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Several
times in the past we’ve made the statement that we are facing vast
over-capacity and over-supply in the world today. What does this mean and
where will it lead?
GLOBAL
PRODUCT INDIGESTION
Some simple examples: If you go into Wal-Mart today to purchase a gas cooker,
you are confronted with a choice of 10 different brands each with a large
range of different options and models.
There are
more book-titles published in one month than you could reasonably read in a
lifetime, more leisure-time activities, fashions, movies, travel options and
other "stuff" being thrust from every corner at you to consume;
more than at any other time in living history.
This
over-production is also true of most today’s essential commodities,
whether beef, soybeans, corn, wheat, textiles or crude oil.
In simple
terms this vast global over-capacity is largely due to the massive
accumulated productivity gains of the last 100 or more years, a highly
specialized division of labor, cheap motive-power, computer automation,
technological advancements and a myriad of other efficiencies.
Just
about every commodity, product or service is being produced in vast
quantities worldwide.
LOST
PRICING POWER
Across the corporate world there is a lack of what has been called
"pricing power". Manufacturers and producers simply cannot raise prices, the environment is far too competitive; there are
too many other producers producing the same product, vying for their share of
the same oversupplied market.
Because
of high investment and debt levels, manufacturers and producers are unable to
back out. In search of greater profitability they embrace today’s
popular management myths of further gearing - debt funded production
efficiencies to achieve the end result of yet more output. To keep the level
of producer gearing in perspective, it’s worth
remembering that just 50 years ago very few companies, corporations or
producers carried any debt whatsoever.
Entering
the 21st century, in many cases, every commodity, product, service or
"thing" is costing the manufacturer or producer as much or more to
make, raise or produce than what he will be paid for at market. This is
particularly true of our essential commodities – that which we require
for our daily lively-hood.
THE NEW
ECONOMY
An exception to this is some technology and entertainment related products
that are perceived by their nature to be "new". For example
Internet stocks are being sold for many thousand times their book value. Its worth remembering 3 score and 10 years ago, at the
stock market peak of the late 1920’s, the mania then centered around
"new technology" radio stocks like RCA. Likewise, the 1990's mania
is being led by "new" Internet stocks like AOL and Amzon.com. Radio
70 years ago, like the Internet today, while nice to have, does not actually
produce anything.
THE MONEY
THAT BUYS THE PRODUCTS
The working of our debt-issued money further compounds the problems
associated with this vast production glut or global product indigestion. All
the money that bids for or buys all the "stuff" being produced, or
even the machines that makes the "stuff", is all issued into
existence through debt. Simply put, all the money that buys these products
didn’t exist until some individual, government or organization borrowed
it from the bank.
All the
money circulating in the global economy today, has
been lent into existence and requires interest payments to be made on it
(sometimes called usury). The more money borrowed to consume, the more
interest will need to be paid. Inherently it is a system that is bankrupting
to its users.
WHAT DOES
IT ALL MEAN?
We are facing a world today where there is far too much production of everything, and a populace that are shopped- out and
drowning in debt. Meanwhile producers, workers and manufacturers are
competing for a finite market-share at unsustainable margins. To cap it off,
everyone is using a monetary system that constantly requires further
borrowings, or greater levels of debt, just to make the interest payments.
WHEN THE
MUSIC STOPS
Despite unheeded calls of warning from some, this
overproduction-consumer-debt cycle has survived and afforded us the trappings
of an unparalleled era of prosperity.
But the
inevitable question; what happens when we can no longer consume at the rate
we are today, or due to some extraordinary discontinuity, stop spending and
consuming altogether? What happens when the manufacturer, producer or
consumer can no longer meet the interest payments on the money he borrowed
yesterday?
Sadly the
great debt-backed consumer economy of the late 1900’s will fold like a
pack of cards.
CHANGES
AND OPPORTUNITY
I am not alone in the claim that the days ahead will see a great transfer of
wealth. Times of great change are always accompanied by great opportunity. It
is likely to be a time of great questioning, not just a time of wealth or
credit questioning, but when people will again start to ask; what do I really
believe and whom do I really rely on?
This
transfer of wealth will be for those people that are prepared, who have paid
down debt, liquidated unnecessary assets, are holding tangible assets and
have their liquidity in tact.
Philip
Judge
Anglo Far-East Company
Also
by Philip Judge
Philip Judge is the 3rd generation of a family that
has had substantial involvement in the Precious Metals markets. He has
researched, written and spoken on the gold, silver and commodities markets
for over a decade. Philip works in the marketing and operations
department of The Anglo Far-East Bullion Company, an internationally based
Bullion Banking, Investment Management and Financial Services Company
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