...last month marked the tipping point where 50% of the world’s population achieved enough discretionary income to attain “middle-class” status. Most of this change has taken place in the last few decades.
For the first time in history, most humans live above the poverty line. In this Brookings article, the authors say, “Barring some unfortunate global economic setback, this marks the start of a new era of a middle-class majority.”
...Compared to Europe and Asia, the US birthrate is still relatively high, at about 1.8 children per woman. At least 2.1 births are required for population replacement, and Europe and China are at about 1.6 births per woman. Within a generation, most of the world will be below replacement fertility rate.
...if the poverty line was set at 50 percent of the median income. But in the 18 to 25 age group – from which much of Sanders’s voter base came in 2016 – the poverty rate after taxes and transfers was 21.3 percent in Denmark and 18.4 percent in the U.S. There’s actually less “economic despair” among young Americans than among young Danes.
...To understand why, consider some new Oreo flavors. In August, U.S. snack food giant Mondelez International Inc. rolled out “hot chicken wing” and wasabi-flavored versions of the classic American cookie. Not quite to your taste? Well, they may not be aimedat you. The new cookies are being sold only in China. More than that, they were developed at Mondelez’s research center in Suzhou and are produced by factories on the mainland. Mondelez launched the new entries on JD.com, a Chinese online retailer. (The first batch sold out in nine hours, according to Mondelez.)
...American firms very often invest and manufacture in foreign markets instead of exporting their products from the U.S. By contrast, Chinese companies, like those in emerging markets generally, tend to lack brand power and experience operating abroad. So they capitalize on their low-cost base to export to the U.S. and elsewhere.
...Since 1990, U.S. companies have invested almosttwiceas much in China — $256 billion — as Chinese companies have in the U.S. And a huge chunk of China’s investment has been made in only the past two years. To a certain extent, the trade deficit is thus a mark of how much more advanced U.S. corporations are compared to their Chinese counterparts.
...But in many cases, the plants constructed in China weren’t replacements for those in the U.S.; they were built to meet local needs. .
...To understand why, consider some new Oreo flavors. In August, U.S. snack food giant Mondelez International Inc. rolled out “hot chicken wing” and wasabi-flavored versions of the classic American cookie. Not quite to your taste? Well, they may not be aimedat you. The new cookies are being sold only in China. More than that, they were developed at Mondelez’s research center in Suzhou and are produced by factories on the mainland. Mondelez launched the new entries on JD.com, a Chinese online retailer. (The first batch sold out in nine hours, according to Mondelez.)
...American firms very often invest and manufacture in foreign markets instead of exporting their products from the U.S. By contrast, Chinese companies, like those in emerging markets generally, tend to lack brand power and experience operating abroad. So they capitalize on their low-cost base to export to the U.S. and elsewhere.
...Since 1990, U.S. companies have invested almosttwiceas much in China — $256 billion — as Chinese companies have in the U.S. And a huge chunk of China’s investment has been made in only the past two years. To a certain extent, the trade deficit is thus a mark of how much more advanced U.S. corporations are compared to their Chinese counterparts.
...But in many cases, the plants constructed in China weren’t replacements for those in the U.S.; they were built to meet local needs. .
...over 40% of the on-budget deficit went simply to pay $325 billion in interest on previously-issued debt.
...Capital that goes into Treasury debt is capital that’s not going into bank loans, corporate bonds, mortgages, venture capital, stocks, or anything else in the private sector, which generates the growth we’ll need to pay off the government’s debt.
...Anything could trigger a crisis, and it could well be something no one presently foresees, but here are three candidates.
Corporate Credit Crisis:
...There are trillions of dollars of low-rated corporate debt that can easily slide into the junk debt category in a recession. Since most public pension, insurance, and endowment programs are not legally allowed to own junk-rated debt, I can see where it could easily cause a debt crisis along the lines of the previous subprime crisis.
Trade war: One reason the US economy seems to be booming right now is a surge in imports. Companies are rushing to build inventory ahead of the 25% tariff on Chinese goods that takes effect January 1. Coming on top of usual holiday season stockpiling, it is jamming ports, highways, and warehouses—generating many jobs in the process.
That’s all good right now, but those truck drivers and warehouse workers will no longer be necessary once the shelves are stocked. Working down that inventory will take months, at least, and the resulting slowdown could ease the economy into recession next year.
...
European Slowdown:
...Italy’s new budget is wildly out of line with its revenue and growth prospects. This threatens to set off another euro crisis. And then there’s the serious possibility of a hard Brexit in early 2019.
So, what do you do? I have three suggestions.
Build a cash reserve: I know every financial advisor says that, but disturbingly few people actually do it. Have several months of living expenses readily available in risk-free cash equivalents. Cash is also an option on buying discounted assets at lower prices in the future.
Deleverage: If you carry business or personal debt, reduce it as much as you can and don’t assume you will be able to refinance. Banks can cut your credit lines in a heartbeat, and they will.
Have a plan for your longer-term investments, whether they are stocks, real estate, or anything else. Decide now what you will sell, and to whom, because buyers may not be there when you need them. At the same time, decide what you plan to hold through any slowdown. I have assets in private companies and even a few public ones that I truly consider “for the long term.”
...There was one region of the country, though, where home sales were definitely down by a lot. That would be the Northeast, where new home sales fell year over year at a rate somewhere between 31.2 percent and 71.4 percent (midpoint: 51.3 percent):
Not Buying in the Northeast
Percentage change in sales of new single-family houses, Sept. 2017-Sept. 2018
...The outlook for the global economy is deteriorating more rapidly than forecasters realize. A slowdown in China has hit global trade, European exports are decelerating, and euro-area business sentiment is sharply down. All this can’t help but affect Italy, where industrial production is barely increasing and a recession may be imminent.
...Rising yields and falling bond prices put added stress on already fragile Italian banks, which hold large quantities of government bonds.
...But for all his sangfroid, pressure on Prince Mohammed is growing. In Washington, the U.S. President Donald Trump was unusually forthright when asked about the possible involvement of “MBS” in the murder: “Well, the prince is running things over there more so at this stage. He’s running things and so if anybody were going to be, it would be him.” He also described the initial Saudi narrative about what happened at the consulate in Istanbul as “the worst cover-up ever.”
...While expensive, the commercial logic to get legal is undeniable.In approving recreational marijuanause in November 2016, California voters vastly expanded the legal market, which previously was accessible only to the roughly 200,000 residents with medical marijuana cards. Now, marijuana can be sold to the entire drinking-age population of the nation’s most populous state.
The initiative allowed counties and cities to make their own rules, including outright bans on sale and cultivation. As a result, hundreds of potential growers are still “jurisdiction shopping,” trying to find counties with the lowest cannabis taxes, the right climate, an experienced labor force and a favorable location.
Santa Barbara County set its tax on cannabis revenue at 4 percent, the lower end of the scale, hoping to attract farmers to a place where many agriculture jobs have been lost to the economics of free trade.
...in a Gulfstream IV jet belonging to Crown Prince Mohammed bin Salman at Istanbul's airport.
...They say that forensics expert Tubaigy then unpacked the bone saw he had brought along with him. According to the Turkish investigation, he put on headphones to listen to music and recommended that people in the room next door do the same because it would make the work easier.
He then dismembered Khashoggi's body. "It was like a Tarantino film," says one Turkish investigator. According to a report published in Yeni Safak, a newspaper loyal to the government in Ankara, Turkish authorities have audio recordings documenting the murder.
...They are preparing to say that the murder, (though they made a funny statement by saying that he was “killed accidentally”) occurred, but the actual violence (the dismemberment of Khashoggi’s body) was carried out by the Turks.
...What the Saudis care about is saving the king’s son. They don’t care about the murder of an innocent person.
...If there are officials among these murderers, there is also certainly an authority who gave the order.
...Yet, according to the minutes of the Federal Reserve’s Aug. 1 monetary policy meeting, policy makers are only starting to recognize the “possibility” of a significant weakening in the housing sector as a “downside risk.” Our research suggests that real home price growth has already entered a cyclical downturn that is likely to intensify. Data this week is forecast to show a drop in housing starts and existing home sales (editor’s note – theydid).
If Saudi culpability is established, we could soon be talking about who’s on the Magnitsky list, rather than who is no longer on the guest list for Davos in the Desert.
...In a blog post on Tuesday, Alphabet Inc.’s Google announced that it will start charging phone-makers that want to pre-install some of its apps and services for devices sold in Europe. This was the entirely predictable result of an antitrust ruling by the European Commission in July, in which it imposed a record $5 billion fine on Google and demanded that it shape up without specifying exactly how.
...So now the company will start charging alicensing feeto manufacturers that want to offer Gmail, Google Maps, the Google Play store and YouTube in Europe, thereby making phones more expensive and life more difficult for businesses. It will also let phone-makers sell devices that use “forked” versions of Android in Europe, thereby degrading security and worsening inconsistencies across the ecosystem.
It’s not the end of the world. But Europe’s alleged remedy is all the more galling for being uncomprehending:
...The engine design bolsters Aerion’s goal of putting a supersonic plane in the sky next decade. Lockheed Martin Corp. is helping with design and production of Aerion’s AS2 plane, which would seat 12. Flexjet, which flies clients who buy fractional ownership of an aircraft, agreed in 2015 to buy 20 of the planes. Aerion is targeting the aircraft’s first flight in 2023, followed by a commercial debut in 2025.
The rise of the digital economy, dominated by people in their twenties and thirties, is also pushing older workers to the margins. But, unlike in the past, crumbling pension systems can no longer absorb such labor-market shocks.
a well-known study has documented how the spread of mobile phones in the Indian state of Kerala enabled fishermen to arbitrage price differences across local markets, increasing their profits by 8% on average as a result. Kenya’s ubiquitous mobile banking service M-Pesa appears to have enabled poor women to move out of subsistence agriculture into non-farm businesses, providing a significant bump up the income ladder at the very bottom.
New digital technologies have been playing an important role in transforming large-scale farming in Latin America and elsewhere. Big data, GPS, drones, and high-speed communication have enabled improved extension services; optimized irrigation and pesticide and fertilizer use; provided early-warning systems; and enabled better quality control and more efficient logistics and supply-chain management. These improvements raise farm productivity and facilitate diversification into non-traditional crops with higher returns.
...China’s far-western Xinjiang region has revised its legislation to allow local governments to “educate and transform” people influenced by extremism at “vocational training centres” – a term used by the government to describe a network of internment facilities known as “re-education camps”.
...The old version of the law was passed in March 2017. It bans a wide range of acts deemed manifestations of extremism, including wearing veils or having “abnormal” beards, refusing to watch television or listen to radio, and preventing children from receiving national education.
The pigeons are outwardly unremarkable. Thirteen birds, ages two weeks to three months, occupy a coop at an animal research facility west of Melbourne, Australia. They’re descendants of the common rock pigeon, recognizable denizens of city squares and park benches—with one small but crucial distinction. These are the first pigeons in history with reproductive systems that contain the Cas9 gene, an essential component of the Crispr gene-editing tool. The squabs of this flock will be born with the Cas9 gene in every one of their cells, allowing scientists to edit their offspring with DNA from the extinct passenger pigeon. Those birds, if everything goes to plan, will be the first live animals edited with traits from a species that no longer exists. The flock was created by Ben Novak, an American scientist who has spent the past six years working obsessively on a process known as de-extinction. His goal: to bring back a bird that disappeared from the face of the Earth in 1914.
This could be the moment that Saudi Arabia finally loses Washington. Over the weekend, Turkish officials told my colleaguesthat veteran Saudi journalist Jamal Khashoggi, who vanished after entering the Saudi consulate in Istanbul last week, was murdered by a 15-member Saudi team dispatched to kill him. According to a U.S. official briefed by Turkish counterparts, Khashoggi’s body was likely dismembered, removed in boxes and flown out of the country.
“You can have a committee of 10 geniuses that proves collectively to be a moron.”
...we discussed the issue of lack of temporal understanding among investors. I believe that humans only experience a rough version of NOW. In reality, the future and the past are false constructs. The future is little more than our faulty guesses about one outcome out of many possibilities; the past is an error-riddled set of recollections, filled with selective retention and ego-driven biases.
...Once we can get people to visualize in life-like realism the impact of their behavior on their future selves, it leads to profound changes in how they behave.
...Trade deficits or surpluses aren’t bad. Nor are they good. They are a natural characteristic of post-barter economies that have achieved division of labor… a sign of success, in other words. For certain countries, there are times when trade deficits simply don’t make a difference. And then there are times when they can be devastating. It all depends on the current account surplus, a concept we will deal with below, and/or whether the country’s currency has reserve status. It’s not hard to understand, so let’s dive in....
...Almost every economist in the world accepts this basic Gross Domestic Product equation: Y = C + I + G + (X – M). This is where Y is GDP, C stands for consumption, I stands for investments, G stands for government expenditures and (X – M) stands for exports minus imports. This is called an accounting identity. In the same way that 2+2 = 4, an accounting identity is always and everywhere true.
...So math says wewillrun a trade deficit withsomebody. It doesn’t necessarily have to be China, but our economy is not suited to be a net exporter. We can buy our T-shirts from Vietnam or Pakistan instead of China, but it is still a trade deficit.
Why can’t we make T-shirts in the US? Because they will cost more, which means consumers will buy fewer, which means a smaller economy with fewer jobs. I know it is counterintuitive but that is just the reality of a world that Ricardo described.
So we see trade deficits aren’t necessarily bad, but that’s not all. Even if we wantedto get rid of the trade deficit, it’s not clear we could—at least without creating some serious side effects. Martin Wolf said it well in the Financial Times last week.
Serious economists, back to Adam Smith, would insist that seeking a surplus with every trading partner is not “winning.” It is absurd. This is not even intelligent mercantilism, which would focus on the overall balance. Yet, particularly with free capital flows, overall balance is a foolish goal and one that trade policy cannot achieve. It is incredible that such primitive ideas rule the most sophisticated country on earth.
Martin’s point is well taken. Whether a country’s balance of trade is helpful depends highly on the circumstances. They aren’t automatically good or bad. The US trade deficit is helpful, as I’ve described, but in Greece a few years ago it was disastrous. The internal trade deficit southern eurozone countries ran with Germany (and other highly productive European countries) let them run up massive government, personal, and corporate debt, which they couldn’t pay. Greece was just the first and Italy is lining up to be the next.
In a normal world, when Greece used the drachma, the currency valuation would have fallen and made Greek citizens demand fewer imports. What actually happened was all the debt became due, forcing massive austerity in a kind of shadow devaluation. It was simply brutal.
Germany’s corresponding trade surplus with other EU countries is not necessarily great, either. Notice that in the chart below, Germany is the world’s third-largest exporter. It could not do with a strong currency like the Swiss franc. It works only because it is in the eurozone with weaker economies. A Volkswagen or Mercedes-Benz valued in deutsche marks that cost 50% more wouldn’t compete very well on a global scale. Germany will learn that the hard way before this is all over.
...The endgame, as I’ve written, will be The Great Reset where the debt of governments all over the world, plus all their unfunded government liabilities and promised pensions and healthcare, is going to be “resolved,” and unfortunately it will happen in the middle of a crisis.
Over the last two decades, China has invested more than $125 billion in Africa to build ports, highways, airports, railways and other infrastructure. Chinese President Xi Jinping says funds, to the tune of $60 billion, will continue to flow because "inadequate infrastructure is believed to be the biggest bottleneck to Africa's development."
China’s largesse has certainly benefited the continent. An Indian innovation, however, could be what African countries really need.
India’s Aadhaar biometric identification system has given hundreds of millions of citizens a portable digital ID, allowing them to receive government services, join the banking system and otherwise partake in the formal economy.
...The Aadhaar system creates a 12-digit unique identification number for each citizen, issued on the basis of biometric and demographic data. Data is stored centrally and enrollment is free, simple and document-light.
Consider the 1980s, when medical expenses in the U.S. increased 117 percent. Forty-three percent of the rise was due to general inflation. Ten percent can be attributed to the American population growing both larger and older (as it still is). Twenty-three percent went to pay for technology, treatments, and pharmaceuticals that had not been available when the decade began—a measure of how fast medicine has been advancing. But that still leaves 24 percent of the increase unaccounted for, and that 24 percent is due solely to an inflation peculiar to the American medical system itself.
...But for the time being, when the body begins to break down systemically, we should let nature take its course..
...Stein’s law, named after the famous economist Herbert Stein: “If something cannot go on forever, it will stop.”
...Germany’s exporters have spread the gospel of fine engineering throughout the world. The risk is that skilled labor is increasingly hard to find, and digital technologies are undermining the value of old-school mechanical knowhow.
