In trying to make sense of economic uncertainty, it pays to look beyond conventional wisdom for an explanatory theory of the hidden fundamentals that can drive or hinder growth. Hence this interview.
Mark Anderson is the editor, publisher, and chief correspondent of the Strategic News Service newsletter, one of the most incisive publications in its field. Ostensibly about the future of the computer and communications industries, it covers a broad range of factors that affect and are affected by those businesses: everything from technological advances to capital flows to government policies to educational innovations to advances in physics.
Anderson argues that the root cause of the crisis of 2008–09 was excess liquidity: too much money seeking rapid returns, subsidizing too much production for too few customers. That bubble burst, no subsequent engine of economic growth has proved sustainable, and the excess liquidity remains, driving some prices up and others down, and splitting the world even more dramatically into economic haves and have-nots. Three critical measures, in Anderson’s view, need to be put into place before serious recovery can get under way. The first is better protection of intellectual property. The second is the specific type of financial reform that would prevent “jackals” (short-sellers) and “vampires” (sophisticated investors who take profits without contributing either market balance or information) from dominating the market as they do today. The third is a rebuilding of the manufacturing base of the industrialized world, including an accelerated transition to green energy and technologies.
This interview is adapted with permission from a conversation conducted on May 13, 2010, before the audience at Anderson’s annual Future in Review conference. Anderson, a former venture capitalist and founder of two software companies and a hedge fund, is known for his knowledgeable readers (who often contribute to the newsletter) and his prescience: He tracks his published predictions and claims a 90 percent success rate. In this interview, he goes out on a limb. He believes that human beings, flawed though their decisions may be, have the will and the ability to avoid further crisis — or at least to bounce back from crisis in the long run.
The Lesson of Liquidity
S+B: How do you interpret the divergent points of view about where the global economy is going — the view that we’re heading for deflation and depression and need more government stimulus versus the view that our greatest dangers are inflation and deficit spending?
ANDERSON: The largest problem facing our economy in 2010 was going to be hyperinflation. All the central bankers and policymakers understood this. But a funny thing happened: The damage was so great from the meltdown this time that the time frame changed. The threat of hyperinflation is real, but it’s a long-term threat. It may come in five or 10 years; no sooner than five.
In the meantime, we are all still dealing with the consequences of the meltdown. For example, in a very strange way, the low interest rates that still exist because of the meltdown are assisting in the economic return of some parts of the economy. The economic stimulus from 2009 could never have been enacted except for the knowledge that there would be no hyperinflation in the short term.
Keep in mind — and there are still very few people who get this — that the crisis did not start because of American banking practices or subprime loans. It started because of the doubling of global liquidity over a five-year period in the 2000s. The world’s annual investment capital, the amount of money seeking rapid returns, went from US$36 trillion in 2002 to $72 trillion in 2007, just five years later. That’s what led to all the inflation we saw in real estate prices, all around the world.