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Trends of 2012

or Meet the new year... same as the old year?

By James Macfarlane

January 2012

"The world is changing"

-Galadriel, The Lord of the Rings

The future is of course... unpredictable. However, we can often get a sense of what lies ahead by examining current trends. Trends are simply manifestations of Newton's Law of Motion, which states that an object set in motion tends to stay in motion. This essay attempts to illuminate a few of the present trends one may wish to be mindful of as this auspicious year of two thousand and twelve unfolds. As stated in previous essays, I personally tend to not subscribe to the popularized gloom & doom interpretations of the Mayan calendar as it relates to 2012, yet it is pretty clear that the times they are a changin'. In fact, contrary to the picture painted by President Obama in his State of the Union Speech this month, rather than buying into the idea that we have turned the corner on our problems here in America, it appears that 2012 may have even more uncertainty and volatility in store than 2011. This is not necessarily bad news though. We are witnessing the birth pangs of a new age. It is possible that we will shortly see old systems designed to work very well for a relatively few be swept away in favor of new systems architected to serve a greater good. Who would claim it's not about time for that? I don't know for sure which of the trends articulated in this essay will continue, but I do believe that this is a time to be alert and mindful as this journey of the world continues to forge ahead. I have spent the last few years as a student of the financial markets, the economy, and spiritual evolution. From this perspective, filtered through my imperfect perception of reality, let me share with you a few important trends leading us into 2012.

A World of Cyclical Change

If one were to commence with a macro view of current trends, one might start with the cyclical forces in play during 2012. Cycles are fascinating because they affect everything. Both our natural world as well as our man-made world operate rhythmically. The natural oscillations of the universe manifest from Astronomy to Astrology, from the monthly cycles of Earth's moon to the precession of the equinoxes. The cyclic nature of human behavior shows itself in everything from inter-personal relationships to the minutiations of the stock and financial markets. Even computer systems perform their calculations to an invariable rhythmic beat. The study of cycles is of course a topic that can and does fill volumes, but I can think of two powerful cyclical trends that are likely coming to bear this year. One is the cycle of generations. In the similarly titled 1992 book Generations: The History of America's Future, 1584 to 2069, authors Bill Strauss and Neil Howe articulated their discovery that the circumstances of one generation of Americans sets the tone for the behavior of the successive generation. Strauss and Howe observed a four-part historically repeating cycle in human generations that they named idealist, reactive, civic, and adaptive. To use an example in recent history, the generation that fought World War II was a civic generation. There was a crisis, and the citizens of the US rose to the occasion with sacrifice, heroism

and brilliance to focus on a singular cause; save the world from evil domination. The civic generation is less about the individual and more about the common good. The civic generation (labeled the GI generation in our example) gives way to the adaptive generation (the silent generation), who grew up in the 1950s. Then came the idealist generation (the baby boomers). Because of the efforts of the civic generation the adaptive and idealist generations were freed up for other pursuits. Indeed, the 1950s and 1960s saw one of the greatest economic booms the world has ever witnessed. As the generational seasons rolled over to the reactive generation (Gen X or the `me' generation), a more self absorbed, authority questioning generation came forth, and coupled with a waning of the post Baby Boom population bulge and the resulting shifts in demographics and spending habits... a natural decline in economic activity ensued. Strauss and Howe tell us that we are now cycling back through to the civic generation (Gen Y or the millennials), which will come into its own from 2012 to 2023. Thus, the season of "crisis" is again upon us. A second and supporting cycle in play here is the Kondratiev wave, also described as the long wave or long economic cycle. This cycle, first brought to the attention of the world by Russian economist Nikolai Kondratiev in 1925, spans an average of 50 years. Put simply, the Kondratiev wave describes the ebb and flow of economic growth and contraction, and lends itself to a four-part seasonal rhythm as well... labeled appropriately spring, summer, fall, and winter. To cut right to the chase, subscribers of this theory believe that we have moved into the winter season. A Kondratiev winter brings greatly reduced economic activity as the market corrects for any prior misallocation of capital (which the world has seen plenty of in the last 50 years). Also worth mentioning is that although there is clear synchronicity between the two cyclic theories, unlike the book `Generations', which was very well received, Kondratiev wave theory is not generally accepted by mainstream economists. In my view though, mainstream economists, like for example practitioners of allopathic medicine, are generally trained in a narrow scope of currently accepted dogma and are locked into what are now somewhat discredited mindsets... which is part of the reason our economic health, as well as the general health of the American public, is in such a sad state (Kondratiev was jailed and later killed for his theory... a good sign the man was on to something). These are two good examples, by the way, that a Kondratiev winter and a rollover to the civic generation are not necessarily a bad thing. We need to flush such outdated mindsets in order to make way for models that function better.

A World of Financial Uproar

From a US perspective there are two major balls in the air that one could focus on this year to get a feel for how our economic world will unfold in 2012. They are called the Eurozone and the US dollar. The existing trends related to these two subjects are set to continue through the year and have strong implications for Americans. Let's start with the US dollar. The dollar is and has been in the doghouse for some time, as it has lost 95% of its value in the last hundred years. Increased wages over the same time frame of course helped to mitigate this loss of value. One could argue just how well wages have kept up with price increases, but we have bigger fish to fry in this discussion. The real action with the dollar is in its value to foreign countries. The current trend is that the dollar is losing its purchasing power to pay for imported goods. This is highly noteworthy since America imports such a large number of products from trading partners

such as China and Europe. Moreover, the US still imports a significant amount of its energy needs from overseas. The price paid for these imports is heavily influenced by the foreign exchange rate, which is simply the amount of foreign currency a dollar will buy when purchasing foreign goods. It's the exchange rate that is garnering a lot of attention right now, and if you are willing to endure a quick refresher on how the dollar exchange rate works you will have critical insight into this very important trend that will affect how much you'll be paying for food, energy, and other goods in 2012 and beyond. Again, the value of the dollar on the world market is determined by how much of a foreign currency it will buy. Let's take the Euro as an example. In today's market, it takes roughly $1.30 to buy 1 in Euros. Conversely, 1 Euro buys about $1.30. Why do we care? Anyone who's travelled overseas can tell you. Imports and exports have to be converted to and from the currency of the country the goods are purchased from. These conversion rates are not fixed. They `float' from day to day based upon what the marketplace determines the value of a particular currency to be. The value of currencies in world trade are affected by the same supply and demand laws affecting all commodities. If the dollar drops in value, the costs of imports tend to rise because it takes more dollars to buy, say, a Euro, a Chinese Yuan. Even if the native price of the imported goods themselves doesn't change, American consumers pay more when the exchange rate of the dollar drops.

Historical chart of the dollar measured against a `basket' of selected foreign currencies. The lower the index number, the weaker the dollar, thus the higher the price of imports. The index is currently around 79.

At the same time however, a weakening dollar makes US exports cheaper, because the foreign currency then buys more $$. For example if the dollar were to drop in value 10% against 1 Euro, that same Euro would then buy $1.43 (.13 cent gain). As you can see, the foreign exchange rate is a two-way street. If the dollar drops in value, US imports cost more, but at the same time US exports are cheaper, which is very helpful to American businesses and helps promote full employment. A great example of how important exchange rates are is with China. China exerts considerable effort to keep the value of its currency, the Yuan, relatively low compared to the dollar. A dollar buys a lot of Yuans, which makes imports from China cheap (the Wal-Mart model). In fact, as the dollar index has dropped precipitously in the first decade of the 21st century, China

has responded by forcefully manipulated its own currency downward to keep its goods cheap. The flip side of course is that American exports to China are relatively expensive. The Obama administration is mad at China right now for suppressing the price of the Yuan because if the US could increase exports to China it would theoretically reduce US unemployment. Again with the two-way street! Here's the punch line. The exchange rate between currencies is so important that determining the rate is rarely left to chance. Nations have traditionally gone to great lengths to either lower or raise the value of their currencies depending upon current needs. In fact, such efforts -which are essentially trade wars- often lead to outright war. In his recently published book entitled `Currency Wars', author James Rickards explains in plain English the history how nations fight each other over the price of their currencies. Rickards asserts that we are in a currency war right now. There is a huge battle in progress and the US dollar is a prime target. There are several aspects to the currency wars taking place in 2012. One important trend worth noting, and at the core of why I have included this topic, has to do with the dollar and the price of oil. Traditionally the sale of oil to any nation has been done in the US dollar. If China bought oil from say, Saudi Arabia, it had to first convert its native currency -the Yuan- into dollars. Oil producing nations have traditionally accepted only dollars for oil. Period. Someone even coined the term petro-dollars to refer to this arrangement. This has been a pretty good deal for America because this system of dollar hegemony creates a huge demand for dollars, which in turn keeps the dollar valued relatively high in relation to other currencies... which in turn makes US imports relatively cheap. The role the dollar has played in the oil trade is the primary reason why Americans pay less for gasoline than most other (non oil exporting) countries. The world needs the dollar! The trend however is that all this could change very soon. One after another, nations are turning away from the dollar as a medium for purchasing oil. This trend is at the same time unprecedented and alarming.

Countries developing cross agreements to avoid trading in US dollars China < > Japan China < > Russia China < > Iran China < > UAE China < > Venezuala Iran < > Japan Iran < > India Iran < > Russia India < > Japan

The above table lists countries that are in the process of trading with each other in their native currencies. For example China is soon to buy oil directly from Iran using the Yuan. The dollar will not be used for the trade! Not to get too political, but this trend is due in part to current US Mid-East policy. Regardless, the effect of this development may trigger a significant rise in the price of US imports, including all-important energy costs. As demand for dollars diminishes, the dollar index drops, and the cost of imports rise. It's as simple as that. What we need to be mindful of is how quickly this trend accelerates. There is a possibility that an exodus of the dollar will occur in 2012 as a critical mass of market participants see the handwriting on the wall and move to sell their hoard of dollars (who wants to hold onto something that is rapidly losing value?). If that happens we would likely see greatly escalating costs for all goods in the US, even those locally produced. In other words.... massive inflation. When you hear the phrase `the dollar may crash', this is what it refers to. It is noteworthy that 2/3 of US currency is held overseas.

There is much more that could be said about the currency wars, including more about what is prompting nations to move away from the dollar. However that becomes a study in itself, and I see several pages have already been consumed explaining just a couple of trends. To learn more read `Currency Wars' (easy read... hard to put down). It seems best to stop here in order to give time to digest what has just been covered. Part II of this essay will be posted in a few days.

Summary

To summarize, several trends now in motion appear set to continue and perhaps escalate in 2012. Certain cyclical trends portend a continuation of the economic slow down and a possible generational crisis may ensue that will draw America's full attention and resources. Furthermore, a trend away from use of the dollar in world trade may have far reaching consequences for consumers. Phew. If you're now feeling the need to put a smile on your face click here. Feedback to trends-of-2012 Share it: . Or Choose File / Attach to Email from Acrobat Reader. If you would like to receive notice of additional essays subscribe to the mailing list here or follow me on Twitter. You will not be spammed and your email address will not be shared.

Other articles by same author: Holidays with the Skywalkers (DEC 2011) The Handwriting is on the Wall (NOV 2011) Bad Hair days for Gold and Silver (SEP 2011) Every Possible Way to Invest in Gold and Silver (AUG 2011) Postcards From the Gulf (MAY 2010) If The Future's So Bright How Come I Don't Need Shades? (JAN 2010) The Thin Red White and Blue Line (JUN 2008) References for this article Daily chart of dollar index Precession of the Equinoxes Kondratiev wave theory and here Book - Demographics: The Graying of the Great Powers Book ­ Currency wars: Currency Wars Book ­ Generation theory: Generations, The History of America's Future, 1584 to 2069 Book - The Fourth Turning: An American Prophecy - What the Cycles of History Tell Us About America's Next Rendezvous with Destiny For further reading (books): The New Empire of Debt: The Rise and Fall of an Epic Financial Bubble Endgame: The End of the Debt Supercycle and How It Changes Everything The Bond: Connecting Through the Space Between Us The Intention Experiment: Using Your Thoughts to Change Your Life and the World The HeartMath Solution: The Institute of HeartMath's Revolutionary Program for Engaging the Power of the Heart's Intelligence Transforming Anxiety: The Heartmath Solution to Overcoming Fear And Worry And Creating Serenity Power Vs. Force: The Hidden Determinants of Human Behavior David R. Hawkins, M.D., Ph.D Dissolving the Ego, Realizing the Self: Contemplations from the Teachings of David R. Hawkins, M.D., Ph.D

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