Yep, I'm back, and so is Andy Xie:
The current situation is similar to what frequently occurred in the 19th century – financial innovations increased liquidity and caused speculative bubbles primarily in commodities, technology, and property. The key condition for this type of phenomenon is the existence of a deflationary force that stops liquidity from becoming inflation. The industrialization of the west and its associated deflationary pressure created ideal conditions for speculative bubbles. Now, the introduction of three billion industrializing people (China, India, and the Soviet block) into the global trading system has made the world bubble-prone once again.
Absolutely spot on. Anyone who doesn't try to situate the current global environment in terms of late 19th century dynamics - at least in terms of a 'comparable historical periods', 'lessons from the past' type approach - just doesn't "get" something important, at least in my book. Of course Andy has only part of the picture (which at least is something) since he is only looking at deflationary pressures in terms of the labour dynamic in the developing economies. The other half of the equation - the ageing OECD populations and the rising liquidity and cramped demand growth that this produces - is still absent from the picture, but still, better a glass half-full than one which is completely empty.
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