Five Future Trends and the World Economy

No doubt about it -- the US will lose most of its competitive advantages over the coming decades, and it might even lose its leadership role. This has a lot to do with changing world supremacy cycles, with the fact that the US economy has become a service economy rather than manufacturing economy, because of what historian Paul Kennedy imperial overstretch decisions (like invading Iraq), because of Kondratieff wave influences producing deflation, due to the rise of Asia's (and China in particular) low cost manufacturing capabilities and a middle class that doesn't need to buy from the West anymore, and all sorts of other factors.

Most of all, the world is experiencing deflation, as it typically does near the end of Kondratieff wave cycles, due to 5 big factors called the "5 O's":

Over Production. Every country in the world is a producer now. After W.W. II the USA was the supreme producer for awhile, but now dozens of countries have the same manufacturing abilities.

Today, any country can manufacture a variety of products that used to be US-sourced, and it doesn't have to buy the equipment from the US to do so, nor does it have to buy the finished goods from the US either. Whereas the US market is primarily a replacement market for TV's, radios, phones, cars and the like, in most Asian countries a middle class has developed that needs all these things as first time purchases, but these countries don't need to import them from the US since they can make them themselves.

Basically, there are now more products/services in the world than can be consumed. Over the years the USA has exported technology and education to develop its competitors and has also funded this overproduction by buying overseas products. Smart entrepreneurs in these countries have used this money to build up their production facilities. Result? Overproduction, which leads to lower prices, which has lead to deflation.

Over Capacity. It's not just overproduction hitting us, but the fact that there is now a worldwide glut of production facilities and overcapacity that puts a damper on the worldwide economy. Since more can be produced than all of us can absorb, with supply existing greater than demand, he who can supply the required quality of products at the lowest production costs (translate that into labor costs) wins. Hence, deflation in the world will accelerate as will increasing exports by the low cost producers. Deflation is the end result once again.

Over Population. With over 6 billion people in the world, companies can freely exploit this labor pool without any regards to geography. So where do you go if you want to make a factory? To the lowest cost but highest educated and hard working producer. Sounds like China and India and other Asian countries to me. (Of course in 20 years Africa may be the low cost producer).

Online Purchasing. People can now type in a few words in an internet search and find the lowest cost producer for almost anything in the world. Think of the competitive pressure that puts on costs. That was impossible in the pre-Internet era as it might take you years just to be able to find one or two suppliers of what you need. Now you can find dozens of potential suppliers in an instant. Result? Falling prices everywhere for everything.

Open Markets. All markets are now open and competing with each other since tariffs no longer protect anyone. It’s a borderless world now where goods and services flow freely, unbound by the old protectionist rules. As a result the lowest cost producer wins, and hence deflation is the net result once again.

Those are a few of the big trends in the world. Is it any wonder that China and India are rising? If the US doesn't get its act together and start acting like a respected leader would, it might even lose its leadership position. If the US fails to adapt, the next biggest producer and consumer (China?) is more than happy to rise up and call the shots.

 



 



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