4-may-2005
Trading up
As we write, in faraway Istanbul, the worldâs biggest creditors are putting their heads together under the auspices of the Asian Development Bankâs annual meeting.
Given that the attendant countries hold roughly $2.5 trillion of foreign IOUs in their vaults (the vast majority of them Uncle Samâs), it might behove the rest of us to listen in on some of their deliberations.
Indeed, the message was fairly unequivocal for, as Ifzal Ali â the ADBâs chief economist â told reporters:
â[The reserves] have grown far beyond what is [the] optimal level. Itâs basically a reflection of a lack of imagination, a lack of innovativeness [sic] and to some extent a lack of self-confidence.â
He went on to add that:
âThis is mercantilism at its worst. The reserves must be ploughed back into Asia and not sit in North America.â
Mr Ali argued that Asia must no longer rely solely on weaker currencies to boost exports, but that it must take âmeasures to boost domestic consumption and investment and liberalise tradeâ, while allowing appreciating exchange rates to spare their economies some of the impact of high oil prices.
While weâd be a tad suspicious of the detail of any central plannerâs âmeasuresâ, preferring to return their property to the people and to let them take their own decisions as to how to best use it, weâd otherwise endorse this position wholeheartedly.
More to the point, it does appear as if Mr. Ali was preaching to the choir, as a finance ministersâ communiqué later made clear.
Moreover, to give this idea a little substance, we only need to consider that other speakers at the conference were keen to point out that infrastructure needs alone, in the region, come to some $40 billion a year and that this is a burden only likely to increase.
Though we are extremely wary of all such extrapolations, the ADB noted that, on current trends, whereas Asia's population of 3.1 billion contained 930 million - or 1 in 3 â urbanites, in just 15 years, the overall population will reach 4 billion, with 2.2 billion people â more than 1 in every 2 â then living in towns and cities.
Just to put this in 2.2 billion people in context, this is more people than were living on the planet when our fathers were born.
Just imagine another 1.3 billion people (another 4 ½ present-day Americas) no longer content to live in their fathers' simple cottages and lowly huts, growing subsistence crops; drinking, washing, and performing their ablutions in the local stream; using cow-dung or firewood for fuel â but eager instead to reside in urban apartment blocks, surrounded by concrete and copper wire, lit with electricity, furnished with TV and microwaves, serviced with showers and sanitation, and all eating processed (and transported) foods?
Nothing is certain in this life, much less such long-range, demographic-style projections like this, but, it is an unavoidable conclusion that, if only a part of this scenario comes to pass, you can probably kiss goodbye to any idea of âdeflationâ â or, rather, falling real prices â of scarce resources, especially if you happen to belong to a country whose main export is a reserve currency arguably approaching its sell-by date and whose blind acquisition is no longer regarded by its suppliers as âoptimal.â
Asians' prodigious habits of saving may be about to be switched from finding their outlet in the illusory medium of claims against Americans' homes and taxable incomes, and into increasing the material means of production around them.
With numbers this large, the margin for errors inevitably induced by foolish policy and bad economics will also be substantial, so â deflationists, please note - the future of civilization may not simply revolve around Wal-Martâs weekly takings, or about the ever-rising price of a Clay County condo, but around millions of new producers, an ocean away, beginning to enjoy much more of the fruits of their own assiduous labours.
