...This level of labor transformation is nothing that we haven’t done in the past. Many of you will recall that 80% of Americans toiled on farms in 1800. Today that number is less than 2%, who produce massively more per capita in much better conditions. But that change played out over more than 10 full generations. The changes I am talking about are going to happen in less than one generation. The transformation of employment will be one of the most difficult social and political problems that societies all over the developed world will face. It’s not just that there won’t be jobs, but that many of the new jobs will require different sets of skills and be in a different locations from where many of us live today. And while our ancestors may have set out boldly from other corners of the world to give America a try, never to see their home-countries and loved ones again, that propensity for relocation seems to have diminished in present-day culture. How many Americans relish the notion of moving from region to region anymore?
... let’s survey the main forces that will drive the future of the economy...
...Right up front, I’m going to utter the four most dangerous words in economics: This time is different. Oh, I admit a lot of things will be the same, but anyone who expects the future to look like the past is in for a rude awakening.
There are three main economic forces that are imposing themselves upon the world, whether we like it or not. Two of them are the largest bubbles in the history of man.
1. The bubble of global debt
2. The bubble of government promises
3. The shifting of the supply curve
2. The bubble of government promises
3. The shifting of the supply curve
....total US government debt is 115% of GDP. That is certainly less than the 250% of debt-to-GDP that Japan finds itself saddled with, but Japan does offer us a clue as to how we are going to have to deal with our burgeoning government debt in the future. If you had told me 10 years ago that Japan could essentially monetize well over 100% of their GDP and not have their currency fall through the floor, I would have laughed at you....
...in the United States, .... The imposition of a VAT seems almost guaranteed, as that is the only real way to boost revenues to offset the increases in entitlement spending. ...
...The Bubble of Government Promises
The US government balance sheet features unfunded liabilities in the range of $80 trillion to $200 trillion, stemming from future entitlement program burdens that are, in effect, government promises of future largess. No constituency is going to vote to reduce their entitlements. (Well, other than the very well–off, who don’t actually need those entitlements.)
(skip the States mess)
...his next chart depicts an extreme example of what is happening around the world. Scary levels of junk-bond debt with covenant-lite options – coupled with the Frank Dodd rules that don’t allow banks to operate in the corporate bond market as market makers – are going to mean that corporate debt, from the worst right on up to the best, will take a massive yield hit, as the flight for cash rhymes with what we saw in 2009.
...Remember, in a crisis you don’t sell what you want to sell; you sell what you can sell. And at a bargain-basement price.
It’s All About Supply, Not Demand
...John Deere ... touring their factory, they pointed that they were making the same parts for 40% less today than they did just a few years ago. Improved quality and lower prices....
...real wages haven’t risen all that much in 40 years. Well, if you look just at the standard economic numbers, that is true. But compare what you could get 40 years ago to what you can buy today (assuming equivalent purchasing power)....
... in the next 20 years the amount of high-quality goods that are going to be supplied to the world is going to drive the prices of almost everything down ...
...he ever-increasing amount of supply is going to be massively deflationary over time and will offset the massive needs for quantitative easing and debt relief,...
(skip the States mess)
...his next chart depicts an extreme example of what is happening around the world. Scary levels of junk-bond debt with covenant-lite options – coupled with the Frank Dodd rules that don’t allow banks to operate in the corporate bond market as market makers – are going to mean that corporate debt, from the worst right on up to the best, will take a massive yield hit, as the flight for cash rhymes with what we saw in 2009.
...Remember, in a crisis you don’t sell what you want to sell; you sell what you can sell. And at a bargain-basement price.
It’s All About Supply, Not Demand
... the classic supply and demand equilibrium price graph.
If you push the supply curve to the right, i.e., you provide more of a particular good, then the price of that good is going to go down to find a new equilibrium.
...John Deere ... touring their factory, they pointed that they were making the same parts for 40% less today than they did just a few years ago. Improved quality and lower prices....
...real wages haven’t risen all that much in 40 years. Well, if you look just at the standard economic numbers, that is true. But compare what you could get 40 years ago to what you can buy today (assuming equivalent purchasing power)....
... in the next 20 years the amount of high-quality goods that are going to be supplied to the world is going to drive the prices of almost everything down ...
...he ever-increasing amount of supply is going to be massively deflationary over time and will offset the massive needs for quantitative easing and debt relief,...
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