| In this article I will give the general picture, so I will | | | | But how can be this achieved - the purchasing power |
| focus on the forest rather than on the trees. First of | | | | of the countries which receive more than they have |
| all I kept asking myself questions about the financial | | | | really produced has to fall. This could happen either |
| crisis - why it was inevitable and what is before us. | | | | through inflation, which I believe is the most plausible |
| Of course the main reason is the abandoning of the | | | | scenario or through high wage reduction, which |
| gold standard in 1971. But what happened afterwards | | | | cannot happen. |
| and what were the causes of the trade barriers and | | | | Why cannot the second scenario happen? Think of |
| the Cold War? | | | | Germany - of their labor unions - they would rather |
| The wage arbitrage. There is something | | | | see people jobless on the streets than the same |
| fundamentally important called the wage arbitrage - it | | | | earning less because they have to. But the workers |
| allows working people in a given country to earn | | | | should earn less anyway - not only in Germany, |
| more money in any currency and have a higher living | | | | everywhere in Europe and in the USA and wherever |
| standard than other people. | | | | the wage is higher than the weighted average world |
| This is the cause of trade and political barriers. The | | | | wage. |
| capital was not free. | | | | This economic tension could only be dissolved if there |
| Now however the capital is predominantly free and it | | | | is inflation on each currency of the countries with |
| goes where the biggest profits are, and the biggest | | | | overpaid wages. The inflation will eat the purchasing |
| profits are where labor is cheaper relative to other | | | | power of the wages, and the real wages will |
| countries. | | | | eventually fall to the equilibrium. |
| So basically statistically seen, if we are to make a | | | | Remember where the crisis was worst - on all those |
| weighted average world wage per hour it would be | | | | countries with overpaid wages and relatively high |
| more likely to be the wage a Chinese and Indian | | | | nominal wage to productivity ratio. |
| worker earn rather than the American or West | | | | So this process is inevitable and I would argue that |
| European one. | | | | the most plausible solution would be stagflation for |
| If in the USA the hour wage in McDonald's is 8 | | | | the countries with overpaid wages. |
| dollars, in China would be somewhere about 3 dollars | | | | We will have two effects both working on reducing |
| (maybe less, I do not know). However if you weigh | | | | the real wage income - one will be the high |
| this average through the population of the biggest | | | | unemployment, so that the people will be willing to |
| countries then you will arrive at the world wage being | | | | work for less money and the other will be inflation, |
| something around say 4 dollars. | | | | because of the trade unions and the unwillingness of |
| In a free-floating world capital there is no wage | | | | the society to realize the real situation. Both effects |
| arbitrage. So the western countries (and Europe) | | | | together with the expected capital outflow and high |
| should prepare for a significant reduction of wages | | | | in-debtness of the countries with overpaid jobs will |
| (or their real purchasing power) given the fact that | | | | lead to stagflation. |
| the capital is set free. | | | | The worst is before us, but do not bother - buy |
| It has no common sense for the fact that the | | | | commodities - gold, silver, and wheat, try to save |
| workers in the USA or Europe earn more money for | | | | real money and liquid assets for the rainy days ahead |
| the same labor. This is the result of the globalization | | | | of us. |
| and it is inevitable. | | | | |