I'm not sure of now much further we can take this, Keith. I've just looked at
an issue of The Economist and what you say about the current state of the FIRE
sector appears accurate. It does appear to have shrunk both in size and power.
However, I think we have to give some consideration to how that sector behaves
within the broader economy. I see it as being a driver of bubbles as much as a
driver of steady, year to year, growth. Every few years it flares up as the
driver of very rapid growth in some sector or another, which then goes into an
equally rapid decline. Some people make a lot of money but a lot of people and
public institutions are left holding the bag. Recent examples are the dot.com
bubble of the late 1990s and the recent sub-prime mortgage bubble. Right now
we appear to be in the calm between storms. The mess created by the sub-prime
bubble has been largely swept away, but I'd be willing to bet that someone,
somewhere, is working on the next bubble.
Thanks for pointing me to Reinhart&Rogoff. I've had the book for two or three
years and have read parts of it. I'll look at it again.
Ed
----- Original Message -----
From: Keith Hudson
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION ; Ed Weick
Sent: Monday, September 17, 2012 10:54 AM
Subject: Re: [Futurework] FW: For those who believe God's on Wall Street.
At 14:39 17/09/2012, Ed wrote:
I haven't seen much evidence that the FIRE sector is in decline, Keith.
The commercial (high street) banks have already lost large numbers of staff.
This year the same is now happening to investment banks (e.g.JPMorgans, Goldman
Sachs, Citibank, etc). The financial sector in the advanced countries is now
shrinking from 15% of GDP in 2008 (cf 5% 30 years ago) to something nearer 10%
already.
(EW) If it is, it'll bounce back and continue to be one of the most
important drivers of US wealth.
Not necessarily. The commercial banks have long since ceased being the most
important drivers of business credit except for the normal sort of humdrum
Small and Medium Enterprises in a locality. For years past, fast-growing SMEs
have been increasingly identified and funded by venture capital funds
(particularly franchises), higher-tech enterprises by private equity groups and
innovation funds, and existing larger corporations either by stock-splitting
and selling or by issuing bonds (directly or indirectly via investment banks).
(EW) As for US manufacturing, I don't think one can expect much from it.
On the contrary, Asian jobs have been trickling back to Europe and America
for some years now (even including a case of a firm of labour-intensive cushion
makers I described a few months ago). The latest specialist magazine on these
issues, Caixin, is now reporting that the bounce-backs from China are now
beginning to be a flood.
(EW) Far too much of that sector, along with jobs, has been exported to
Asia.
It's not just rapidly rising labour costs in China but also the land-freight
proportion of costs (to get the stuff to the ports) that's now driving
thousands of industries to lower-waged Asian countries, but also back again to
higher-waged countries. Google is going to build its new Nexus in America.
Caterpillar and General Motors are switching plants back. JCB, the highly
successful UK manufacturers of excavators, etc have decided not to establish
more plants in China but to expand here because their main Chinese competitor,
Sany, is now in financial trouble.
(EW) And if there is any recovery in the US, much of it will be jobless.
Assembly lines used to have thousands of people working along them. Too
many of those people have now been replaced by robots.
True enough. But if Western firms had not been able to go to China in large
numbers in the last 30 years then you can be certain that they would have
developed automation at home all the quicker.
(EW) IMHO, the US economy is in a state of long-term stagnation.
True. And Western Europe and Japan. Carmen Reinhart and Kenneth Rogoff,
whose book, "This Time It's Different", and who are the leading American
economic specialists in post-repression recoveries, talk in terms of well over
20 years for this one. Private consumer debts are recently showing some signs
of recovery, but there are still massive bank and commercial property debts
which are still only treading water. And then there are still massive sovereign
debts (and increasing with more QE) and the need for future welfare, medical
and state pension costs to be got onto a better funded basis
(EW) Gold standard? Forget it. Countries want to control their currencies
for both internal and trade purposes.
That's the problem! Without some reality-pivot such as a gold-standard (it
doesn't have to be gold) to discipline them, governments will continue to be
tempted to print money whenever they're in a scrape. (Incidentally, even
JPMorgan are now accepting gold as a full currency.)
(EW) Keeping the value of the Yuan low has been an important factor in the
growth of manufacturing in China. Being bound to the Euro has exacerbated
problems faced by Greece, Italy and Spain. I'm afraid that central banks and
quantitative easing (and tightening) are with us for the long term.
Until the present lopsided currency system, driven first and foremost by an
inflating dollar (almost 90 of world trade is denoted in US$s) cracks
catastrophically. It could happen in five years time; it could happen tomorrow
without warning just like Lehman Bros cause 2008 crash. World finance is so
deeply interconnected and parasitic that it could crack almost anywhere.
Keith
Ed
----- Original Message -----
From: Keith Hudson
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION ; Ed Weick
Sent: Sunday, September 16, 2012 9:33 AM
Subject: Re: [Futurework] FW: For those who believe God's on Wall Street.
At 13:59 16/09/2012, Ed wrote:
I think you can forget about the gold standard, Keith. It's faded off
into history. The ability to manipulate the money supply, including
quantitative easing, is now very much a part of fiscal and monetary policy.
One thing underlying what has impacted on Sandy Lewis and many other
Americans is the enormous change in the relative positions of the FIRE
(finance, insurance and real estate) sector and of the manufacturing sector in
the American economy. The following chart shows this.
But the FIRE sector is already in decline and manufacturing (in the US
and UK) is already showing signs of recovery. As to resumption of the
gold-standard, if Romney gets in the Republicans will definitely call for a
Gold Commission. Even if Obama does a second term, don;t discount it. There are
several eminent voices now talking about it -- e.g. Zoellick of the World Bank.
Remember also that gold has never ceased to be a currency at governmental and
central bank level. It only lost use as a trade currency for political (read
American) reasons so that an inflationary dollar could be used instead.
Keith
As the chart shows, manufacturing has slipped from being some 30% of
GDP in the early 1950s to being a mere 11% in 2009. The FIRE sector, in
contrast, has risen from being about 10% of GDP to being over 20% currently.
One disturbing thing about these trends is that while the manufacturing sector
tended to be visible and open, much of what goes on in the FIRE sector happens
secretly behind closed doors and is therefore much less susceptible to
government control. The decline of manufacturing has had a profound negative
impact on the middle class while the rise of the FIRE sector has favoured the
wealthy and is a major factor in the growing income inequality in American
society.
Ed
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com
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