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RIP capitalism & the free market as we knew them, Macquarie Capital analysts Viktor Shvets & Terrence Leung argue, with the private sector now artificially propped up by the public sector

Business / news
RIP capitalism & the free market as we knew them, Macquarie Capital analysts Viktor Shvets & Terrence Leung argue, with the private sector now artificially propped up by the public sector
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There's no chance of a return to anything remotely resembling conventional capitalism and free private markets with the public sector now firmly in the driver’s seat following the Global Financial Crisis (GFC) and the Covid-19 pandemic, Macquarie Capital argues.

Macquarie Capital analysts Viktor Shvets and Terrence Leung make this argument in a report named Rights, Wrongs & Returns 2022 – Between COVID, Hubris and Nemesis. They argue the combination of the GFC between 2008 and 2010 and now Covid are turbocharging developments that were already underway. They are dislocation events accelerating change.

This makes states and public sectors the most important and dominant players in modulating economies and capital markets.

"It is accelerating atrophy of private sector and free market signals while making it next to impossible to unwind the process of financialization and an ever-deeper dependence on debt and asset prices," Shvets and Leung say.

"The Information Age and financialization are also aggravating social tensions, including inequalities within and between nations, with Covid accentuating these developments even further. This brand-new world that is tentatively emerging favours size, localization, wealth, and liquidity and generally disadvantages anything that is small, generically globalized, illiquid, and poor. It brings to the end the decades of a global convergence, which never truly worked but was at the core of political and economic consensus."

Shvets and Leung say they don't subscribe to the view that the state is the obstacle standing in the way of private sector vibrancy. Rather, they see the private sector as artificially propped up by the public sector through a range of monetary and fiscal support, with any resetting of the economy being neither politically, economically nor socially acceptable.

"In other words, because of profound technological, economic, and financial changes, we maintain the private sector will never be able to run again under its own steam and societies will insist on ever-greater public sector dominance, which would gradually spread from just trying to restart economies and reduce asset volatilities to effectively running ever-larger parts of economies," say Shvets and Leung.

'Burning rubber to rejoin highway traffic is not the same thing as overheating the engine'

They point out that the US, UK, Eurozone, and Japanese central banks will finish 2021 with combined assets of about US$27 trillion. But they do not see the current inflation spike as signifying a new era of high inflation like the 1970s.

Shvets and Leung endorse comments on inflation by Brad DeLong, professor of economics at Berkley. DeLong said; "Burning rubber to rejoin highway traffic is not the same thing as overheating the engine."

This, they say, suggests what the US economy is experiencing is broadly equivalent to a driver suddenly accelerating the car, leaving ‘inflationary’ skid marks on the asphalt, which is not the same as overheating the engine. While DeLong was discussing the US, they argue his comment also runs true for most other economies including the Eurozone, Japan, and China.

"Essentially what he tried to do is to differentiate between the impact of rapid acceleration against the backdrop of significant supply disruptions and a far more insidious case of long-term overheating, when pricing power consistently shifts towards providers of labour and certain resources. As we have frequently discussed, there is no doubt that over the last 18 months, demand and supply curves were not able to move in tandem."

"The state-sponsored support for income resulted in much swifter and more powerful recovery, with most economies regaining their pre-Covid GDP levels by mid-to-late 2021. However, persistent disruptions and choke points, as well as lack of investment and occasional hoarding, have all contributed to an exceptionally complex environment," say Shvets and Leung.

"Essentially, while demand had recovered, supply has thus far not been able to catch up, mostly in the goods area. At the same time, there were other uncertainties facing supply, from port closures to geopolitics, especially in energy, that aggravated supply bottlenecks and resulted in even higher than otherwise prices."

This, however, is different from arguing the world faces a persistently high inflationary climate, or that this would lead to an un-anchoring of inflationary expectations, like in the late 1960s and 1970s. Shvets and Leung see significant and profound differences between today’s environment and the 1970s.

"We are significantly more leveraged and financialized. Whereas in the 1960s-70s, debt to GDP globally was not much more than 1x-1.5x, today the global debt burden exceeds 4x. Indeed, even these massive numbers understate the real degree of financialization, which on our estimates could be between 5x-10x the global economy, with financial assets alone approaching US$500 trillion, and that is after counting derivative transactions on a net rather than gross basis. Financialization and leveraging are inherently disinflationary, and although inflation is one of the solutions to an excessive debt burden, it is almost impossible to ignite unless one is prepared to destroy the economy à la Zimbabwe. Instead, one gets a steadily eroding velocity of money, and hence, declining marginal utility of both monetary and fiscal policies."

'It is hard to maintain inflation if both corporates and labour are losing pricing power'

They also argue we live in an age of innovation with much more limited inventiveness, whereas the 1950s to 1970s was an age of inventiveness and much more constrained innovation.

"As a result, technology is now rapidly replacing products, undermining the value of brands while disintermediating corporates from their products and distribution systems. In the 1960s and 70s, corporates enjoyed a strong pricing power. Today, corporates are losing pricing power, and while there are sectors that seem to regain it, this is only a temporary phenomenon," Shvets and Leung say.

"Similarly, while in the 1960s labour had strong pricing power, buttressed by high levels of unionization, in the US, unions commanded around one-third of the labour force, and in many other countries, such as the UK, Sweden or Australia, this ratio was as high as 60% to 80%, today unionization is low, in most countries closer to 10% to 15%, and labour is no longer the key productivity driver and has been losing marginal pricing power for two decades."

"While it is true that Covid-19 has returned some power back to labour, we view this as more of a temporary event rather than a reversal of a negative long-term trend. It is hard to maintain inflation if both corporates and labour are losing pricing power."

Young people 'must be encouraged to continue borrowing and consuming at an ever-faster pace'

The Macquarie Capital analysts also argue that we are now living in a world of radically different demographics and wealth inequalities. And a legacy of the Information Age and deep financialisation is that wealth inequality is well imbedded.

"Not only are most more developed economies, including some emerging markets like China, Korea, Taiwan, Thailand etc ageing rapidly, but in addition, what normally would have been a post retirement inflationary drawdown of savings is now offset by older cohorts accumulating assets at a faster pace than they can consume and what is realistically needed for their retirement."

"At the other extreme, younger cohorts and the bottom 50% to 60% of wealth pyramid have almost no assets. The top 1% to 10% own pretty much all assets, and the bottom of the pyramid as well as younger cohorts effectively represent the liability side of the balance sheet and must be encouraged to continue borrowing and consuming at an ever-faster pace," Shvets and Leung say.

"At the same time, the ‘middle’ - between the top 10% and bottom 50% to 60% - is getting progressively squeezed. This is a perfect recipe for ever lower [interest] rates and easier borrowing terms, with central banks acting as an effective underwriter of the system. Instead of galloping inflation, this is a prescription for growing disinflation, with central banks managing gradual defaults in a manner that avoids massive financial and asset price upheavals."

To prevent this inverted pyramid from toppling, central banks must ensure interest rates continue to fall and lending conditions become ever looser.

"Thus, a repeat of the 1970s is exceptionally unlikely – the environment is just too different. However, similarly, we do not believe that the next decade will be a replica of the highly disinflationary environment of the preceding 25 to 30 years. Rather, we continue to view the next stage as a pendulum with the economic and investment climate swinging between inflation and disinflation, with the public sector determining whether the above secular disinflationary pressures or a newer inflationary environment, driven largely by higher than previously fiscal spending and greater deglobalization, prevail," they argue.

"We maintain that so long as state fiscal policies remain ad hoc responses to exceptional circumstances rather than a consistent long-term strategy, the state and the inflationary pulse will remain a frequent visitor but not a permanent resident. And certainly over the longer term, these should be insufficient to offset strong disinflationary pressures," say Shvets and Leung.

A key variable they highlight is the ability to adapt to Covid in the sense of moving from a pandemic to endemic mindset.

"Most of our research since June 2020 was premised on the idea that ultimately both economies and societies would adapt to living with Covid, and that there would be sufficiently rapid scientific progress to control but not eradicate the disease. The recent Omicron variant not only seems to have accumulated a much wider range of mutations and might be more transmissible than the Delta variant, but it is also not clear the extent to which existing vaccines and treatments will be useful in controlling more extreme outcomes. The good news is that scientific progress to date has been nothing short of spectacular, while our responses have become much faster. However, it still leaves considerable uncertainty as to both efficacy and more importantly the strength of political and societal responses," Shvets and Leung say.

'Schizophrenic & contradictory policies' aimed at both higher fossil fuel investment & acceleration of new energy seen

Meanwhile, Shvets and Leung argue the push towards climate change and Environmental, Social, and Governance (ESG) investment targets through 2020 and 2021 will become more reflective over the next couple of years.

"The realism of the new targets is likely to be discussed much more extensively, including the likely price tag, is it US$150 trillion or US$200 trillion, as well as the impact on national and energy security, inequalities, and supply of products. We have always maintained that ESG will be the key theme for the next two decades. However, this will need to be balanced against day-to-day reality."

"We suspect that the first stirring of these debates will occur in 2022, including whether carbon neutrality can be achieved without extensive deployment of nuclear energy. Similarly, there will be a growing discussion of the role of central banks in funding various policies through what are effectively Modern Monetary Theory-style arrangements," say Shvets and Leung.

"There would be schizophrenic and contradictory policies aimed simultaneously at both higher fossil fuel investment and acceleration of new energy platforms. After all, it took almost a century for oil, from the 1870s onwards, to become the dominant source of energy, and it took two centuries for coal, from the early 1700s, to dominate energy generation. Hence, what might be perceived as contradictory policies will most likely be the right strategy to get anywhere near aggressive targets over only 20 to 30 years. We might even start a debate of what the world will need to do to adapt to climate change rather than trying to significantly retard what might be an inevitable outcome."

Additionally they say the same applies to the social part, or "S" of ESG.

"Almost every corporate and state instrumentality will be adjusting, at least on paper, and as China is highlighting, ‘common prosperity’ will be the key direction for everyone. However, just like we are not ready for a radical shift in energy, societies are not yet ready for a radical shift in S, i.e., from universal income guarantees and free tuition to heavily subsidized healthcare and egalitarian labour markets."

"The key lesson from the latest polls and elections is that electorates in most countries are confused and either push politics to the extremes or gravitate towards the centre; at this stage, there is no evidence that a radical shift in S is yet in the mainstream. As in the case of energy, it ultimately will be the main issue, but not in 2022-23. We have argued that in the natural course of generational change, the new consensus should form by the late 2020s-mid-2030s depending on the country. However, the speed of change could clearly accelerate meaningfully if there are further significant dislocations, i.e., climate, healthcare, economic, geopolitical etc," say Shvets and Leung.

What investors should focus on

So what should investors focus on in 2022? Below are five issues Shvets and Leung highlight.

1.The pace of normalization of demand and supply will be the key. We maintain that today’s inflationary spike is due mostly to severe supply bottlenecks rather than rampaging demand. As fiscal headwinds take the edge off demand, and as supply chains re-adjust, most issues should gradually normalize and surpluses will likely re-emerge. But there are exceptions – in a post-Covid world, commodities associated with the digital age will enjoy multiyear gains.
2. If this scenario plays out without any other disruptions, Group of 5 inflation is likely to peak at ~4%-4.5% in early ’22, coming off in the second-half back to below 2%; disinflation should reassert itself by early ‘23.
3. We maintain that public sector policies and Covid mutations will determine the intensity and direction of both growth and inflationary outcomes. Ignoring Covid, we expect fiscal policies to continue to be treated as emergency measures rather than consistent strategies, with fiscal & monetary delta staying negative through the year.
4. ESG is unlikely to make much difference. But investors might witness a start of the debate: how failure to satisfy unrealistic targets will impact climate and economies.
5. While China will stimulate, it will not be of the size nor have anything like the impact of the previous three cycles – China is neither a reflationary nor a deflationary force.

*Shvets spoke to interest.co.nz in a Zoom interview last year, about his book The Great Rupture: Three Empires, Four Turning Points, and the Future of Humanity.

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102 Comments

Wow! Exellent insight.

I've always thought that our future has only three possibilities:

1. A massive fission build out

2. A breakthrough in fusion

3. We burn very last bit of fossil fuel we can get our hands on

 

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The only possibility is (3), the alternative is 3 billion or so starving near-term (FF underwrites food-production close to 100%).

But that's only a stave-off....

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Nope

Most fossil fuel will stay in the ground 

"Insolvent" customers don't tend to make production viable 

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Why not (2)?.  We have been waiting for it since I was at school when I first heard of it (1960) but compare with image and face recognition - in 1965 Marvin Minsky asked his MIT PhD student to solve it over the summer break; forty years went by and nothing - now it is common.  There is a similar history for the steam engine - decades of little progress and suddenly stream trains everywhere (well everywhere in England). Why are you certain fusion is like alchemy and teleportation quite simply impossible?

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Because nuclear only does electricity. Even if we scaled it (in any form) we still have transport and feedstock issues, to say nothing of other-resource depletion.

What are roads paved with? What does transport (and batteries are better than hydrogen, but neither are in the fossil-fuel-in-a-tank league)?

Plus which, we left it too late. We did that because none of these pipe-dreams ' scale', and we didn't want to get off the growth drug.

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Limitless electric power - almost anything is possible - eg aluminium alloys to replace steel and concrete.  

I happy to accept a couple of your arguments: raw hydrogen is troublesome, fusion may remain a dream forever and so we should plan accordingly even if we do hope, there is no solution to waste and pollution.

 

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You don't seem to understand how far we are away from viable fusion energy for commercial use.  Its easy to be mislead when you see headlines about fusion reactions hitting "break even" point, or producing more power than they consume... but this is just a reactor producing more electricity out than what was directly pumped in, and even then, usually only for a matter of seconds.  But this "break even" ignores the energy required to run the facility, maintain the facility and build the facility.  Fusion is laughably far away from being a viable source of energy for the grid.

For fusion contribute to tackling climate change we needed to invest in it 30 years ago.

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I think fusion is the future just need quantum computing to solve the control issues.  When it happens no idea but agree when it does it will be quick

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I suspect it will be all three, over the next decade or two... we can hopefully move to the first 2 quickly and save the remainder of number 3 for making physical stuff instead of using for energy.

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There is plenty of energy in that big yellow thing in the sky if we can harvest and store it better. 

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I've lived off-grid for 20 years; yes, you can use rel-time solar. But without a fossil-fuel economy, I doubt we're making PV panels. Thus much of my time is spent looking at low-tech solar capture (harvesting); passive solar housing, solar water-heating, glasshouse plant-rearing. Water-at-height is the most benign, easily low-tech way of storing energy. So hydro, pumped hydro and micro hydro are my 1-2-3 for storage.

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4. Solar, wind, and natural gas.

Fusion will hit ignition within the next few years, and investment will flow into it. Hopefully that’ll help it gain the additional order of magnitude it needs in order to reach commercial/industrial viability. But who’s to say the left won’t regulate it to death like they did with fission, which is already one of the safest ways to generate power.

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to death?  You mean Chernobyl and Fukushima? Lack of regulation was the problem, irrespective of political hue.

How many years do you think we have left? Enough to replace a global infrastructure predicated on FF and built up over 200 years, with less than 10?

Ain't gonna happen. I've been commenting here longer than that - and nothing's happened in that time except extend and pretend.

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Nuclear fission has a relative casualty rate similar to that of solar and wind. But it takes ten years of paperwork at minimum before they start building, so we’re stuck with 70 year old technology.

Chernobyl and Fukushima were disasters. But they don’t justify the hysterical backlash. Fukushima killed a single person.

What do you mean by years left? It’s basically a continuous phenomenon. And it depends what we’re willing to tolerate. I’d say 30 years.

The cost of renewables and batteries has plummeted in the last ten years

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I don't know what drug you're taking

Running an exponentially-expanding exercise within a bounded system (planet earth) can happen until it can't. The last doubling-time beats you, every time. And those silly enough to backcast-to-project-forward (one wonders how tall they are, given their own growth-rates from 0 to 24?) have to be wrong from half-way-through, on.

Stop parroting other folk's pen-names, download some information, perhaps.

https://www.gtk.fi/en/current/a-bottom-up-insight-reveals-replacing-fos…

https://www.youtube.com/watch?v=TFyTSiCXWEE

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"I don't know what drug you're taking"

 

Hopeium!

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I guess those who are intellectually superior to the rest of us feel good about all of this it's a pity they need to resort to insults 

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Nobody 'feels good' about this. And it doesn't take intellectual superiority - although it does take clarity of thought (there's a difference!).

Try doing some reading - that's probably the difference.

This one's free: https://dothemath.ucsd.edu/2021/03/textbook-debut/

Ironically, he's smarter than you and me together......

 

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he's smarter than you and me together......

They always are, however so are many other creative ingenious people who have kept popping up throughout history to solve the greatest problems 

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..spare us. Back to the science please. Creativity. Good god. 

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Fauci...

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Or better we go full Ringworld or Dyson sphere

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“and an ever-deeper dependence on debt and asset prices.” hard to surpass that as a succinct summation. the rise and the rise of the state providing foundation(s) to economy & society, all facets of life. question though, what precisely are the foundations seated on.

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So Schumpeter was right… socialism will win in the end… it’s what the masses want

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Is it socialism or crony capitalism?

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They want a free lunch.  

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That is capitalism; you can bill it as a business expense and force employees to take effective pay cuts as wages don't keep pace with housing & inflation even though profits are up.

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"It brings to the end the decades of a global convergence, which never truly worked but was at the core of political and economic consensus."

That's why I started commenting here; the charging of interest was clearly in trouble, through energy-input reduction.

They do well, for economist-types. What they are describing, is one species coming up against the Limits to Growth, having told themselves a self-justifying story (actually, a collection of same). We've rounded the last bend and all things are accelerating towards the finish-line - from here on, all things have to be appraised in light of all things.

 

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Indeed...and it wont be 'managed'

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Private sector was always propped up by the Public and the Governments. Witness so many financial crises in the past, the latest GFC in 2008. TBTF. It is a myth if one believes that Private Sector is the Saviour. It is actually the recipient of Public Assistance by way of tax relief, laws and rules made by the Government, etc.

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The scale of prop-up has surely changed though.  I think US Govt spending in 1913 was about 3% of GDP.

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Interesting article. I'm not as pessimistic about pricing power. In the labour market we have hit peak employment in most OECD countries due to demographic limits (in fact some economies have a declining number of workers in real terms already), going forwards we will have more consumers per worker: https://data.oecd.org/chart/6y6E

In addition if we are serious about slowing climate change the cost of energy will need to rise substantially to change consumer behaviour. As the cost of energy is built into almost every facet of modern life from agricultural commodities to using data I'd be surprised.

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I agree. Also with China becoming richer the price of consumables will go up too, I think we are already seeing that.
Could go either way I guess. 

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China is not becoming richer!!.... its becoming more indebted.. like everyone else 

They were just one of the last stops on the bus ... to collapse 

They are now rationing coal supply for industry with electricity blackouts to come... doesn't sound getting richer to me 

 

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I’m seeing Chinese producers raising prices for raw materials due to these blackouts....

hope the economists are right about transitory inflation..... I don’t think they have taken into account climate and energy cost increases

but what would I know

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 So we are heading towards an impoverished socialist dystopia, a new dark age.

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No, we are headed towards a resource-constrained world. That would have happened regardless of political hue, unless we got smart enough to curb our consumption to renewable/sustainable levels, worked how much of that we wanted each, and limited our population on that basis. All this knowledge was available to us from 1970; arguably since Malthus, more arguably since Soddy.

We chose ignorance and arrogance - called it neoliberal economics. It was a crock from the start.

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Well  so called neo-liberal economics hasn’t been around for very long.

Malthusianism

Wonderful going down this path we can all look forward to the resulting poverty. I am sure the third world will greet this with open arms

https://en.wikipedia.org/wiki/Malthusianism#:~:text=Malthusianism%20is%20the%20idea%20that,triggering%20a%20population%20die%20off.

Perhaps the devotees should learn a little more about current population trends.

https://www.anthropocenemagazine.org/2020/07/the-human-population-curve-is-on-the-move/?gclid=CjwKCAiAwKyNBhBfEiwA_mrUMvPzHH9TR7UkTSFBiV3v15C1FF7UfleOma3Zdt8hoaX9Njb9970-ARoChAYQAvD_BwE

World population in 2100 could be 2 billion below UN forecasts, study suggests

https://www.theguardian.com/world/2020/jul/15/world-population-in-2100-could-be-2-billion-below-un-forecasts-study-suggests

The world has always had periods of constraints or shortages of various resources and human ingenuity and adaptation finds a solution when freedom allows that’s what separates humans from other creatures. Sure, we are far from perfect nothing is, but we do tend to get it right most so once we reach prosperity beyond continual starvation. Corruption and political failure is the issue.

 

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The cheap oil is gone.  Net energy gain on remaining FF is falling at a rate that implies an energy collapse within something like a decade.  20% better than expected type changes (eg. population estimate surprises over this century) will make little difference.

"we do tend to get it right" has been purchased by plundering a once-in-history treasure trove of FF, and we are now scraping the last few years from the bottom of the chest.

Malthus looked wrong by a few decades because of the "green revolution" (herbicides, chemical fertilisers made of cheap oil), and plundering ancient water reserves.  We are now up against physics, regardless of whether we try to fix corruption and political failure.

When humans get low on resources they turn on each other to grab what is left.

 

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Couldn't have put it better  :)

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The poor old doom merchants

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Equally, ignorance is bliss.

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Classic shoot-the-messenger-to-shoot-the-message.

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Does anyone else on here find choosing not to read PDK's comments is better for the blood pressure?...

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Does tend to get a bit ranty and evangelical I find.

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Yep, I just skip over them most of the time.

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OK, have thought about this.  I think what is going on is that PDK is Tony Robbins, and many of us are Jack Blacks.

See the very end of this clip from Shallow Hal ("DEVILS!!!  COME OUT!!!")

http://klipd.com/watch/shallow-hal/tony-robbins-elevator-scene

Sometimes we need a bit of a shock to wake up and change our perspectives.  It's not about feeling comfortable.

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But the lack of basic scientific and mathematics understanding is a very disturbing thing in someone who purports to be educated in this day and age. Perhaps we have gone towards the true evil where only opinion matters bit, where great harm is seen as morally good, but dropping science and engineering is what actually leads us back into massive pollution, and over consumption (see lifespans and manufacture of solar devices for the real horror regardless of the positive spin you try to pull and the power network does not magically transcend the bounds of physical reality). If anything ability should dictate whether you should be consuming more in that the less you actually need something the less you have. Not PDKs method of the more wealthy and able you are the more you over consume, pollute and waste instead of someone who would really like access to basic housing, power for breathing, medicine and food please sir. We have so much disparity and inequality blood will be spilled and unfortunately it is normally the most vulnerable who are dying in droves now, even now in NZ, to pay for PDK largesses.

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Great article with some good points.

The following from the article is a really good summary of the pickle that Reserve banks and Governments have created.

They argue the combination of the GFC between 2008 and 2010 and now Covid are turbocharging developments that were already underway. They are dislocation events accelerating change.

This makes states and public sectors the most important and dominant players in modulating economies and capital markets.

"It is accelerating atrophy of private sector and free market signals while making it next to impossible to unwind the process of financialization and an ever-deeper dependence on debt and asset prices,"

Bringing this back to a New Zealand context it is difficult to see how the RBNZ will unwind QE with the obvious impact on the housing market.  

Recessions as well as growth periods are healthy for an economy just like the movement of tides in a harbour.  But most governments only seem happy with an incoming tide.

 

 

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We haven't had free market capitalism for a long time - just crony capitalism and government sleaze - the latest iteration being FDA execs giving emergency approval to Covid vaccines, resigning  and then showing up on the boards of Moderna and Pfizer etc. Bailouts of crony capitalists in 2008 - while the state wages war on small business on the pretext of pandemic that has a lower age adjusted death rate than UK 1946-2008.

Government sleaze to buy the favour of media companies is another iteration in our own patch.

https://dossier.substack.com/p/the-revolving-door-all-3-fda-authorized

https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarr…

https://karldufresne.blogspot.com/2021/10/the-cabal-that-controls-natio…

 

 

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profile,

I can't disagree with much of that, but I must quibble with the term, free-market capitalism. A free market would actually equate to anarchy. "markets depend for their very existence on rules; governing property(what can be owned), monopoly(what degree of market power is permissable), contracts(what can be exchanged and on what terms), bankruptcy(what happens when purchasers can't pay up) and how all of this is enforced". That was taken from Robert Reich's Saving Capitalism, for the many, not the few.

He is right. For markets to function properly, rules are essential and they must be set by and enforceable by the state.

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Very well said. And for states to handle this task they need the approval of the populace.  Response to Covid is fascinating - people in Eastern Europe are dying because they didn't believe their govts.  NZ is doing OK, partly luck but also the way 90% of the population are willing to accept govt requests even when half of them would not vote for them.  If you do not believe your govt is basically fairly honest then you will assume crony capitalism.  Fortunately most commentors claim the NZ govt is stupid, out of touch, misguided but reasonably honest.  Note how those MPs with Chinese govt links have quietly departed parliament. Our govt is naive but honest.

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Richard Harman (Politik) pointed out the correlation between the GCSB/SIS briefing to the PM and leader of the opposition on Chinese government interference in foregin governments in (I think) early 2020 to Huo andYang's departure from Parliament. It was largely ignored by everyone else at the time.

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A huge amount of crony capitalism.

What I find hilarious is some of the private businesses and consultancies that talk up the free market yet rely on the government for a large proportion of their income and/or implicit government support via policy and regulatory approaches.

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That's because half of business is ' avoiding costs', and one way to do that is to socialise them.

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Maybe but businesspeople are only taking advantage of what is on offer via the politicians

The politicians are the ones who have allowed crony capitalism to flourish

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Upside down thinking.

You saw what the Key Govt did on behalf of business: took democracy away while they facilitated the theft of Canterbury.

Of are you so indoctrinated>>>>>?

 

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That's the point the politician did  it if it wasn't justify he should have told them  to bugger off  That's how crony capitalism florishises 

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The revolving door of employees happens because the FDA is funded through 'Industry User fees' paid by companies like Pfizer and Moderna, when their products are 'approved'.  

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How long can the independent small business owner hold out? 

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Hard to see there being many left soon. High cost of labour and materials won’t help. although maybe the competition from China is slowing up. 

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Every town in the US with any population size has been over-run by corporations.  It has already started in NZ, Covid has been the excuse corporations needed to accelerate the transition.  Hence all the mandates.  Fast food reigns supreme, conglomerate grocery stores, Wal-Mart dominance and now Amazon.  Independent small business cannot compete.

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"We are significantly more leveraged and financialized. Whereas in the 1960s-70s, debt to GDP globally was not much more than 1x-1.5x, today the global debt burden exceeds 4x. Indeed, even these massive numbers understate the real degree of financialization, which on our estimates could be between 5x-10x the global economy, with financial assets alone approaching US$500 trillion, and that is after counting derivative transactions on a net rather than gross basis. Financialization and leveraging are inherently disinflationary, and although inflation is one of the solutions to an excessive debt burden, it is almost impossible to ignite unless one is prepared to destroy the economy à la Zimbabwe. Instead, one gets a steadily eroding velocity of money, and hence, declining marginal utility of both monetary and fiscal policies."

The whole business plan of the United States economy for the last 20 years is for the wealthy one percent to get the 99 percent in debt, and for American investors and banks to get Third World countries in debt, and then say, “you have to lower your wage rates, you have to stop unionization, you have to essentially just provide low priced labor.”  Link

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Blackrock!

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Reality is RIP everything except Housing.

Economy = Housing

No more a basic necessity but speculative chip supported and promoted by RBNZ and Government. 

Other countries also do have housing bubble but for them housing bubble is 15% - 20% growth unlike NZ where it is 50%-100% besides in other countries have diversify economy unlike NZ which is a tiny nation where now only economy is housing

NZ : HCE represents spending by New Zealand residents on goods and services and contributes approximately 56 percent to the expenditure measure of GDP.4/11/2021

 

 

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Chin up!

I wrote earlier in the week, an answer to what faces us is "0% Mortgage Rates and asset prices to halve; thus protecting those who get trapped inside the Deflating Bubble" - or something like that. This article seems to endorse that thought, with:

This is a perfect recipe for ever lower [interest] rates and easier borrowing terms, with central banks acting as an effective underwriter of the system. Instead of galloping inflation, this is a prescription for growing disinflation

The Obvious smacked us all in the face 13 years ago, but we have chosen to believe that we will get 'things back to normal'. We won't. Those who embrace the change that is upon us will suffer te least. But suffer, all of us now will.

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So what's required to embrace the change?

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Go long on cheap finance (if the bank will approve, so you need to be wealthy already) and buy property I guess.

For the rest, who cares.

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Auckland's economy is housing, which is consumption.  Supported by the farmers of Southland.  Just how long will we put up with that?

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RIP capitalism... yeah sure mate. Capitalism and the strength and ambition of the individual will never die. Like it or no, it is how we are programmed I guess

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Yeah, but what is 'capitalism'? It's a category or spectrum rather than one very well defined 'thing'

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I am sure we could debate the meaning but here is the online dictionary definition 

 

""an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state."

 

Fairly simple criteria I think and not without its problems, but it is the best system available to reward personal effort.

 

A heap of us in nz think that it is the govt that rewards and supports our life and lifestyles. Wrong

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I would suggest capitalism is more about competition, a business version of evolutions survival of the fittest.  And capitalism NEEDs government intervention to keep it going, so as to avoid monopolies and encourage wealth redistribution.  Pure capitalism without strong government will just lead to feudalism.

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Unfettered capitalism just results in resource depletion.

That's why those peddling it had to construct a 'model' without resources, wastes, energy or entropy.

We could call that something else: wilful blindness.

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Agree, again, strong government to put limits around inputs and outputs are key. But governments need to be forward looking, decades into the future as well, not just thinking that quick wins is always the way forward.

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PDK.  It's unfetted government spendind that has taken over private business in resource. 

They pour 'unfetted' money into business, destroying the natural limits on business activity. 

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Disagree - as far as I can tell. Your post doesn't really make sense.

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V interesting take on today & tomorrow's world. With Macquarie's recent form, you have to say they could be on to it, or at the very least, it's worth a read. Seeing big govt move from 35% to almost 50% of our GDP over the past two years has been heartbreaking. As a SME we have seen the value of our enterprise dwindle along with our declining revenues, as we are forced to stay away from the trading places & stay safe. The only safety govt offers is welfare which is a cancer to most decent thinking working age people. I prefer the safety of planning, effort & personal responsibility to provide for our future, but today's govts have decimated those options to keep us all from spreading the virus. Big Govt is suffocating society in the name of health, however the reality is that their choice of action has crippled many businesses & individuals, prevented access to our hospitals for the majority of our health issues & created an atmos'fear' that has divided our culture into segments, the complete opposite of the Team of 5 Million bullshit we've been fed. It's not just here either. Big Govt has been busy taking over the world with their mates big business & their authoritarian attitudes will turn us against ourselves. It's already begun.

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And Macquarie should know - having been rescued from oblivion in 2008 by the same economic forces that they now see as endemic.

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Bollocks.

Try doing some homework. Your "decent", "thinking" "working age" are all assumption-based (actually, nearly mantra-based).

And "to provide for our future"? Here's some light weekend reading:

https://surplusenergyeconomics.wordpress.com/

https://ourfiniteworld.com/2021/12/03/is-it-possible-that-the-world-is-…  (from an actuary)

https://www.theguardian.com/environment/2021/jul/25/gaya-herrington-mit…  (from KPMG)

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This is Davos-esque trash. These guys would be out running their own hedge fund if they had any conviction in this.

There’s no reset. We’re at the end of history. The future is steady gains under neoliberalism, with the occasional bump.

Big business saved us from covid, not government. This thesis is backwards.

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Well said that man 

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The labour govt didn't produce a vaccine in quick smart time. Nor ramp up ventilator production to meet demand. Private peoples looking to make a profit did. 

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But where did those business get the profit from?

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It doesn't matter because the inconvenient truth is that all public goods including local & central Govt welfare state is ultimately funded by taxation on companies wages salaries GST etc all originally generated out of private enterprise profits. Over the last century or two Capitalism has proven to be the biggest force for lifting millions out of poverty ever developed in human history.

No one else could deliver the pandemic response as effectively or efficiently or as fast (except possibly a similarly resourced military capability however AFIK none has been forthcoming).

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Blimey - the great intellectual leap backwards.

If 'lifting out of poverty' means 'the ability to consume resources', then the question - the only question - is: For how long?

Can I suggest you read something not self-justfying - try Clugston's Blip. A logical read; come back and tell me you still think 'lifting out of poverty' is divorced from ultimate resource depletion. All capitalism constructed, was a growth-accommodating token-issuance format.

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The starting point for vaccine development was publicly funded research, as it always is.

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Interesting piece. Linklater (above) makes the key point - that trade and industry only exist because states set the rules of the game. Societies make progress when Governments harness the power of trade and industry - e.g. publicly funded vaccine research scaled into production by Pfizer, Hitler defeated by Governments directing industry to change the means of production, moon landings, Germany going for solar at huge scale and driving down the costs of production, academics inventing the internet etc.

What has gone very wrong in the last 40 years though was described very well by Aristotle 2400 years ago. He said that the trouble with democracies is that nefarious actors will always work out a way to hijack the democratic process - to create an oligarchy - where a small group of powerful and wealthy people milk the natural and human resources of the state for their own benefit. He had it spot on.

 

  

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Think you are talking about the Federal Reserve.

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I think you are demonstrating how effectively the top 1% have manipulated public opinion - creating a host of fake villains to distract from the hard reality. 

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"What has gone very wrong in the last 40 years ..."

"The Long Cycles have now all turned. (1) The cycle of interest rates. Down for 40+ years (last turn, 1981), now up...(2) The cycle of Inflation and Deflation. The 40-year period of low real-world inflation and speculative debt-asset inflation has ended. Now an era of scarcity, and real-world inflation commences as speculative debt backed asset Deflation begins. (3) The cycle of Capital-Labour imbalance. Capital has dominated labour for 40+ years, siphoning $50 trillion from labour. This cycle has now turned, and it's capital's turn to surrender gains and power. (CH Smith)

 

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It's kind of interesting that the report did not touch on whether we will see an increasing trend of people turning their backs on the current financial system (including fiat currency endlessly debased) and going their own way with non-state money.  As the report points out, the status-quo is strongly disadvantaging the young.

Cryptos don't need to be propped up by the public sector - they just want to be left alone and not "helped" by those who have been benefitting most from the money spigot.

 

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Still haven't figured out with crypto. If cryptos really were an answer to declining fiat money, why should you be able to purchased them with fiat money? They rely on the opportunity to make fiat money profits for their mining to take place.

I've got some cognitive dissonance here

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Very good article and a sad situation IMO.  I think Capitalism has been killed when the USA didn't let the large companies collapse and supported them with public money instead, for that is precisely the opposite of capitalism; reap the rewards or die if you fail, the governments didn't let the companies fail and employed workers have to pay for saving unsuccessful companies. The failure to swallow the bitter pill in 2008 and have a sharp downturn in 2008-2010 means we're now paying the price with the loss of capitalism and effectiveness and a never ending nanny state

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Yep.

And here's the sobering corollary to your post - The risk, hasn't gone away. It's still there, but it's massive now; enhanced by 13 years of ultimately doomed economic policy.

And just like any good horror film, it's waiting in the shadows, ready to pounce when we least expect it.

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Absolutely agree worst word of the decade "Bailout " has destroyed the discovery of limits and rewarded failure .

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The question I have is… will the masses put up with it? Do we, as our nature expects, rebel against centralised control, and strive once again for freedom of self determination. 

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Actually the opposite. Mob rule and rulers are inherent in our species. Rebels are most often killed in our species history. A small percentage are posthumously recognized. Even smaller percentages survive and can coordinate meaningful change through ruling a group to action. Again we battle on behalf of rulers. Even those who purport to be rebels and in it for themselves, like gangs, are lead around by the nose by a ruling elite. If you want rebellion against control, freedom and self determination you would need to look to the surrealists to see how silly your desire for those things are when you unconsciously lead yourself always back to wanting control and determination of others "freedom" just to stay alive the next day and not be eviscerated.

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 “It is hard to maintain inflation if both corporates and labour are losing pricing power."

Labour only loses pricing power until the collective will to reinstate it is sufficient to impact policy decisions - when the middle and low income earner is the victim - rather than the beneficiary of massive and rapid asset price appreciation- and inflation which is at all running ahead of wage growth -  that collective will is likely to reinstate the influence of unions or something similar designed to redistribute corporate wealth.
That’s one leg if the ‘transitory’ stool hacked off - the next is the idea that society can sustain low interest rates and the ever higher risks that people must take to achieve returns (or buy assets) in such an environment- the utopian idea of a perpetual eternal asset bubble would certainly suit state treasuries just fine - but if that fails the people (which it is doing) then those on treasury benches will change soon enough.

 

 

 

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The ambition of the individual doesn't cut it anymore. You can't work your way up from the bottom, because too many other people make money from you being stuck there forever. Taking on the risk and debt for studying and further education no longer stacks up because more and more of the middle class is falling into the debt traps you're trying to escape. 

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I have just re-read Shvets & Leung's article, I think it's one of the most percutant, well written and on point piece written in 2021

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How is it possible to make these assessments of the future while ignoring the fact that we are in a state of planetary overshoot? 

They are fooling themselves.

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