THE BREWING FINANCIAL TEMPEST

Did the world really face a economic disaster after the great depression? All the issues that the world faced post WW II like Asian crisis, subprime crisis are all minor tremors when compared to the great depression. But if we look at the disruption the market places are going through in this decade, it seems there are many a reasons to believe that something is in the making. Let us take each one of the factors that may contribute a very big shake up.

The E-commerce revolution   

What it seems end of the day E-commerce will take out more than that it gives. Imagine thousands of people shopping while sitting at the comfort of their home. No vehicle and driver needed to take them to the shops. Hypothetically If all these 1000 people went same time for purchasing several shops are needed to cater to them. Since at a time there can be only a dozen people that can be entertained at the counter. But now all that needed is a small screen and a internet connectivity and in five minutes thousand people can complete their purchases. Only people intensive part here is the delivery boys who bike to serve the customers. But with integration and sharing happening there can be theoretically only one huge logistics behemoth catering to all the E-commerce companies. (This may be the reason why most of the ecommerce companies are spinning off the logistics as a separate company). And when people go to market to buy the things they need, they also end up spending money on other things like food. But now with less travel needed to buy things, there are other businesses also that can be a dampener.

Traditional brick and mortar shop have no idea what the sales of the day will be, and hence they stock the products based on the best of the forecast possible. But in the case of the e-commerce companies the forecast of very often to the 100% accuracy of the demand. Since they cater to an order which is already placed in the system. There is need for less storage place and less of wastage. Or due to the removal of these inefficiency there is additional buffer released to market , which is further increasing the supply.

Imagine what online booking has done to the air travel. There was great price discovery and airlines had to compete on price to get passenger load. This ate into their margins and resulted in the current decade long loss for the airlines.

Within and in between the online marketplaces, there is great opportunity for price discovery and this making the traders cut the prices to bottom. While customer is making a killing margins and getting thinner and thinner for traders.

Oil and commodity crisis 

All of the above factor is leading to a lower requirement of energy and resources. The commodity economies like the brazil, russia and the middle east are in trouble because of this. This is impating the welfare profgrams of these counteis and demand in general. Further stifling the few avenues for releasing the glut in supply.

Energy efficiency 

Prospect of 200 Dollars a barrel for Oil and Ukraine crisis taught Europe one critical learning, that energy dependancy on fossil fuel can be a very big strategic threat for them. And dependable energy supply was always a big gap for Europe. And Europe wanted to bridge this gap and they have used technology to bridge this gap. Technology and mastering of science is one area where traditonally Europe has been a winner. Automobiles and fatories started reinventing process and procedures to consume less energy. Also big time effort was to harness energy from the nature, be it sunlight, wind, nuclear energy or tidal waves. There are cities and town in Germany which are powered by the offshore wind farms.

Europe and aging 

Wants for old people are less, their spending habits are much humbler than what they were in their younger days. And if rich people get old, already they have seen most of the luxuries in their younger days and some of them develop an aversion to luxuary. They become less interested in experimenting. For example very rarely they do change their car which by now they are used to. And so goes with the coooking range and T.V. They seldom change what they have used to live with. This is exactly what is happening in good part of europe, Japan, Canada, Russia and U.S ( Except for its new immigrants). Unfortunately these are also the richest nations in the world. And if the rich man do no spent the poor go out of work.

The only exception to all these was China and India. Where there are a lot of young population and become the consumption centre for the world. For a while it looked that the centre for consumption has just shifted from other part of the world to these countries. Malls and housing complexes came at frenetic pace in these countries. But now the population in China is aging and there are four people saving for one child. Grand parents and parents taking care of a single child.

Both in China and India the economic development did not help in greater income distribution. The tickle down impact of the economic development was not as impactful as has been projected. So the new wealth got concentrated wiith only few hands and few mouths. And there are limits of consumption for a single individual.

Automation and artificial intelligence: 

During the millenium decade, walk into any malls in mumbai or gurgaon and one will see teaming population of young men and women chilling out . Both the partners will be earning on an average 800 USD per month and the money was in the hands of segment who was throwing it as soon as the salary touched their bank account. They thought the bliss is for ever and saved very less. The same people are now in their thirties and they face a different world. Suddenly automation and artificial intelligence started taking away their jobs. And then there is almost twently million new mouths entering the market who are willing to work at much lesser salaries. Many lost jobs and who are employed are now employed at much lesser salaries. With a retrenchment looming over their head and lesser salaries the new mouths spent much less than their previous colleagues.

The Ecosystem which was depending on these spending youngsters began to suffer. Now the malls bear a look like the honey comb without of course the bees.

There are lot of paper works in the reasons behind the great depression. If we read , what we can make out is the root cause was overproduction due to technology improvements. There was a glut in almost all products which could not get into the customers.

And if we read through the above part what is clear is, there is soon a glut in production inventory in making.

Technology is creating huge synergies and glut in market places. But there are demand dampeners killing avenues to dispose these glut in inventory.

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