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Time to buy

The time to buy is when there’s blood in the streets,” said 18th century British nobleman and member of the Rothschild banking family, Baron Rothschild. The riots in the UK and US (which for some reason has escaped the attention of European news) suggest that the time to buy real estate has come, but then again, why buy buildings that may be burned down? That said, what exactly is happening in the UK and US right now?

In my opinion, the trigger is based on a combination of government failure to efficiently tackle the 2008 crisis which has resulted in a wider gap between sustainable/residual income groups.The crisis was caused by excessive credit and so far, the solutions appear to revolve around increasing credit. Will that increase or decrease the problem? The last thing we want is to stifle consumption, yet this is precisely what both EU and US are doing. Iceland is heading down that same track, the most recent ideas to slap increased tax of large corporations and exporters, both of which may have disastrous consequences.

To return to the EU/US situation, is it possible that the UK/US riots were triggered by peer pressure? Peer pressure peaks in the teens due to identity crisis causes largely by hormones. Those that cannot buy the latest gadgets advertised due to economic conditions are likely to grow more and more aggravated. Faith in governments has weakened following the 2008 crisis as sustainable/residual income gaps increase. A teenager watching a select few able to sport the latest mobiles and gadgets grows more and more dissatisfied, but while there is a sufficient number of peers capable of obtaining such toys, no action is taken. Once those that are deprived of the opportunity to buy said toys reach a critical mass, however, the scenario changes. This is the real danger of income gaps and it spells disaster for both businesses and economies.

The UK/US riots are microscopic compared to events that may unfold at the national level. Greece, Portugal and Italy are in trouble and certain member states are less than thrilled to help out. This renders entire nations in the lower segment of the income scale. Probable course of action is to sever ties or, to put it point-blank, to exit the EU. A similar scenario may play out in the US where certain states may find themselves in the Greece/Italy/Portugal predicament. If left unaided, the reasons for remaining as a part of the US weaken. The performance of Brazil comes as a slap in the face of ‘First World‘ economic management. By expanding the consumer market, Brazil is outperforming everyone else. Both the EU and US are heading in the opposite direction and are literally contracting the consumer markets. It does not take a rocket scientist to realize that this will cause Brazilian firms to grow which increases government revenue while EU/US firms shrink with resulting decline in government revenue. Leftist politicians and economists appear to be utterly blind to this fact. The end result may be similar riots as experienced in the UK and US except at the national level. What does that do to the regions’ classification as First World economies?

The concept of the First World first originated during the Cold War, where it was used to describe countries that were aligned with the United States. These countries were democratic and capitalistic. After the fall of the Soviet Union and the end of the Cold War, the term “First World” took on a new meaning that was more applicable to the times. Since its original definition, the term First World has come to be largely synonymous with developed countries or highly developed countries (depending on which definition is being used).

First World countries in general have very advanced economies and very high Human Development Indices. On the other hand, the United Nations defined the First World on the wealth of the nation’s Gross National Product (GNP). The definition of First World is now less concrete than during the Cold War.Wikipedia

Less concrete is an understatement. A common understanding of a Third World country is poverty, weak consumer markets, weak infrastructure, corruption and riots. Many First World countries show these signs while certain Third World countries do not. In my opinion, the EU and US are dangerously close to becoming the new Third World countries if this system is reassessed for the simple reason that they are becoming unattractive markets. Still, that is a long-term prospect and stated here as a warning rather than a prediction.

Consumer markets drive the economy and if that drive ceases, the economy collapses. Economic growth may serve as an indicator but it does not paint a faithful picture. A country with 50% of its revenue in external markets and 80% of its labor force located externally will affect the GNP but NOT strengthen the consumer markets in its country of residence. China is the largest consumer market in the world by far and therefore packs sufficient power to take the lead. There is no doubt that it will replace the US as the leading force; the question is exactly when this will happen.

So, is it time to buy? Sure, but the US and EU regions may not be the best bets (the steel industry may be of interest however).


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