This morning, I attended an event by a real estate company here in Hanoi to know what their projections for 2015 and 2016 will be, since my personal research indicates a global financial crisis occurring before 2020 to be followed by a global stagflation. The stagnation is already here as ‘secular stagnation’, which is supposed to worsen, but the inflation is yet to come.
According to Smith, rising rent (and therefore land prices) are a good indicator of the advancing state of an economy, and so falling rent prices would indicate a stagnating or declining economy:
“Every increase in the real wealth of the society, every increase in the quantity of useful labour employed within it, tends indirectly to raise the real rent of land.” (WN Book 1, Chap 11)
According to the real estate company, apartment and office rents have declined in Hanoi, which is consistent with a stagnation scenario, even if socialist Vietnam is relatively isolated from global capital. More importantly, it mentioned the recent IMF report of risks to the global economy as one of the big issues in real estate.
The IMF World Economic Outlook
Basically, the report is quite negative:
“The renewed declines in commodity prices will again put downward pressure on headline inflation in advanced economies..and could delay the expected pickup in core inflation as the recovery progresses.. The weakness in commodity prices, slower-than expected global growth, and the prospect of tighter global financial conditions weigh on the outlook for low-income countries. Some.. are hence particularly vulnerable to external financial shocks.”
But our main interest are the risks under “Disruptive Asset Price Shifts and Financial Market Turmoil“, specifically the Greek risk, which is our best candidate to spark off the global crisis itself, just as the collapse of Lehman Brothers ‘sparked’ or set aflame the huge tinder called the globalized economy in 2008:
“Risks have diminished since the agreement on a new European Stability Mechanism program for Greece, but should policy and political uncertainty reemerge in Greece, sovereign and financial sector stress in the euro area could also reemerge, with potentially broader spillovers.”
The IMF report thus mentions the possibility of a global financial crisis, and is consistent with my prediction of one, ultimately caused by the profit maximization doctrine of Economics, and indicated by my ‘Profit Cycle model’ derived from Smith’s forgotten maxims. So far, I couldn’t get this model published in any economics journal because no modern economist seems to have read the entire Wealth of Nations, so I’ve laid it aside and simply shifted to working on Smith’s free trade system instead.
Since profit maximization and the idea that ‘money = wealth’ will not change anytime soon, then the crisis must also come soon. It can come earlier or later, depending on the strength and impact of those two ideas on the mind. For example, the recent Trans Pacific Partnership Agreement can make the crisis come earlier or later, depending on whether it is able to either centralize and engross capital more, or spread out capital to mobilize more work and demand. (There seems to be no public version of the TPP yet and the ones available are just drafts or just pieces of it)
Edit June 2017: Added OECD rent price ratios