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From where the demand for economic growth will come

21/02/2012

It seems since the financial crisis of 2008, the monetary aspect of the economy has only a supplementary influence, that can change realities in the “Short Term”  but less on the long run. The thing is that the “Short Term” in world wide economy can prolong for very long period, even 30 years as it was the case now with US economy, whereuntil 40 years ago existed huge accumulation of wealth and capital compared to the rest of the world and now they have to cope with accumulated deficit close to 100% of the GDP. Add to it the centrally controlled economies of Asia, with huge population eager to work, and not so eager to spend, (or in economic terms, with high propensity for savings), and the cycle of “Short Term” has widen from few years into 40 years and more. But now, about 40 years since the first deficit in the current account was registered in US economy, US economy is on the obvious down hill trend. It is hard to see how this trend can be changed without worldwide economic cooperation, namely between China and the US. To my believe, at the end of the day, the fisical realities will overtake their dominance upon the economic realities, and monetary policy by itself will have only marginal role. This is based on believe that the world resources are limited. (Welcome to “Malthus”). The only phenomena, that can change this reality is some significant scientific breakthrough. I see some promising start-ups in the field of materials (nanotechnology, micro-biology), or energy (solar energy, no solution yet for fusion technology), but hard to see that this breakthrough will have economic impact in less than next 10 years. So we have to take in account, that for the next 10 years the “Western” economy will go downhill. The speed of this downhill trend depends a lot on political decisions and of sustainability of the western monetary system. Very soon the Asian countries will change their policy of support of European and US welfare system, and their economic growth will cause increased competition for resources. (It is already happening). To my opinion a new wave of deflation-inflation situation, meaning high inflation with high unemployment, will come like in the seventies after 1973  War, when the row materials and the oil price sky rocketed. Europe and US will have to give up their standard of living, mainly the less productive part of the society. I don’t see big political problems with this trend, since those to suffer will be mostly old aged, and they have no tendencies for revolution. I definitely see the brake down of the social contract created after WW2.

In the short term in Europe is going on similar trend, of transfer of wealth to the productive northern countries from the troubled P.I.I.G.S. Luckily Czech Republic is among the productive once, only the European market as a whole have necessarily to shrink. The reduction of the volume of the demand for economic values from P.I.I.G.S.s and US will be faster than the increase of the demand from BRICs and the East European countries. To be honest this statements can be calculated and i never did it, but it seems to me highly probable on the short term, due the comparison of the absolute size of economies of P.I.I.G.S.+US, against BRIC+Eastern Europe. I definitely don’t see sustainable growth of the European or US economy as a right prediction. So if the economists see recovery of the shapes V, W, U i rather see it as L. I just hope it is not going to be CH, which is equivalent to Chaos.

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