Tuesday, February 25, 2014

Article on Forbes Espanol (Translation to English)

Original Article in Spanish


Since the crisis of 2008-2009, we had an amazing economic recovery since a disaster almost comparable to the Great Depression, with the caveat that measures were taken that temporarily averted the outcome .
The economic and markets recovery has been uneven across regions. Europe has taken much longer to get out of its crisis than the United States and emerging markets had a stellar run, as they had the resources, savings and cheap labor, but above all a guaranteed customer (the developed world) that will buy any consumer goods you sell them.
For 5 years I have tried to explain countless times what, in my opinion, has been the catalyst for this economic miracle: the increase in the debt of developed countries to subsidize and save system, as well as the large amount of money being printed. 
But the economic reaction to these measures has begun to show signs of exhaustion in some markets and the so called available tools were already used, and re-using them would only prolong or even to reverse what should have been the natural trend. Monetary policy and debt has exploded to an unsustainable level and printing has become increasingly expensive by means of keep on turning the same wheel, which keeps getting heavier and therefore slower.
Many times during this period I have maintained that this position will end up being unsustainable, and each year resulted in a denial of my belief. Still however, I maintain it. And the big question is: if this is true or not and if so, when it will. But I'm not smart enough to make that prediction, I'm just convinced that it will happen, how and when we will not know. You may wonder why I have such an obstinate conviction that these measures will end up not working, and I will try to explain it in a very simple way: for if everything could be solved by putting more bills and borrowing from the system indefinitely, the world would have reached (at least an economic point of view and market) the status of eternal perfection, or panacea. I wrote this three years ago in an article that was titled "The Fountain of Youth". Simply put, there are no panaceas. The dynamics of our perfect and imperfect world prevent it. There isn't eternal abundance at least in regards to the material aspect, all resources are limited unfortunately, otherwise economy isn't needed. That social science is based on the study of how to manage scarce resources.
Now, why the year 2014 as a different precisely is that emerging markets are already declining in economic activity as a result of the slowdown in the developed world, coupled with the hike in the U.S. dollar caused by the "tapering" and given the fact that those markets have also had a lot of investment in such magnitude that the pace of it has naturally beginning to decrease, and thus the growth of its GDP is increasing sat a decreasing rate. Their currencies have been generally depreciating, thereby maintaining while greater export competitiveness, also a higher cost of imports and thus a decrease in consumption coupled with inflation. The activity in emerging markets was what drove industrial production worldwide  and also part of consumption via credit domestic credit creation. But that trend is reversing.
2014 will be a different situation and now the world as a whole will eventually enter a phase of slowdown. While this will not necessarily precipitate a financial cataclysm, then at least there will be much more volatility, and the structural bases will come to wobbling and uncertainty. The United States has unfortunately not enough  strength to carry the wagon, let alone Europe and Japan. China alone still growing at attractive rates is unable to absorb the large fall in aggregate demand worldwide.
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* The views expressed are those of the authors and are completely independent of the position and the editorial line of Forbes Mexico.