Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘stephen roach’

• Higher US Savings Is Economic Game Changer

Posted by Ron Robins on December 10, 2010

By Ron Robins. First published September 23, 2010, in his weekly economics and finance column at alrroya.com

There is one prayer of governments and businesses around the world: that Americans forgo higher savings, banish their job and retirement income worries, and go on a spending spree. However, this is not to be. Were the prayer to be fulfilled the global trade and other economic imbalances of the past and present would be unresolved, even magnified. But fortunately, the early stages of their resolution are at hand.

To help resolve these global imbalances, US savings rates must go up while its consumption of goods and services relative to GDP goes down. And this will be a generational game-changer for the US and for the world, causing economic difficulties everywhere for the years ahead.

Depending on how fast its savings rates rise, the US economy will be mired in recessionary or depressionary conditions for some years. But America has faced many daunting economic challenges before and each time it rebirths to greater prosperity. This is likely to be true again.

America once had high savings rates with much lower levels of personal consumption than now. Between, 1950 and 1975, its savings rates were generally in the 8 to12 per cent range of disposable income, and personal consumption relative to GDP averaged around 64 per cent. In the years between 1975 to 2000 savings rates declined significantly to under 5 per cent and then to 1 per cent by 2005 when personal consumption rose to a high of about 72 per cent of GDP.

Since 2006, America’s savings rates have been moving up—and most especially after the 2008 financial crisis. Today, they average about 6 per cent.

Furthermore, it is probable that US savings rates will move even higher to the 10 to 15 per cent range in the next few years as Americans worry about job security, home values, and retirement income. As this happens, US consumption rates will fall back to the 60 per cent region. This will have initially deleterious effects for the global economy and countries reliant on exports for income and jobs. Thus this is another game-changing situation.

No country or countries can presently replace the American consumer. For instance, the combined annual personal consumption of China and India is about $2 trillion, compared to America’s nearly $9 tln.

The big Asian exporters, as well as Germany, will have to find other markets for their products—or stimulate internal consumption to grow. Intra-regional Asian trade is growing rapidly but “is still mainly driven by supply-chain links involving intermediate goods rather than newly surging end-market demand in Asia,” says Stephen Roach, non-executive chairman for Asia at Morgan Stanley, in a Financial Times report.

So where will increased US savings go? As of now they are going mostly into bonds, especially US government bonds. Annual funding needs for the US government over the next few years will probably be close to $2 tln if economic growth stalls or declines. That sum is equal to about 13 per cent of US GDP. It will be increasingly financed from within the US by savers, banks and especially the Federal Reserve (the Fed).

The Fed will create new money to purchase US Treasury debt and probably other assets. This ‘money-printing’ will generate huge amounts of ‘excess’ dollars. The consequences of this action will produce a litany of global economic difficulties. These will include a slumping dollar, domestic inflation—and even possibly hyperinflation.

Upset at the dollar’s fall, other countries and regions from China to Japan to Europe, will attempt to devalue their currencies, leading to probable currency and trade wars. (I have written more on these subjects in previous columns.)

Of course a lower dollar and likely new US import restrictions will mean higher US import prices, or even unavailability of some products. This will give some American manufacturers the opportunity to recoup previously lost domestic markets and the servicing of new ones as well. US industrial production could be re-ignited and even induce foreign companies and manufacturers to buy or invest in US domestic manufacturers as well.

With US imports from oil and computers to foodstuffs, as well as domestically manufactured goods costing more, Americans will find their standard of living declining.

“The need to overcome the effects of reduced [American] individual buying power will lead to the invention of a new class of product which will be a major trend of 2010 and into the future: Technology for The Poor…,” says Gerald Celente, the renowned American trends forecaster and president of the Trends Institute. Continuing, he says that, “growing with the same speed as the Internet Revolution, the trend will be recognised, explored and exploited by legions of skilled but jobless geeks, innovators and inventors who will design and launch a new class of products and services affordable by millions of newly downscaled Western consumers… ”

Mr Celente further forecasts, “a ‘not made in China’ consumer crusade that will spread among developed nations, leading to trade wars and protectionism.”

Americans have little choice but to increase personal savings rates. The Fed will ‘hyperventilate’ to derail prolonged economic malaise and promulgate vast quantities of new dollars, causing the dollar to fall—or crash! A dollar fall will produce inflation; a crash could ignite hyperinflation in the US and elsewhere. Also unleashed could be ‘buy America’ strategies and policies within the US thus further inciting the risk of global currency and trade wars.

This sounds like dire news. However, a new, free America could be born as it rids itself of the shackles of debt. Americans, renowned for their outstanding drive, creativity and innovation, may create a new generation of ingenious products and services geared to the new economic reality. ‘Made in America’ products could again fill retail shelves. And Asia’s export-reliant countries will finally focus on enhancing domestic consumer demand to purchase their wares, thereby bringing much improved living standards to their populations.

Higher US savings will be an economic game-changer for the US and the world.

Copyright alrroya.com


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• Interest Rate Manipulation and Loose Money Promote Economic Collapse

Posted by Ron Robins on April 6, 2009

Few people would compare downward central bank interest rate manipulation and loose money policies to Soviet style command economics. But I do. And I suggest that if these policies continue for much longer, it could lead to an economic collapse, something approaching that of the Soviet Union’s in the late 1980s. Consider the outcomes for the United States of excessively low interest rates and loose monetary policies in recent years fostered by the U.S. Federal Reserve:

  • A real estate boom and bust, with massive over-building.
  • Discouragement of savings which fell to all-time lows relative to incomes.
  • The taking of inordinate financial risks.
  • The creation of excessive debt, particularly by consumers.
  • The expansion of total debt far faster than either GDP or income.

Furthermore, the Japanese experience with many years of zero-based interest rates and easy money has enormously compounded its economic problems. Here is the situation in Japan today:

  • Japan cannot raise interest rates in any meaningful way due to its gargantuan public debt. To do so could bankrupt the nation. The country is trapped into lower rates.
  • Until recently, Japan had become the financier of ultra cheap plentiful loans that artificially boosted global asset prices. The so-called ‘yen carry-trade’, and, its recent collapse has helped crush global asset values.
  • Zero-based rates combined with major monetary expansion smashed down Japan’s exchange rate, making imports expensive and discouraged balanced domestic consumption.
  • A ‘cheap’ Yen gave Japanese exporters an unfair trade advantage relative to other developed economies, particularly that of the United States.
  • Japan has failed to pull itself out of an almost twenty-year slump.
  • Japan has produced a situation of significantly diminished resources to fight its present downturn, not only due to the enormity of its government debt, but also because of deteriorating savings in recent years and lack of domestic consumer demand.

With central bank rates of zero per cent proving inadequate to get individuals and companies borrowing, and banks lending again, governments now seek to lower their bond yields. Thereby rates for mortgages, auto loans, consumer loans, etc., are also manipulated down, hoping to kick-start consumption. Hence, the U.S., Japanese, British and other central banks are engaged in a massive ‘printing money’ exercise to buy huge quantities of their respective governments’ bonds in an effort to lower their bond yields and create the easy money. Such policies usually have the following outcomes:

  • If successful, debt levels go from really bad to extremely bad!
  • Short-term artificial demand stimuli distort longer term supply/demand relationships. Look what has happened to the American auto industry arising from zero-cost financing a few years ago. It appears that much of the increased sales was at the expense of future consumption and has helped shape the horrendous situation for the industry today.
  • Financial and economic imbalances mount, producing an ever more unstable economic environment. As Stephen Roach, Chairman of Morgan Stanley Asia, wrote on March 10, 2009 in the Financial Times, “Policies are being framed with an aim towards recreating the boom. Washington wants to get credit flowing again to indebted US consumers… It is a recipe for disaster.”

Economies with excessively loose monetary policies and who force interest rates to ultra low levels for extended periods of time eventually succumb to a massive top-heavy debt structure which at some point ‘topples over.’ These countries then suffer either a deflationary debt implosion/depression in which much of the debt is liquidated, or the country’s central bank instigates a huge inflationary push to reduce the value of all credit market debt in the country by vastly increasing the amount of currency and the expansion of its money supply.

A big inflationary push frequently leads to a lack of confidence in the country’s currency and hence the possibility of ‘hyper-inflation’ occurring as everyone unloads the country’s currency for real goods or other currencies. Argentina earlier this decade and Zimbabwe recently, are examples of central bank sponsored inflation that led to no confidence in their currencies, resulting in hyper-inflation. The inflationary approach is what appears to be favoured by the American, Japanese and British central banks.

From an Enlightened Economics perspective, the actions of manipulating down interest rates and the over printing of money by central banks fall under a terrible fallacy: the belief that we can resolve our short-term economic problems by going more into debt and not concern ourselves with the long-term consequences. A global consciousness has to arise which understands that manipulating markets, most especially interest rates and money supply, leads to highly unstable economies which in time either implode or explode!

Sometime in the next few years we will again learn history’s lesson concerning long periods of ultra-low interest rates and loose money. And the lesson is that by artificially enforcing such policies for extended periods of time leads to an inevitably unwieldy mammoth debt structure that eventually crushes the economy. As I mentioned at the beginning of this piece, it is comparable in my view to that of the Soviet command economy which finally imploded after trying for decades to make it work.


© Ron Robins, 2009.

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• The Missing Ingredient In Economics — Consciousness!

Posted by Ron Robins on December 3, 2007

Revised January 13, 2008

Lost to modern economics: Consciousness governs human economic behaviour. Enlightened Economics brings consciousness back.
Modern economics seems to have forgotten the obvious. The quality and actions of our individual and collective consciousness governs economic behaviour. For example, in the US it has become fashionable to believe that accumulating debt does not matter. That is fine until the bills mount, become unpaid, and causes debt defaults which then precipitate an economic crisis! Thus, the quality of our consciousness and thinking process profoundly impacts economics. Yet there is no discussion of this in economics today.

A new economics that accounts for changes in the quality and development of our individual and collective consciousness is needed. I call this new economics, Enlightened Economics! Here I examine what consciousness is, its underpinning in natural law, and how it functions. I emphasize that consciousness in its fulfilled, developed state, will bring the ‘dismal science’ of economics to an evolved and higher level — to the status of Enlightened Economics.

What is consciousness?
Human consciousness is defined in many ways. I find it preferable to understand it in an Indian Vedic, or Jungian, sense. That is, at its basis it is interconnected to everything else, is supremely intelligent, and infinitely dimensioned. In physics, it is represented as the ultimate field of super-unification in unified field theories. In Vedic terms, it is spoken of ‘Brahm’ or totality, the ultimate universal entity, and embodied as ‘atma’ in the individual.

For if our very own consciousness is at the basis of everything, it then also possesses the ability to be ‘all-knowing.’ From a ‘markets sense’ this infers the theoretical ability to be knowledgeable about all things at all times. Not that one is cognizant of all things simultaneously, but one has the ability to act from that level of all knowledge in a way that proves spontaneously in accord with the fundamental laws of nature. In this way, individuals with a developed consciousness think and act in accordance with natural law.

Consciousness, the basis of evolution
Nature is forever changing and evolving. However, when one looks back over millennia, for many of us it seems as if there is pattern, an underlying intelligence governing change and the evolution of the entire universe. For instance, the human embryo grows into a baby. It does not grow into an elephant! Natural laws exist governing the evolution of all life.

Consciousness the governor of individual activity
For individuals to fully engage this level of nature’s functioning requires transcending the surface levels of thought and mental functioning. Arriving at that source of thought, the fountainhead of consciousness, is the unified field of natural law. Here the individual experiences peace, silence and bliss. (Personally, I have found Transcendental Meditation to be the most effortless, practical and effective scientific technique to accomplish this. On a collective level, extraordinary research shows that it only takes a few individuals rising in higher consciousness to effect positive changes in collective consciousness. Another research project, among many, demonstrating the existence of a collective consciousness is based at Princeton University, and called the Global Consciousness Research Project.)

The quality of our consciousness governs what we buy as well as our ability to fulfill desires
I believe human evolution is all about the development of our consciousness and its alignment with natural law. And that this is where humanity is heading. Our desires, wants, actions and purchases will be reflective of what nature ‘itself” (us) wants and increasingly reflective of the higher aspirations of a more integrated collective consciousness. Since humans everywhere want very similar things – prosperity, happiness, health, safety, and higher consciousness – it will mean that as human consciousness evolves our needs will be more refined.

The goods and services purchased by people with stressed-out, unfulfilled minds – and likely the largest consumers of tobacco, gambling products, etc. – will be be very different from individuals who enjoy higher consciousness and fulfilled minds. As an example, the latter may well be greater consumers of ‘green’ products, educational services, etc. In addition, a fully-developed mind will have the ability, creativity, and capacity to much more easily fulfill desires.

Unevolved consciousness and its headlong pursuit of Gross Domestic Product (GDP), debt, and other sins
The maddening preoccupation with GDP today is typical of the stressed, unfulfilled, unenlightened mind. Without the experience of the profundity of the peace and bliss that characterizes the enlightened mind, individuals believe their desires and happiness can only be fulfilled in the material world. For such individuals, they are as if lost in a fog containing fleeting worldly pleasures. Driven like a drug addict they borrow (as mentioned earlier) far beyond their means to keep spending. Last year (2007), according to Stephen Roach of Morgan Stanley, consumption in the US was at an all time high of 72% of GDP. This is significantly beyond the range of other developed countries. It leaves a legacy of extraordinarily bloated trade and current account deficits and total credit market debt of over 350% of GDP.

There has never been a time in US history, nor in any modern developed country, where debt has grown to such a staggering proportion of its economy. The vast majority of Americans are unable to appreciate the formidable challenge this poses to its economic viability. (And, unfortunately, the prescription being advanced by economic elites and most of the American presidential hopefuls to heal this wound in US society is – more spending and debt!)

Consciousness is the missing ingredient to advancing economic understanding
No, the only way out for Americans to avoid an extraordinary economic decline in the years ahead is for them to experience that field of inner peace and intelligence within their own consciousness. It will create greater balance and creativity in their minds and eliminate their ‘drug dependent’ like attachment to the fog of only desiring material wants.

Thus the missing ingredient — the introduction of the role of consciousness (and the knowledge of natural law) — is what will bring fulfillment to economics, both in America and around the world. Enlightened Economics and its incorporation of consciousness will bring a new light to the dismal science.


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