What's left after the Boom went Bust ? The Decline of the West and the Rise of the East

This topic was split from the 'Urgent Call to Stop Anglo Nationalisation' thread. As Squire has said on numerous occasions, the West and East are in a re-balancing act in terms of economics, currencies, commodities, consumption. During the boom, the U.S. bought on tick from China and that U.S. boom money found its way to our shores too, contributing to the asset bubble here, hitherto known as the 'boom'.

Could it be part of a 'boom' yet ? It was inevitable that the West would decline and the East rise, one due to the other. Over the next ten years our living standards, I predict, will need to readjust substantially because of the 'tectonic' shifts that are going on in world economics. Such a transition to a more prosperous East and self-reliant West we hope will be a peaceful transition - or will it ?

Our bubble here has left us with enormous quantities of property assets that as Squire says may be treated as assets whereas if there is no demand and they don't perform then the will fast become tumble-weedy liabilities.

Did we squander the boom and what exactly did we build anyway ?? I'm sure a different type of bubble here might have boosted and bootstrapped China n the same way the tech and housing bubbles did. I'm convince for one that had we bubbled in energy in some way as we are doing now, then we'd have some serious infrastructure left over after it as well as affordable and secure energy and associated jobs and perhaps something like the Iraq war might even have been avoided .

Someone on Pat Kenny last week said "we concertina'd twenty years production into ten so we'll be paying for it for the next ten" Is it too late ? Is a generation's worth of damage done or might we be soon seeing the next bubble that will leave us with useful assets ? Could another boom finally save us ?

--Audi


Audi

There are a lot of people saying that. I have not read the Glass Steagall Act never felt the need as it is not my field of interest. There is however no question that the regulation of the financial sector has been ineffective and the abuse and avoidance endemic. They are way out of line and need severe regulation.

However this problem all goes back to the idea that you can magic wealth out of nothing. That you can create wealth by deals, when really all you are doing is buying into a pyramid scam. Lasts for a while but when you run out of suckers!

I take the view that buildings are assets but if they are not needed they fast become liabilities. What is sad about this is that money that could have been used to build power plants or invested in real business activity or hospitals has been poured into some ridiculous bubble and a lot of the activity has been very dubious.

Also the inflated property prices has enabled some people to borrow and spend sucking in goods we really cannot afford. Coupled with that you have many many people who have taken the view that the west is not he place to be and have, and are investing, elsewhere. The overall result is production and wealth moving East. Yes this will hit China and India but right now their rate of growth is merely slowing. We have ended the ascendancy of the West.

*Please listen to Squire on this*

I agree that this shift is taking place - China is now the third biggest global economic power.

Quote :

As a result of this swift growth, China's share of world gross product (in purchasing power parity) has risen from 3.4% in 1980 to 15.4% in 2005, while the US's share has remained steady at around 21% and the joint share of the countries that make up the EU today has fallen from 29% to 21%.

There is a good 2007 account of what this means here:
http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/Elcano_in/Zonas_in/International+Economy/ARI+100-2007
China, with India and the rest of the far east are passing out the west very quickly.

Having said that, the whole system on which their growth has been based is going through an enormous bust, with unforeseeable consequences.

One conclusion that can be drawn is that the resources on which the lifestyle of the western middle class were funded are severely curtailed.

The privileged lives of the western middle class were always paid for by the cheap acquisition of global raw materials used for industrial production and then exported as finished goods. The British cotton industry in its day for instance wiped out Indian local cloth production.

Globalism is changing everything. Now its Chinese produced goods that are wiping out local manufacture all over the world. Cheap goods yes, but ultimately, no money to buy them with. Globalism has unleashed massive productive capacity and drawn production to the lowest cost base economies away from the west. If it isn't to be a race to the bottom, something else has to be put in place.

China is going to have huge problems over the next couple of years in respect of social disturbance and unrest.

Strangely for all the talk about the rise of China, it is still not the biggest exporter in the world. Germany is still top dog based on 2008 figures. Its too easy to get carried away and dismiss the wealth of Europe.

Also we are only talking about the relative decline of the West. The West is richer than it ever was, the East is just catching up with us. This should be welcomed if we want to remove everyone on the planet from extreme poverty. Or is it a case that we just want to pay lip service to the removal of world poverty and are uncomfortable with the consequences of the industrialisation of poor countries.

Art wrote:

Strangely for all the talk about the rise of China, it is still not the biggest exporter in the world. Germany is still top dog based on 2008 figures. Its too easy to get carried away and dismiss the wealth of Europe.

Also we are only talking about the relative decline of the West. The West is richer than it ever was, the East is just catching up with us. This should be welcomed if we want to remove everyone on the planet from extreme poverty. Or is it a case that we just want to pay lip service to the removal of world poverty and are uncomfortable with the consequences of the industrialisation of poor countries.

Some massive industries in the West have been shocked in the last few months - mostly vehicles - and there could be a lot more as the likes of India and China ascend more and more. It wouldn't surprise anyone if there was a strong industrial lobby banging on about Global Warming and Carbon Taxes with the sole aim of protecting their own industries. Some propaganda is often directed against "environmentalists" who are seen to contribute to this bother. "Tree hugger" is a derogatory word for some in America.

It's going to be interesting to see what the balancing will shake out - I'd imagine we'll get to see more and more energy technology here first but then again that will boost the East even more as they can produce it cheaply. This is one example but if we can afford to buy it then we get to have good kit we can use in a self-reliant manner without dependency on further inputs as in the case of fossil fuels. The question is what do we sell these people to get their stuff in return ? In ten more years if not less, Chinese technology and brands will have an equivalent resonance to the 'Made In Japan' brand.

You might not like Kia but they've that seven year warranty on some models so if everyone bought a car like that at roughly the same time then manufacturers would be looking at seven years of dearth ...

Art wrote:

Strangely for all the talk about the rise of China, it is still not the biggest exporter in the world. Germany is still top dog based on 2008 figures. Its too easy to get carried away and dismiss the wealth of Europe.

Also we are only talking about the relative decline of the West. The West is richer than it ever was, the East is just catching up with us. This should be welcomed if we want to remove everyone on the planet from extreme poverty. Or is it a case that we just want to pay lip service to the removal of world poverty and are uncomfortable with the consequences of the industrialisation of poor countries.

Up to this year we were talking about growth, this year we are talking about decline. The economy of the east has grown enormously in the last 15 years, relatively to the west and even this year is projected to grow at least 5%. My point was that the long era in which people in the west could take it as some kind of a birth right that we would be rich while the colonised remainder of the planet was poor is over. Globalised capitalism will never do away with poverty and provide equality, it works through accumulation of capital in the hands of a minority.

Quote :

Globalism has unleashed massive productive capacity and drawn production to the lowest cost base economies away from the west. If it isn't to be a race to the bottom, something else has to be put in place.

This GDP graph gives an idea of the change taking place, although we now know the projections for the future are wrong.



China overtook Germany to become the world's third largest economy by the end of 2007. It is expected by the Economist Intelligence Unit to have overtaken both Japan and the US by 2017, to be the world's largest economy.

http://www.ft.com/cms/s/0/8d9337be-e245-11dd-b1dd-0000779fd2ac.html?nclick_check=1

johnfás wrote:

China is going to have huge problems over the next couple of years in respect of social disturbance and unrest.

Due to the governance of that country you may well be right, but I would rather face the problems of China and India than those of Detroit!

Today I was out looking at a warehouse, belonging to a business that may go under, wholesale gifts and cards. Shelf after shelf of tat. NONE OF IT that I could see was produced in the west. Dogs with hearts for Valantines Day, nondescript children,s toys etc. Mountains of the stuff. This is decadency. We are squandered our wealth on trash. We just do not need this stuff. Not any of it. Our economies cannot afford money haemorrhaging out to pay for it.

Previously I mentioned that I can employ a tradesman in India for a month for what a bricklayer would want for a day in Ireland. How can we compete with this? We flatter ourselves by thinking that we can specialise in high end, value added in the mistaken belief that India or China cannot also participate in those areas. As basic production moves then eventually so also does machine tool production and other specialist trades and businesses. So also does services such as advertising, architecture etc.

So how do we compete. We cannot pull our costs down to levels comparable with those in rural India and we cannot sit around and hope that inflation in China brings their cost up. Debasing the currency and by that means reducing costs has never been known to work. Also our countries are now up to their necks in debt and this again causes an outflow of resources.

Consumption in the West has acted as the engine for the world economy that has to stop, but we must recognise that when it does we will become increasingly less relevant unless we can effectively revive our economies.

So what do we do?

Default, or have a revolution. Or both.

Too much growth out east and the shortage of natural resources of all sorts will come up to bite us all on the derriere again. Energy generation out east is more inefficient than in the west; there will be high end, high tech opportunities for us with that, I would suspect

What with all the "can Bush's war crimes" policies and all that, so far Obama has been exceeding my expectations. perhaps he can do the same with renewables. The profit prizes will go to those nations that can keep the lights on as the fossil fuels dwindle. That may well not be the East. As Johnfas points out, the ability of these Governments to hide nasties under the carpet must not be underestimated. In regimes of that sort, the no-warning meltdown is always a risk.

The fact that everyone is now bigging up China is setting off "new paradigm" warning bells in me loaf of bread if yer see what I mean

New paradigm, or next big bubble for West weary investors to sink their cash???

And I wonder the consequence of Ireland defaulting on its loans. That is an interesting economic and political one. I think you will see some sort of conditional bailout before that is allowed to happen.

If a bond issue fails the ECB and the Eurozone central banks cannot monetise but apparently they can buy debt in a secondary market! The UK and USA will print which is in a way defaulting as the repayment is with currency that is worth less.

Argentina is probably most likely to default.

In the past China defaulted, did it not? Wonder what the consequences were? Seems to have recovered.

Expat

I totally agree with you about energy. It is a clever place to invest looking 5-10 years out.

It is not so much talking up China, it is Korea, India, Singapore, etc. with countries like Brazil also on their way up. We still have some strong positions not least of which is our investment in infra structure, but we need to wake up fast. China does have problems and it is not a system of governance that I admire, but we could learn a lot from China. Their government supports Chinese business.

The other impressive thing about China is that the scientists and engineers are well represented in the corridors of power.

The west has too many lawyers and bureaucrats.

Perhaps, on the other hand, if we learned to use resources better, this is all a long term opportunity. More wealthy consumers means bigger markets. But only if we can learn to use recycling, renewables and biomaterials without environmental degradation

Never enough lawyers...

expat girl wrote:

The other impressive thing about China is that the scientists and engineers are well represented in the corridors of power.

The west has too many lawyers and bureaucrats.

I would be delighted if scientists and engineers were more prevalent. You need a better spread of expertise. The legal profession has its role but what does it know about the actuality of getting things done? How good are they at judging the importance of scientific developments? The over representation of lawyers has assisted the movement towards spin and 1/2 truths. If I were Emperor in the West I would transfer funding in eduction from the Arts and similar to Science, Engineering, Applied subjects, Medicine, Dentistry etc. Then you have all those rubbish business and marketing courses that need to improve.

I can't understand why bureaucracy seems so difficult to cut.

Squire wrote:

Today I was out looking at a warehouse, belonging to a business that may go under, wholesale gifts and cards. Shelf after shelf of tat. NONE OF IT that I could see was produced in the west. Dogs with hearts for Valantines Day, nondescript children,s toys etc. Mountains of the stuff. This is decadency. We are squandered our wealth on trash. We just do not need this stuff. Not any of it. Our economies cannot afford money haemorrhaging out to pay for it.

Maybe this guy below has the solution ? How to bring American manufacturing jobs back - using the old American baseball bat method.

WARNING: 5 mins of strong language and economism

"Chinese Sh&*"