By all economic measures, the United States is clearly in a state of marked weakness. Economic growth is at or near zero, unemployment is rising, the banking system is in critical condition, housing prices continue to decline, the US consumer is up to its ears in debt, the dollar continues to make new lows versus every major currency, inflation shows no signs of abating, and the Fed is running around like a headless chicken literally doing everything it can to prevent the entire system from collapsing. This is not a subjective assessment, it is our grave reality. So what now? Where do we go from here?
Well the obvious answer would be to fix everything that appears to be broken, clean up inefficient systems, attempt to reinvigorate the economy, and ultimately rebuild confidence in the US financial system over time. However, what I fear most is that in this time of distress we may no longer have the luxury of time. I believe it is possible that one of the many emerging superpowers may make a play for global dominance in the near future. Yes, I know this is a bold statement, but let me explain. Over the past several decades the United States has clearly been the world's superpower. It has been the steam engine driving the global economy as continuous wealth creation here has driven demand for foreign goods thereby creating wealth and GDP growth overseas. We are clearly the largest consuming nation in the world, and most of our foreign counterparties have done everything they can to see that growth here continues as incremental gains in US GDP inevitably trickle down to their own economies. However, it appears now that the global economy has approached the point where our significance in the global growth equation has diminished. It appears as if our emerging market counterparties have grown to a level where collectively they are able to maintain global growth without the neccessity of US demand. Where is the evidence of this? The commodities market. We have virtually every major commodity (Gold, Oil, Coal, Grains, Corn) at or near nominal highs, with many now approaching their inflation-adjusted highs. What is most notable however is that these commodities are making this move with the United States literally on the brink of recession! How is this possible? How is it possible that Oil is near $110 per barrel with such weak US demand? How is it possible with the US near recession that global Oil demand is still greater than global Oil supply with Oil being pumped at maximum capacity? It is because of decoupling. The world no longer relies on the US as the primary engine of global growth anymore. This position has been taken over by the likes of China, India, and Brazil. While the US has been toiling with credit crises, a housing slump, and increasing debt loads, the emerging economies have grown into such a dominant state of hypergrowth that their only challenge is to make sure that growth does not get so excessive that it becomes unsustainable, and moreover that inflation remains contained. This dominant position, I'm afraid, may produce some sort of climactic consequence for the United States. Let me explain.
We as mere individuals, will never understand the desire to become a global superpower. This desire is something reserved for continents, nations, and unions as it is impossible for us as mere individuals to achieve such status. However, even though we may not have the capacity to understand this desire, we know that it exists. We know that every single day every sovereign nation is actively working or has the innate desire to become the strongest entity in the world. Why does this happen? What is the driving force behind this phenomenon? Well in my opinion it is driven by the underlying principle that the world lacks enough supply of natural resources to prolong the existence of every single nation over the long run. Over time, as the world begins to approach levels where natural resources are being fiercely competed over because of inadequate supplies and/or unusually high global demand at the margin, the strongest nations will attempt to force weaker nations into further weakness in the hope that this action may curtail overall demand and allow the strongest nations to accumulate necessary supplies at cheaper prices. It is Darwinism at its purest, and it is ultimately driven by the idea that while economic harmony may exist when the strongest parties are satisfied with the distribution of goods and resources, extreme competitive behavior will arise when those parties become dissatisfied with the allocation of resources, especially those resources necessary for independent survival. It is very much akin to the behavior of animals living in a jungle free from the so-called orders of society. When all animals including the strongest are fed and all so-called entities appear satisfied, harmony may exist because there is no need for competition as supplies of resources are adequate enough to meet the demands of all entities. However, if/when the strongest entities become dissatisfied with their levels of consumption, we will likely see an extreme uptick in competitive behavior as the idea of the natural order for satisfaction dictates that the strongest must be first to be completely satisfied. If/when this natural order appears to be imbalanced in that the strongest are not receiving adequate supplies, the strongest entities will likely seek to not only eliminate those entities which they believe will restore natural balance, but they will specifically seek to eliminate those who they believe will be easiest to eliminate (i.e. those entities who appear weakest). Make sense? Ok so what resource are we speaking of specifically when we speak of resources necessary for survival? We are speaking of crude Oil. Every single other commodity is secondary to crude oil in terms of necessity for survival. Gold, corn, wheat, coal, even steel are all secondary commodities. We don't need corn or even grain to survive, and coal and other fossil fuels are simply alternatives to the most important fossil fuel of all, crude oil. Without crude oil, factories would come to a stand still, refineries would be unable to produce gasoline, airplanes would be grounded, heating oil would be unable to be produced, and ultimately unemployment would skyrocket as productive inputs are unable to function and means of transportation become idle. It is the reason why there is literally no limit to how high the price of oil can go over the long run. Its significance as the world's primary energy source produces wars, wreaks havoc within the economic supply chain, and has the capacity to bring entire nations to its knees.
Part 2: The Consequence Of Weakness...coming soon
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment