Ahead of the big World Economic Forum (WEF) annual jamboree in Davos this week, the big institutions – such as the IMF – are setting out their stall, making predictions about the next year or so.
Many years ago the people at the WEF debased their currency dramatically by making me one of their “Young Global Leaders”. This allowed me access into the inner sanctum behind the scenes at Davos. One wonderful aspect about Davos is the people watching. My favourite event was seeing Rupert Murdoch being escorted out of a hotel by a young Swiss army conscript who had no idea who the media baron was. Apparently Murdoch didn’t have the right badge. The look on his face, a man who is not used to people standing up to him, was worth the airfare.
You do meet lots of interesting people, but unless you have a strict timetable planned out, you can spend the entire time there lost, trudging around in the snow, missing events and meetings, because the town is so packed and security so tight.
My first visit was a blizzard of hits and misses in minus 10 degrees. I learned my lesson. I won’t be going this year; you can Skype the people you need to meet all year round, and in any case most of what is said there is posted online.
One of the set pieces will be the IMF’s worldview, where the heads of the IMF – an institution not famed for its forecasting accuracy or policy consistency – will be addressed as if they have some all-knowing sagacity. They will nod their heads wisely, adopt a grave pose and deliver some morsel of wisdom to the cameras.
The IMF’s big idea was outlined on Thursday by the chief bottlewasher, Christine Lagarde: Europe and Japan must fight against deflation at all costs.
Deflation is a killer particularly if the country, company or individual has large debts. Japan has the largest debt/GDP ratio in the world. Europe, which has only 7 per cent of the world’s population, makes up 25 per cent of the world economy but 50 per cent of the world’s social welfare payments and commitments. These economies need inflation not deflation because deflation with debt is almost impossible to escape.
The major issue for both Europe (particularly Germany) and Japan is demography. I am taking Germany as the example here because it is by far the most important country in Europe. Both Japan and Germany are old countries, without enough children.
Old countries tend to save, not spend, and countries that are not spending are deflationary by nature. Look at the chart to see why Japan and Germany’s populations differ dramatically from the rest of the world average.
If you look at the world’s population pyramid, this is what the world’s population should look like and has looked like since time immemorial. There are lots and lots of young people and fewer and fewer people as you go up the pyramid. This means that there are loads of young people to pay for the old of the country – and before that the tribe. It is easy to look after the old when there are loads of young people working, paying taxes and buying stuff.
This activity creates its own inflation because there are lots of people working, buying and selling, pushing up prices. Young societies are by definition inflationary.
But what happens when this stops?
To see what happens, first have a look at the chart with Germany and Japan.
The populations of these countries are perverse. They are breeding themselves out of existence. The populations have a massive bulge of middle aged people and then, reflecting the fall off in the birth rate, the populations are not replacing themselves. As this continues, the amount of old people begins to outstrip the amount of young people.
Young people spend and go through spending spurts (when kids are born for example), but populations with aging profiles don’t have these spending spurts. Thus prices tend to fall.
And because old populations tend to be savers, they want low inflation so that they can be assured that their savings don’t lose their value. Therefore, typically the broad policy mix of these type of countries is “steady as she goes” – but this tends to lead to low growth and low inflation.
If this low inflation tips over to deflation where prices are actually falling, it is very difficult to get out of that spiral. This is because people see prices falling and think they will keep falling so the very act of falling prices postpones demand. This means that one of the basic rules of economics – the one that says when the price falls the demand goes up – is turned on its head. When there is deflation, when the price goes down, demand goes down too.
The only way to get out of this spiral is to print money as much as you can in order to boost inflation. This is precisely what the Japanese are trying to do. The Germans on the other hand are not going to countenance that in Europe. Even if they did, the European banks are so crocked that even if the central bank printed money, it’s hard to see that money cascading into the economy when the banks are not prepared to lend.
The other way to do this is to get the central banks to finance governments and simply give the cash to governments who spend it, boosting demand and prices. Such a novel idea is heretical to the Germany mainstream, who are worried about rising prices when falling prices are the problem.
One last part of the equation is debt. The more debt you have the more inflation you need. High levels of debt and deflation lead to stagnation because if you have debts but your wages and prices are not rising fast, the debt burden will overwhelm you.
This is where Ireland comes in. Look at the chart. It shows total debt as a percentage of income all over the world. Ireland is a delinquent outlier here, with total debt levels that completely surpass even our most indebted neighbours. Without inflation, this will never be paid because there is simply too much of it. Maybe – like the promissory notes – it can be rolled over, kicked out a generation and forgotten about for now. But the creditors, the old countries, wouldn’t like that.
Interestingly, Madame Lagarde of the IMF stopped short of saying that was the cure. I wonder will she say it at Davos? I suspect that is highly unlikely because a recent survey in the Financial Times reported that most people at Davos were over 60. These are hardly the people to stand up for the young and the indebted who need inflation, because old creditors like “Davos Man” want deflation, modest returns and an easy retirement.
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World Economic Forum Meets at Davos on Wednesday. Seemingly they are nervous.
Davos warning: World’s 85 richest people have as much as half the rest of us.
Oxfam calculated that almost half the world’s wealth – $110trn – is owned by just 1 per cent of its population.
Davos HotPhrase Generator: now you, too, can share Big Ideas – interactive
Only fools and horses work in a Kleptocracy. Our family will be moving out of Dublin this summer for good. Money-wise, moving will mean exchanging high Dublin rents for a non-mortgage cash-purchase 40k house, yes, a 40k ready-to-live-in house, (location unimportant, search 50k max price houses on daft.ie for your own satisfaction). Rent-free and mortgage-free means we can afford a reduction in income which means more quality time with our family. This was no rose-tinted RTE Nationwide move. Our fulltime jobs have become a waiting game to redundancies. Consequently, renting and seeking employment in this environment makes one ponder the… Read more »
Lagarde is an eejit.
2% of Kuwaitis are over the age of 65
David, It would be nice to have the second chart more readable like the first one. Thanks
More D’s. Deficit. Democracy. Demographic deficit. De-industrialisation. Debenture. Delusional. There’s the long-term debt & the short-term deficit. Ability to grow to service the former is compromised by austerity to reign in the latter. Democracy post-Troika is an interesting concept in Ireland. Not clear how Fine Gael square the circle of last pre-election promises dumped with next election strategy ‘going forward’. De-industrialisation. Well, Ireland never really got going before putting all bets on farming & magic finance pixie dust stuff in the IFSC leading to delusional debenture situations. The IMF sat back and watched as Germany/France/UK stitched future Irish generations up… Read more »
“Global inequality has increased to the extent that the €1.2 trillion combined wealth of the 85 richest people is equal to that of the poorest 3.5 billion — half of the world’s population — according to a new report from development charity Oxfam.”
More Poverty, More Homelessness, More Deaths: Labour Set Out A Vision For Workfare Britain
Your looking at the wrong numbers for answers:
85 richest people as wealthy as half of the world’s population
If you take a step back for a minute and get some perspective, it’s apparent that this country has been a peasant society since time immemorial and, apart from a brief credit-fuelled period, when everyone thought they were rich geniuses, that’s exactly what it still is and probably always will be.
One for you cooldude:
Bob Geldof backs Russell Brand’s call for political revolution
“He went on to condemn capitalism as a failure. Banks, he says, have been allowed to go “out of control”, while pure human greed has led to the invention of “completely spurious” financial products.
“They ceased to [give money to others] and gave it to themselves through fraud, outright international global gangsterism,” he claimed.”
The ‘too big to fail’ problem just got worse
“Banks like a leverage ratio in the low single digits, of course, as it allows them to make more profits, which are then channelled into executive pay.”
The banksters are getting a hammering today but they don’t give a flying f**k as long as the bonuses are still flowing.
Something has to give.
And here’s the hatrick:
Trickle-down economics is the greatest broken promise of our lifetime.
“Wealth inequality in the US was at its highest levels, historically, in 1928 and 2007, one year before its two biggest financial crises, notes Reich. The base of the pyramid atrophies and begins to crumble.”
DMcW : “The only way to get out of this spiral is to print money as much as you can in order to boost inflation. This is precisely what the Japanese are trying to do. The Germans on the other hand are not going to countenance that in Europe. Even if they did, the European banks are so crocked that even if the central bank printed money, it’s hard to see that money cascading into the economy when the banks are not prepared to lend. The other way to do this is to get the central banks to finance governments… Read more »
The Indo reports some of the Davos obscenity : http://www.independent.ie/world-news/davos-warning-worlds-85-richest-people-have-as-much-as-half-the-rest-of-us-29931970.html Missing here is, just for example, how Sir Bill Gates Explains His Genocidal Calculus. “Yes, someone in the society has to deal with the reality that there are finite resources and we’re making trade-offs…. [W]hen you made it reimbursable for a doctor to ask, ‘Do you want heroic care at the end-of-life,’ that was a death panel. No, it wasn’t a death panel! It was asking somebody to make a decision.” Bill Gates received an honorary knighthood from Queen Elizabeth II in March 2005. Well earned, what? Will we have… Read more »
“COMPETE OR BUST”
Neo-liberal myth number one: “Export-led growth, and international competitiveness must be the cornerstone of our economic policy”. To achieve competitiveness we must rigidly and uncritically comply with GATT agreements and other trade ‘liberalisation’ measures.”
It is but a short step from the Calculus of the Deadly D’s, to Bentham’s Hedonistic Calculus, and then to Sir Bill’s royal Genocidal Calculus. The danger of maths, anyone?
This is where Hamilton’s productive power of labor, progress, economic growth is now much more urgently required. The Limits to Growth calculus of that aging 68’er boomer population is really the calculus of mass cull. After all that Club of Rome textbook of genocidal calculus hit the shelves when those were tweenies, fresh for brainwashing.
Why There Really Are No Limits to Growth
…And the 5th Deadly D. . . Davos!
Where the French and the English go to poke fun at each other.
Also, noteworthy For Dame Edna’s use of the now nefarious ‘De Secret Agent Twang’
“Your mother was a hamster &your father smelt of elderberries!
Now go away, I do not wish to taunt you a 2nd time!” :)
And whatamess…. The ‘D’ that as you affirm dare not even be uttered!!!
The most dastardly perversion of all.
D.. d.. d.. Derivative! It brings the Letter D down the route of ill-repute. Vile disgusting denigration.
D is also for Dimon (Jamie) who also happens to be a D***head!!
“This is because people see prices falling and think they will keep falling so the very act of falling prices postpones demand
Any chance it’s because people have no money left to spend after the basics?
Not everything is so cynical you know.
Monbiot on his usual theme. Still you have to tell the great unwashed something 1,000 times before they listen – and even then they might still not.
“Freedom is something to use or lose – we must fight the antisocial behaviour bill”
“We appear to possess an almost limitless ability to sit back and watch as political life is seized by plutocrats; as the biosphere is trashed; as public services are killed or given to corporations”
“Europe and Japan must fight against deflation at all costs.”
So, Davos is a very, very expensive way of stating the very, very obvious.
Seriously, how can such senior people say these things to a room full of professional economists and keep a straight face? How does the audience not roll on the floor laughing?
Between Nietzsche quotes, economics lecturer Stephen Kinsella tells us that economics is way too complex for mere humans to understand! Now where have we heard all that before I wonder? Mere mortals-of-a-day should let economics to others, perhaps Davos-ians? Why it is Adam Smith’s edict all dressed up in “complexity” : “To man is allotted a much humbler department …. Nature has directed us to the greater part of these by original and immediate instincts. Hunger, thirst,the passion which unites the two sexes, the love of pleasure,and the dread of pain, prompt us to apply those means for their own… Read more »
Sarah Carey reckons Michael Noonan needs to toughen up on our banks.
Hello Blueshirt, he’s in their hip pocket.
Case in point, cutting the interest rate on Post Office accounts at their behest!
From the way she drones on you’d swear she was referring to someone with a measurable conscience.
As time passes this whole situation descends further and further into farce. It is like a Greek tragedy.
“Friends show their love in times of trouble, not in happiness”
It’s no joke to the down-trodden though, and the human misery and suffering being left in its wake.
Corruption rules the world. All are corrupted. No moral structure left. The Gimme, gimme generation are at the levers of power.
DOOMED to a Devastating Destructive Demise. (3D is passé)
Bill Black and Max Keizer were the only two worth listening to at Kilkenomics 2013.
Here is Bill Black or world wide unprecedented fraud. The economy cannot be saved.
Government fraudulent reporting beginning to be recognised on Mainstreet
“”Old countries tend to save, not spend, and countries that are not spending are deflationary by nature. Look at the chart to see why Japan and Germany’s populations differ dramatically from the rest of the world average.” So which is it. Deflation because of debt or deflation because of savings. Anybody living on savings love deflation as their spending power of the savings is increased. I am waiting for deflation to take a hold with a vengeance. Then my retirement is sustainable. Deflation benefits the prudent not the profligate who love inflation. Those getting out of debt and downsizing will… Read more »
Deplacing Deceit and Deception with
Reality Onslaught (Daylight)
This is what unlimited credit does to the debt level. notice the 1972 start of the graph after going off the gold standard
Michaelcoughlan to whatamess earlier in thread
” you are more and more morphing into bonbon ”
You’re getting close…
“In the United States […] the two main business-dominated parties, with the support of the corporate community, have refused to reform laws that make it virtually impossible to create new political parties (that might appeal to non-business interests) and let them be effective. Although there is marked and frequently observed dissatisfaction with the Republicans and Democrats, electoral politics is one area where notions of competitions and free choice have little meaning. In some respects the caliber of debate and choice in neoliberal elections tends to be closer to that of the one-party communist state than that of a genuine democracy.”… Read more »
“For the compulsive “free market” globalizers, led by The New York Times’ Thomas L. Friedman, the certainty of their economic science was not falsifiable no matter how often it failed. Any of neoliberalism’s corporate-led globalization fiascos could be blamed on corrupt governments or crony capitalism or cultural barriers or not having the right version of market fundamentalism or not having enough capitalism or, or…or something.”
Marketing a Myth: the Selling of Neoliberalism
“Mr Kenny will meet US treasury secretary Jacob Lew as well as business leaders such as Facebook chief operating officer Sheryl Sandberg and Citi Group European chief executive James Cowles.”
..”Kenny joining European Commission president José Manuel Barroso and Swedish prime minister Fredrick Reinfeldt to discuss how to close Europe’s “competitiveness gap.”
But “you gotta be a wolf to catch a wolf!!!”
The muinteoir will be Devoured ,as he goes ‘cap in hand’!!
The Thorium Evolution and Revolution
This short page dispels some myths:
“The dangers of uranium – widely publicized in the wake of the Fukushima disaster – often lead analysts and others to consider thorium more seriously. As thorium is not fissile on its own, reactions could be stopped in case of emergency, according to Forbes. The publication suggests thorium could allow countries like Iran and North Korea to benefit from nuclear power without causing concern that they are secretly developing nuclear weapons, as well.”
“In 1975, the Government faced a dilemma: how to exploit the potential of its new oil fields without fuelling demands for Scottish independence. So it buried the evidence”
“An independent Scotland’s budget surpluses as a result of the oil boom, wrote Professor McCrone, would be so large as to be “embarrassing”.
How black gold was hijacked: North sea oil and the betrayal of Scotland
“There is No Alternative” – Debunking the Greatest Myth of Thatcherism
Anyone else notice that the login account was cleared? Maybe something to do with the massive data theft yesterday?
Uproar at JobBridge scheme escalates
They can talk about whatever they want at Davos but he who has the gold makes the rules. *Dave from Denver… Wednesday, January 22, 2014 The Golden Rule “He who has the gold makes the rules” Please note: the “Golden Rule” refers to actual physical gold in one’s possession and not futures contracts, GLD shares or even the gold that you have “invested” in via products marketed to wealthy bank clients that claim to have the gold sitting bank vaults (please see this: ABN Amro halts gold delivery and this: Rabobank halts gold delivery). Based on several inquiries in response… Read more »
160K people will pay through the nose to see #GarthBrooks at #CrokePark in July. Just proves there’s 438 plonkers born every day in Ireland.
If gold is not money, what is it?
Chinese seem to think it is money, so do the Indians and so did your ancestors.