The gathering storm

Over the next few years, the old guard, essentially the US Central Bank, will become overpowered by the new guard: the emerging Asian markets of China, India, Indonesia, and Thailand; and the rising economies of Brazil, Russia, Mexico, and Argentina. Many noted commentators and I believe this and other forces will bring about an inflationary storm.

Rising inflation. In the US, the Central Bank is printing more US currency in an attempt to save the banking system. The country has $70 trillion in unfunded liabilities to meet Medicare, Medicaid, and Social Security. Not enough people are saving, and they are mired in a credit crunch exacerbated by sub-prime mortgage missteps. So far, the American solution has been to tax the oil business instead of telling people to start saving money and stop over consuming oil. Europe’s economy is tied to that of the US: they, too, are suffering from the sub-prime meltdown and printing new money to protect their systems.

On the other hand, the emerging markets are flourishing. Their central banks are generating real surpluses, and their young people are saving money. These countries’ reliance on the West is waning as their own internal growth awakens — creating economies strong enough to operate independently.

Commodity shortages. Soon, there will be enormous demand for commodities that retain their value — such as gold and silver and other resources such as water, food, oil, and minerals. The demand for these will be high, but not the supply: there is a current shortage of commodities on the global scale.

In our current North American economy, many things are based on the need for petroleum products. As predicted, the US reached its peak oil production in 1971 and has seen declining production ever since. Global oil production is expected to hit peak production between 2030 and 2040; already, we produce 1.3 million fewer barrels than we did three years ago. Not even the Saudis are increasing production this year.

This will likely lead to an urgent demand for better solutions such as electrical and nuclear power and more energy-efficient trains. Most important, as oil becomes scarce, its price is increasing.

Food production is another issue that will not be easily resolved. Currently, the world has only a 1.3-month supply of grain. According to experts, even one bad crop will lead to shortages; farmers will need bumper crops from now on to meet global food demand. Adding to this crisis is the fact that the US has been paying their farmers more money to grow corn to produce ethanol as a supplement to their declining oil supplies. So, yields of other crops are declining and, as food becomes scarce, its price increases. It’s as if we are stuck in a lifeboat with not enough food for everyone.

Ontario’s economic forecast. Two factors will challenge Ontario’s economy in the coming years. One is the fact that we have, until now, largely concentrated on manufacturing for the US market, which is now dwindling. The second is that we’re in for a housing crisis — the prices of our homes is beyond our spending power, which is driving interest rates up as the banks seek to retain their earnings.