There is something vaguely odd and actually quite comical about the sight of a Hasidic man, head to toe in black with a wildly elaborate fur hat perched on top of his ringlets, sweating in the warmth of Montreal’s Indian summer. The attachment to early 17th-century Eastern European clobber in the 21st century, seems a bit over the top. However, according to a friend of mine who knows about these things, the hat, its size and shape, denotes precisely what sub-branch of the Hassidim this man belongs to.
As with any exclusive club, like the scouts, the freemasons or the orthodox religious of all hues, little rites and rituals that seem entirely incongruous to the outsider are of existential significance to an insider. Within the Hassidim, apparently, the type of hat speaks volumes.
The fur hat – hugely popular in Europe centuries ago – reminded me as to why this great island city, plonked in the middle of the giant St Laurence river, became wealthy in the first place. The fur trade dominated the colonial history of North America from the 1650s to the 1800s. The centuries old fight for Canada between the French and the British centred on grabbing the wealth of the fur trade. The French settled here in Quebec after the adventurer Jacques Cartier landed in Montreal with the help of the local Indians in 1653.
Within decades of the first beaver pelts arriving from Canada, fashionable Europeans couldn’t get enough fur from North America. Enormous wealth accrued to the centre of the fur trade, Montreal. The St Laurence river was the main artery of the trade, with Indians and French trappers using canoes in the tributaries of the great river to bring the pelts to Montreal and from here fur was shipped out to Europe. By the mid-1900s, European fashion had changed, and gradually the public wearing of resplendent fur hats became the preserve of the environmentally tasteless and the obscurely religious, like my friend here in front of me in Montreal.
However, part of the legacy of the great fur trade is the province of Quebec and its French population.
Like any emerging market, Quebec of the 18th and 19th centuries, grew rapidly based on having a new product and availing of the newest technologies of the time in river transport and intensive production. This propelled the growth rate of the new territories in America. Eventually, the living standards in emerging markets of North America caught up with and then overtook those of Europe.
As we look around the world today, have we any reason to believe that, over time, the emerging markets of Asia, Brazil and parts of Africa will not catch up and overtake the West?
In maths, there is a concept called the 7 per cent rule. It explains exponential growth and why a quantity can grow experientially when its increase is proportional to what is already there. So for example, think about compound interest, where €100 invested at 7 per cent per year annual compound interest will double in ten years to €200, double in another ten years to approximately €400 and double again in the next ten years to approximately €800.
The same happens to economies and living standards. If an economy starts to take off, its living standards can double very quickly, if that growth rate is sustained.
Historically, the key to growth is technology and discovery. This is why for example in the 2,000 years from Alexander the Great to Napoleon, general living standards rose by only about 70 per cent – because there was hardly any technological innovation.
In contrast, once the industrial revolution took off, the living standards in Britain and much of industrial Europe doubled every few of decades. Now with technology widely available to the huge emerging markets of the world, there is a possibility that living standards in India, China and Brazil will double in every generation. And all the while, their living standards – boosted by their growth rates – will catch up and surpass the West because they will be making things, they will be manufacturing material at a rate that is likely to be more productive than that in the West.
As a result, we are seeing and will continue to see a migration of manufacturing and wealth to these countries, replicating exactly what happened vis-a-vis North America and Europe from the beginning of the 19th century on.
This ongoing process is having profound implications for the structure of industry in the West and for job opportunities in the future in the developed countries.
The reaction of the West to this process has been bizarre. For example, in the US the reaction has been to print money, in the hope that printing money might kick-start the economy into life. This week we are seeing nerves deep inside the Federal Reserve, the US central bank, which is worried that the policy is working but not quickly or robustly enough.
The financial markets were expecting the Fed to “taper” this week.
Tapering means the Fed was widely expected to reduce the amount of money it was printing each month from $85 billion to $75 billion and gradually it would reduce its money printing policy totally as the unemployment rate fell to 6 per cent in the US.
But the Fed signalled that the US economy was still fragile so it would hold off from doing anything.
Let’s stand back and look at what is happening from a bit of altitude.
Injecting $85 billion a month is $1 trillion a year. That’s $1 trillion a year into a $16 trillion economy. This is a phenomenal stimulus. Yet it mightn’t be working.
The money is not getting out from the banks to the real economy, and might be only driving stock markets higher. This is making the already wealthy even richer.
We have a serious dilemma. We know from the history of Montreal and elsewhere that emerging markets with the right technology and some competitive advantage, can grow very quickly and double the standard of living of their citizens extremely quickly. We also know that the Asian economies are best positioned to mirror the 19th-century Montreal experience in the next 50 years. So where does that leave the West?
What if our collective policy response to globalisation, which has amounted to massive monetary expansion is neither making our economies grow nor diminishing inequality but is doing the opposite? What if the Fed’s policy of quantitative easing is simply making the 1 per cent richer and is not trickling down to the average guy? And what if the recent blips in emerging markets growth in India, Brazil and elsewhere are blips and they are destined to overtake the West in time, in the same way as Canada overtook its colonial master Britain?
These are questions we should be asking in the wake of the Fed’s decision to plough on with money printing this week. Unfortunately, reading the financial press with its gushing reports about soaring stockmarkets, the deeper questions are not even being asked, let alone answered.
There is an almost cult-like belief in the omniscience of the central banker to cure our ills.
Maybe my friend with the furry hat isn’t that odd at all. After all, his unquestioning belief in his faith only mirrors the global financial markets unquestioning belief in Bernanke. When everyone is singing of the same hymn sheet, it is time to question everything.
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Hello Everybody!
Morning David, Hi David, When I read this article in the SBP I found myself getting frustrated at your reticence and lack of decisiveness in the conclusions you arrive at towards the end of the piece re the inflation of the bubbles in the stock and bond markets especially since you accurately pointed out the bubbles in the housing market and particularly in Anglos share price. It’s almost like you were presenting a paper to colleagues at an academic conference and seeking their approval. There are also a number of inaccuracies in my view (although forgivable in nature) which would… Read more »
QE is designed to stimulate the markets, generate a wealth effect which should in theory trickle down to the real economy. And ideally to small and med size business. Instead, it is a massive boon to already extraordinarily wealthy corporations who use their influence to lobby govt. allowing them to not pay taxes. Corporations are therefore wealthier due to access to cheap credit and access to the markets with the kicker of zero taxation. Despite this they are firing fulltime workers across the board and re-hiring them as low rights part time workers or contractors. QE has absolutely enriched the… Read more »
David, Here is a great article that shines a light on another related disturbing aspect to economic expansion and it is, I believe, being borne out now, especially when one considers the unequal distribution of gains. http://www.technologyreview.com/featuredstory/515926/how-technology-is-destroying-jobs/ “We were lucky and steadily rising productivity raised all boats for much of the 20th century,” he says. “Many people, especially economists, jumped to the conclusion that was just the way the world worked. I used to say that if we took care of productivity, everything else would take care of itself; it was the single most important economic statistic. But that’s no… Read more »
The only part of the article with any merit was “When everyone is singing of the same hymn sheet, it is time to question everything”. Bernanke, Tricket, Stock Brokers, CEOs etc of large corporations, Bankers and ALL our Politicians have zero skin in the game. They have incentive to blow up everything out of proportion, but no disincentive to counter any personal gains should things go bad – legalese makes this so. Heads you (ordinary man) lose, tails they win. This is an ethical problem pure and simple. Making it out as some sort mystical Economic Mis-Engineeringed Concept is at… Read more »
“cult like belief”, David do you feel there any credence in ‘Cult like Control’ for the 1%(the weatlhy)? The Bilderberg Group, Skull & Bones, illuminati etc… while I remain sceptical some might consider this article further proof, if what you are saying is correct.
“cult like belief”, David do you feel there any credence in ‘Cult like Control’ for the 1%(the weatlhy)? The Bilderberg Group, Skull & Bones, illuminati etc… while I remain sceptical some might consider this article further proof, if what you are saying is correct.
Some are still bedazzled it seems : Buffett is known as the “oracle of Omaha”, and “sage of Omaha”. Seems the gods do drive those first mad whom they would destroy : Crazy Buffett Declares the Fed “The Greatest Hedge Fund in History”. Buffett evidenced his terror at what is about to hit the financial system by praising George W. Bush for coming out with “the economic insight for all times,” when he said in 2008 that “if money isn’t loose enough, this sucker could go down.” He praises Bernanke, who cannot land his money helicopter anytime soon. How’s that… Read more »
From an economic point of view everything is possible. . We know now that the “Celtic Tiger, the Smart Economy, and all that nonsense” cost us approximately 64 billion euro, on top of the debt we already had. And at the end of the day, we were left with a Society in total chaos; where mainly young people are emigrating by the thousands every month, because there isn’t any future here for them, even a bleak one. In the other hand, we have to “import” people from abroad, to do low paid jobs, because the economic system is totally dysfunctional.… Read more »
Well, basically, the central bankers have assigned themselves as responsible to undermine the coin of the realm that they are supposed to defend. The politicians have taken the responsibility upon themselves, to bankrupt the state systems that they are supposed to run. The bankers have taken it upon themselves to defraud the savers that place money in their banks. And the same bankers made themselves responsible for causing their borrowers to become bankrupt, throwing money at them. Union leaders have taken upon themselves to increase the taxes on working people, and have defined it as responsible policy. Meanwhile business leaders… Read more »
If someone can instantly recognise another’s writing then it is because the author has a distinctive voice and this is what all blogging and copy writing courses strive to get through to aspiring writers About 50% of the time is spent crafting a headline and it’s not uncommon for a copy writer to spend days thinking up a killer headline The headline ‘The cult of money printing’ is good but could be better by modifying the word ‘cult’. What sort of cult is it? An Odious Cult? A Cuddly and Heart Warming Cult? The opening paragraph is amusing and you… Read more »
History has shown us in many opportunities, that technology is a double edge sword. And that it, in the hands of people with wrong principles, can have disastrous consequences to the whole of humanity and nature. . The Incas used labour and services as a unit of exchange, and although they appreciated the aesthetic value of gold and silver, they couldn’t understand why greedy Europeans wanted all they could get. . Francisco Pizarro slaved (and killed) the local population, to get as much silver as possible from Potosi. Part of it was used to finance Spanish (European) wars, and part… Read more »
Morning all Buffet is right…QE is the greatest Hedge fund of all time..! What begins as a waterfall of money cascading from the Fed down through Wall street….finishes as a few muddy drops from a stand pipe in Wyoming. Bankers still get the most out of any rescue package… War is Big Business American deaths from terrorism in 2012 =68 Department of Defense budget for War on Terror 2013 = 660 Billion Dollars U.S deaths from Heart disease in 2012 = 400,000 2013 budget for fighting Heart disease 3.5 Billion Dollars Keeping people alive who are sick costs money and… Read more »
Thanks Michael. .
Whats important is yourself & your family. ..hard to look after them if we cannot look after ourselves.
Today is the tomorrow we worried about yesterday !!
Have fun..
Barry
Good article David. A good deep question would be why do people and institutions charge borrowers interest when it is apparently against God’s Law? ‘You shall not charge interest to your countrymen, interest on money, food, or anything that may be loaned at interest. 20 You may charge interest to a foreigner, but to your countryman you shall not charge interest, so that the Lord your God may bless you in all that you undertake in the land which you are about to enter to possess.’ Deut. 23:19, 20 Most Christians no longer think that usury is a sin. Though… Read more »
A Prime Fat Cat on Primetime: I tuned into Primetime last night because a friend texted me he was in the audience, otherwise the dross that is RTE’s news & Current affairs never sullies my TV. Well, well, well, what a refreshing eye-opener, to see a Fat Cat panellist behave and sneer and guffaw without pretence, openly unabashed with his gombeen ching-ching motive vulgar disregard for all the whining plebs in the audience made great tv. More of the likes of this Laughing Boy on tv and it could be just the prod and prick the people need to rile… Read more »
The very chap I was referring to.
Awesome website to booth.
The very chap I was referring to.
Awesome website to boot.
Here are ten bullet points that says it all. This should be printed on posters and plastered on every empty shop front in the land.
Nine failures of the blanket bank guarantee – and its sole ‘success’
http://www.irishtimes.com/business/economy/ireland/nine-failures-of-the-blanket-bank-guarantee-and-its-sole-success-1.1537287
David, I can tell from the line “The money is not getting out from the banks to the real economy, and might be only driving stock markets higher.” that you still seem to think that first of the central bank creates money which the banks lend and relend, indirectly creating money in the process. The Fed can only create reserve-account-money and it cannot leave the Fed’s balance sheet and onto another other non-bank business. Standard and Poor’s recently published a paper on this entitled ‘Repeat after me; Banks cannot and do not “lend out” reserves’ which can be read at:… Read more »
if there’s a lot of guns In the house I’d be suspicious bless her hart she maybe only a member of erigi the political wing of the stickies remember that horrible delinquent Woman that threw the bucket of (Red) Paint Over Poor Mary Harney well she turned out to be a member of Dublin city council . they say they trained Al Qaeda it wouldn’t surprise me as there’s an awful lot of people going Around here Peeping out through blankets not to mention Windows If we could only get the EU IMF paid back and free up the Overworked… Read more »
I read a marketing article that used the psychology experiment performed at Yale University in the early 60s as an example of how people are trained from birth to obey authority The victims were actors and the professor wore the official looking white coat. The test subject was not told that no electric shocks were actually being applied. It was all an act and the last laugh was on the hapless test subjects who were paid for their time I am sure some of you will have heard of this world famous experiment in psychology and I was wondering if… Read more »
Hi, This article in The Examiner playing on the established fears of rural folk, sounds plausible though. http://www.irishexaminer.com/farming-special/crime/80-plus-farmers-back-gun-ownership-244032.html Can’t expect anything but a spike in anxieties when they axe 100 rural garda stations. Admittedly some were surplus to requirements but overall a crude myopic cost saving measure. Funny thing at the ploughing championship Garda Commissioner was advising people to use their community alert SMS service to placate their fears… getting into Fr. Ted territory. Who exactly are they meant to be texting, Batman.. The Masked Avenger.. Mr. Magoo?? Was there something in last few days about Shatter mothballing the mobile… Read more »
They’ve long since foregone any legitimacy they had to authority. Eventually the people must wake up and “smell the coffee” This deference to so-called authority will wane as this crisis deepens. There is a well-spring of fury that has thusfar remained more or less capped. The enforced subjugation of the people in general can be seen in parallel to the manipulative suppression of interest rates by Central Bank policy at a falsely low level over a prolonged period. A bit like an elastic band, the more it is stretched the more forceful the inevitable snapback. Interest rates will find their… Read more »
“There is an almost cult-like belief in the omniscience of the central banker to cure our ills.” Now the big complaint here is that endless money printing will not cure our financial/economic woes. No dispute from me there. But I am curious about the oft repeated statement on this blog that Ireland needs its own currency so that it can be devalued and thus make exports cheaper and so revive the economy. You can’t have your cake and eat it too David. What do you think this endless money printing does to the value of it, to its purchasing power?… Read more »
Craig Roberts comments Thus, an interview by King World News on Friday with Dr Paul Craig Roberts, former Assistant Secretary of the U.S. Treasury and one of the instigators of Reaganomics, should make one sit up and listen. The full interview can be found at this link. http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/9/22_Dr._Paul_Craig_Roberts.html Roberts reckons that the current Fed QE programme is going to be virtually impossible to unwind – indeed the suggestion is that it might even have to be extended. If the Fed does to decide to start to unwind in any significant manner, the U.S. economy, which has been weaned in recent… Read more »
From http://www.lemetropolecafe.com MIDAS Appendix FED QE to Infinity and required Gold Price Suppression Clearly, the FED is trapped, QE to infinity, kicking the can, or pull QE and immediate economic Depression and fiscal deficits rocket higher. To keep the QE game alive, the FED/BIS directs bullion banks to manipulate the bullion market keeping the price of gold and silver low, as gold/silver is the canary in the coalmine, to make the dollar appear better than it is, for as soon as QE is pulled, bond market collapses, fiscal deficient skyrocket as unservicable, the dollar sinks into oblivion, hyper-inflation ravages the… Read more »
Humans are a strange species , considering how intelligent we are supposed to be….. In my attempts to help people with debt problems on a volunteer basis over the last couple of years if I have met 100 people probably only succeeded in helping 10 cases. Why so few ? Because people STILL try to find a easier,softer way to deal with their problems and its not there. The amount of possible deals we have achieved quietly with Banks for people is quite good but…none or very very few of these deals come to anything as people chose a pathway… Read more »
Good morning Barry
You are a good man.
Take good care of yourself.
So if States around the World are printing money like mad, that is no being spread evenly and for a good cause; but is being used by few vested interest groups to increase their wealth, without any consideration and regard for the social consequences of it. Are we not talking about the economic Elites, indulging themselves in “ binge printing of money”, while the rest of us have to watch powerless… some of us aspiring to do the same, some raging, and some totally indifferent to it? . So what is left? Hope in politics and revolution? Hope in Nature,… Read more »
The “Cult” is transatlantic, with practitioners Bernanke and Draghi, and noisy organs like the Oracle, Buffett. Their god, the Single Resolution Authority, demands living human offerings : Sept. 24, 2013 (LPAC)–Speaking before the Economic and Monetary Committee of the European Parliament on Sept. 23, ECB chairman Mario Draghi said that the ECB is ready to use again the Bazooka (Long-term Refinancing Operation-LTRO) to inject liquidity in the system, while at the same time admitting that the previous mega-LTRO injection (one trillion euros) had no effect on credit to the economy. Draghi also said that the ECB will not manage future… Read more »
The magical thing is the promotion of an anti-cult, “Sound Money”, to counter the “Loose Money” (Bush’s term).
The spectacle of battling cults, with flagellants on the sidelines “mea culpa” as the cat-of-9-tails swings, is truly out the dark age so longed for by Royals and sundry.
DMcW, I believe you must have had a glimpse of what’s behind the curtain.
Lads and lassies, I know this is not a jobs advertising forum but given the economic circumstances, I’m hoping David might forgive me on this one occasion…
There’s 2 jobs (part-time possible) going here that have not been filled yet:
http://dublinstartupjobs.com/sales-marketing-pr/sales-manager-sighter/
Another opinion on Money printing
http://the-moneychanger.com/commentary
“One way or the other, sooner or later, the system will hit the wall in default or hyperinflation. No other exit. Start building the new economy now. “
Mike Maloney on printing money.
http://hiddensecretsofmoney.com/videos/episode-3