Download Zeitgeist sitting on a powder keg

Zeitgeist sitting on a powder keg
The global economy is in turmoil. Countries whose per capita debt exceeds the
available income of their citizens by 100% – such as Germany, for instance – are the
rule and not the exception any longer. The increase in money supply through central banks, which consider themselves as public lenders rather than keepers of the
value of money, has reached a level which will result in higher inflation than expected even though the velocity of circulation of money has not increased. This is
due to the fact that the asset bubbles created by the United States, Europe and
China spill over the global financial markets back into convenience goods – a compelling correlation which only few economists took into account. But the most
alarming signal indicating that we are close to collapse is the high volatility of the
stock markets, which we have observed for several months. Again, only few experts
seem to worry about this fact. After what happened in the last few years, many
people consider the stock markets to be the playground of casino capitalists who
have no sense of responsibility. Volatility is mainly interpreted as evidence that
these players must be made subject to stricter regulation.
In fact, this is the explosive which will blow up the powder keg of global economy in
the medium term at the latest. As has been the case with violating the euro stability rules, politics does not hesitate to abandon the principles of reality – it ignores
what is essential and focuses on worshipping the zeitgeist. It distracts from its own
fault of excessive public spending, accuses its henchmen, the banks, of being responsible for the crisis, and uses the means of propaganda to finally regulate and
chastise them. This is the way power works in the form of government of “pressure
group governance” commonly applied from America to Asia.
The problem here is the fact that the actual main function of the stock markets is
completely disregarded. Stock markets are gigantic machines of capital allocation
which are indispensable in capitalism. Chances as well as risks are traded on the
stock markets. Entrepreneurs and investors meet there, capital will be invested
most appropriately according to market standards.
High volatility of prices clearly shows that this mechanism does no longer work. The
huge amount of money pooled at institutional investors has resulted in the fact
that no one is any longer able to say how valuable the chances of a company ad-
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justed for the business risk are today. As a result, most of the money will inevitably
be put into the wrong pockets.
Consequences are dramatic since the companies thus receive wrong signals. They
are unwittingly counting on the wrong markets, products and technologies. Banks
lend money to companies which are not worth the investment. Entrepreneurs invest into gold rather than into research and development. This will inevitably result
in a crisis since the value added of the future is already gobbled up today through
unreasonable investments while the actual potentials will no longer be identified
and realized. Innovation leaders of the past are degenerating into minor players,
profits decline, expenses will be cut, and the spiral will be accelerated. Growth will
turn into decline.
Our hopes on the BRICS being on the threshold of powerhouse status are misleading, since these nations are far from creating innovation for the purpose of global
growth – they never had to learn how to create innovation since they mainly served as low-cost production sites. Moreover, the cost cutting potential representing
the second growth engine is increasingly destroyed by inflated prices of commodities.
There are sound reasons why the real estate boom in China reminds many experts
of the alleged boom in Spain in the last decade. The gas and oil exports of Russia
are hard to imagine without Western know-how. Brazil’s boom is also mainly driven
by its raw materials. As has been the case in the former Soviet Union, the generated profits disappear into the pockets of only a few. Global economic power
houses will certainly not be created this way.
The consequence is rather simple: the United States and Europe will lose their export markets which generated growth over the last twenty years. New products
and services are not in sight. As is generally known, the high hopes on the Internet
burst long ago. Even though Web 2.0 represents a new tool, its value added remains rather low.
Energy is increasingly spent on the issue of distribution rather than on creative
competition – this is what we already experience in the euro area at present. The
world becomes a little tougher.
So what should politics do to prevent a crash and global political chaos? Regulating
the stock markets is rather counterproductive since it only covers up the problem
for some time but does not address the cause.
There is only one solution. Entrepreneurial forces must be unleashed. It is quite
obvious that there are not sufficient entrepreneurial forces at work at present – for
whatever reason! Entrepreneurs must learn to enjoy taking risks again so that they
will be able to seize the right opportunities.
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It does not help to blame anyone, but to approach the issue and solve it. So what
does this actually mean? Where in the world are entrepreneurial potentials blocked
at present?
Some examples will be presented in the following. Indeed, they are still abstract,
but every intelligent, attentive person can certainly think of several concrete cases
regarding these issues which he/she knows from personal experience:
Bureaucratic obstacles with respect to anything new
Legally ordered obsession with security – in terms of technological, economic,
social issues, etc.
Excessive taxation of performance and success
Arbitrary state power when dealing with citizens
High effort involved in worthless administrative duties
Destruction of motivation through enforced conformity
Media populist propaganda against successful persons
However, if this solution is not opted for, the only alternative to market economy is
the state-directed economy. With the ratio of government spending to GDP already
exceeding the 50 percent limit regularly also in the Western world, we are already
heading towards this direction.
The competitiveness of companies, countries or continents cannot be protected or
even increased by means of avoiding competition. Eliminating competition, preventing bankruptcy by all means will inevitably result in stalling economic growth.
Against this background it is not wrong to claim that the euro area is going to become the “German Democratic Republic of the Western world”. There is only the
question with whom we can reunify in five or ten years!
Berlin, November 2011
Theron Advisory Group
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