“A Dystopian Future”

The World Economic Forum dropped a bombshell in its recent Global Risk 2012 report:

Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Analysis of linkages across various global risks reveals a constellation of fiscal, demographic and societal risks signalling a dystopian future for much of humanity. The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already heavily indebted governments. Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability.

Read the full report here, and maybe build a bomb shelter, or stash some cash somewhere safe.

If a Tree Falls in China…

If a tree falls in China, does it make a sound?

That’s what investors need to figure out… and fast. The news out of China should be enough to make most investors worried, if they’ve even been paying attention. From MarketWatch.com:

The bad news coming out of China’s economy in recent days has been more a series of thuds than a trickle. …

Following the move last week to ease the reserve ratio requirements (RRR) for twenty rural co-operative banks 50 basis points to 16%, expectations are growing this is the forerunner of a more general easing.

Argentina’s Inflation Model

Okay, it’s one thing to say that economies need inflation… Indeed, one economist says the Federal Reserve’s not doing enough.

Ken Rogoff, former chief economist at the International Monetary Fund (IMF) told NPR, “They need to be willing, in fact actively pursue, letting inflation rise a bit more. That would encourage consumption. It would encourage investment. It would bring housing prices into line.”

From the article:

Inflation would push up the price of houses, meaning more people would actually have equity in their homes again. And the rising prices would bring both buyers, who’ve been waiting for prices to fall more, and sellers, who don’t want to sell at a loss, back into the market. In addition, Rogoff says, higher inflation would help debtors, by allowing them to pay back their debts with cheaper dollars.

But does this really work? Or does it just knock our economy back to the 1970s, as Rogoff says people make the mistake of thinking?

Let’s look at a model: Argentina.

This Inside Investing Daily article written by my colleague Justice Litle hammers the point home.

Cristina! Cristina! The chants are as loud today as they were four years ago.

Cristina Fernandez de Kirchner, the president of Argentina, was re-elected by one of the widest margins in history on Sunday. Her landslide victory gave her 54% of the vote — the biggest since elections were re-established in 1983 — while her nearest challenger took a mere 17%.

Cristina begins her second term basking in the glory of an economic boom. The IMF (International Monetary Fund) says that Argentina’s real GDP, or gross domestic product, grew at 94% between 2002 and 2011. That is the fastest rate in the Western Hemisphere, and twice that of Brazil.

Cristina is even being heralded as a champion of equality. “Since she and her predecessor as president, her husband Néstor Kirchner, first moved into Argentina’s presidential palace in 2003,” the Associated Press reports, “the income gap between the country’s rich and poor has been reduced by nearly half.”

It sounds like an economic miracle. But there is a catch… inflation.

Official rates for Argentine inflation have run as high as 11%. But more accurate private estimates say inflation has been running as hot as 25%… second only to Venezuela’s.

Read the full article here.