The world economies

I believe that the world economies and markets is going to be fine.

The apparent pain that the world is facing is the result of the adjustments made by the markets and governments re-orientating their policies to one of common sensical and yet backed by theoretical groundings. It is not the result of pillars of the world collapsing under it's own weight.

No changes would allow the markets and economies to hum along nary to the knowledge of flawed assumptions of it's policies. The assumptions are as such: 1) deficit spending is justified on the grounds of government intervention- or Keynsian economics 2) We should have growth at all cost even at the expense of indebting to the hilt 3) An insatiable appetite towards higher value or tertiary industries while neglecting the primary ones- resulting in dislocation in the jobs market and therefore potential social unrest.

There are quite a number countries that have been so schooled in Keynesian economics that they have justified their spending on the back of promoting growth in the economies. When Keynes wrote his book, it is on the back of between two World Wars. Of what use is debt when we cannot even find ourselves money and goods to feed ourselves. Therefore, it is better load ourselves with debt then to have nothing to eat or even fend ourselves from foreign invaders.

And this leads up to the second assumption, hence based on this particular thesis- many politicians have justified their fiscal impropriety on the back of Keynesian economics- it has become that it is better to have jobs than to have debts. The idea that deficit spending would result in more jobs is so entrenched that deficit spending has become a norm rather than a exception. And it is in this idea- only with more debt can we have more jobs. Deficit spending is a tool and a choice rather than a norm or expectation.

In more developed economies, there is a natural tendency for one to tend towards higher order or higher value production of goods and services. In certain economies, the market is so skewed such that the number of tertiary jobs is largely outnumbered by the job seekers. And as these tertiary jobs pays much more, society therefore pay a higher premium on these jobs.

This as a result has a cause a dislocation in the expectation of it's people and the economy. And therefore many primary manufacturing jobs have shifted out of the countries and in emerging economies with a pool of young and hungry workers willing to work for a fraction of the pay.

The thing is that in spite of lower per unit pay, these economies are in better position precisely because they are able to make that up in volume and therefore making them as a whole- or countries stronger as compared with countries which rely on a smaller elite with a much higher pay and a large pool of largely under-utilized secondary human resources.

This has caused social unrest as this pool are better trained than their emerging economy counterparts but are not able to utilized precisely because there are no such jobs for them or are under-utilized; and at the same time, are not able to take on these primary manufacturing jobs as well- as the cost of living would have killed them and they are not located in the home country as well.

Therefore, the high unemployment in spite of entrenched deficit spending in these developing economies are not working and dampening morale within their countries precisely because that companies are profit-seeking enterprises- and having nationalistic intentions can only do so much-; politicians rather than harping on deficit spending and jobs should focused on attracting these companies back rather than thinking of pumping more and more money as a short term fix. Leave these short term measure to the executives and focused on getting the economies back on track.

I believe this scenario is slowly being realised by quite a number of countries and therefore quite a number or re-orientating their policies hence causing a break in the normal functioning of markets and economies- therefore causing heightened volatility and knee jerk reactions even from the most minute policy movements. But the in the short term to the medium one, I do not believe that it is as grim as most people make it out to be.

Even if US faced a long term malaise of fixing their economy, their status as the reserve currency and as a global superpower remain relatively unquestionable. This means that the US dollar would continue to be reserve currency in the foreseeable future- meaning that the indebtedness would not cause a collapse in their economy. The reason is relatively straightforward, most countries hold a portion of foreign reserve in the US dollar and therefore a portion of the US debt.

Therefore the world is US's creditor's. And if your market is the world, it would take alot to bankrupt an economy as the world has to simultaneously recall their loans in order to cause a collapse and to bring it to it's knees.  And similarly, the very fact that they have an extremely strong military presence and high tech weaponry means that the world cannot act in tandem without first consulting them. Therefore, despite it's large indebtedness and relatively weak economy, the US status as the global superpower remains largely unchallenged. And it is for this reason that I feel that the short to medium term future of the global economy is not as grim as what most people made it to be.

But one word of caution would be that the US would have to prove on the economic front as well in the longer term as in spite of their financial and military might now- as otherwise it could easily degenerate to a big brother who bullies his way but gets nothing done eventually.

And therefore in the end, the short and medium term is not really that grim as outlook would be relatively stable as the rest of world attempts to fix themselves for the longer run without rocking the boat too much.