When I was a boy, I had a huge map of the world on my bedroom wall. I loved to look at it for hours to see where all these exotic place were, how their names were pronounced and, using an old school ruler, how far away from Dublin these places were. The yearning to break free from Ireland runs deep, it seems.
One of the things that fascinated me with our standard map was just how big Greenland appeared to be. It looked to be about the same size as Africa. It still does if you look at a map today.
But of course the map is deceptive.
In reality, Africa is larger than the US, China, India, Mexico, Peru, France, Spain, Papua New Guinea, Sweden, Japan, Germany, Norway, Italy, New Zealand, the UK, Nepal, Bangladesh and Greece put together. In fact, Africa is around 14 times larger than Greenland.
But a standard map doesn’t indicate this because of the difficulty of portraying a spherical object, the Earth, on a flat page.
Do not also underestimate the biases and prejudices that went into compiling our standard view of the world. In an era of Victorian domination, it made sense to put the UK and Europe at the centre of the world and shrink the size of those countries that the Europeans were busy crushing.
These sorts of prejudices still inform the way we look at the world. For example, in the economic sphere at least, the US is still considered the most important country. All major recessions have, up to now, been “Made in America”.
Traditionally, the world can’t falter if the US is doing well and vice versa. This is because, like the European 19th-century cartographers and their jaundiced view, we are driven by a US-centric bias that puts the US at the centre of the economic and financial world.
Take the 2008 collapse. We accept and understand the narrative that the recent decline started with the US subprime failure, which led to the collapse of Lehman’s, which in turn caused the world’s financial markets to seize up.
The impact around the world was enormous, and the fragility of other so-called miracles, such as the Irish one, were exposed to be little more than dressed-up Ponzi schemes.
What actually makes the US powerful is the extent to which the rest of the world gets the flu when the US catches a cold. It is the ability to project both your power and your distress that makes a country a superpower.
But what if the world has changed and recessions or slumps no longer have to be “Made in America”? Imagine that global recessions could be projected from somewhere else.
Consider whether the next global slump could be “Made In China”.
Up to now, “Made in China” meant manufactured goods coming out of a box. “Made in China” is tangible and, for most consumers, positive. If China can project its power positively through cheap iPhones, washing machines, computers and the like, could it not project its distress through financial markets?
Could the next global recession emanate not in the $16trn US economy but in the $10.4trn Chinese economy?
In recent months, what was a small problem in China has turned into a major worry.
First, China’s growth rate has slumped to its slowest pace since 1990. Meanwhile, China’s trillion-dollar shadow banking system and both the Beijing and local government borrowings have built up the biggest debt load in the history of humankind, which is now a staggering 250pc of GDP.
Could it go the way of Japan? Could 30 years of amazing economic growth, which Japan experienced from 1960 to 1990 and China experienced from 1985 to 2015, lead to a lost decade in China as it did in Japan?
Certainly, the 2015 $4trn bloodbath in the Chinese stock market looks similar to the collapse of the Japanese property market in 1990. And we know that this property slump led to many years of deflation in Japan.
What does this mean for us in Ireland or Europe, when China is so far away? Can it be that important?
In the same way as the maps tell you that Greenland is as big as Africa, our mind map of China still tells us that it is in the manufacturing business and is small compared to the US.
Not so.
Valued at $10trn, China is the world’s second-largest economy. It is the largest export destination for 40 countries worldwide. It is the world’s largest importer of copper, coal and steel. In 2014, China contributed 38pc to global growth.
We have seen the total collapse in the price of crude oil, copper and iron ore from $190 a metric tonne two years ago to $48 now. This means some markets believe China is not only slowing down but going bust.
All these fragile financial markets, as well as the glittering cities in the Gulf and the fortunes of massively leveraged countries such as Brazil, Australia and Turkey, are based on Chinese demand and lots of cheap money sloshing around the globe. What if this Chinese slump comes at the same time as the US raises its interest rates – as Janet Yellen suggested this week?
What does all this mean for Ireland? Well, it could be positive.
In recent months, the main winner has been the US dollar as investors flock there because the rest of the world looks so volatile. This will continue pushing the euro below parity with the dollar. In addition, the deflation stemming from China, added to the ongoing slump in peripheral Europe, will force European inflation downwards. This will cause Mario Draghi to announce another bout of money printing, pushing the euro down further. This will also keep interest rates down here for a while longer.
A rising dollar against the euro will make Ireland an even cheaper destination for US foreign investment; so expect an increase in investment in Ireland in the period ahead. Also, low interest rates will make people feel they are not as indebted as they actually are, so consumer spending and confidence here will remain buoyant.
This is a perfect backdrop for canvassing.
Wouldn’t it be interesting if the timing of an election here was also “Made in China”?
Maybe it’s not only our maps we should redraw and rethink, but our whole way of looking at the world.
Subscribe.
Another angle on the Chinese stock market crash – what proportion of all holdings are made up of small retail investors, purchased with borrowed money from Chinese banks? The whole system will eat itself and the “burgeoning Chinese middle class” will cease to exist.
“We have seen the total collapse in the price of crude oil, copper and iron ore from $190 a metric tonne two years ago to $48 now. This means some markets believe China is not only slowing down but going bust.”. Now I don’t see it like that. I see that China is stockpiling and when many of the mines and farms (in Australia and New Zealand anyway) go bust then China will step in and buy them up putting in their labourers, their trucks and their shipping. And we will let them because that is the current religion of… Read more »
Re map perspective: the West Wing’s contribution: https://www.youtube.com/watch?v=vVX-PrBRtTY
Congratulations David on your recent success being nominated a Leader among your fraternity in economics on the Isles of Britain and Ireland . Fantastic and Unbelievable absolutely Amazing . I call that Real Vision .
We take for granted the terms Markets and Politics as we know them . Until man produced goods there was no markets and no politics .Just like religion, politics and markets are myths created by man to enhance the social order of things. The shadow of living today shows that we may no longer enjoy those markets and politics and the religion we ascribe to . If David Attenborough were to visit the Decklanders in Ireland today he would probably spend much of his time beneath the wooden decks relaying stories of rare breeds of spiders and venomous insects inhabiting… Read more »
I loved to look at the northernmost place in Europe and Ireland as a 6-years old child. I tried to imagine what they might be like; I wanted to live their because it seemed so exotic to me; I thought Ireland must have a very lush grass since it was so green on the map. I never thought that there is no forest though (or mosquitos, or thunderstorms, or that summers are so mild and fresh, or that there is no snow – in fact I thought that every country in Europe has snow from November till March lol:-) That… Read more »
The chief “winners” of low officially calculated inflation as an excuse to entertain money printing, are the banking sector, and the asset markets.
Just look at the Nasdaq. A relentless climb. Revenue has not increased at anything near the same rate.
Ireland NEEDS this massive misallocation of capital investment to not get found out.
In the context of there being much less free speech than five years ago, there are only so many ways that it is possible to tell people that things are not as solid as the authorities, the ESRI, and the Irish media’s owners/directors require.
http://www.24hgold.com/english/news-gold-silver-the-coming-liquidation.aspx?article=7044883636H11690&redirect=false&contributor=Hugo+Salinas+Price
A collapse in China will spread around the world. There will be no winners
http://www.24hgold.com/english/news-gold-silver-will-china-play-the-gold-card-.aspx?contributor=Hugo+Salinas+Price&article=7282149650H11690&redirect=False
“The world’s financial press, in which leading economists and analysts publish their work, never examines the relationship between the abandonment of the gold standard and unemployment, de-industrialization, and the huge chronic export deficits of the Western world powers. Might it be due to ignorance? We are reluctant to think so, given that the articles appearing in the world’s leading financial publications are written by quite intelligent analysts. Rather, in our opinion, it is an act of self-censorship to avoid incurring the displeasure of the important financial and geopolitical interests that are behind the financial press.”
http://www.24hgold.com/english/news-gold-silver-the-gold-standard-generator–protector-of-jobs.aspx?contributor=Hugo+Salinas+Price&article=2957948282G10020&redirect=False
OK so we’re f^cked. I think we’re all agreed on that but maybe not on the reasons. The reason I think we in the doodoo and this is taking a look forward rather than into the past (mostly) The CBs and sovereigns have been trying to boost consumption with cheap money and it hasn’t worked and in a sense maybe it doesn’t even matter if it’s borrowed money. It wont’ work cos there is only so much consumption people can manage. A TV in every room for what it would have cost 40 years ago to buy one. (I bought… Read more »
Saudi Arabia: Saudi may go broke before US oil industry buckles: The Telegraph noted if the oil futures market is correct, Saudi will start running into trouble within two years and will be in crisis by the end of the decade. It said if the aim was to choke the US oil industry, the Saudis have misjudged badly. The Saudi central bank said it has become apparent that non-OPEC producers are not as responsive to low oil prices as had been thought. It added that even if scores of over-leveraged shale producers go bankrupt as funding dries up, it will… Read more »
Until the left can learn how to present their financial policies in a way that can be understood in three words then the world is doomed to repeat its history of devastation and war. That is not to say the people are stupid but the PR industry has reduced our thinking process to that level. Think of TINA, socialism, deficit bad surplus good, profigilate Greeks careful Germans etcetera. Such statements all have an extreme political content. Conservative parties throughout the world have, most successively, used the services of Crosby Textor to promote their policies in such a format. We haven’t… Read more »
http://www.gata.org/node/15625
Bank of England study: Gold is best money but buying it risks offending U.S.
Off topic and out in left field, so to speak.
https://www.dollarvigilante.com/blog/2015/08/06/pope-join-forces-with-obama-for-warmist-propaganda-near-shemitah-end-day.html
Activities of the one world government elite. Financial collapse, social mayhem, Climate scare mongering, Anti terrorism. etc. We need to pull together to fight these evils and so need a one world government.
http://www.jsmineset.com/2015/08/06/the-rumblings-of-war/
WW 111 so far is financial.
https://hat4uk.wordpress.com/2015/08/07/crash2-how-many-horsemen-make-an-apocalypse-looks-like-the-answer-is-five/
http://www.infowars.com/trumped-rand-paul-gets-less-than-half-the-time-of-the-donald-during-gop-debate/
http://www.chooseliberty.org/Patriot-Club.aspx
https://mail.google.com/mail/u/0/#inbox/14efac5f36860d99
No such thing as a free lunch
https://hindesightletters.com/blog/only-kind-permanence-sean-corrigan/?utm_source=HindeSight+Blog+Subscribers&utm_campaign=5439fcb095-The_Only_Kind_of_Permanence&utm_medium=email&utm_term=0_a70c6e658d-5439fcb095-299801525
“In short, French taxpayers will be the ones to pay a hefty price for Hollande’s silent obedience to Washington, but will they take it lightly or will they flood the streets – time can only tell.”
http://journal-neo.org/2015/08/07/hollande-shot-himself-in-the-foot-by-canceling-the-mistral-deal/
France, amoungst others is a Vassal State of the US. Again, money and power politics talk to leave the French taxpayer further burdened and France’s reputation in tatters
http://slicethelife.com/2015/08/08/first-of-a-series-of-open-letters-to-the-political-class/
I used to have a little brightly coloured tin globe when I was about eight or nine years old. The British Commonwealth and former Empire countries were red (there was tiny red smudge at the top of Ireland). You could pull it apart at the equator and stick it back together again and even kick it around the floor if you wanted. I’d spend hours studying it and I was fascintated by the countries lying on the equator.
Thank you all for your interesting comments. I have just had my breakfast and it is snowing here! I’ll be staying inside today methinks. I am not trying to bring politics into all of this because I have not read anything on communism or socialism nor have I visited any of the countries of old to see how they practised those sort of ideologies. But I cannot imagine that such bad practices are confined to “socialism” or “communism”. However I do see what has been done to my wonderful little country in the last thirty years where the people have… Read more »
People talk a lot about the the stock markets not reflecting the underlying economy, but being some sort of crazy casino, where financial services companies, supported by considerable government intervention, reap enormous profits. This article gives a very lucid description of how this has been happening in the media sector: http://www.zerohedge.com/news/2015-08-08/flushing-cash-casino-media-stock-swoon-shows-it-works-until-it-doesnt What’s interesting about it, is that the fundamentals (turnover & profit) of the big US media companies are clearly in poor shape. But by using a combination of very cheap money, and co-called ‘financial engineering’ they’ve made their share prices boom and boom and boom. I urge you to… Read more »
Afternoon, thanks for all your comments in the past few days, excellent stuff. Cheers David
https://mail.google.com/mail/u/0/#inbox/14efefed95ffd1af?projector=1
Worth a listen as then I need to write nothing more>