A spellbinding presentation mesmerized the Chiang Mai
West Rotary Club last week. In a spicy departure from the customary fare at
these weekly dinners, investment specialist Alfred Kelly proposed that the
world economy is headed toward a kind of meltdown.
“This one will be different from the crises of the late
1990s,” he said, “because those problems began in the periphery
(Thailand, Russia, Argentina, Mexico) of the world economy. This one will
originate in the heartland of global economic power: America.”
For evidence, he hauled in the usual suspects: In
America, huge deficits in the balance of payments and government spending;
high oil and other commodity prices; the declining dollar;
“unsustainable” inflation in real estate and some other assets; immense
levels of consumer debt in many western countries and a background of
increasing interest rates. He believes the fundamental cause of these
interrelated woes is an American-inspired credit bubble.
Since U.S. policy-maker Alan Greenspan made his famous
1996 comments about “irrational exuberance” in the stock markets, Mr.
Kelly argued, American authorities have done little to reign in expanding
money supply. This has encouraged the western world (in particular the
United States) to live beyond its means, Mr. Kelly said.
American prosperity “is dependent on $2 billion per day
of foreign aid” – the amount the US borrows from overseas. “How
long,” Mr. Kelly asked, “will the rest of the world be willing to
support America’s excesses?” He concluded that “many ingredients are
now coming together to cause global destabilization.”
To protect themselves, investors should consider moving
into the currencies of some resource-rich countries (Canada, Australia) and
some Asian countries Thailand, China, Malaysia. He also believes precious
metals and gold stocks will serve as a haven in the coming storm.
In a rare moment of levity during the discussion, former
United Nations economist Peter Kouwenberg noted that Prime Minister Thaksin
had recently referred to Thailand as “a nation of fortune-tellers.” But
according to the prime minister, he explained, “only 3 percent of the
fortunes they tell ever come true.” Then Mr. Kouwenberg delivered his
punch line: “Tonight we seem to be in the presence of a misfortune-teller.
I think capitalism is more dynamic and flexible than many people can really
imagine,” he said.
Throwing in his own reflections on global geo-economics,
Mr. Kouwenberg suggested that the biggest changes in the foreseeable future
will be in Asia. Here, China will continue to grow in strength at the
expense of Japan. And this “will create a second superpower in the world,
putting the planet in a healthier balance than there is today.”
On this point, the sparring partners reached clear
agreement. Borrowing a concept from psychology, Mr. Kelly argued that
“cognitive dissonance sometimes causes you to lose sight of what is going
on in periods of fundamental change. The coming crisis will be painful, but
ultimately healthy. Asia will make the difference.”
The Rotary Club of Chiang Mai West meets Tuesday evenings (7 p.m.) at the
Amari Rincome Hotel. Guests are welcome.