The Golden Era of Low hanging Fruit

By: Gordon Long | Tue, Apr 8, 2014
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The Low Hanging Fruit has been picked

With Charles Hugh Smith & Gordon T Long

26 Minutes, 36 Slides

The US and China may have both passed their Golden Era's where the low hanging fruit of prosperity has been picked. Though very different situations with different challenges, both global industrial powerhouses exhibit some surprising similarities. Also, both face challenges and hurdles that may not be surmountable without great social readjustment.


USA - A Former Export Led and Now Consumption Driven Economy

The 1950s/60s in the US should not be considered as "normal" -- but rather as a one-off, extraordinary anomaly. The era was extremely unique. Unfortunately, many unsustainable assumptions became inculcated into the fabric of American culture based on false expectations. This has subsequently led to massive distortions as a result of futile fiscal and monetary attempts to sustain a society consuming more than it produces.

Net Worth as a percent of Disposable Income

The distortions are now in plain view as the Wall Street financial engine and its financialization has completely disconnected 'Wall Street' from the realities of 'Main-Street America'.


CHINA - An Export Led but Investment Driven Economy

China's problems may be different but their unprecedented growth of credit is not.

Change in US and China Bank Assets

When China's economic (in purchasing power parity (PPP) or nominal dollars) GDP was $500 billion, an expansion of $50 billion equated to 10% a year. Now that China's PPP gross domestic product is around $13 trillion, a 10% growth rate would require an expansion of $1.3 trillion--roughly the entire GDP of Spain or Canada.

Obviously, fast growth is easy when low-hanging fruit was abundant, but becomes progressively more difficult to maintain as the economy expands. This is especially true when you realize that China's GDP has been investment driven. The investment growth now required is no longer mathematically possible as is the rate of moving to a more consumption led growth. The Chinese people are savers, not the consumers that Americans are.

GDP=C+I+G+(E-M)

US and China GDP Breakdown

Chinese savers and investors have historically, instead of consuming, invested heavily in housing. Unfortunately, Chinese housing is showing major signs of cracking. Both Charles and Gordon see the Shadow Banking system as the commonality which is being used to sustain the imbalances and distortions - at least temporarily.

It is clear the Chinese and American economies are facing new era's where the low hanging fruit is gone and the 'heavy political lifting' lies ahead.

 


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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/