At a superficial level the present world-wide trading impasse is easily explained. Until 2014, China had been too optimistic about world economic growth and, in particular, that it would be maintaining its 10% annual growth rate in exports of consumer goods for some considerable time yet. Accordingly, it was continuing to build up its necessary productive and infrastructure forces as it had been doing for years previously by importing colossal amounts of iron, aluminium, copper and energy resources every year.
But then, quite dramatically, while China was in the middle of its present Five Year Plan, its export markets, particularly in Second World and Third World countries suddenly started declining. Their middle-classes could no longer afford to buy Chinese-made consumer goods. In fact, many of their governments and business had gone deeply into debt. So China had to reduce its huge imports of basic resources and world trade sagged accordingly.
This, then, was a deeper layer of reasons why the 2014 slow-down took place. It was, in some ways, similar to the Asia Financial Crisis of 1997 when many Asian countries had borrowed too much — mainly from Western banks. The latter had to experience huge losses — so huge in many cases that they became technically bankrupt. But because they were supported by governments, the banks’ shareholders and depositors never learned about this at the time.
This time, though, the debtor countries also owe huge debts to hedge funds and other entities in the ‘shadow banking’ world that have grown profusely since 1997 — legitimate private businesses without any connection with governments or preferential help from them in times of trouble. This time, as creditors, hedge funds are not going to take debts (‘haircuts’) as lightly as the Western banks did in 1997. This time they’re going to go for every cent that indebted governments are going to have to find somehow. Indeed, some debts are already being traded at a price several times higher than the debts themselves !
So now we come to a deeper reason still. Where did all the money come from in the first place? The answer, of course, is that it was over-printed by Western governments, particularly America.
But why was all this money over-printed if it were not to try and stimulate Western economies? And why was this thought to be necessary? Could it be that most advanced Western countries had largely peaked in terms of the consumer goods that its people wanted to buy? Consumers in those countries are nowhere near as incentivized to save hard and buy more as they and been in earlier times — up until abut the 1980s, in fact.
So now we have come to the bedrock reason, in my view, as to why the world’s economy is in the doldrums. It may also be a fact that the world economy is already somewhere near to the maximum activity that it will ever be. Considering that energy resources have never been cheaper and that billions of people all round the world are desperately eager to lay their hands on the standard consumer goods of the West, then suitable policies to bring economic growth about ought to be easily stated. But no-one has the faintest idea. Something a great deal more fundamental is going on.