The document discusses the continued economic decline of Western countries due to global wage disparities between developed and emerging economies. This wage gap results in emerging economies gaining a strong competitive advantage, leading to job losses in Western nations. Governments and citizens in Western countries have responded by taking on excessive debt to maintain unsustainable lifestyles. If left unchecked, these trends of wage gaps, job losses, and growing debt levels will destroy Western economies in the long run. Potential actions to address these challenges include reforming government spending, education systems, tax policies, and banking systems.

1. The continued economic decline of the West
The Challenge Potential actions Likely outcomes
Ineffectual Reorient Accept immediate
Global wage Poor allocation Develop new
governments and ‘Entitled’ groups government Reform the banks Tax properly cuts in living Short term
disparity of tax monies technologies
credulous voters spending standards
Long term
Infrastructure
Support
Education manufacturing
Public Benefit
Bankers CEOs
With no job sector claimants
Wage The jobs Education Help industry
disparities As a result, supply, i.e. less
a job drain drained are demand for ecosystems to
between OECD not returning; flourish
and emerging continues and labour, wages
is indeed rather, more in the OECD
countries result Cheap funding from
accelerating. will be lost. must inevitably
in an almost government stimulus Encourage
insuperable fall.
Starting with the development of
competitive Greenspan Put new technologies
advantage (1987),
for the ‘East’. governments, Oligopoly in many markets
Competitive wage rates corporates and
individuals have
sought to borrow
to fund the
Foolish acceptance of high
Existing financial and maintenance of
prices by customers
intellectual capital base an unmaintainable
lifestyle.
Propensity to invest
new capital Excessive leverage
This has been
elevated to a
religion by the
Encouragement of neo-Keynesians.
VCs and entrepreneurs Inside trading knowledge
Continued
indefinitely, this
Existing IP will destroy our
economies. Big bet culture
Ability to generate IP
Willingness of shareholders
to countenance excessive
rewards
© PA Knowledge Limited 2012

2. QE: What they understood… HMT indemnifies Asset Alternative
Broad money falling
Purchase Facility
scenario
BoE buys gilts off
Severe risk of deflation Eurozone Armageddon?
private bondholders
Assets Liabilities
BoE credits their BoE owns
Broad money soars
reserves £325bn gilts BoE credits
£325bn
to commercial
Commercial banks lend Money multiplier
Mild inflation bank reserves
out a little of the money suspended
Money multiplier Growth
Accelerating inflation Growth does not rebound
restored rebounds
…and what they Capital flight from
BoE tightens ‘Western’ government Deflation
BoE does
(apparently)
monetary policy bonds and currencies Wage rises
not tighten didn’t. not
monetary enough to Household
policy 2. BoE 1. BoE raises Gilt yields soar Gilts plunge in HMT still on service debt
reverses QE interest rates to e.g. 8% value hook for £325bn debts accelerates
rapidly
Auctions gilts, Broad money 3. Even higher Households
gets ?£175bn still bloated interest rates default Households default
Inflation-driven recession, Taxpayer loses £150bn Deflation-driven
Hyperinflation
In addition, government debt overhang permanently limits growth recession
© PA Knowledge Limited 2012