![]() This unchangeable fact sets the world on an inexorable path: a competitive race for BTU. But as the developing world comes on board as new users of petroleum, they still need growing resources of other energy to fund the new growth which now lies ahead of them. They are already using oil at the margin as their populations urbanize. But while the West is set to dote upon its retirement class for many years to come, the five billion people in the developing world are ready to undertake the next leg of their industrial growth. For the seventh year since 2005, global oil production in 2011 failed to surpass 74 mbpd (million barrels per day) on an annual basis. While it’s unclear how long a post-credit bubble world can sustain such period of forced growth, what is perfectly clear is that oil is no longer available to fund such growth. Reflationary policy aimed at sustaining asset prices at high levels will continue to be the policy going forward. While a ‘nominal GDP targeting’ approach has been officially rejected (so far), don’t believe it. Given this demographic reality, growth in nominal terms is undoubtedly the new policy of the West. They are largely managing a retirement class that is moving out of the workforce and looking to draw upon its savings - savings that are (mostly) in real estate, bonds, and equities. It’s important to put yourself in the minds of OECD policy makers. Additionally, while non-OECD growth actually has a chance of achieving some GDP gains in real terms, the prospects for the OECD are not as encouraging. And little of the growth will be real.Ĭommodity prices will surely eat away at most, if not all, of any gains that may occur in global GDP. ![]() While the ultimate victor is yet to be determined, it now seems likely that a period of nominal growth could ensue for another two years, perhaps even longer. The world’s major central banks - including the Bank of Japan (BOJ), the European Central Bank (ECB), and the Federal Reserve - appear to have finally won a major battle in the deflationary war that broke out five years ago in 2007. ![]()
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