The longer you run this system, the more serious the erosion in real productive capability because if you don’t use the skills, you lose them. – Sridhar Vembu
1/ The US imports $1 trillion more than it exports and “pays” for that with debt. At the same time, there are massive labor shortages. This is telling us the labor is not allocated correctly, a huge structural distortion in the economy. This issue is also relevant for India.
2/ When you import so much more than you export, jobs essentially become “token distribution jobs” – the actual work is not relevant and the purpose of the job is to allocate tokens to claim the imported goods. People figure that out, hence the “bullshit job” phenomenon.
3/ The longer you run this system, the more serious the erosion in real productive capability because if you don’t use the skills, you lose them. The US has suffered a serious erosion in capability. That appears to be accelerating now along with the trade deficit.
4/ The US has become miserably dependent on China. With such heavy import dependence, US inflation is increasingly driven by what happens in China. The Fed’s own actions are less and less relevant. No “serious” economist seems even aware of this loss of capability and autonomy.
5/ China itself faces a serious real estate bust, which suppresses domestic consumption. To keep its factories running, it has been willing to export more and more and accept US paper in return, so we have a dealer – addict codependency. How long can this go on?
6/ Demographic bust in China means they have no option but to increase wages and hence prices for their exports. That implies rising inflation for the US and the rest of the world. A more inflationary world is also a more unstable world and rising social/political/geo conflict.
7/ A “black swan” would be an abrupt collapse in the reserve currency system. What could cause it? Here is a list: * China making a move on Taiwan. * Internal US social conflict reaching a boiling point. * Financial implosion outside the US jurisdiction in a “money center”.
8/ Summary: the global economic system is shaky at its core, characterized by a lack of resilience. It is best to prepare for turbulent times ahead. Meanwhile it is a good idea to build real capabilities in basics: food, manufacturing, health care, technology. 🙏