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The Demise of the Global Economy

Updated on July 5, 2009

It's very much tied to the price of oil

Economists are beginning to talk about the demise of the global economy and feel that this trend will change over time. It has so much to do with the price of oil since this commodity is tied very strongly to the cost of freight. Shipping goods a long way just adds to the cost of the product so producers and manufacturers need to look at ways to develop their products much closer to their markets.

We have seen things like steel plants drop in size and be built next door to a manufacturer. You don't see paint products being produced off shore and shipped into North America because the cost of freight relative to the product cost is quite high. A lot of consolidation took place in this industry in the latter part of the 20th century in North America going to larger plants with big production capacity. Chances are there will be a lot more smaller regional plants crop up as the price of oil continues to rise.

So we may see trends in industry that have to deal with a high freight bill in proportion to their selling price. Imported Italian pasta into North America will begin to diminish as the cost of freight makes locally produced products more affordable relative to the import. It will be a slow process at first. It's more likely to be the job of the grandchildren of the current CFOs that masterminded the short term thinking of today's global economy.

The other major component will be domestic employment. It doesn't make a lot of sense to buy product that is manufactured offshore to sell to unemployed people living in North America. It makes more sense to have them employed locally and buying locally produced products to keep the wheels of the domestic economy turning.

History teaches us to learn from our mistakes. Globalization is a very big mistake.


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