Average Flag Color

This is an intriguing analysis found at https://www.reddit.com/r/dataisbeautiful/comments/8rfnc0/average_flag_colour_by_latitude_oc/

Austria, Turkey, and What Else is Happening

Maybe it’s my imagination, but the world seems to be erupting here and there with stresses in places that I have for awhile in this blog been citing as potential trouble.  Austria is saying enough is enough in reference to what it calls “political islam” and is ejecting several dozen Turkish imams whom Austria sees as instrumental in fomenting fear and hatred within the parallel society these Islamic clerics have helped create within Austria. Turkey’s president Erdoğan is spouting retaliatory talk. I have high confidence in the Moslem issue becoming an increasingly incendiary force in Europe. The Moslem birthrate is high, the native European birthrate is very low. At the current rate of demographic change, France will be a Moslem republic in 30 years.

Further, the economy of Europe has been stagnating for at least 10 years. It’s going to get worse. And Moslems tend to use a seriously disproportionate share of welfare services and funding in Europe. This is part of the growing resentment. The baby boomers are retiring, and they are a bulge in Europe’s population pyramid. Unlike the USA, Europe has no bulge for gen-Y. Canada doesn’t either…..except for Alberta. Any society with a baby boomer bulge and no millennial bulge in its population pyramid can expect to see economic stresses as fewer and fewer workers are required to produce enough to support more and more old dependants ---- dependants who are converting their equity investments into cash for consumption, further strangling the economy, or dependants who have no equity and need maintenance by the state.

China and Japan are in that same boat. Unless we have significant advances in A.I. and robotics soon, so that many services required by dependants can be reliably and economically performed by robots, things look bleak for most of the developed world.  

I expect Latin America, with its high birth rate, low median age, and increasing opportunities for higher education, will do relatively well in the next couple of decades.

Cascading Economies

Europe went into a financial crisis 10 years ago, as did North America, and never climbed out. That in spite of the fact that the baby boomer generation is in their prime earnings years and saving for retirement…a lot of cash flowing into lending markets, theoretically creating liquidity and money for capital formation.

Take a look at Germany in particular. Its population pyramid appears to the side. The baby boomers are retiring and will begin contracting, withdrawing savings. If Europe hasn’t been able to make a go of it in these good years, it doesn’t have a hope several years from now.

I think the market is suspecting that. Any thought that the Euro might become the world’s reserve currency is gone. In my opinion, the value of the Euro is eventually headed to zero.

It appears that July elections in Italy may see the formation of an anti-EU coalition government, followed by a move by Italy to leave the EU. So Italy has a bond crisis going on now. I mean, rates have risen sharply and that means bond prices are caving. Italy is the fourth biggest government bond market in the world, and it’s on greased skids. A lot of the too-big-to-fail banks, which are now a lot bigger than they were 10 years ago when they were bailed out, are exposed to Italian bonds. This might not be a problem if these banks weren’t so highly leveraged. A small percentage fall in assets can mean a huge percentage reduction in equity.

The Fed may not have the resources to bail out the banks in the next crash. In the late 90s, Wall Street bailed out the S&L industry. Ten years later, the Fed bailed out Wall Street. Now 10 years later, who will bail out the Fed? It has been trying to build its ability to lower interest rates….rate increases will keep on happening…next one is scheduled for this month. Maybe it will succeed in getting rates to where they are needed, without triggering a deep recession, but not without triggering a rise in the value of the dollar. That isn’t such a bad thing for the USA though since only 7% of American GDP is exports, unlike Germany where 50% of GDP is exported.

Anyway, just musing about what I see happening. I know I am missing some pieces of the puzzle and will probably be surprised by some of the outcomes. I will close by saying I’d rather have assets in the USA than in Europe.