1) Scares of Deflation result in creeping inflation: Governments, scared that their economies will face deflation, rapidly try to combat it by investing into infrastructure. There are questions and implications here:
a) Is the country ready for infrastructure? Will more infrastructure result in a stronger demand for goods and services ? see ' The IMF warns about surplus countries and global imbalances' @ http://mpettis.com/
b) Stock markets have been booming, property markets in asian countries. A huge flow of capital unable to work conventionally as deposit rates remain depressed, this moves into 'less bad' assets (note the new mid term mantra is invest in ' less bad' , no need to be 'good')
c) Inventories kept artificially low to maintain pricing power. Yup, that's right, apart from saving on storage costs, companies control supply, allowing them to maintain their prices at a high level ( or at least as high as possible)
In addition, George Soros is investing into clean energy. Bloomberg's tagline --> Political responsibility funded by private capital. Reminds me of what i learnt in accounting theory. See Ross L. Watts and Jerold L. Zimmerman ' The Demand for and Supply of Accounting Theories: The Market for Excuses' . The paper argues that alot of the accounting concepts such as depreciation, accrual accounting, economic income come about by government intervention, and most of the time, the decision is the product of lobbyists, corporates, all arguing under " public interest" justification to serve their own interests. Its not conspiracy theory, but rather its an unconscious result of how the private sector influences the government in decision making and agendas over a long period of time. Of course, in the short run, governments do have the say. But in the long run, if they do not follow the market (ie private), then they are left behind. More on the government and how they influence their own economies in my next post.
Joeyhops.
