisis of 2008. The only metric consistently correlated with European happiness is relative income. The more it rises, the happier people become. Where they live is also important. Not Northern Europeans are uniformly happier than Southern or Eastern Europeans. Good governance seems to be the main factor.

The UK

Brexit is a danger to its economy. It will imperil Britain’s security and its clout. Brexit also would deal a heavy blow to Europe. Uncoupling the fifth largest economy in the world from its biggest market is no joke. Brexit would also deal a pretty heavy blow to Europe’s security. Britain is its fifth largest defense spender. The new EU and the West would be weaker. Let’s hope the British voters think carefully on June 23rd.

Asia Zone

china-sea

Asia countries are competing to modernize their military, now accounting for almost half of the global market for big weapons- nearly twice that of the Middle East and four times that of Europe. The largest importers are India, China, Australia, Pakistan Vietnam and South Korea. Unquestionably, China’s recent assertiveness, seeming simply to be taking what it thinks is its own, underlies this trend. Even if China were not filling in the sea so enthusiastically, its military build-up would not go unnoticed, and reacted to. Nearly 30 % of world trade passes through the South China Sea. China’s behavior there, of late, evidences disdain for international laws, laws which they themselves signed in 2002. Such behavior scares its neighbors and heightens the danger of conflict and justifies why America should continue to assert freedom of navigation and overflight. Net result is to drive China’s neighbors closer to America, and to suppliers of heavy weaponry. China’s excessive industrial capacity harms its economy and riles its trading partners. It should embark on some form of consolidation by closing down older capacity.

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