In global economics and finance there is a phenomenon called a “super cycle”. This is a large structural shift in the world economy that can go on for a long time. Unlike normal business cycles, which last approximately seven or eight years, super cycles can last decades. A good example of these super cycles is what is happening in world markets right now.
The emergence of China in the 1990s as an economic powerhouse is one super cycle because it is a one-off event that prompted a shift in global production from West to East. China’s ferocious demand for raw materials drove up the prices of commodities all over the world, enriching countries like Russia, Brazil and Chile that supply raw material to China.
This super cycle has now come to an end and the collapse in commodity prices from oil to copper is the result of the end of the super cycle, which has been signaled by China’s economy – eventually after 35 years of growth – slowing down. It’s not likely that the world will experience such a huge shift again for another generation.
In politics there are also super cycles. These are once-in-a-generation events that dictate the pace and direction of politics and policy. We are at the end of two major super cycles right now and our new government, whoever that is, will have to deal with the fallout that will have huge consequences for Ireland.
The first super cycle is the ending of the last 30 years of EU expansion and integration. This project is now fraying at the seams. As the EU comes under threat both from the migrant crisis and Brexit, the natural reaction of the Eurocrats will be to lurch for deeper integration. They always do this.
This reaction will involve more pooling of sovereignty and this means that the ongoing battle between Brussels and Apple over Ireland’s tax policies is likely to become a red line issue for the next government. These moves will bring an end to the other 25-year, super cycle whereby Ireland managed to hold onto its corporate tax polices in the face of further European integration. This is ending now.
During the course of the next Dáil, the relationship between Ireland and Europe is likely to change profoundly from a geo-political and a financial perspective.
Let’s examine first the European political super cycle, which began in 1989 and is now ending. Starting with the fall of the Berlin Wall in 1989, the EU has been in expansion mode. In 1990, we had German unification, followed by the single market in 1992, the EU’s drive to the East in the mid- to late-1990s, the accession of the central European states, the adoption of the euro and, ultimately, the Schengen Agreement allowing for the free movement of people within the EU’s borders.
This super cycle began to fracture in 2008/9 following the collapse of the peripheral banking system, austerity, bailouts and the euro crisis.
By pitting creditor nations against debtor nations, the euro crisis left the EU in the bizarre situation where preserving the euro came at the cost of weakening the EU itself. Remember, the euro was supposed to strengthen the EU.
Successive financial calamities have undermined the unity of the EU. However, these were nothing compared to the combination of the migrant crisis in 2015 and a Brexit vote in 2016.
Germany is at loggerheads with its – up until now – staunch allies in central Europe over the migrant issue. Poland, Hungary and Slovakia are in open revolt against Berlin. Germany wants the rest of the EU countries to take a proportional share of new migrants.
The central Europeans have refused. They see the migrants as a problem that Germany has brought upon itself by opening its borders.
Meanwhile, Brussels is hectoring Greece, a devastated country, on the frontline of the migrant crisis, to process migrants properly. Greece is saying it doesn’t have the resources because it is in a severe EU bailout programme.
The EU has responded by threatening to remove Greece from Schengen. At the same time, Poland is threatening to close its border to migrants, thus tearing up Schengen.
Over in Copenhagen, the government has introduced a “jewellery tax” for migrants who want to come to Denmark. This is a tax on migrants’ valuables in order to cover the costs of their potential deportation if they do not qualify as proper refugees.
The Danes are worried that as the transit nation between Germany and Sweden, Denmark will become a holding centre for migrants – going both north and those who have been kicked out of Sweden, returning south.
On top of all this chaos, the possibility of Brexit seems like small beer.
But yesterday the EU published the bones of an agreement in an attempt to keep the UK in the EU. It contains an understanding that the UK will not have to pay social welfare benefits to East European migrants for the first four years after they arrive in Britain.
This is not going down well in the capital cities east of the Elbe. Unfortunately for the EU, it has to get 28 member states to agree on the UK’s special status. This won’t be easy and already the Eurosceptics in London are suggesting that the special deal between the UK and the EU is a cop-out.
The EU without Britain is a much more integrated, continental EU. Ireland will lose its major economic ally and any new continental EU won’t tolerate one member state going all Anglo/American with low corporation taxes.
If you want to see what the future looks like, examine what is happening at the moment between the EU and Apple. From an Irish perspective you couldn’t make this story up. The EU wants Apple to pay the Ireland exchequer more money and Ireland is actively arguing against this! We – a county with a budget deficit – want Apple to pay us less, not more, money. Is this a first?
The stakes are huge. If the EU ruling goes against Apple, our government could be “forced” to collect between about $8bn and $19bn. Yes you read right: “forced” to collect!
The EU is saying that preferential tax deals are illegal state aids, which give the company an unfair advantage over their rivals.
Apple is worried. Why else would Apple’s CEO Tim Cook make a dash to Brussels two weeks ago? The EU wants multinationals to undertake “country-by-country reporting” where they’d have to make public their revenues, profits and taxes paid in each country where they operate.
This wouldn’t be good news for us at all because obviously our domestic market is tiny in comparison to the declared profits of multinationals operating here.
It’s not hard to see the world we know changing in front of us. The choices before the new government are stark, the issues are complex and the solutions not obvious.
However, one thing is clear: putting our heads in the sand in the hope of carrying on as before is not an option.
The new government will be a coalition of the previous two governments. Kenny is holding the election in a short camapign in a hope that the various disaffected elements like Anti-Water levy protestors don’t get organized. This government has wasted 5 years to clean up the inefficient, underperforming mess that is the institutional state. It now worse than even under Ahern – and that is a serious indictment. Don’t expect any of the various alternatives to do anything either. Gerry Adams wants to throw even more money at the institutional incompetence that produced soft touch regulation, FAS junkets, HSE overspends,… Read more »
From an Irish perspective you couldn’t make this story up. The EU wants Apple to pay the Ireland exchequer more money and Ireland is actively arguing against this! We – a county with a budget deficit – want Apple to pay us less, not more, money. Is this a first?
The Good Room syndrome again.
I often wonder if the Irish political parties are in the pay of US mncs.
Think about the way they behave, the choices they make, the side that they often take.
“The price of greatness, is responsibility” Churchill. David is asking Ireland’s politicians to be responsible. That is expecting too much. Really. Our leadership is predisposed to taking orders. In the realms of thinking and debate, we are not sovereign or independent. In the past three decades, we have become even less so, as the hope that we might be, as been quenched by EU grants and political party machines that can be bought, cheaply. Gombeenism is the accepted political ideology in Ireland, at this point of time. The post boxes were red, and then they got repainted green. At this… Read more »
If Brexit did occur, the UK may well be tempted to bring in their own package to attract the multinationals. I fancy one or two might up sticks and cross over, especially if our lot bow to Brussels.
You have the right idea with what to do with the money.
The problem is that you are not in power.
The money will be squandered in adventures to make sure that hereditary politicians remain in their family seats.
There are deep moral issues with respect to power, wealth and political office, at play here.
Deep down they don’t want people becomming too clear minded, or sufficiently indepndent that they will not be looking for grants/welfare for votes.
I am talking in reference to both the Irish institutional state, and it’s big brother in Brussels.
By the way, China’s heavy infrastructure build is almost complete. China has debts, and massive scale infrastructure. Some of this is very impressive. And extremely efficient. Particularly in respect of metros, trains, airports, ports etc.. The efficiency gains are considerable. We in Ireland have failed to sort out the public transport mess in Dublin. And Galway is a case of mismanagement with relatively little traffic. The next phase in China’s development will be different. Is the world prepared for that ? Think about what graduates from Western universities are going to face in the coming years, as competition. All that… Read more »
Well done David, we may well live in interesting times.
Two small items
1. The Danes take “valuable” items, including property value, from welfare recipients, not just refugees.
2. Cook dropped in to Brussels on his way to backslapping in Davos.
Hi, Talking about super cycles David and no mention of out of control money printing and debt creation since Nixon took the US off the gold standard. It’s like sitting on the deck of the Titanic and saying to the person beside you you fear that the biggest threat to you from H2O in its solid form are the ice cubes in your Martini causing your indigestion. Back in the real world look what realists think about Deutsch bank and its 75 TRILLION DERIVATIVES EXPOSURE EQUALING 20 TIMES THE SIZE OF THE GERMAN ECONOMY! http://www.zerohedge.com/news/2016-02-03/it-time-panic-about-deutsche-bank Look what the market thinks… Read more »
“Ireland will lose its major economic ally and any new continental EU won’t tolerate one member state going all Anglo/American with low corporation taxes.”
Would it not be in our interests to stick with our Anglo-American big brothers?
I think David is looking for a problem that does not exist. Politics aside the Irish have positioned themselves well in the competition for international capital. They have attracted a disproportionate amount of foreign direct investment (FDI) especially from America. Americans admire this small little island economy that holds its own in the battle between economic giants. What exactly is David suggesting? I didn’t get any clear policy suggestion for the next government. Here is what I wrote in an American publication recently, which brought a good deal of agreement from American readers. It may be relevant in David’s column:… Read more »
Another issue for the next government, will be the deflating Nasdaq bubble.
The Baltic Dry Index is screaming at us telling us that recession is starting. Shipments of trade in products has stalled.
South Korean exports have contracted, a sign that demand for electronics, mobile phones, and cars has contracted sharply since December.
For this government it is a case of get the election done before the economy comes to a halt, and they get found out as being failed to fix the moribound institutional state complex that has grwon out of control.
Scary stuff ! without the multi-nationals we be as poor as Romania.
Apart from Agri-business , we wouldn’t have much going for us.
I suspect that adjusting the nominal rate of the corporate tax rate, if it happens, is nothing more than a sop to appease or assuage a ‘concern’ that has some attention -at best. I cannot see that there has been any major political development that is not a progression for business interest in recent years. The only question which remains is the degree to which nations and political institutions are now subsidiaries of corporations. ‘Concern’ in the sense that corporations’ have an apparent inability to find ways to pay tax has come under the spotlight-make of that what you will.… Read more »
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Off-topic but interesting short read:
“The Evolution of Everything by Matt Ridley review – the rightwing libertarian gets it wrong”
Good article, David, and I have to agree with most of what you stated in it. Some of people who commented so far in regard to what’s happening in the EU as a whole and with the Euro as well I happen to agree with. Going back to when we had the introduction of the single market back in 1992 that was a great idea and then with the introduction of the single currency that was a good idea as well, up to a point. As far as I’m concerned everything went ‘tit’s up’when the EU came into being. Once… Read more »
“Germany is at loggerheads with its – up until now – staunch allies in central Europe over the migrant issue.”
Gold miner shares breaking out to the upside tony. Could be the big one?
Scottish investment guru parses China’s current debt problem.
And he reclons China has the potential to unravel everything on the rest of us. Particular considering that it’s debts are in Yuan, and it’s assets are either in US Treasuries, or else hard assets like mines, and hydrocarbons.
Will China devalue ?
It’s main asset (that labour force that achieves the impossible in terms of hours worked) might get cheaper.
Of course the Chinese standard of living will nosedive. Can China handle that shock internally ?
Good day Michael I watched Hugo’s latest and he is correct and I agree we are on the way. Started months ago as I indicated many times and really is a continuation of the 2008 bust. The major problem for the world, Chinese, Indian, European, Asian, or American is DEBT SATURATION. This is a real super cycle that gets no mention. It is the real killer. discussing tax rates or trade partners is a side issue about to be overwhelmed by the DEBT. In Ireland’s case it already doubled the national debt but of course that is no longer an… Read more »
as coin = except coin
“” I will say this, the global financial system will completely seize up and close for trading once gold delivery fails. This will only take 48 hours after a failure, and the ability to procure metal, sell stocks and bonds, or do anything else financial will not be an option.”” “Liquidity is drying up and no Ponzi scheme can survive without “new juice”! A very basic and core problem with no solution other than resetting, rebooting and revamping the system itself! We are living a global margin call that cannot be met. The system is clearly broken and you do… Read more »
Authoritarian government wants total control over your money. Next it will be a card with the chip that controls you. Health care, social benefits, bank accounts, pensions. One error or suspicion and all benefits will be suspended.
You will be on your own in a black market barter system… or dead.
“In other words, the “Great Deformation” of monetary policy David Stockman warned of – which I highlighted in my MUST READ article of 13 months ago, “direst prediction of all” – is coursing through the economy like leukemia through the bloodstream; certain to destroy everything in its path via the most devastating deflationary wave in history. Yielding, of course, the most hyper-inflationary monetary response; and with it, the aforementioned “unspeakable horrors” – politically, economically, and socially. Such as, amidst yesterday’s financial market carnage, the utter implosion of countless currencies to new lows, across the four corners of the globe. Not… Read more »
“The class of those who have the ability to think their own thoughts is separated by an unbridgeable gulf from the class of those who cannot.” … Ludwig Von Mises
“What hits home for us is that so much of what is occurring in the economic/financial world is finally playing out as articulated for some time by a number of the savants in our camp. They were never really wrong, just early and perceptive … which takes us back to a Big Short comparison. Those groups who saw the economy and financial markets falling apart re the mortgage backed securities fraud were never wrong, just early.”
Midas du Metropole
Swiss bank falls 11% in share price in one day!!!!
Looks like our central bankers. Originally supposed to harbour the wealth of the nation as trusted custodian. Originally separated from the state to protect from political persuasion. Originally supposed to act in the public interest.
Like the sheep dog, the protector now acts as a predator. At first site there is no difference between a banker and a politician. New brooms sweep clean and we need a good cleaning.
“Last night ABC began its two-part series on the Bernie Madoff fraud. Viewers will be reminded about how investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings.” Posted at lemetropolecafe.com
Iceland has debt jubilee. Unreported anywhere in main press.
5 European banks on brink of crisis
“This new technology could change mining and make more gold available in more parts of the world than ever before. Gold is still money, regardless of what the banksters or any government tells you. Gold has been money for approximately 4,000+ YEARS. Just because a couple of governments, in the last 100 years have abused their privileges regarding the use of gold, that does not change over four millenniums of history. Just ask China how important gold is to the world. Just ask an Indian or an Iranian about the importance of gold. You will get a much broader picture… Read more »
The London FIX is really a FIX. Established by Rothschild’s to control the pricing mechanism.
Did I mention anything about ‘wogs’ or ‘pakis’ or ‘chinks’ in my statement?? No I did not!! You were the one who mentioned ‘wogs’ in your reply not me!!
The Brits maybe very insular in their outlook, but whatever you may say and think about them they’re still a sovereign nation within the EU for however that may last. Not like us who seem to have given up our sovereignty for a ‘mess of potage’!!
http://www.telegraph.co.uk/finance/economics/12141369/Dollar-tumbles-as-Fed-rescues-China-in-the-nick-of-time.html Competitive devaluation of currencies was introduced to me a decade or so ago and I realized that this is the cause of world wide inflation. How does a currency become worth less than it was? Lower the interest rate. How is that done ? Make supply exceed demand. How? Produce more out of thin air and offer it to anyone who will take it. What is the desired outcome? Now the country can export more and it costs more to import. What is the actual effect ? Inflation increases. Other countries do the same thing. With what results? The… Read more »
What happens when an economy is mismanaged. Coming to one country after another in a place near you. Hyperinflation.
“It is appropriate at this juncture to make a simple observation: you do not win a financial war by undermining your own currency. Instead, you should undermine the enemy’s currency.”
Major-General Qiao Liang, the Peoples Liberation Army strategist.
Until the gold / silver ratio trends down there will not be a real advance in the precious metals. Until then it depends on a weak currency relative to the US to show a PM gain.
Here is an interesting article on the Bradbury Pound which was issued by the Brittish Treasury during WW1. The interesting thing is that it was debt free money issued directly by the Treasury and paying no interest to the criminal banksters. Of course the banksters used their paid for politicians to get rid of it but it shows it can be done.
I think this could make the basis for some interesting discussion and maybe ???? even an article on the benefits of interest free money.
The next government will have a new problem to tackle.
The Time-Fiscal space continuum.
Our “leadership” are lost in “fiscal space”…….making a mountain out of a molehill somwhere in fiscal space.
Anyway, seeing as the January pay check arrived for most people, I hope that you are all in a better “fiscal space” now.
This follows up on my comments above but there is more room here. A few years ago John Walters was on Brendan O’Connor’s Saturday Night Show talking about God. O’Connor interrupted him to ask him what was so special about us, we are just an insignificant speck in a vast indifferent universe. The audience exploded in laughter at his commonplace observation. O’Connor went on to say that John Gray had been a guest on the programme shortly before and had argued persuasively that the best we could do was to try to achieve a modest degree of happiness before our… Read more »
Welcome all. I’m not in a position to write a long comment right now (on my way to my friend’s wedding – I bought them Smith&Wesson). So in a few points: 1. Excellent article. David is a good listener. Women must love him. 2. “At the same time, Poland is threatening to close its border to migrants, thus tearing up Schengen.” David got the gist of it, but perhaps it would be germane to remind dear readers the context of that situation: – first, Germany, Austria, Belgium, the Netherlands and Luxembourg proposed to create a mini-Schengen zone to stop the… Read more »
Here is the Shanley story:
“Hillary Is the Candidate of the War Machine”
It is absolutely essential that the UK leaves the EU, or as I like to summarise the debate: FcUKEU ! Up Your Delors-Redux…. The surreptitious incursion of the Napoleonic Code into our Saxon heartlands is absolutely reprehensible but to be expected from the Norman Toraigh Whores of Londinium. The choice is between having the Overlords of The City Of London or the Overlords of Europa. No contest, as the City can be reigned in by Magna Carta and all the other priceless historic heritages of English and British culture. We do not need Europe and it’s Napoleonic Code, nor does… Read more »
Apologies for the long post. It was the only way to copy it. The cabal exposed. Posted at lemetropolecafe.com *The Secret of the Cabal Necromancers, not so Secret anymore Hi Bill: Lately, for some reason, I have kept thinking on our friend T. Q. Nichols, author of the famous papers “The Short Seller’s Nightmare” and “The Stalk of Gold”. It turns out that I decided to re-read his papers and they have really turned out to be a veritable treasure of economic wisdom and simplicity that reflects reality with eerie accuracy. The root of the current economic problems of the… Read more »
The coming collapse in bonds.