The World Economy as we know it is About to Be Turned on Its Head
My thanks to a subscriber his comment that “Deflation may not be a decreasing threat”, and also for this interesting column by Ambrose Evans- Pritchard of The Telegraph. Here is the opening:
Workers of the world are about to get their revenge. Owners of capital will have to make do with a shrinking slice of the cake.
The powerful social forces that have flooded the global economy with abundant labour for the past four decades years are reversing suddenly, spelling the end of the deflationary super-cycle and the era of zero interest rates.
"We are at a sharp inflexion point," says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.
As cheap labour dries up and savings fall, real interest rates will climb from sub-zero levels back to their historic norm of 2.75pc to 3pc, or even higher.
The implications are ominous for long-term US Treasuries, Gilts or Bunds. The whole structure of the global bond market is a based on false anthropology.
Here is a PDF of Ambrose Evans-Pritchard's article.
Any column by Ambrose Evans-Pritchard is a good read, in my opinion.
Most subscribers know my views on this topic so will just briefly say that wages in developed countries were held down by three factors: the 2008 economic crisis and its impact which still lingers today, globalisation, and technology.
I think the global economy will be recovering over the next three years. Globalisation has levelled the wages playing field somewhat, and technology has made middleclass workers more efficient, not least in developed countries. However, I also think that technology will continue to replace jobs in many industries, although we will also see the creation of new jobs.
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