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307: New Order - USA and China


02-19-2010

234: London Olympic Games - impact on London propertyPropertyInvesting.net team   www.google.co.uk

For the savvy property investor, the global socio-economic situation needs to be monitored to make sure one chooses the right country, business sector and area to invest in. Currency fluctuations, inflation, interest rates and economic growth are all important considerations.

What we would like to describe in this special report is the shift of power from the wInvestments Propertyest to the east and the potential ramifications in the next ten years. We believe there will be a profound decline in living standards in the west compared to the east – it’s still possible living standard in the west will improve but at a far slower pace then the last 50 years. Meanwhile living standards in developing countries in the east are likely to rise at a pace – possibly three times faster than the west.

A few interesting things have happened lately that are a sign of problems in the future – mainly between USA and China.

President Obama has gone on a massive spending spree that has gigantically increased the budget deficit. Despite the dollar crash, the balance of payments has deteriorated further as imports of oil have increased of late and the export of goods have hardly moved higher.

President Obama is increasing medical benefits and spending – this on top of the current average $6500 annual cost per person for medical bills – so the US cost for a family of four will rise higher than $26,000 each year. We believe this is completely unsustainable. It will require gigantic borrowing that will never be paid back – USA will be in debt forever - paying massive interest payments on the bloated lending. Borrowing costs will need to rise as the country's finances deteriorate which will subdue economic growth rates. The policies of the current government seem to us extremely dangerous and will almost certainly lead to stagnation eventually when the money runs out or control of inflation is lost.

Add to this the assault on the financial businesses by Obama and his administration – this will likely lead to many banks thinking twice about locating or expanding their presence in the US – preferring instead Europe, Canada or Asia. Taxes for the wealthy US will have to rise to pay for medical and social costs. Also remember public sector workers in the US on average earn 40% more than private sector workers  -  this is a key underlying issue. And it’s rather strange that the banks get so much punishment from the public sector when public sector pay has risen in the last ten years at a higher rate than the average private sector pay in the States (also in the UK).

The US influence globally is on the wane – and we expect this to continue - particularly with the current administration. Indecision over Iran is a good example. Meanwhile China is flexing its muscles far more. Israel will likely go it alone. And we believe this will lead to far poorer security worldwide and could lead to the outbreak of wars in certain regions and countries. The period 2002 to 2007 was an incredibly peaceful period of global econoIndia property investingmic expansion and low terrorist and war levels – particularly in a historical perspective. This reversed in 2008 and we expect this to continue to deteriorate – particularly with problem areas such as Pakistan and Iran. We also think security in Iraq will continue to improve – along with wealth and prosperity of the country, with oil revenues helping as oil production increases.

Our keys message is – avoid investing in real estate in the USA - particularly under the current administration that seem to have no commitment to reducing the deficit. Only invest if it looks like a concrete plan is in place to tackle the monumental budget deficit. And expect the US influence to retreat and China influence to become far stronger – along with India and Brazil – in the next ten years.

On the plus side, the US has good education, highly motivate population, good organisation and large coal, natural gas and agricultural resources - but we believe it will be many years before the current problems are sorted out, and for the time being at least, they look as if they will get far worse in the medium term.

We hope this Special Report has been helpful. If you have any comments, please contact us on enquiries@propertyinvesting.net

 

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