Lots of people talk about how growth isn't sustainable. It's a pretty dumb-ass statement. Growth is a measure. It would be like saying meters aren't sustainable. I think what they mean to say is either: 1) positive growth isn't sustainable, or 2) the current growth rate isn't sustainable.
Both are much more plausible than the original, which doesn't make any sense.
What is "growth"?
In economic terms, growth is usually measured by inflation, and/or earnings per share.
What are the likelihoods of growth becoming negative?
It's next to impossible for inflation to be negative. If you find some inaccurate way to measure inflation, then maybe you could get an erroneous negative reading - perhaps some approximating function that uses consumer price index as an input. But, true inflation has to do with how much cash exists. That always grows with a fiat currency.
Earnings per share are sometimes negative. That's not new. Some companies go out of business all the time. As long as there are transaction of any kind the potential to earn exists. It is possible that some periods of time will have more bankruptcies than others, but I feel pretty confident there is such a thing as a business that can consistently earn.
It is completely possible that earnings per share can decrease. That would call for adjusted fundamental analysis rules. Once most people understand the principles behind fundamental analysis they are able to scan equities relative to the playing field.
banking started as a way to have paper receipts for assets that weighed more(e.g. gold).
partial(or fractional) reserve banking started when bankers realized they PROBABLY never needed 100% of the assets in their reserves, because a lot of the time they just set there.
theoretically fractional reserve banking could start with zero assets. Here is how it would work:
a bank loans a person 100 dollars at a 10% per year interest rate. The principal can be paid back, but the interest can never be paid back, because there isn't an extra 10% of some made up currency floating around anywhere unless you take counter fitters into account.
it's pretty useless to point fingers. it's probably giving bankers the benefit of the doubt to say it was inevitable, but there are bad choices made in every profession (I'm pretty sure pharmaceutical companies are guilty of equally bad things [you had a cough for a day? how about a $500 x-ray and a $250 anti-biotic?]).
In fact, there are some really good things caused by fractional reserve banking: it stimulated a lot of trade, and motivated a lot of people to do a lot of things in general.
If fractional reserve banking was never invented, there would still be rich people who would have major advantages. The richest of people today happen to be able to become richer by printing money - much less controversial than pillaging.
nepotism is not competitive, it's a form of stagnation.
If the richest people were consistently the greatest at leading then everyone would be happy. But they aren't. I have a feeling a large portion of old wealth descendants are contributing things about as elaborate as a quadruple cheese burger to society.
The problem, that has happened many times in history before, is that wealth needs to be randomly redistributed. Probably the most appropriate word to describe what this would be is "revolution".
It's hard to imagine how any sort of significant revolution could happen these days. The lower half, or so, of society(in economic terms) has been kept pretty content with their positions for a very long time. It seems like it's given the upper half, or so, a lot of time to create things like intelligence agencies, weapons, jails, pay people to run them, etc.
I'm sure every group of people on the forefront of a revolution has had these feelings.
Some times economies are not the central point of a revolution. It seems like it will be the central point of the next one.
Prediction: partial reserve banking will collapse, but I'm not sure how that will keep rich people from still having great advantages.
Crazy prediction: If you study extremely ancient history, you can find signs of matriarchal societies being predominant. I think it could happen again. 2012.
Invest in hair dye and back issues of Cosmopolitan?
...back to now - people who have the *authority*(sovereign nations [most machine guns]) to print new money essentially have a monopoly over anything money can buy. If too much new money is printed too fast it will be considered monopoly money - pun intended.
It's relatively boring to comprehend, but the number of people who are aware of it is growing. Greece, and most of South America for example.
News outlets have an incentive to be sensational. I remember in the summer of 2001 there were months of reports about the increase in shark attacks. It seemed like the end of the beach. There were actually materialized responses. Beaches were closed occasionally, and tourism was seriously impacted. It was exactly this time I realized 24-hour news networks were bastards.
It was pretty sad watching them find the most fearful of ways to spin the earthquake in Japan. The nuclear reactors were quickly fixed upon, and the risk level is currently teetering around the end of Tokyo.
Quite messed up that these networks actually have enough influence to overrule Japanese nuclear engineers who have been doing their jobs for decades.
Of course anything could happen, but these networks make it nearly impossible to get a clear idea of what is really happening, especially since their bullshit reports actually get real responses.
Anyhow, the immediate economic impacts are these:
Massive monetary shift.
International pledges of support.
That means probably a trillion dollars will be spent on bonds. An imaginary promise of money in the future. May have been better spent on materials and services.
Long term questions:
Has the price of gas tripled in 10 years? A few months ago I randomly found the video bellow that has a sub-topic of "maximum oil production". Today, after watching oil futures hover over $100 a barrel, I decided to look for more information on the topic. Turns out there is a fancy term for "maximum oil production", it's "Peak Oil". There are tons of articles and videos about it. Sadly, the majority of them have a 24-hour news aftertaste. Sensational overload. Hard to decipher whats real and what's not. Personal opinions and lack of facts make the overall selection of information total garbage. Most of the people who focus on the fears of it usually use a synonym of apocalypse within three sentences. I wouldn't be surprised if half of these articles received heavy funding from futures exchanges, or investors who own massive amounts of oil contracts.
The fear mongerers almost had me going for a while. Luckily I remembered the video below. Some boring ass college arithmetic lecture. The lecture has a lot of overlap with the sensationalized articles, but is not at all sensational. The professor clearly has a personal point of view that people are going to face hard times once maximum oil production is past, but he keeps it cool, and never says anything like Apocalypse. His plan seems to be growing some crazy ass sideburns and moving to the mountains. Seems like a pretty good plan.
I happened to open my brokerage account about the same time sub-prime mortgages were going sour. About a year later the problem had a massive reverberation in the insurance market (the October 2008 drop).
These were great tests of nerves, especially for a relatively new investor. Luckily I had read enough books on investing and the economy to realize that successful investments are not measured in weeks or even years. The serious returns are seen over decades.
I was able to keep my cool, and stick with a dollar cost averaging plan. During the time period of this chart, and even today it has been incredibly easy to find tremendously undervalued equities. Margin of safety, long term earnings records, and consistent dividends really paid off, and it's only been 3 years.
Losing less seems to be a key consequence of following these rules. When the market has up weeks it's not uncommon for my portfolio to have a slightly lower percentage increase. Conversely, when there are terrible weeks my portfolio usually has losses of much smaller magnitude that major indices. The chart illustrates the results.
You can beat the S&P by losing less!
The service sector is the fastest growing among the largest economies. It requires people here and now, therefore cannot be outsourced(as easily). Most attempts at cutting service expenses by outsourcing them have had poor results. Usually if a service is outsourced it's not critical to a companies revenue. For example, customer service for products you have already paid for. These types of services are usually not of key concern to a companies welfare. On the other hand, services that are of key concern to a companies welfare are usually afforded a great deal of attention and financial backing.
One of the most visible existences of a service is food sales. It's a growing trend among the most successful of food services to have better trained and better paid employees, with great benefit packages.
Starbucks was a pioneer of this philosophy. Like them or not, they killed their closest competitors. With retails sales on the rise again, it would be a good idea to look for services that go above and beyond the status quo when it comes to customer satisfaction.
If two companies are otherwise equal, the one that gives whipped cream and a cherry on top will most likely have a lot more repeat customers, and an improving reputation. In contrast a company who makes you talk to someone from half way around the world in order to cut expenses will have a diminishing value that's not necessarily reflected on the last balance sheet.
Most of the great bargains out there now seem to be in the banking industry. I think historically banking and finance companies have made up the majority of the stock market. I'm sure that being near center stage of the recent credit crisis has also caused a lot of selling of their shares. Though there were a couple of cases of bank nationalization, they seemed to be mostly necessary to prevent a domino effect. I think it's very clear that most voters don't want nationalized anything, whether it's in their best interest or not. There are occasionally a couple of different industries that show up in "good value" screens, notably shipping and energy companies. I'm going to try to make up a diversified selection with a moderately heavy composition of banks. They look too good to pass up.
China has responded to it's cue to devalue it's currency. However the new money it's printing isn't going to be tied up in bureaucratic battles for years or decades as most of the developed nations attempts to spend the economy back to health are.
I can't speak for individual citizens, but for a country as a whole China is far outperforming the majority in economic terms. It's making financial decisions similar to those of global monetary entities. Strategically subsidizing international projects which are bound to repay massive dividends.
A recent example is China's decision to subsidize a 10 billion dollar rail project in Argentina. The main publicized motivation is to give China an opportunity to further develop it's high-speed rail technology. Why not keep it to them self? One of the most obvious reasons is to promote it's brands. If this project is a success, which it has a great likelihood of being, you can bet who other South American countries will goto for high-speed rail systems. Another major benefactor of this proposal is China's diplomatic value. A Chinese ban of Argentina's soy has been brushed under the rug for now. There are more than a few other positive impacts the strategic economic play will have in store for China.
Lots of growth seems almost certain, but keep in mind a less developed economy is more likely to be turbulent. A pretty sizable chunk of my portfolio is made up of Chinese companies (over 10%). If good publicity like this keeps coming over the next decade, then I could easily see that composition being more like 20% to 25%. It's definitely possible to find companies from there with steady long term dividends and earnings records. It's a very tempting market, but the good times could end up having a mirage aftertaste.