On today’s show we are talking about what manufacturers look for when deciding where to locate manufacturing for their products
This decision usually comes down to four main factors.
- The availability of skilled labor at an acceptable wage.
- A plentiful low cost energy supply.
- A favourable tax structure
- Access to major transportation routes by rail, ship, and highway.
If you eliminate one or more of these four requirements that is enough to disqualify a location for manufacturing.
The latest geopolitical energy crisis as a result of the war in the Ukraine has caused factories in Europe to close. Some will not reopen. Germany has been a manufacturing powerhouse in Western Europe, despite its relatively high labour cost. The labour force is highly skilled with a strong work ethic. Historically Germany has enjoyed relatively low energy rates that have averaged about half those compared with the rest of Western Europe.
We are suffering a global inflationary phenomenon. The cause of this inflation was the global printing of money by central banks the world over.
This period we are experiencing is more analogous to the post war 1945 when the US was moving from war financing to business financing.
We all printed money while fighting the war on the pandemic. Now that the pandemic is over, it’s appropriate to tighten monetary policy
Inflation is the direct result of too much money chasing too few products and commodities. When that happens the price of those commodities gets bid up and that causes the producer price index to rise, the consumer price index to rise, and just about every price index to rise. You couple the money printing with very low interest rates and easy credit, and you get asset price inflation in the stock market, in real estate and even the bond market.
We have a global financial system where politically government don’t actually need to cooperate and often they don’t. But the monetary system does rely on central bank collaboration. If you look back over the period of the pandemic, central banks largely acted in unison. That might have been coincidence, but I believe that the European central bank and the Bank of England and the federal reserve and the bank of Japan were all in communication.
Fast forward to today and we have a major divergence in central bank policy. The federal reserve is tightening monetary policy and raising interest rates while the European central bank is now in a massive stimulus. The ECB had been raising interest rates slowly but in collaboration with the Fed to fight inflation.
Host: Victor Menasce