Asia's century.

[llanlad2]

For a long time the majority of posters on itulip have always believed in some modern version of "manifest destiny" when it comes to the US. The power to innovate, its business friendliness, its can do attitude and other such things destined it to the great powerhouse it is.

The US accumulation of capital (from continental Europe especially the UK) led to those above along with a continental sized single consumer market and practically free resources to its North, South and within. When you've accumulated capital - that's when you can afford innovation and failure. However if you export your manufacturing base overseas who is going to be doing the innovating?

For most of history, Asia has been the largest driver, innovator, producer and consumer and it's quite obvious that the last 200 years were the anomaly brought about by the West's ability to leverage the industrial revolution, finance and weapons innovation to dominate the RoW. When the UK tried to trade with the largest economy in the world at the time (China in the 1800s) the UK had nothing to offer except opium and forced them to smoke it at the barrel of a gun. It's taken them 200 years of cold turkey to recover.

Some still think the US will remain the dominant force despite Asia having the largest manufacturing base, higher savings rates, higher capital accumulation, and last but not least a larger potential internal market for goods. They will also point out that many thought the same about Japan in the 1980s. But Japan has no natural resources and didn't have a large enough internal market to ever challenge.

Another common belief is regression to the mean...well that's exactly what we are witnessing now. Look at a map of the world and where the highest concentrations of people live..that's where the market is and that's where investment and innovation will take place on an ever larger scale.

[dcarrigg]

Re: Asia's century.

Could be true. But it has never been a volume game. Institutions and navies have driven it for a long time. The west is increasingly corrupt and concerned with the rich only. Most Asian countries are more corrupt. But there's danger there. The export of the manufacturing base is part of that western corruption, and it won't help with innovation moving forward. Worse than that is probably the end of meritocracy.

When the son of a billionaire gets the job every time over the more capable and best trained candidate, things are bound to go downhill. And we're very much moving in that direction. Just think about space exploration, for a salient example. The most qualified astronauts will have no chance under the modern system. It's private. They'll have to sell seats. So some billionaire's douchebro kid will be the only candidate.

Imagine if we did this in the 1960s? Some Boy Scout from Wapakoneta, Ohio like Neil Armstrong never would have had a chance. It would have been Jay Rockefeller planting a Budweiser flag on the moon. If we ever made it. Which I doubt. But the promotional material would have looked majestic. There would have been a Studebaker Gran Turismo Hawk floating around in low Earth orbit.

So maybe it's Asia's century. It has certainly been a good 40 years for Asian countries in relative terms, and for China specifically in absolute terms. But the starting base was lower, and there is a lot of work left to do. It's too early for me to call the game for the next 80 years. But your view is looking more and more likely to me all the time.

[jk]

Re: Asia's century.

when paul kennedy wrote his excellent "the rise and fall of great powers", published in 1989, no one doubted that history was pointing to the fall of the u.s. the demise of the ussr 2 years later seemed to extend our run through a short-lived "peace dividend." [remember it was "imperial overstretch", excessive military spending that brought our predecessors down]. "the american century" was declared post wwii, but the opening gun for the deterioration of u.s. hegemony was certainly 9/11, if not earlier. the real question for me is whether there will be a successor hegemon, a world cleaved into pieces- multipolar, or a modicum of unified global governance. the last option seems very unlikely - a multipolar world imo most likely.

[Thailandnotes]

Re: Asia's century.

Asian countries are extremely corrupt. It's so pervasive you can see, experience, and be wowed by it almost daily. Even if you are just a peon with your head down. It does not portend Asian hegemony. It foreshadows power grabs and war. Agree, the markets and the innovation are here now and growing quickly, but I think the turbulence of the next 25 years will surprise every country on earth. Predicting anything beyond the next quarter century is now a fool's errand, especially with the climate changing so quickly in food growing nations.

[llanlad2]

Re: Asia's century.

I think it will be a multipolar world. And yes it will come down to numbers. Yes, Asia is corrupt but functioning markets exist there, and most of the world lives there. And they are becoming more and more connected. America's greatest advantages in the 20th century were being distant and unattackable and resource rich. It's location is now a disadvantage (unless war breaks out again of course).

On top of that, those markets(except Japan's) aren't saturated and are now leading in innovation...They have also escaped the dollar trap which has so often caught out the commodity countries. Finally, the corruption is nowhere near as wasteful to the Asian countries as a whole as that of the US military industrial complex the greatest beneficiary of government largesse in modern history. It's larceny on a grand scale in plain sight. It's the military more than the banks that are screwing the US but no-one is allowed to point that out without being accused of acting like a commie-peacenik in the pay of Putin.

[jk]

Re: Asia's century.

[llanlad2]

Re: Asia's century.

Haha. Superb.

[jk]

Re: Asia's century.

i would really appreciate others' thoughts about this very provocative piece:

https://deep-throat-ipo.blogspot.com...sb-report.html

[dcarrigg]

Re: Asia's century.

i would really appreciate others' thoughts about this very provocative piece:

https://deep-throat-ipo.blogspot.com...sb-report.html

Didn't read closely yet, but what's with the idea that US debt is denominated in a foreign currency? It's not. And even if it were, debt is about power when you get right down to it. Economists don't take power into account, because political science and sociology does that. But history and experience at least to me suggest that the ability to force a debtor to pay up is vital to a lender's ability to collect.

[dcarrigg]

Re: Asia's century.

For whatever it's worth, when I said before that maybe it's Asia's century, I think the US will have a lot of choice in the matter. People tend to take exponential trends and extrapolate them out. But they rarely pan out that way. There is a breaking point. The question is what happens at the point of inflection. The US has a lot of strengths. They will not vanish overnight. A single decade major overhaul of domestic policy and the growth rates and power the US accumulates could shock people. It requires some major shift in thinking and politics and what people do for work. But it is possible. The infrastructure is old, the education is imperfect, the capital is malallocated, but it is all there. A few different choices and there's remarkable potential that could be unleashed. The question is whether we'll choose to keep it bottled up.

[jk]

Re: Asia's century.

Didn't read closely yet, but what's with the idea that US debt is denominated in a foreign currency? It's not. And even if it were, debt is about power when you get right down to it. Economists don't take power into account, because political science and sociology does that. But history and experience at least to me suggest that the ability to force a debtor to pay up is vital to a lender's ability to collect.

i agree that us debt is not denominated in foreign currency and i think that the paper either misstates or poorly states that. otoh, if i just substitute that the debt is HELD by foreigners, the thesis holds. i.e. yes, the u.s. can pay its debt without outside buyers, but only by printing enough to make the piece's predictions come true- i.e. it will significantly devalue the dollar.

the accounting discrepancies that point at enormous holdings secretly held by the chinese seem significant, and indeed xi could hit the sell button and crash the markets at any time.

i think the u.s. will be forced into a major devaluation in any case, as foreigners ceased net buying of treasuries about 4-5 years ago, we are running trillion dollar deficits even at "full" [even if only "gig"] employment. even without the seemingly inevitable recession in our near future, deficits will continue to rise meaningfully because of sharply escalating entitlement costs. as ray dalio says in his "big debt crises" book, cb's ALWAYS print in this situation.

if people ask "devalue versus WHAT?", pointing to the fact that all currencies will be similarly effected, my answer is to point to things that can't be printed: oil and gold. DXY may not indeed drop much. but oil is the real global currency. it's the PETRO in petrodollar that solidified the dollar's place as global reserve. and the idea was for the dollar to be, as someone around here put it, GOOD AS GOLD FOR OIL.

i liked the concept [intellectually] that the rmb would solve its overvaluation problem not by devaluing against other currencies, but by forcing other currencies to devalue down to the rmb's level. as i said, i think such devaluation is already in the cards, but that piece proposes a mechanism via which xi could trigger the shift, choosing its timing. frankly, i'm not sure if it matters. the chinese have already been acquiring rights or ownership or liens against real assets all around the world- "you take the dollars, we'll take the stuff" as luke gromen puts it.

btw, gromen was this weeks guest on expat's macrovoices podcast, and i strongly recommend it to members, including the follow up critique by brent johnson [@santiagoaufund]. basically the issue there is all about timing, with gromen seeing it happen within a year or two, johnson in 4-5 years.

gromen makes a strong point in his presentation that the shift is likely to be discontinuous. just as nixon closed the gold window in a speech delivered on a sunday night before markets opened. some such shift in the dollar could be just as instantaneous.

note that the ecb revalues its gold reserves quarterly if i'm not mistaken. if the u.s. revalued its gold reserves from the $36/oz [i think] book value it currently uses to an arbitrary $13k/oz [10 times the current traded value], our balance sheet would be clean. taking into account that you can't actually buy gold at $36/oz, but you can buy it at about $1300, this would represent a 10x devaluation of the dollar. my guess is that oil would reprice very quickly. $30/gallon gas anyone? there would be an enormously disruptive adjustment period, but essentially we'd just add a zero to all prices and wages. mortgage and bond owners would be screwed. homeowners with fixed rate mortgages would suddenly find their debt burden decimated. so would student loan borrowers. there's the debt jubilee for you.

stocks would leap since expenses would expand no more than revenues. i'm not predicting this particular scenario, just thinking it out as an example.

in "deep throat's" story, otoh, it would take some time for it all to play out and there'd be even more chaos. gromen has a slide set available as macrovoices that is worth a look.

For whatever it's worth, when I said before that maybe it's Asia's century, I think the US will have a lot of choice in the matter. People tend to take exponential trends and extrapolate them out. But they rarely pan out that way. There is a breaking point. The question is what happens at the point of inflection. The US has a lot of strengths. They will not vanish overnight. A single decade major overhaul of domestic policy and the growth rates and power the US accumulates could shock people. It requires some major shift in thinking and politics and what people do for work. But it is possible. The infrastructure is old, the education is imperfect, the capital is malallocated, but it is all there. A few different choices and there's remarkable potential that could be unleashed. The question is whether we'll choose to keep it bottled up

the debt "jubilee" outlined above would remove the enormous drag that debt is exerting on our economy. in such a scenario growth could be robust.

if the trigger indeed is xi hitting the sell button, yes the chinese would end up owning a lot of assets. but the restoration of american economic dynamism via the jubilee might have xi saying, like that japanese admiral who launched pearl harbor, "i fear we have awakened a sleeping giant."

[touchring]

Re: Asia's century.

Asian countries are extremely corrupt. It's so pervasive you can see, experience, and be wowed by it almost daily. Even if you are just a peon with your head down. It does not portend Asian hegemony. It foreshadows power grabs and war. Agree, the markets and the innovation are here now and growing quickly, but I think the turbulence of the next 25 years will surprise every country on earth. Predicting anything beyond the next quarter century is now a fool's errand, especially with the climate changing so quickly in food growing nations.

Yes, but no government official in Asia can survive with way cost of living is rising if they are not corrupted.

[thriftyandboringinohio]

Re: Asia's century.

i would really appreciate others' thoughts about this very provocative piece:

https://deep-throat-ipo.blogspot.com...sb-report.html

jk i did carefully read the article you linked, I liked it. He's a bit like EJ in both tone and subject matter. None the less, I cannot follow all his logic. Part of the scenario he sets is that today the missing $24 trillion of cash/equiv is China's money they printed as RMB and converted to euro/dollar/yen. This money today is carefully stashed in offshore havens where it has no meaningful participation in international finance. I see how that's plausible enough on it's own.

And next year Xi hits the SELL button and triggers chaos by moving this Chinese money around, selling off things dramatically. That seems plausible on it's own.

But I can't see how both can be true. It's either participating in a meaningful way and so would have an impact when withdrawn, or it's not participating and won't have an impact when withdrawn. Either one but not both.

To be fair the author writes a few hundred words explaining exactly that, but I must be missing something.

In the article the author links back to his earlier pieces, I followed two back and skimmed them. Author seem to have quite a bit of this writing available.

[jk]

Re: Asia's century.

jk i did carefully read the article you linked, I liked it. He's a bit like EJ in both tone and subject matter. None the less, I cannot follow all his logic. Part of the scenario he sets is that today the missing $24 trillion of cash/equiv is China's money they printed as RMB and converted to euro/dollar/yen. This money today is carefully stashed in offshore havens where it has no meaningful participation in international finance. I see how that's plausible enough on it's own.

And next year Xi hits the SELL button and triggers chaos by moving this Chinese money around, selling off things dramatically. That seems plausible on it's own.

But I can't see how both can be true. It's either participating in a meaningful way and so would have an impact when withdrawn, or it's not participating and won't have an impact when withdrawn. Either one but not both.

To be fair the author writes a few hundred words explaining exactly that, but I must be missing something.

In the article the author links back to his earlier pieces, I followed two back and skimmed them. Author seem to have quite a bit of this writing available.

re the comment i highlighted above. i think the money is participating in the sense that is being used to buy up assets. but it's not affecting currency rates. as best i understand it, when e.g. apple orders an iphone to be manufactured by foxconn, rmb are created to pay the workers, pay for parts, etc, while the dollars in which foxconn is paid never make it to china. instead those dollars are shifted to e.g. caribbean financial centers to then be used to buy assets all around the world.

[llanlad2]

Re: Asia's century.

I think a lot of his thesis makes sense except for the internal/external debt iwhich was confusing. It's similar to what Gromen says and has been saying for a couple of years. It ties in with Triffin and EJ. Where I disagree is the idea that the Chinese are in total control of this process or somehow to blame when it all goes tits up.
After all, nobody forced the US to exploit its exorbitant privilege to the extent it did. Michael Hudson on these pages years ago predicted a tri-polar trading world. So long as they don't go to war with each other it could work out quite well for people everywhere.
Going back to his theory that the Chinese can crash it all-well the US can start printing and front run the Chinese in my mind. The Chinese would be nuts to sell their paper claims on hard assets just to cause a crash as the Fed could just do a BoJ. In fact the US playbook has been to control this process ie force selling and foreclosures through dollar shortages/tightening.
What no one seems to have considered is that it plays out similarly to the last crash. ie A continued run up in oil inflation-->inflation brought about by continued dollar printing followed by tightening. However the US is trying to offset its normal playbook with its oil pumping and continued loose money policy making predictions difficult.
But anyway, I still think it's the US that decides when the crash occurs not the Chinese.