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Author: tjscott0 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 455414  
Subject: World Long Term Austerity in Our Future? Date: 4/2/2013 1:02 PM
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Stratfor's "Beyond the Post-Cold War World" report has METAR elements that if true does not bode well for the world economy.

http://www.stratfor.com/weekly/beyond-post-cold-war-world?ut...

In this new era, Europe is reeling economically and is divided politically. The idea of Europe codified in Maastricht no longer defines Europe. Like the Japanese economic miracle before it, the Chinese economic miracle is drawing to a close and Beijing is beginning to examine its military options. The United States is withdrawing from Afghanistan and reconsidering the relationship between global pre-eminence and global omnipotence. Nothing is as it was in 1991.

Europe primarily defined itself as an economic power, with sovereignty largely retained by its members but shaped by the rule of the European Union. Europe tried to have it all: economic integration and individual states. But now this untenable idea has reached its end and Europe is fragmenting. One region, including Germany, Austria, the Netherlands and Luxembourg, has low unemployment. The other region on the periphery has high or extraordinarily high unemployment.

Germany wants to retain the European Union to protect German trade interests and because Berlin properly fears the political consequences of a fragmented Europe. But as the creditor of last resort, Germany also wants to control the economic behavior of the EU nation-states. Berlin does not want to let off the European states by simply bailing them out. If it bails them out, it must control their budgets. But the member states do not want to cede sovereignty to a German-dominated EU apparatus in exchange for a bailout.

In the indebted peripheral region, Cyprus has been treated with particular economic savagery as part of the bailout process. Certainly, the Cypriots acted irresponsibly. But that label applies to all of the EU members, including Germany, who created an economic plant so vast that it could not begin to consume what it produces -- making the country utterly dependent on the willingness of others to buy German goods. There are thus many kinds of irresponsibility. How the European Union treats irresponsibility depends upon the power of the nation in question. Cyprus, small and marginal, has been crushed while larger nations receive more favorable treatment despite their own irresponsibility.


Strike One

I have already said much about China, having argued for several years that China's economy couldn't possibly continue to expand at the same rate. Leaving aside all the specific arguments, extraordinarily rapid growth in an export-oriented economy requires economic health among its customers. It is nice to imagine expanded domestic demand, but in a country as impoverished as China, increasing demand requires revolutionizing life in the interior. China has tried this many times. It has never worked, and in any case China certainly couldn't make it work in the time needed. Instead, Beijing is maintaining growth by slashing profit margins on exports. What growth exists is neither what it used to be nor anywhere near as profitable. That sort of growth in Japan undermined financial viability as money was lent to companies to continue exporting and employing people -- money that would never be repaid.

Strike Two

And the United States has emerged from the post-Cold War period with one towering lesson: However attractive military intervention is, it always looks easier at the beginning than at the end. The greatest military power in the world has the ability to defeat armies. But it is far more difficult to reshape societies in America's image. A Great Power manages the routine matters of the world not through military intervention, but through manipulating the balance of power. The issue is not that America is in decline.

The United States has emerged into the new period with what is still the largest economy in the world with the fewest economic problems of the three pillars of the post-Cold War world.


I disagree with the author's conclusion. First, the USA is in decline. We can no longer afford foreign adventures as future unfunded entitlements weight heavily on our country.*
Second, combine #1 above with poor future economic growth [-2% GDP growth**] in USA.

Strike Three. We're Out!

*http://www.politifact.com/virginia/statements/2012/apr/23/fr...
June 2011 report from the CBO detailing the agency’s latest long-term outlook on the nation’s fiscal fitness.

Tables in the report contain projections showing that by 2025, payments for Social Security, Medicaid, Medicare and debt interest will exceed all federal revenues going into the budget.


The above applies if no reform is undertaken.

**http://www.gmo.com/websitecontent/JG_LetterALL_11-12.pdf
Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year,
and adjusted growth about 0.9%.
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