The Results of Financialization – Part III
The Results of Financialization – Part III by Gordon T Long
THE BIG REVERSAL
After three and half decades the global economy has now entered a three and half year period of slow rotational change which will likely be seen in future years as the “Great Reversal”.
DEBT + DEMOGRAPHICS + DISRUPTION = DEFLATION
We are leaving an era which as witnessed unprecedented global debt growth, work force demographics and the emergence of profoundly disruptive technologies. These trends through globalization, labor arbitrage, and oversupply have coupled to deliver slow inflation, disinflation and even deflation in various areas of the world.
What we have experienced during this era on a global basis is:
- A decline in real interest rates (which have been a prime supporter of asset prices),
- A drop in real labor earnings in advanced economies, and,
- A meteoric rise in inequality within countries alongside a drop in inequality between them.
What we are failing to realize according to a major new research paper released by the Bank if International Settlements (BIS) is an understanding of what these trends mean, which can only be seen when all three trends are examined together in a global context.
INTEREST + INCOMES + INVERSION = INFLATION
In the approaching new era, Savings & Investment will fall, however what is critically important to understand is that Savings will fall at a faster rate due to advanced economies social entitlement programs. As a consequence:
- Real Interest Rates will Rise,
- Inflation and wage growth will pick up and
- Inequality will fall within countries (versus rising within countries today).
The leading determinants that must be analysed are:
- Importance of the role of China,
- Social Safety net in Advanced Economies
- Global approach to the discussion of demographics
Join Gordon T Long and Charles Hugh Smith in this 32 minute video discussion which is supported by 44 slides.