Global growth

The new fault lines on which the world economy rests

Global growth is coming back fast. But the recovery from the pandemic is uneven and fragile

The pandemic caused a fearsome economic slump, but now a weird, exhilarating boom is in full swing. 

The oil price has soared, while restaurants and haulage firms are having to fight and flatter to recruit staff. 

As listed firms signal that profits will hit an all-time high this year, stockmarkets are on a tear. 

An index produced by JPMorgan Chase and ihs Markit suggests that global growth is at its highest since the exuberant days of 2006.

Any escape from covid-19 is a cause for celebration. 

But today’s booming economy is also a source of anxiety, because three fault lines lie beneath the surface. 

Together, they will determine who prospers, and whether the most unusual recovery in living memory can be sustained.

The first fault line divides the jabs from the jab-nots. 

Only those countries getting vaccinations into arms will be able to tame covid-19. 

That is the condition for shops, bars and offices to reopen permanently, and customers and workers to have the confidence to leave their homes. 

But only one in four people around the world has had a first dose of vaccine and only one in eight is fully protected. 

Even in America some under-vaccinated states are vulnerable to the infectious Delta variant of the virus.

The second fault line runs between supply and demand. 

Shortages of microchips have disrupted the manufacture of electronics and cars just when consumers want to binge on them. 

The cost of shipping goods from China to ports on America’s west coast has quadrupled from its pre-pandemic level. 

Even as these bottlenecks are unblocked, newly open economies will create fresh imbalances. 

In some countries people seem keener to go for a drink than they do to work behind the bar, causing a structural labour shortage in the service sector. 

House prices have surged, suggesting that rents will soon start to rise, too. 

That could sustain inflation and deepen the sense that housing is unaffordable.

The final fault line is over the withdrawal of stimulus. 

At some point, the state interventions that began last year must be reversed. 

Rich-world central banks have bought assets worth over $10trn since the pandemic began and are nervously considering how to extricate themselves without causing a flap in capital markets by tightening too fast. 

China, whose economy did not shrink in 2020, offers a sign of what is to come: it has tightened credit policy this year, slowing its growth.

Meanwhile, emergency government-aid schemes, such as unemployment-insurance top-ups and eviction moratoriums, are beginning to expire. 

Households are unlikely to get a fresh infusion of “stimmies” in 2022. 

Deficits will contract rather than expand, dragging down growth. 

So far, economies have largely avoided a wave of damaging bankruptcies but nobody knows how well firms will cope once emergency loans come due and workers can no longer be furloughed at taxpayers’ expense.

You might think that an event as extreme as a pandemic, combined with the unprecedented government response to it, would eventually trigger an equally extreme global economic reaction. 

Pessimists worry about a return to 1970s-style inflation, or a financial crash, or that capitalism’s underlying energy will be drained by state handouts. 

Such apocalyptic outcomes are possible, but they are not likely. 

Instead a better way to think about the unusual outlook is to examine how the three fault lines interact differently in different economies.

Start with America. 

With abundant vaccines and enormous stimulus, it is at the biggest risk of overheating. 

In recent months inflation has reached levels not seen since the early 1980s. 

Its labour market is coming under strain as economic activity shifts. 

Even after a rise of 850,000 in the number of jobs in June and accounting for abundant vacancies, the number of people working in leisure and hospitality is 12% lower than before the pandemic. 

Workers are reluctant to return to the industry, which has pushed up wages. 

Hourly pay is almost 8% higher than in February 2020. 

Perhaps they will come back when emergency unemployment benefits expire in September. 

But countries without such a scheme, like Australia, are also seeing a labour shortage. 

Attitudes to work may be changing at the bottom of the income spectrum, among waiters and cleaners, not just among well-heeled professionals who dream of yachts and sabbaticals. 

All this suggests that America’s economy will run hot, with continual pressure on the Federal Reserve to tighten policy.

Elsewhere in the rich world the picture is less exuberant. It includes some jab-nots, like Japan, which has fully vaccinated less than 15% of its population. 

Europe is catching up on vaccines, but its smaller stimulus means that inflation has not reached American levels. 

In Britain, France and Switzerland 8-13% of employees remained on furlough schemes at the end of May. 

In all these economies the risk is that policymakers overreact to temporary, imported inflation, withdrawing support too quickly. 

If so, their economies will suffer, just as the euro area suffered after the financial crisis of 2007-09.

Low- and middle-income countries are in a bind. 

They should be benefiting from surging global demand for commodities and factory goods, but they are struggling. 

Indonesia, battling another covid-19 wave, is redeploying oxygen from industry to hospitals. 

In 2021 the poorest countries, which are desperately short of vaccines, are forecast to grow more slowly than rich countries for only the third time in 25 years.

Even as covid-19 weakens their recoveries, emerging markets face the prospect of higher interest rates at the Fed. 

That tends to put downward pressure on their currencies as investors buy dollars, raising the risk of financial instability. 

Their central banks do not have the luxury of ignoring temporary or imported inflation. 

Brazil, Mexico and Russia have raised interest rates recently, and more places may follow. 

The combination of jabbing too late and tightening too soon will be painful.

Prepare to take shelter

The economic cycle has been frantic, leaving the slump far behind in only a year. 

Perhaps by the summer of 2022 most people will be vaccinated, business will have adapted to new patterns of demand and stimulus will be unwinding in an orderly way. 

In this weird boom, however, beware those fault lines.

The US should spurn the false promise of protectionism

America’s economy suffers from inequality and poor labour performance but this is not due to global trade

Martin Wolf 

      © James Ferguson

Protectionism is back, above all, in the US. 

The driving forces behind it are xenophobia and nostalgia. 

Arguments can be made for a degree of self-sufficiency, for reasons of national security. 

But those arguments need meticulous assessment. 

This is not what has been happening, certainly not under Donald Trump. 

But though the tone is different under Joe Biden, the reality is not, alas. 

On the contrary, protection has become one of the few issues on which there is bipartisan consensus.

The communiqué issued by the leaders of the G7 stated that, “We have agreed . . . to . . . secure our future prosperity by championing freer, fairer trade within a reformed trading system”. 

This papers over cracks between the US, increasingly doubtful about trade and, say, Germany, dependent upon trade for its prosperity, as is true of all the smaller high-income countries. (See charts.)

It is not surprising that a large country with a sophisticated economy and diverse resources, such as the US, tends to trade less intensively than smaller ones and so cares less about it. 

It gains many of the benefits of trade through internal specialisation. 

But, as Anne Krueger argues in her book, International Trade, trade has been the handmaid of economic growth, across the world, since the second world war.

Moreover, even if trade is less vital for the US than for other members of the G7, this does not mean that the US is a hapless victim of the wicked practices of the rest of the world and especially of China. 

On the contrary, the resort to protection is like looking for keys under a street light, not because that is where they were lost, but because that is where it is brightest.

The US problem is that protection — a tax on the domestic economy, mainly consumers, for the benefit of producers — is a politically acceptable but ineffective substitute for a well-designed social safety net. 

Europeans have much to learn from the US, especially on innovation. 

But on how to combine open trade with personal economic security and so adjust to trade, they are far ahead.

In a splendid recent polemic, the economist Adam Posen takes the protectionist arguments head on. 

In particular, he notes, far from being exceptionally open to trade, the US is relatively closed. 

Far from having suffered an exceptional degree of opening over the past two decades, it has been retreating from openness. 

Far from having been exceptionally buffeted by imports from China, for each loss to Chinese competition, roughly 150 jobs were lost to “similar-feeling shocks in other industries”. 

And far from being a unique victim of declining employment in manufacturing, the very same thing has been happening to all high-income countries.

No doubt, the US economy has suffered from high and rising inequality and a poor labour force performance, with the employment of prime-age adults increasingly lagging behind that in most G7 members. 

But these phenomena cannot be due to trade, since the US is less open than the others, even Japan. 

The true explanations include the emergence of new fortunes in innovative sectors, but also rent-extracting behaviour throughout the economy and, not least, absence of support for income and work (notably, on the latter, for mothers).

Why have the losses of industrial jobs been so politically salient? 

A part of the answer is that they were jobs of predominantly white and male workers. 

But it is also because, in the US, the absence of universal healthcare and next-to-no support for retraining and job-seeking makes the loss of a job mean also the loss of basic security. 

A modern economy becomes more flexible, not less, by separating security from a specific job.

In the absence of what Danes call “flexicurity”, protectionism may seem inevitable. 

But nothing is going to bring the old industrial jobs back. 

Robots are going to replace workers on production lines everywhere. 

Manufacturing will end up like agriculture — fantastically productive, while employing virtually no production workers. 

As Posen asserts, nostalgia is just not a sensible policy.

Apart from nostalgia and a search for security in the wrong place, there is xenophobia. 

But the days when China was the overwhelming force in supply of cheap manufactures have long gone. 

The debate now centres increasingly on national security.

There is a view, for example, that the pandemic proved the dangers of extended supply chains. 

The opposite is the case. 

After initial shortages, because demand was so unexpectedly strong, supply surged. 

Relying on one’s own production would not have solved this. 

There is a problem today with vaccine supply, but that is due to a global shortage of production capacity and the strength of demand from the rich.

Yes, there is a case for maintaining technological leadership in vital sectors and for security of supply of essential products. 

But these concerns need to be defined and addressed with precision. 

Above all, in economic competition with China, democratic stability and investment in people, infrastructure and innovation will be the decisive factors.

Meanwhile, the continuation of trade across the world will not only cement mutual interdependence but underpin prosperity, especially for poorer countries, as the World Bank’s excellent World Development Report 2020, on supply chains and development, stresses. 

This is also compatible with tackling climate change, under the right globally agreed policies. 

The G7 is correct that the world trading system needs reform. 

But this must not mean destruction. 

We should not throw liberal trade away for the wrong reasons and in the wrong way.

Will China Save the US from Inflation Fears?

The Federal Reserve Bank of Atlanta warned last month that the US might be headed toward an inflationary episode on par with the period following World War II, when the release of pent-up demand fueled a 20% surge in prices. But China's efforts to stabilize commodity prices should help to avoid a worst-case scenario.

Isabella M. Weber

AMHERST – The fiscal expansion in the United States in response to the COVID-19 pandemic is like nothing seen outside of wartime. 

Further large-scale public spending will be needed to rebuild needed infrastructure, tackle climate change, and create jobs. 

But some prominent economists are warning that government spending on such an extraordinary scale could fuel accelerating price growth and cause inflation expectations to become unanchored.

For more than three decades, expectations of moderate price growth in the US and other advanced economies have been sustained – not least by China’s integration into the global economy. 

Might China come to the rescue as the Biden administration seeks to open the fiscal floodgates?

There are certainly reasons to be wary of price risks. 

At the core of Biden’s initiative are infrastructure investments, which require materials such as steel and copper. 

And, in 2021, commodity prices have soared, triggered by supply-side bottlenecks and the global economic recovery.

These commodity price rises have stoked fear of inflation. 

The Federal Reserve Bank of Atlanta, for example, warned last month that the US might be headed toward an inflationary episode on par with the years after World War II, when the release of pent-up demand fueled a 20% surge in prices.

Enter China. Late last month, the country’s government announced that it would strengthen targeted efforts to bring down the prices of iron ore, copper, steel, and other major commodities that had pushed China’s consumer prices to a 12-year high. 

The government’s initiative to halt the rise in commodity prices is bound to also help contain the prices of a wide range of durable consumer goods that countries like the US import from China. 

As Keith Bradsher put it, China’s attempt to tame inflation matters for the globe. 

As Danske Bank Chief Economist Michael Grahn observed, this puts a “dent” in the “‘inflation is coming’ narrative.”

In fact, stabilization of prices of strategic commodities has played a major role in enabling China to achieve rapid economic growth without inflation. 

And yet, it was not always clear that China’s government would take such a hands-on approach to economic management.

As I show in How China Escaped Shock Therapy, during the early years of Deng Xiaoping’s policy of “reform and opening up,” many argued that China should embrace “shock therapy” – kicked off by abrupt and comprehensive price deregulation (in order to reset relative prices) followed by large-scale privatization and total trade liberalization. 

After all, they noted, West Germany implemented overnight price liberalizations after WWII, to great success. 

Western free-market economists, such as Milton Friedman, strongly supported this approach.

China took this advice seriously. 

On two separate occasions in the 1980s, it nearly implemented the first step of shock therapy. 

In 1988, China came to the brink of a Big Bang, unleashing a short inflationary spurt that helped prepare the ground for the Tiananmen Square uprising in 1989. 

Ultimately, the Chinese leadership refrained from a sudden price liberalization. It did not want to make the same mistake the US had after WWII.

During WWII the US had reverted to comprehensive price controls after the initial attempts to contain inflation with partial controls failed. 

After the war, the question was, what to do about prices.

In 1946, 54 economists – including 11 former presidents of the American Economic Association and distinguished figures like Paul Samuelson and Irving Fisher – published an open letter advocating the gradual release of price controls. 

With “unprecedented” levels of demand, they cautioned, “the supply of raw materials and consumer goods” would be “inadequate to stave off a serious inflation in the next year, unless price control is continued without crippling amendments.” 

Such controls should be removed only when “supply and demand of any important commodity” are “more in balance at ceiling prices.”

President Harry S. Truman withdrew price controls anyway. 

And, as the Atlanta Fed’s recent report reminded us, inflation soared, devaluing savings. 

So, when economists warned in the 1980s that sudden withdrawal of price controls in China would lead to runaway inflation, China’s leaders listened.

The approach they pursued instead emerged from China’s agricultural reforms. Initially, output quotas and prices were left unchanged, but responsibility for production was shifted from communes to households. 

If households managed to produce more than their designated share, they could sell the excess at market prices.

In the urban economy, China repurposed the existing institutions of the planned economy into market creators and participants in core sectors. 

This allowed the Chinese state to continue to steer individual sectors, even as it largely relinquished its direct control over the economy in the 1980s and 1990s and engaged in wide-ranging privatizations.

Today, China has largely withdrawn direct price controls. 

But the government continues to intervene in goods markets when it deems it necessary to stabilize specific prices, mainly through policies that increase supply or by cracking down on hoarding and speculation. 

A Price Department exists to this day at the National Development and Reform Commission. 

In the current context, it has assumed renewed relevance.

The Biden administration is working toward a New Deal-type reconstruction, and some rightly advocate a National Investment Authority, modeled after the Reconstruction Finance Corporation established in 1932. 

But when it comes to the lessons of the past, the price stabilization policies that accompanied war-scale spending have so far received little consideration in the US policy debate. 

China’s initiative to crack down on the prices that have fueled inflation fears in the US might help counter hawkish sentiment and prepare the ground for Biden’s public investment push.  

Isabella M. Weber is a professor of economics at the University of Massachusetts Amherst and the author of How China Escaped Shock Therapy: The Market Reform Debate.


By Egon von Greyerz

The coming 5-10 years are likely to see asset prices decline by at least 90% in real terms. 

Yes stocks, bonds and property prices will in coming years collapse. 

But that’s not enough, the whole structure of society will also fall. 

There will be no or negligible pensions, there will be no social security system and the standard of medical care will fall dramatically.

So is this another sensational prediction by a Cassandra or Doom and Gloom know-it-all?


Hardly, it is just the consequences of 100 years of a false monetary system based on corrupt principles, fake money and unlimited credit, only backed by inflated asset prices in a vicious cycle of self-destruction.

All actions have consequences but the creators of our current Hocus Pocus monetary system never worried about the negative effects. 

And why should they since they for over 100 years have been the major beneficiaries of the Hocus Pocus system they created on Jekyll Island. 

The current monetary system was created on Jekyll Island in November 1910 by some influential and disingenuous bankers backed by a couple of duplicitous influential politicians. 

They were guided by Mayer Amschel Rothschild’s motto – “Permit me to  issue and control the money of a nation and I care not who makes its laws.”

It was a genial system that allowed them to control not just the US financial system but eventually also the global financial system as the US dollar became the reserve currency of the world.

The system was based on unlimited debt and fiat money creation. 

Politicians quickly learned that there was an unlimited source of money that they could tap in order to buy votes.


What a beautiful system! Politicians have access to all the money they need to please the people whilst the bankers both issue and control the money. 

A real win-win for the bankers with unlimited financial benefits and power by total control of the politicians and the financial system in one fell swoop.

It is only with this ingenious Hocus Pocus scheme that the politicians have been able to increase the US federal debt every single year for 90 years without a financial collapse. 

And at the same time the scheme has allowed the politicians to stay in power without the system going bankrupt.

Obviously the politicians are only given the illusion by the bankers that they are actually in power. 

The bankers constantly make the politicians insecure by letting the opposing party win regularly. 

The bankers know that fear and insecurity combined with financial power give them perfect control of the politicians.

US debt to GDP is now at 135%, the highest in history and above the WW II level. 

The average debt to GDP since 1790 is 35% so the current level is 100 percentage points above that. 

In the next few years, I would expect the ratio to go substantially above 200% in a banana republic fashion.

For the sake of good order, let me confirm that there were two years in the 1940s and three in the 1950s when the debt actually didn’t increase. 

But they were the only exceptions. 

Don’t be fooled by the Clinton surpluses that actually never happened. 

Debt continued to increase in the late 1990s and the claimed surpluses were only achieved by moving deficits to debt thus creating the illusion of surpluses. 

It seems that there are neither honest bankers nor politicians.


So the above Hocus Pocus scheme explains why a country can run deficits for 90+ years. 

The conventional red warning signals of deficits and debts leading to economic collapse are temporarily not functioning. 

Almost 100 years of disequilibrium, with the conventional laws of nature such as supply and demand seem set aside, seems longer than possible.

Thus for a period, manipulation, deceit and the will of the people to be fooled can be stronger than the natural laws of nature. 

The warning signals can therefore be ignored as the momentum of debt and deceit, by its sheer force, can drive the system forward. 

That is, until the whole Hocus Pocus scheme dissolves itself by the pure weight of the falsities.

All this has happened many times before, for example during the Roman Empire when it took 100 years between 180AD and 280AD for the Silver Denarius to lose 100% of its value and silver content.

So there are always CONSEQUENCES as history proves!


And history gives us a good indication where we currently are in the cycle. 

If we take the creation of the Fed in 1913 as the start of the current monetary system and Nixon’s seminal decision to close the gold window in 1971, as the beginning of the end, we are now at the end of the end game.

We could easily point to the economic, political and social decadence as clear evidence of the coming global collapse. 

But the easiest method for measuring where we are is obviously the debasement of the currencies.

As I frequently stress, all currencies have lost 97- 99% in purchasing power since 1971 and around 85% since 2000.

The final fall of 1-3% since 1971 to reach a ZERO value for the fiat currencies is likely to take place in the next 5-10 years. 

But remember that this is a 1-3% fall means 100% from today.


So the destruction of money is now accelerating in parallel with the deficit and debt expansion. 

This is the typical course of events for the end game.

As the currencies collapse, debt explodes.

Ludwig von Mises described this process as follows:

It took the world 2000 years to take global debt from virtually $0 to just under $100 trillion.  

Most of that $100 trillion was obviously since 1971.

And in the last 21 years debt has trebled from $100 trillion to $300 trillion.

Presidents and Prime Ministers can stand on their soap boxes and tell their people about all their good intentions.

But we mustn’t believe one word of what they say. 

Because they have forgotten one simple little fact – HISTORY.

Because history would teach them some critical lessons, if their arrogance permitted them to look. 

They would learn as they reach the end game that global debt of $300 trillion will in the next circa 5 years grow to not just $500 trillion but quadrillions as the financial system reveals its true problems. 

This will happen as gross derivates of  $1.5 quadrillion turn into debt when counterparties fail. 

As this happens, banks will also need to be propped up to the tune of $100s of trillions together with most sovereign debt as bond markets collapse and interest rates surge. 

So total global debt in the next 4-9 years is likely to exceed $2 quadrillion.


I have written articles, normally weekly, about the world economy, wealth preservation and gold & silver for around 20 years.

I seldom get direct criticism from readers about my articles. 

The good thing is that no one is of course forced to read them so people can instead vote with your feet.

Some people complain that my message is the same every week. 

Others enjoy having the message reinforced weekly. 

Obviously, it is never exactly the same but variations on a theme.

Still, the ones who point out that my message sounds like a broken record are not totally wrong. 

I would obviously say that it is not a broken record but a record in a constant loop with the same consistent message every time.

From the time I started writing regularly 20 years ago, I have not changed the drift one iota. 

The piece might be played slightly differently each time but the tenor never changes.

So readers could in essence read the same article over and over again since my message has been consistent for the last 20 years. 

And it will not change before the cycle has terminated in “final and total catastrophe of the currency system involved”

The big problem this time is that we are talking about the global system and not just one currency or nation. 

Because the debt catastrophe today involves both East and West as well as all developing nations. 

Thus the length and depth of the coming fall is likely to be greater than any time in history.


Since the essence of my writings is based on principles tested for 1000s of years, they will not change. 

And as my readers know, the thrust of my message is what every politician and leader should have learnt by now. 

Sadly they will never learn since they always believe that things are different today.

The message is incredibly simple. 

Every empire and every country carry within them the seeds of their own destruction. 

Cycles are infallible, whether they are political, historic, economic or cycles of nature like climate.

Still most leaders believe they can manipulate not only economic cycles but even climate cycles. 

What they don’t realise, is that in the end the laws of nature will always win.

Going back to empires, like the Persian, Roman, Mongol, Ottoman or British they thrive due to the treasures, commodities or cheap labour they gain access to. 

The American empire was not based on land grab but on financial and military dominance.

Once empires reach a certain size, they become fat and inefficient. 

Political and military struggles lead to corruption and living above your means. 

The only way to manage short term is then to print money and thus debase the currency. 

As the currency collapses, so do the military and political structures. 

As the currency approaches zero a hyperinflationary depression normally follows.

The above is obviously a simplified potted version of the economic cycle but very typical. 

Still, it has major implications for the measures investors must take.


As we reach the end of a major economic cycle, protecting wealth is critical. 

When stocks, bonds, property and currencies collapse, physical gold and some silver is the best insurance against a failed system.

History tells us that precious metals is the ultimate method of wealth preservation in order to financially survive what is coming. 

Remember that you don’t have to be wealthy to save in gold and silver. 

One gramme of gold is $60 and one ounce of silver is $30. 

So virtually everyone can afford such important insurance for themselves and their family.

Whether gold reaches my long standing target of $10,000 in today’s money and silver above $600, or much higher in hyperinflationary terms, is irrelevant. 

Much more important is the protection that it will give investors against the destruction of money and asset prices.

But your most important wealth is not material. 

In periods of crisis the most important values that we must hold dear are family and friends, as well as free treasures such as nature, books and music.