An idiotic post, this time from no less a firm than McKinsey

The actual item is titled: "How the growth of emerging markets will strain global finance" and is available at: http://e.mckinseyquarterly.com/105845d9dlayfousubmvaymqaaaaaa7vxpx3slu6teiyaaaaa

The basic argument is that all the theoretically-required new roads, ports and other infrastructure projects in developing countries will need a huge amount of of money: something like USD 24 trillion, in fact.

As a result, by 2030, we will see global savings decline, argues the McKinsey Global Institute, because of the reduction in household saving rates which generally has taken place in mature economies at least for the last three decades; and we have an ageing global population, as well as China’s apparent attempts to rebalance its economy toward increased consumption.

Therefore, the amount of capital available will fall short of demand to the tune of $2.4 trillion-slowing global GDP growth by one percentage point a year.

So businesses and investors must adapt to a new era in which capital costs
more and most of it goes to the world’s developing regions, argue McKinsey.

This is nonsense: supposition is piled upon supposition, till the whole superstructure not only teeters but collapses.

Consider that the whole argument is based on the following:

- China will succeed, at least to some degree in encouraging consumption. That assumes that there is no political problem in China till 2030. A fair assumption?

- the reduction in household saving rates, which has taken place in mature economies in the extraordinary last three decades, will continue; is it safe to believe that Americans, for example, have learnt nothing? The evidence is that they are already saving more after the 2007 crash

- all the theoretically-required new roads, ports and other infrastructure projects in developing countries will come off the drawing boards; rather, if capital is not available, and if growth rates decline, or if there are political problems, these plans will ossify on the drawing boards

- we are in for "a new era in which (most) goes to the world’s capital goes to developing regions"; if global growth rates decline (as the consensus now is, at least for the foreseeable future), then it is doubtful whether the current craze for emerging market risk will continue; as one of my senior colleagues used to say: "Emerging markets are markets from which it is difficult to emerge in an emergency". Lenders will demand even more of a premium from emerging markets, which they may not be in a position to afford. Sphere: Related Content