Oil prices have collapsed to the $70/bbl level, as I forecast in August.
And the new Chinese government has just reported there was $6.8tn of “wasted investment” between 2009 – 2013, confirming my long-standing argument about China’s wasted stimulus efforts.
Neither news item will be any surprise to blog readers, although they may be a complete shock to others.
If you know someone in this position, please refer them to my recent summary of the issues on the Financial Times BeyondBrics blog.
If they need more background, my 2 Research Notes on these critical topics can be downloaded by clicking below:
- The Great Unwinding of Policymaker Stimulus Begins
- China Bank Lending: from $1tn to $10tn and Back Again?
ECONOMIC MISTAKES CREATE POLITICAL RISKS
I will, of course, return to both issues next week in more detail, given their importance. But for the moment, it seems important to highlight another side of these developments, namely the impact on ordinary people of these major policymaker mistakes:
- If Western central banks had not destroyed price discovery in oil markets with their money-printing, the world would not have suffered 4 years of near-record price levels
- If the previous Chinese government had not panicked with its vast stimulus programmes, this $6.8tn could have been used more productively to boost living standards
China’s new leadership has realised its mistakes. President Xi Jinping is also showing clear evidence of a new direction. His government will still face difficult times over the next few years, but at least it has some credibility.
Unfortunately, Europe’s leaders still imagine more stimulus is the answer, not less. Thus people are starting to abandon traditional parties in favour of populist leaders, as the above chart from the Financial Times highlights:
- Populist parties won 20% – 30% of the vote in the UK, France and Italy in this year’s European elections
- Even Germany saw populists gain more than 5% of the vote
- Recent local elections shows the populists’ share of the vote ia still increasing
The UK, France and Italy are all major countries, and G7 members.
And slowly, industry and finance are waking up to the risks this populist success creates. On Tuesday, for example, Europe’s major companies warned investment is now being postponed.
This, of course, is a vicious circle. The longer out-of-touch policymakers persist with their failed stimulus policies, the wider the gulf is likely to grow with ordinary voters.