I may be over simplifying things.
It is my belief that global demand is low.
Meaning low consumption since around after the Great Financial Crisis.
Basically, people aren't buying things like they used to.
Meaning companies don't need to produce as much. Less jobs are necessary.
So this in turn results in shipping not being what they used to be as well.
Cos when people don't buy stuff, products don't need to be moved around.
But before the GFC, companies were expecting high consumption so they built lots of ships.
This results in a load of ships now, with nothing to carry.
This depresses the prices of shipping fees. With less things to carry, less jobs are necessary.
With less things to carry, demand for oil also drops. So oil prices are cheaper.
This puts some oil companies out of business. Cos some oil companies were expecting oil to be at USD100 or so when they started operations. So again, loss of jobs.
Now the OPEC seems to have come to a conclusion to limit supply of oil to try to push the prices of oil up again. This could result in a few things.
Potentially, oil companies and affiliates do well, employ more people, increase jobs and more people buy stuff.
This would be likely for oil and related companies.
What else could happen is that with increased oil prices, shipping companies now have a higher cost of running. Which in turn increases prices for consumers.
This could also potentially result in an even lower consumption rate, making the downward spiral even worse.
Furthermore, with the expected increase in interest rates, companies will be experiencing increasing costs in the next few years. This includes high leverage industries like oil and gas, shipping and construction. So basically, back to square one.
So once again, what are we looking at, increase oil prices are good for oil and gas industry.
Bad for shipping industry. Bad for construction.
Increased borrowing rates are bad for all industries. But somehow people think that when interest rates increase, it typically means that borrowers have good ideas on what to use the money for.
Look, if global demand doesn't increase, no matter what you build or produce, not enough people are going to be able to buy it.
Donald Trump is expected to just spend money to build infrastructure and create more jobs so that people are able to spend and boost demand. It's a good idea if he is able to execute it properly.
If demand increases, then all these problems go away. But how does demand increase?
Well, with jobs and more money to people who consume.
But wait, wages and jobs hasn't been really increasing. Why is this so?
There are a few explainations.
Automation is removing jobs. Outsourcing is also removing jobs.
Where other countries are able to do the same job for cheaper. Like China, Mexico, Thailand, etc.
This depresses the wages of the middle income in developed countries.
The US is feeling it and even in Singapore, we are feeling it.
When countries import cheaper labour or outsource labour, this results in cheaper products for consumers. BUT it also loses jobs for the country.
Put a simple example.
iPhones become cheaper in US but people lose their jobs in US so they don't buy as much iPhones as they used to.
China produces cheaper iPhones, but since the people are paid less, they can't afford the iPhones.
So who's buying? Well, that's where the decreased demand comes from amoungst other things.
It's really a cyclical problem going round and round.
The solution, in my opinion, is properly allocation of resources. If necessary, better tax structures to reallocate funds around the world.
Usually, developing countries have a very large supply of cheap labour. China has 1.7 billion people.
They could supply labour to almost the whole world.
Think about it.
There are too many products.
Too many people.
Too little jobs.
Not enough money goes into the hands of people who are the consumers.
Who buys the products?
And with robotics and artificial intelligence coming in the next 30 years or less.
Things aren't expected to get better.
Simply put. Are consumers having enough money to spend to keep the economy going?
So do I think things are going to get better in the next year or so?
Nah. Not in Singapore.
In US, maybe, IF Trump is able to keep jobs in the US and increase wages of the average American.
But I think if wages increase, companies would put more investment into artificial intelligence and robotics, which would once again result in loss of consumption.
I doubt there is a way out of this.
Which leads me to UBI...
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