Salient to Investors:

Niall Ferguson at Harvard said:

  • The West is in decline cause by political and economic stagnation and the US and Europe institutions that are degenerating include democracy, regulation, the rule of law and justice, and civil society.
  • Non-Western countries are improving their economic and political institutions and getting richer.
  • US problems are structural and the fundamental problem is the imbalance between generations. Edmund Burke said the social contract is between generations – the living with the dead and the living with the unborn. America has broken that contract in a profound way because the baby boomers have lived at the expense of future generations.
  • The over 70 consume double what people under 20 consume. The next generation will either pay much higher taxes or won’t get the levels of entitlement the current generation enjoys.
  • To establish generational equity, i.e make sure future generations pay the same tax as the current generation, you would either have to cut all government spending by 35 percent or increase all federal taxes by 65%.
  • Off-balance sheet debt is much larger than the stated debt – debt to GDP ratios highly understate the problem. We must change the way government accounts for its spending and collects taxation and adhere to the accounting standards that corporations do. We need to distinguish between capital expenditure and consumption, while government are encouraged to slash investments.
  • We have gone from the rule of law to the rule of lawyers. The US is more litigious than other countries. The too big to fail institutions are fine but the little guy gets crushed. Regulations are much more burdensome.
  • 1/4 of the House and 2/5 of the Senate are lawyers. The great winners from Dodd-Frank are lawyers and compliance departments. Extra regulation actually makes the system more fragile.
  • The tax code is 9 million words.
  • Democracy doesn’t represent the young and the unborn.
  • The US is no longer the best place to start a new business. The World Economic Forum competitiveness index shows the best countries include Singapore, Hong Kong, New Zealand, some Scandinavian countries. The Fraser Institute in Canada says the US has fallen behind all other English-speaking countries. The World Bank says the US is one of only 21 countries in the world where the time it takes to settle a claim against a non-paying debtor has risen. The US generates 3000 new regulations every a year from 63 government departments  and agencies.
  • China is trending towards transitions to a rule of law system. Hong Kong has a better rule of law system than the US.
  • China is overwhelming the US by size but not by innovation. The US stole most of its intellectual property from England in its development.
  • The US is failing miserably at high school education, causing a loss of social mobility. The American class system may be now more rigid than the British.
  • China will overtake the US by some measures like GDP within 4 years, but has its own set of problems. China knows it it has failed to stop corruption – it is now their no 1 priority – and are worried about the stability of their own institutions.
  • Moving people to cities raises productivity because of increased networking.
  • China expects to be treated as equals in a new world where they are already equals in economy and cyber-warfare. China should be given a chance to join G-8 and run the IMF and World Bank.
  • A showdown between China and Japan is building and Obama’s nightmare would be whose side to choose in the event of conflict. China sees the US siding with Abe to devalue the yen as part of a strategy to line up against it.
  • Obama can be more of a realist he always was in his second term. His Middle eastern policy is all over the place and is his biggest problem. Islamists are the winners of the Arab Spring because the US has chosen to be bystanders.
  • Keynes was encouraged to live in the present.

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