Brahmason's Blog

Assuming that world economy finds the way to prevent collapse and set the new grounds for new economic models , which is a lot to assume , I guarantee you that new economic growth models will have to be based on very selective schemes .

By now it should be clear that growth canot be sustained on a permanent increase of credit and debt at consumer level to compensate for the unbalance between demand and offer as a result of poor middle class incomes unable to match growing inflation prices and concentration of wealth in very reduced number of hands .

The essential target in economies will be the building up of a wide and healthy middle class that will be able to consume the produced goods and services at the right pace so that world investments in cars , travel , food etc can be justified and survive without resorting to credits and debts that will never be paid back .

The excess of indebtment today is the biggest enemy of consumption tomorrow and the seed for bubbles that will dump economy in recessions and depressions which will cause money cemeteries that should take economy backwards in decades with misery and tensions that will place humans on the verge of dramatic convulsions .

Unbalanced growth resulting in bubbles will be responsable for a decrease of population in much of the western civilisation .

Countries with a wide perception of future like Germany , Australia or Texas are already striving to increase their populations with imported people potentially prepared to obtain medium high incomes that will help sustain selective consumption without need of credit beyond balance rupture that will in turn pay state services without excessive individual or corporate levels .

In fact the best demographic structure for a developed western country is one that will concentrate 60 % of the population in the range of 25 and 55 years of age with a selective purchase capacity . That of course can only be achieved by importing highly educated labour to feed selected investments able to provide the type of jobs that can be rewarded with a healthy income .

No many political or economic leaders have perceived that apart those in the countries above mentioned which consequently deserve our respectful attention .

Of course the instruments are taxes and rates selective policies .

Brahmason

Brahmason@gmail.com

I am surprised that most find the agreement positive .

The type of agreement reached leaves only one thing clear ; Cyprus will never be able to pay the assumed debt .

The island economy canot produce enough richness to pay back for the debt even if its citizens live on charity from now on .

The only way out of this if any , would be a generous agreement with Russia and that seems far away unless russians can grab most of the options on the gas assets of the island and Turkey does not seem to see that possibility without a certain degree of uneasiness .

Sooner or later unless the russian brother pays for it , Cyprus debt will have to be restructured and in the meantime UE investors and savers will be feeling very uneasy till the promised economy recovery becomes true for all european ailing economies and in that sense 2014 may be the year for a showdown between speculation and reality .

Brahmason

Brahmason@gmail.com

The industrial costs show a shift upwards between Dec 2012 Jan 2013 .

The trade deficit also show a shift upwards taking it from 1.294.000.000 € up to 3.458.000 € after a full year of reductions . As usual , data fed by media talks only about year on year figures which obviously ignores trend .

It confirms what Brahmason has been continuously pointing out regarding the limited export potencial of spanish companies .

The cost structure of a manufacturing company is shaped as a function of the type of investment and spanish companies are very sensitive to labor costs and raw material and energy and need therefore an environment of strong inflation of demand to produce significative earnings .

As the domestic demand collapses as a result of sustained inflation causing the inevitable bubble , companies resort to exports more as an obvious move of survival than because spontaneous vocation . The manufacturing sector has shifted activity to exports in the hope fed by official declarations that the crisis were to be overcome much sooner than reality tells and the result will be a strong deterioration of the EBIT as well as an increase of their ratio Debt / EBIT .

Brahmason

Brahmason@gmail.com

In fact there is no strong or weak dollar . The dollar is strong whether its quotation is higher or lower than it should be against main direct currencies , as long as the dollar remains the only currency accepted as world means for measuring economy and paying petrol and other commodities .

The doubts of the White House and the FED however as regards what may be the optimum dollar quotation are perfectly understandable

Considering the latest moves however it looks like the american administration with the implicit support of world economic agents is opting for a strong dollar .

This of course will ease pressure on the price of gas at petrol stations throughout the U.S. which will be highly appreciated by american consumers so much depending on their own transport and home comfort .

On the other hand europeans and asians will have to pay more for their petrol excesses and economies in european countries will need an export drive to compensate for their ailing domestic consumption .

With a strong dolar exports to the US will be eased . But then at the end of the day imports by the US will much depend on the purchase power of americans and in this respect let me just remark that purchase power in US is sliding down the hill because of the high unemployment and which is worse because that unemployment is fed by a great percentage of middle class jobs loss in the range of 70.000 through 120.000 $ as a consequence of the international relocation of high added value ventures .

So if a highly quoted dollar is to promote imports by the US in a significant manner , it will need to be accompanied by a further increase of private american debt which in fact means an acceleration of american sovereign debt through current account deficit and in the long run also by the higher private debt .
On the other hand budget deficit will be eased through tax revenue on a bigger consumption . That is more of what we have been having in the past although perhaps it is now the only emergency option at hand .

Outside the US the greatest beneficiaries will be in Asia because of their strong growth potential , while europeans inevitably will have to manage a much more difficult situation specially in some countries which exports to US are not so much depending on the dolar value as in the low rated added value products of their exports . Germany will have a big reward in a strong dolar but not so the exports of southern economies having to compete with a bigger number of emerging economies offering the same at lower prices .

Brahmason

Brahmason@gmail.com

There are occasionally readers that pose different kind of questions through comments on a certain post through interlinks .

While I appreciate their interest I wish to clarify that for reasons of organisation I am only in a position to give an answer to people using my e-mail address that I am always including at the bottom of each post .

Thanks very much for your understanding

Brahmason

Brahmason@gmail.com

There is a tremendous excess of liquidity in the hands of very few people who in fact do not know anything about real economy .

Political groups in the main areas of this planet must understand that unless we promote a real wide and vigorous middle class , the existing enormous manufacturing ventures of goods and services will collapse because there is no enough purchase power to consume all that is being offered .

Stock exchange , real estate , currency and raw materials speculation are absorbing the majority of money issued and are acting as huge cemeteries of liquidity that generate costs and inflation that canot be matched neither by industry nor consumers .

The unbalance in the economic situation at any time is promoted by speculation , whereas factories and consumers are at the end those who pay for it .

It is real sad that the world is as it is because the governments of the main countries of this planet work to win elections with the favor of the most powerful , instead of setting the right economic policies that may help the creation of a healthy middle class that will guarantee the necessary consumption capacity to allow for a competitive offer to grow .
Real competitiveness has very little to do with labor costs in manufacturing and high added value services . If you are concerned with durable goods manufacture you should know that competitiveness is a result of the type of investment that helps a bigger production per unit of time and lower costs in raw materials , components and transforming processes and logistics . Bigger production figures will help minimise costs further .

Technology services with higher level staff and continuous recycling education will provide much higher added value to the company .

Those ventures canot receive fiscal and credit treatment equal to speculators . Generation of a well paid middle class needs be rewarded because a bigger number of healthy people will pay estate expenses with lower individual effort that will promote durable consumption .

Brahmason

Brahmason@gmail.com

Fanatismo es la obsesión con examinar todos los eventos que presenciamos o nos relatan , según las tradiciones en que nos han educado .

No existe mayor enemigo de la evolución que la convicción de que la verdad es aquello que nos han enseñado o hemos aprendido en un cierto entorno familiar o social.

Sólo un porcentaje muy pequeño de los seres humanos es capaz de percibir el universo , el comportamiento global , la economía etc…desde una perspectiva ecuánime .

No se trata de ponerse de acuerdo para alcanzar una mayoría . Eso es útil y necesario para evitar conflictos y contentar a una mayoría .Pero la ecuanimidad en la observación , la elaboración y la transmisión de las ideas suele ser una práctica minoritaria que no coincide con el sentir ni la actitud de la mayoría atrapada por sus tradiciones y conveniencias personales o partidistas .

Los más simples piensan que ocupar el centro para llegar a un consenso o tener muchos apoyos es ser ecuánime .

Pero sólo los que sin dejar de comprender al resto son capaces de abstraerse de todo tipo de preferencias y condicionamientos en el ejercicio de la observación , serán capaces de percibir la realidad tal como es y evolucionar en sintonía con la totalidad que incluye . lo pequeño y lo grande , lo local y lo cósmico…

Brahmason

Brahmason@gmail.com

The inflation at 2 % with slow economy growth shows stagnation whether we like it or not . The petrol price at retail level is raising to confirm this as american citizens are highly sensible to petrol price because petrol is in the roots of their consumption needs .

Used capacity remains below 80 % and although budget deficit is closing the gap probably because of recent tax moves which impact need yet be fully perceived , the external current account continues to show the need to improve competitiveness .

No surprise that the dolar is gaining ground in a move to keep hold of petrol prices and to compensate for the ailing current account deficit ( external trade ) it is good to see that in the TICs ( capital flows ) the inflows are substantially dominating and growing to quench fiscal disagreement effects between democrats and conservatives

But at the end of the day the same question is on the table . For how long can the US economy be based on external financing ?

Remember that the private and corporate debt is much higher than the economy may bear, specially as unemployment shows a tremendous loss of jobs in the selective manufacturing sectors responsable for the creation of richness which is having a strong influence in the loss of purchase capacity as well as in the income tax revenue .

The US probably needs to review traditional tax structure to favor development of added value ventures and companies and the recovery of a middle class earning salaries between 70.000 and 120.000 $ while GINI indicator is reduced from the current figure of 0.46 .

It does not mean reducing or increasing taxes but establishing a more selective distribution of taxes in sales, income and corporate profit . ( Making money through speculation is not as healthy to real economy than making money through long term added value investments )

Brahmason

Brahmason@gmail.com

The materialisation of quantum computer should not be far from now .

Research leading into quantum computer should be based in my opinion on the remote twin particle behavior ( entanglement ) which allows to have a complete visualisation of the theory of sets on a four dimension basis .

As the quantum computer will become a reality , obviously there should be an unique essential algorithm that would shape as a function of the specific coordenate of the space time continue being observed at any time .

In my opinion as quantum computer will be a reality , we will know it better from the geopolitic consequences than from the announcement in the in the paper you are used to read .

Brahmason

Brahmason@gmail.com

Basically we can all agree in that an economy GDP is the sigma of consumption , investment and external trade .

External trade should include goods , services , labor and money flows , but we can simplify it into goods and services for our arguments , while keeping in mind that current status of global economy can be considered as globally open .

What you can spend without generating an out of control indebtment should be in line with the added value or richness generated by the economy .

Essentially there are two points you should consider . Too big an impact of consumption in the GDP will make it difficult to compensate with the added value generated by investments which should make up for consumption as well as for enough competitiveness to balance adequately external trade of goods and services . Besides excessive consumption will favor inflation wich has a negative effect in purchase power and accelerates indebtment while further deteriorating competitiveness .
If consumption is too low and economy relies mainly on exports with very high added value and competitiveness the risk in a global economy is that you will depend too much on international demand .

So wether consumption is too high or too low , the deviation from the optimum percentage of the GDP , will force the economy sooner or later into unemployment and deflation . Al though the path in each case would be of course different .

Perhaps we should recall here once again that the equilibrium between offer and demand is in fact what we have to care for and that competitiveness ( type of investment ) and purchase power are paramount in that contest .
Also for the sake of rationalisation it helps to clarify that added value is not just profit . Added value is the consequence of a type of investment that will generate an output strongly demanded at world level with such technology and competitiveness that the labor needed is sufficiently qualified to enjoy incomes high enough to guarantee a healthy and durable consumption ( demand ) , while allowing for healthy corporate profits .

In conclusion the choice of the right value of consumption as a percentage of the GDP is paramount in the future health of the economy .

The instruments for achieving that , are obviously tax and credit policies that will stimulate the economy in a convenient direction as a function of global economic situation at any time .

In my opinion the right percentage of consumption should be 65 % of the GDP for a healthy developed economy .

Brahmason

Brahmason@gmail.com