first majestic silver

The Gloom, Boom & Doom Report

May 21, 1999

Depressing Disparity

From the Manila Times, dated March29, 1999, we read that a group of investors recently sold their seat on the Philippines Stock Exchange for US$295,000. The group had acquired the seat in 1992 for US$4.8 million! By comparison, a New York Stock Exchange seat, which sold for as little as US$35,000 in 1977 and for US$250,000 in 1990, recently changed hands for an all-time record price of US$2.6 million. (This shows how grossly overvalued assets were in Asia during the boom years.)

In 1998, Indonesia, a country with a population of around 200 million, had a GDP per capita of approximately US$300 (post-devaluation). Switzerland, with a population of around seven million, had a GDP per capita of almost US$40,000. Hence, Switzerland's GDP per capita was 133 times Indonesia's and its total GDP was more than four times Indonesia's. India has a population of around 950 million and a GDP per capita of about US$300. At US$285 billion, its GDP is therefore about the same as Switzerland's!

In 1914, Henry Ford increased the daily wage of auto workers from US$2.34 for a nine-hour shift to US$5 for an eight-hour shift (approximately US$1,250 per annum). With such a high wage (The Wall Street Journal referred to it as an economic crime), a Ford worker was in a position to buy more than two Model-T automobiles (which sold for around US$360) every year. By contrast, most workers engaged today in manufacturing in emerging countries earn less than US$1,000 per annum (approximately the monthly cost of parking my motorcycle in New World Tower in Hong Kong). Hence, most workers in developing countries can only dream of purchasing a car, at a cost of around US$15,000.

The US stock market capitalisation now exceeds US$11 trillion and accounts for 53% of the world's total stock market capitalisation. However, the US population, at 260 million, accounts for less than 5% of the world's total population. Dell Computer's stock market capitalisation, at US$100 billion (even after its recent decline), exceeds several-fold the market capitalisation of entire countries such as Thailand, Indonesia, the Philippines, Malaysia, and Russia.

And whereas, according to our friend Chris Wood, the total market capitalisation of all Asian exchanges (ex-Japan) in 1993 exceeded the stock market capitalisation of Microsoft (current market cap: US$434 billion) and General Electric (current market cap: US$395 billion) by 12.5 times, their combined value is now just 1.7 times the market value of these two companies. Bill Gates' personal net worth is significantly higher than the stock market capitalisation of each of the above-mentioned countries (albeit lower than their debts).

In Japan, savings rates have risen from 11% in 1984 to over 20% at present, while in the United States, savings rates have collapsed from 8% to ­0.2% over the same period. The Japanese stock market capitalisation as a percentage of world stock market capitalisation has declined from 47% in1989, to just 7.5%, while over the same time the US stock market capitalisation as a percentage of the world has risen from 28% to 53%.

Life expectancy in the most developed countries is close to 80 years, while in the poor countries of Asia and Africa it frequently does not exceed 50 years.

Similarly, infant mortality is less than ten out of 1,000 live-births in the most developed countries, but above 100 in the world's poorest countries. In the United States, there are more than 2,000 doctors per one million people; in countries like Indonesia, there are less than 100. And whereas 98% of children attend secondary school in the US, less than 10% do so in the world's poorest countries. Also, while in industrialised countries multimillion-dollar pay packages for executives are very common, there are close to 1.5 billion people (25% of the world's population) who are classified as poor by the World Bank and who earn less than US$1.60 per day.

Wealth and income inequity is nothing new; it has existed throughout history. But never before have there been such huge differences in living standards for such a large number of people across the globe. According to Richard Steckel, a professor at Ohio State University who specialises in comparative economics, "Only in the 20th century have we seen this amazing change where populations in the developed countries with huge, efficient markets, like Europe and America and parts Asia, have raced ahead of everyone else."

Militarily, the United States controls the skies, but militarily poorly equipped villains like Saddam Hussein and Slobodan Milosevic dominate the ground in their impoverished countries. And while Islamic Iraq supports the Orthodox Christian Serbs, the Christian West supports the Muslim Kosovo Albanians.

The list of global imbalances includes the fact that while in Western industrialised countries equity prices are at record highs, commodity prices on which most developing countries depend for their economic well-being are near record lows (at least inflation adjusted). But for the purpose of this analysis, we are less interested in the fact that unprecedented imbalances now exist in the world, than in how these imbalances came about and what their impact might be on the global economy in future. Furthermore, if in the present "new era" economy the laws of reversion to the mean still exist, how will these imbalances eventually be redressed?

A medical study in France during the early twentieth century suggests that gold is an effective treatment for rheumatoid arthritis.
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