The Big Reversal

After three and half decades the global economy has now entered a three and half year period of slow rotational change which will likely be seen in future years as the “Great Reversal”.

DEBT + DEMOGRAPHICS + DISRUPTION=DEFLATION

We are leaving an era which has witnessed unprecedented global debt growth, work force demographics and the emergence of profoundly disruptive technologies. These trends through globalization, labor arbitrage, and oversupply have coupled to deliver slow inflation, disinflation and even deflation in various areas of the world.

What we have experienced during this era on a global basis is:

A decline in real interest rates (which have been a prime supporter of asset prices),

A drop in real labor earnings in advanced economies, and,

A meteoric rise in inequality within countries alongside a drop in inequality between them.

What we are failing to realize according to a major new research paper released by the Bank if International Settlements (BIS) is an understanding of what these trends mean, which can only be seen when all three trends are examined together in a global context.

INTEREST + INCOMES + INVERSION=INFLATION

In the approaching new era, Savings & Investment will fall, however what is critically important to understand is that Savings will fall at a faster rate due to advanced economies social entitlement programs. As a consequence:

Real Interest Rates will Rise,

Inflation and wage growth will pick up and

Inequality will fall within countries (versus rising within countries today).

The leading determinants that must be analyzed are:

Importance of the role of China,

Social Safety net in Advanced Economies

Global approach to the discussion of demographics