Saturday, October 20, 2012

Growth

Growth is not just the result of population increases. It is not just because the population is young and starts families all at once while building houses at record pace and blowing demand for fridges out of the water.  If that was true then why is China’s slowing growth a reflection of ‘falling demand’ from the demographically youngest economy in the West - the U.S. or from the aging European economy?

There are many other factors that feed growth. One factor is global trade; another is the need for poor populations to catch up to the prosperity level of the West. You may think why was there not more growth in earlier years in those emerging economies? The answer lies in the political and social infrastructure of those economies. Many emerging economies were, and several still are, dictatorships, epicenters of repressive religious extremism and bastions of corruption and extreme egocentric behavior – these are recipes for stagnation and underdevelopment – here the few are prospering at the expense of many. Once such a society turns the corner, especially when achieved in an evolutionary fashion rather than a revolutionary, prosperity will start to come in reach of even the poorest.
With enough critical economic mass, countries like China will be able to grow for some time based on the consumer demand of its own population, but in the end, the global community of people will become an interdependent economic union. When China or any other emerging economy grows we all will grow and visa- versa. When the West prospers once again then so will the rest of world.
Another powerful source of growth is invention and innovation. This in my book is just a matter of statistics and the availability of fertile grounds to seed and grow them. With an increasing world population we will have more smart people and more geniuses. Besides, most inventions and innovations do not require a genius but rather people that work hard and trying to do things better and more efficient. We are a world of continuous improvement and thus we continuously lower costs of our material needs resulting in ever more prosperity.
Greed to some level is good because it motivates us, but excessive greed will return us into a society were few benefit at the expense of the many. We need a happy medium – when we lose this balance we end up in catastrophe as the 2008-2009 financial crisis taught us.
But just because we hit a bump or are on a rough stretch in the road, that does not mean that we have reached the end of growth; the end of making money. We’re living in a ‘clean-up time’ and we’re working hard to smooth out the road again.
The European Crisis is on the road of resolution – its economic shocks are becoming less and less severe. The end result is a stronger and more fiscally integrated Europe that will soon be back on track to more prosperity The U.S. ‘fiscal cliff’ will melt in the heat of the new energy revolution. North America, in spite, of its shortcomings and its addiction to debt will resolve its issues on the back of a recovering housing market  combined with an abundance of reasonably priced gas and oil supplies for the next century or so. Don’t forget that thanks to illegal and legal immigration in this boiling pot of entrepreneurship the U.S. has one of the youngest demographics and thus one of the steadiest long term housing demands of the Western world.
Global growth and prosperity will once again pick up and with the cheap credit policies of central banks all over the world our stock markets and industries will soon once again explode to the upside – until the next crisis. Crises are typically painful and we think that they never will end. Newspapers and other media will declare years and decades of doom and gloom ahead, while missing the developments hidden below the surface that clear the excesses and lay the basis for renewed growth. This is the time to invest in real estate and in our stock markets. Those that hide their money under matrasses or lend it out at rock bottom rates under the false perception of the reliability of the creditors will suffer and miss out on the next period of asset appreciation that is just around the corner.
Nobody can predict exactly when strong growth will return or which company will do best or go under. But in my books growth and prosperity will return soon. Our world has gone through a major crisis; however painful it was we seem to have laid the foundation for a new period of strong growth and prosperity that lies in the not too distant future. Newspapers and media live of your fears. Economists call themselves not for nothing practitioners of the dismal sciences. So throw off those blinders of fear and profit from the opportunities ahead.

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