User Rating: 0 / 5

Star inactiveStar inactiveStar inactiveStar inactiveStar inactive
 

Government Hammering FingerIn June 2016 the World Bank (aka International Bank for Reconstruction and Development / The World Bank or WB) proudly released their 25th Anniversary Edition of their "Global Economic Prospects" report which it titled "Divergences and Risks" (which you can find attached at the bottom of this article).

Who or what is the WB? Excellent question!

In their own words: "The World Bank is like a cooperative, made up of 189 member countries. These member countries, or shareholders, are represented by a Board of Governors, who are the ultimate policymakers at the World Bank. Generally, the governors are member countries' ministers of finance or ministers of development."

An what is that the WB does? Again, in their own words:

"Since inception in 1944, the World Bank has expanded from a single institution to a closely associated group of five development institutions. Our mission evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present-day mandate of worldwide poverty alleviation".  Theoretically speaking…

THE GOAL

According to the report, "Since its inception in 1991, the Global Economic Prospects report has examined international economic developments and the outlook for growth, with a special focus on emerging market and developing economies. It has analyzed a wide range of topical macroeconomic, financial, and structural policy challenges these economies face."

In other words, they are reading the crystal ball of future economics and letting us know what will happen (quite badly…if you ask us, considering their track record…). Moreover, they do so focusing in economic parameters based on "policy changes". Again, this is important. Pay attention.

What this means is that they are not your typical economists, but they are sort of political economists which attempt to determine the future of the world economy based on the changes of "policies"; this is, what governments do with their economies. Again, this is important because they acknowledge that the main driving force of world economies are governments' economic policies and nothing else. If this would not have been the case, they would have included other elements in their analysis such as weather, industrialization conditions, biological threats and processes, consumer levels and so on. But no. Their main analysis is based on what they consider to be the most important factor in our economies; this is, government actions (i.e. policies).

THE CHIEF ECONOMIST

We won't discuss the document in detail because we simply don't have the time to thoroughly debunk the large amount of nonsensical forecasts and method that it includes. However, we will focus on one critical idea; the notion of "policy uncertainty"

In their foreword, their Chief Economist has this to say about our immediate economic future:

The world economy is projected to expand at 2.4 percent in 2016, roughly at the same insipid pace we experienced last year.

This is quite interesting because the number (2.4%) is actually right, spot-on where it should be, should the world would be operating in a true free market. Historical data suggests that when markets are allowed to operate unhampered, the natural yearly economic growth is in the order of 2% to 3%. Yet, in this heavily managed, manipulated and controlled economy, it would seem that 2.4% is "insipid" (their worlds, not ours). The growth expectation would be far higher, although we don't know how much higher because the Chief Economist does not bother telling us. Moreover, we must consider that the number 2.4% is nothing but a figment of their imagination and as such heavily miscalculated and manipulated because it originates in the calculation of GDPs (see for example GDP Keynessians Vodoo Economics), which includes money printed out of thin air by Central Banks!

THE IRRATIONALE

And why would the upcoming world growth be "insipid"?

Because:

a wide range of risks threaten to derail the recovery

Aha. Uhu. Hohum… and what are those risks?

…a sharper-than-expected slowdown in major emerging markets…

And why would this be? There certainly aren’t any catastrophic events in emerging markets, at least not to the degree that would affect them (i.e. exclusively emerging markets) at a global scale. There are no massive volcanic eruptions, massive, global, weather changes, no global biological threats or variations, no sudden consumer variations in purchase preferences, nor any other global events or circumstances that would affect emerging markets. Remember, they are talking about "sharper-than-expected" slowdowns. This is not a progressive slowdown, but a sharper one. So, why is this happening then?

…sudden escalation of financial market volatility…

And again, why would this be? How can market behaviour suddenly become "volatile"? If anything, markets run smoothly. The amount of money is more-or-less fixed throughout the world and as such credit, speculation and volatility remains strictly bound to low levels. Historically speaking (and before the advent of Central Banking) there were very few cases of "financial market volatility". And when these cases occurred, they were short, swift, they corrected themselves and the economies returned to their natural growth rate (i.e. 2% to 3% per year) very rapidly (i.e. within 6 months or so). So, why would this be a problem? What could be causing a "sudden escalation" (not only spike but an escalation) in "financial market volatility"?

…heightened geopolitical tensions…

And what has this to do with markets? When was the last time that you heard that your favourite supermarket chain raised their prices because of "geopolitical tensions" with their competing supermarket chain? Is the company you work for suffering "geopolitical tensions" with the grocery store down the road? Of course not!!! This is utter nonsense. At the market level "geopolitical" anything has no impact whatsoever. What matters are the levels or supply and demand and nothing else.

…slowing activity in advanced economies…

Which means what exactly? Again, if you study history you will realize that economies do not slow down magically. If anything, economies are just like casinos; their profits/activities are regular and constant (however counterintuitive this may seem). Economies do not decide to slow down by themselves. Why would they do? The goal of companies is to sell as much as possible as fast as possible. Thus, supply is not an issue. The goal of people is to buy as much as possible as fast as possible in order to decrease their uneasiness as much and fast as possible (we used the term "uneasiness" in the context of Austrian Economics - for a detailed explanation see Austrian Economics Compilation). So, purely from an economic point of view there is no reason for economies to slow down on their own, barring mini-crises which, as we explained above, are quite infrequent and short. And even these mini-crises are sudden, not a progressing slowing-down of economic activities.

…diminished confidence in the effectiveness of policies to spur growth.

And again, what has this to do with the economy? When people engage in economic activities they engage in price discovery process whereby the seller and the purchaser reach an agreement that both consider "a win" from a subjective perspective. In every transaction the only thing that matters is the point of view of those two actors. Why would a government policy affect those points of view? A seller has something to sell and they know how much they want. The buyer has money to buy and they know how much they are willing to spend. We don't see the government anywhere in this equation. How can a government policy spur growth? Will a government policy somehow affect the wishes of buyers and sellers? How can it? Such wishes are internal and personal. This is utter nonsense!

Note: please see the Glossary if you are unfamiliar with certain words.

Attachments:
Download this file (Global_Economic_Prospects_June_2016.pdf)Global_Economic_Prospects_June_2016.pdf[ ]4034 kB
Comments | Add yours
  • No comments found
English French German Italian Portuguese Russian Spanish
FacebookMySpaceTwitterDiggDeliciousStumbleuponGoogle BookmarksRedditNewsvineTechnoratiLinkedinMixxRSS FeedPinterest
Pin It