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A Gold Standard “Comes After War, Not Before” Macquarie Warns “The Private Sector Will Never Recover”

from Zero Hedge:

Do you feel something is wrong with the United States and the global economy?

Despite a respectable recovery and low unemployment, many people aren’t happy with their current economic situation or their outlook for the future. From rising prices for basic necessities or schooling, to harsh competition and low pay for lower income jobs to negative interest rates—the poor and the middle class all have their problems to deal with.

Experts in the government or central banks are trying to manage a suboptimal situation but cannot isolate the problem, let alone offer solutions. Or maybe they know what’s wrong but don’t want to talk about it because the truth is too shocking.

Enter Viktor Shvets, the global strategist of the investment bank Macquarie Group. He not only dares to think outside the box but also isn’t afraid to openly voice his opinions, which are fascinating and shocking at the same time.

“The private sector will never recover, it will never multiply money again,” he told Epoch Times in an interview.His main theme is the “declining return on humans,” which means that in today’s digital world, normal humans don’t grow productivity fast enough to justify more jobs and higher wages as the machines are taking over.

“There is no productivity on a global basis. Secular stagnation, technological shifts, monetary policy, all are suppressing productivity growth rates,” he says. But what about technology making humans more productive? Shvets says this was true in the first and second industrial revolution where displaced jobs such as horse-cart drivers eventually morphed into higher tech and higher productivity ones like the taxi driver.

However, in this, the third industrial revolution, machines are not augmenting humans, they are replacing them. The self-driving car will completely eliminate the driver. And even in the previous more mechanical industrial revolutions, it often took decades for productivity growth to recover and for jobs to come back, only after higher productivity sectors dominated the majority of the economy.

“We are now on the sharp end of the technology S curve. It started in the late 1970s, it’s picked up in the last 5-10 years, productivity growth rates go down not up. It takes time to line up machines, and this time we are replacing humans altogether,” he said.

And not only lower skilled jobs like taxi drivers are concerned. Just look at the floor of the New York Stock Exchange, where you can barely see a human “specialist” trader anymore. The machines in New Jersey have taken over the trading.

(Macquarie Group)

(Macquarie Group)

Of course, there are companies and sectors where machines augment people’s productivity, but they are in the minority and also always tether on the edge of machines replacing humans completely. One example is Amazon, where one employee generated $1 million in sales in the second quarter of 2016.

“Parts of the economy become extremely competitive, the rest becomes far less competitive. Walmart’s two million employees are less productive than the few hundred thousand people working for Amazon,” said Shvets.Walmart’s revenue per employee was $220,000 at the end of the second quarter of 2016.

As a result, total productivity growth has been negative in the United States for at least a decade and according to the Federal Reserve Board of San Francisco. The so-called Total Factor Productivity fell almost 2 percent annualized in the second quarter of 2016.

(Total Factor Productivity, source: Macquarie Group)

(Total Factor Productivity, source: Macquarie Group)

Leverage

In order to counter falling productivity, households, companies, as well as the government have taken on unsustainable amounts of debt to keep consumption going.

“When the economists say we can continue to leverage, as we have done in the last three decades, it lacks understanding of the balance sheet. Even at zero interest rates, at a certain level of debt, you go bankrupt because the private sector loses confidence in the system,” said Shvets.

This is the phenomenon of a balance sheet recession, where you have to shrink the whole balance sheet of the economy in order to restore confidence in the system and return to private sector business cycles. Japan is the most famous case; its balance sheet recession is now 25 years old. But also the United States and Europe essentially have the same problem.

Since the beginning of 1980, total debt in the United States increased by a factor of 14 to $63.5 trillion, while GDP only increased by a factor of 6.2.

Shvets says the world should have actually delevered or paid down the debt to return initiative to the private sector, but thinks people could not accept the levels of pain associated with it.

Read More @ ZeroHedge.com

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