Some comments:
o Re lower prices of goods
---- T-Shirts cost 0.5-2p, sold at 6-20$ in USA
o Re deflation
---- if we get deflation, kiss the housing mkt & global economy goodbye
---- if assets on which a vast debt bubble is secured deflate, so does the economy
UK recently admitted it would have 0.5% GDP were it not for immigrants.
From 1993-2003 the avg grad pay has fallen from 19 to 12k/yr which for a
45hr week is getting down around £5/hr - with avg house soon 15x that pay.
So the big unknown is this:
o Sure, we can outsource everything
---- medicine is the most difficult
---- except where we move the people practicising it
------- which means Hungarian Dentists to Surgeons in the UK
o However, we can't outsource cost of living
---- housing defacto will become the biggest problem
---- LT rates (by Fed or Bond Mkt reaction) can't rise or housing implodes
---- yet people are buying at prices which assume >>10%/yr indefinately
The social reality is best summed up by Charles Handy's Cloverleaf Organisation
which is what IBM & Arthur Andersen adhere to. A permanent non-outsourced
super-rich elite, a liquid semi-permanent small skilled middle, and a very liquid
skilled bottom who fight it out between their cost of living v Asian pay levels.
Ciscso, Microsoft & others stopped recruiting the UK years ago because they
could not afford to pay salaries high enough to plain cover the housing costs. So
they recruited 4-20x as many people in Asia.
The West's idea, I think, is get China/Asia up fast enough so the West is bailed
out of its debt bubble by a boom in the East. The 1995+ period saw housing to
capex vastly outperform LT inflation trends, we had mobile telco companies
valued as if we all had multiple phones & used them 24/7 - the solution seems
to be build the other markets up fast enough to solve the problem.
We're in a cost, not growth story - the big upheavals eventually will be in the
financial services which account for a vast amount of GDP in USA, UK & EU,
but at very little added value. That cost en masse could be handled by Asia, as
I'm sure they can at least match 85%-don't-even-match-the-index performance.
Deflation is unlikely, altho how housing pans out is anyone's guess:
o US Fed Greenspan & UK policy is clear on immigration
---- tax receipts suck
---- so vast growth in immigration to compensate as a result
o Where you have immigration, you can manage housing
---- manage demand
---- UK is also managing supply by basically no-build & land price to mars
As to where Bush's Mars fits in I don't know, but I do know we couldn't
bring out a fuel cell overnight for as much Middle East political risk. Not just
in terms of oil demand, but in terms of their economic & political stability.
Perhaps a moot point as China will soon be the major buyer displacing the
USA & Europe in Oil, Commodities & various other price-booming areas.
Product deflation is here in the things we don't need, not the things we do.
A past world economic summit basically stated the problem was not the
level of debt, but that debt wasn't readily available enough globally. That
is going to be an interesting problem - since no matter what the UK & USA
bankers do, it is the market which will set long-term interest rates.
With the UK almost entirely on flexible loans, rising taxation (which will rise
a lot further with typical education debt exceeding ==100k$ by 2015), it is
likely to be a very rough few decades. How the markets pan out is unknown,
but one marketing consultant put it simply as this - West's child is to pay taxes,
East's child is to buy products, that's the plan as disposable income drops with
each future generation due to more debt, more taxes & transfer of the real cost
of housing down to future generations who pay with pay vs bailed out by inflation.
Inflation isn't a solution as many 1970s market players know, and particularly as
in the end it can only be killed by cyclically high interest rates - which with a cycle
high or nearing high on house prices & housing debt is not exactly desireable.
West is becoming finance based (eg, GM produce v financing revenue stream),
and the East is becoming manufacturing based - and will continue to do so.
The interesting one will be education; Germany is building up to educate the UK
cheaper & better than the UK can do, and India is setting up private schools for
not just the rich, but simply at a lower cost than those in the West can ever do.
An equivalent of soon 100k$ education cost for sub-20k$ pay doesn't mix,
and salary deflation for 10 straight years is only being braked by min wage.
Final unknown is does a record debt expansion result in a vacuum after it?
I don't see any salary inflation coming along to bail it out - and even with that
record debt expansion we are seeing few jobs created of high pay, indeed the
USA recently reclassified burger flipping as manufacturing.
By that logic, what can we classify government statistics as?...
Salary structure is only a problem against housing cost structure,
and it is housing that is likely to create economic instability.
ppP