Is the US about to cheque out?
How long do modern empires last? Normally about 250 years. In which case Mr Putin must be watching the United States with a great deal of interest, considering the US has been at the top of the tree for last 240.
With the dollar in decline as the worlds leading currency and a mountain of paper debt the size of the great wall of China (currently $19,179,901,857,000 according to the Federal Reserves Debt Clock) it appears both Russia and China are making smart moves in this precarious game of chess.
Profiting from the inevitable decline of the 'deindustrialised' West, recent figures from the IMF (International Monetary Fund) confirm that Russia and China have consistently bought more gold in the last 8 years than anyone else. They have even out-purchased the banks, raking in 14% of the total bullion demand - that is nearly 580 tonnes of the stuff. And whilst some are quick to say Russian and Chinese money reserves are dropping, it is more likely the case that they are just getting rid of the worthless dollars they hold in exchange for cheap gold. They have both been making the most of the very low prices of precious metals to date. The irony here is, that this has only been made possible due to Western central banks intervention in fixing precious metal prices.
The 'deindustrialisation' of the developed world has had no small effect on western economies in the last couple of decades. But that is not to say events cannot be turned round. With creative thinking and government impetus, much could be changed.
The West could embrace the changes and move back toward manufacturing with government support. The problem without a manufacturing sector is, it is not easy for a country to sustain innovation. Let's not forget why producing abroad became an attractive prospect in the first place.
Remember industry in the 1960-70's:
• never ending industrial action
• poor industrial relations
• next to zero investment
• inadequate technical management
• little to no R&D coupled with poor education and training
The service sector grew as we moved away from manufacturing and by the 1980's we were on the way (some said) to becoming the post-industrial society. This thrilling mercurial innovation was potent stuff. We couldn't put a foot wrong, or could we? The allure of cheap manufacturing abroad was a tantalising prospect. It was about off-shoring with investment and production. Initially great, but within 2 decades emerging power houses Taiwan and Japan had become the champions of new technology within many industries. An example of this is televisions. Quickly moving from CRT to flat screen with ever more sourcing put out to Asian manufacturers left the West missing out on technological development and adding to its own unemployment queues. These new powerhouses have further challenged existing manufacturing within other countries.
We shouldn't be looking to manufacture everything, but an economy is stronger longterm with than without it. Manufacturing needs to be sexed up rather than being dumbed down – we could look upon it as a device for driving innovation. There is plenty of scope for fiscal reform in the taxation system. This could innovate and drive new venture creation, with government will and initiative. After all the longterm success of an economy depends upon diversification, and to that end manufacturing certainly has a role to play.
Sources: Harvard Business School http://hbswk.hbs.edu/item/why-manufacturing-matters
Economist Nicholas Kaldor (1908-1986)
If this has been of any interest or help please share. As always your comments are most welcome!