Monday, January 26, 2015

Fwd: Economics

'We have of late received a real-life crash course in basic economics, with the lessons imparted at the highest levels of the global economy. We are all seeing the laws of supply and demand in action, with their manifold implications, and we are learning that it is impossible to circumvent those laws without paying a high price. Wherever we look, the attempts of the state to outsmart markets are showing their limits, and more often than not ending in utter fiasco.

Let us begin with a look at the free-falling oil market. Oil-producing countries would of course like to reverse the current trend. Some would curtail production to push prices up, but the rest have learned from experience that collective restrictions only benefit the countries that do not comply. Like it or not, intergovernmental decisions won't alter the factors underlying the fall in the price of oil. One key element is the global deceleration of economic growth, particularly in China, a large energy consumer. Add to this the entry of fracking into the oil game, notably in the United States - just one factor expanding the global supply of energy.

These joint developments substantially push down the demand for, and consequently the price of, oil - so much so that financial economist Anatole Kaletsky asserts that $50 for a barrel may well become a price ceiling rather than a floor...

The same inability to bypass market laws is at work in China. There, the problem stemmed from a centralized frenzy to promote investment without due consideration of expected returns. Thus, Chinese economists estimate that "ineffective investment" reached the astronomical figure of $6.8 trillion between 2009 and 2013.

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