macroeconomics
$656; a difference of 74%. Wage differentials are even more extreme in South East Asian economies creating a path for cost efficient auto manufacturing in particular. Capital is flowing from where there’s wealth to where there’s impoverishment. Wages are declining where they are too high and increasing where they are too low. Standards of living are declining where there is abundance to where there is deficiency. Human capital is migrating from where there are increasingly fewer opportunities to where there are many more opportunities.
Tere’s one important point to add to this equilibrium shiſt: it isn’t all one way nor is it ‘all or none’. Te flow of value isn’t all from wealthy advanced economy nations to poorer emerging market nations. Many advanced economies have had jobs
absorbed by the networked economy and then linked to product networks in other advanced economies. Japan, Germany, China and others have invested capital in unused factory capacity in the United States,
for
one example. Tis doesn’t mean that all of their manufacturing occurs there. Te model is called ‘build- where-you-sell’ and creates cost efficiencies. Te same product is also manufactured within other borders. In order to maximize value in that particular product network, there must be a rebalancing, a tendency towards value equilibrium. Te new jobs created in the US are virtually the same jobs lost to the networked economy in previous years, but now having lower scales of pay. Te point is that the products have networks of
production spanning borders
and creating an aggregate efficiency no matter where components or
FX
products are manufactured. Further, many different types of value are stored and reallocated via the networked economy as a ‘carry along’ in the process of optimizing product or service efficiency. Pressures equalize, planets orbit, political
powers compromise and
unbalanced economies seek equality. Nature abhors a vacuum.
Part IV: Economic Myopia
On 10 March, ECB President Draghi announced
further stimulus for
the stubbornly low price growth Eurozone. Tis included reducing the benchmark interest rate 5 basis points to 0.00%; reducing the deposit rate a further 10 basis points to -0.40% and increasing the asset purchase program from €60 billion to €80 billion and also widened the scope of qualifying assets. When announced, the Euro
Figure 3: GBP/JPY (top left), USD JPY (top right), EUR/JPY (bottom left), CFH/JPY (bottom right) FX TRADER MAGAZINE April - June 2016 49
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