“The times they are a-changing ..” – Dylan
Economic Review Jan 2013
These thoughts have been prepared in note form to provide a basis for discussion for CEOs, senior executives and business owners.
The Global Overview
The next 10 years may be quite different to our experience in the first part of the 21st century.
The Global economy is approx. US$70trn in purchasing price terms. Global growth has been close to 4% during the last 10 years and is forecast at 3 ½% for the 2013 year. This disguises low or nil growth in the major developed or “submerging” economies and 6 to 8 % in the growth emerging countries.
Short term policies in the developed countries are increasingly risking the long term viability of the global economies with ever increasing levels of debt. The unintended consequences are yet to be seen. Borrowing from future generations to fund today may be good politics but it is a Ponzi scheme in the making.
Debt is a promise to pay, many of these promises will not be kept with counter parties unable to pay. ( Kieren Sawper ). During the period of the last 10 years of growth at close to 4% the levels of debt have been growing > 10% p.a. Total debt of the developed countries relative to GDP has grown in the last 30 years from 160% of GDP to now 320% of GDP.
Very low levels of interest rates in the developed world are allowing governments to fund their current obligations have a distorting effect on investment and are borrowing from future generations to fund today. Interest rates will eventually rise to trend levels with potential chaotic outcomes.
High levels of debt have been shown to reduce the prospects for economic growth for the long term. ( Rogoff and Rheinhart )
United States
There are 320m Americans and 140m jobs. Of those 40m are part time jobs paying US$10k p.a. or less. The median family gross income last year was less than US$50k p.a. which after deductions for social security and taxes provided a median take home family pay of close to US$40k.
The top 5% of Americans have 70% of the wealth and pay close to 60% of all the taxes. The less well off include 66m on welfare and food stamps and 61m on social security. The disparity between the haves and have nots has increased significantly over the last 10 to 15 years.
The US government spends 24% of GDP and collects 17% in taxes. The difference of more than US$1trn is borrowed and added to the national debt which is now > 100% of GDP and more than US$16trn.
The great American dream of upward mobility and a better life for the next generation has changed with borrowings from future generations being used to fund todays promises and expenses.
There are slow signs of improvement in the economy with a lift in housing starts some small reduction in the budget deficits, low interest rates, reducing unemployment and significant on shore new sources of oil and gas. The mid sized firms are increasing employment and growing.
Growth in the economy averaged 3.5% p.a. for 250 years until the late 20th century. The last 10 years growth has averaged 1.8% and is forecast to be similar for the 2013 year. With the levels of debt across the government, residential and companies it is likely that it will be several years before there is a return to trend rates of growth.
Europe
Europe may be through the worst and may have passed its darkest hour ( Jonathan Paine )
European growth is forecast to be close to Nil for the total of Europe with possible small growth in Germany and continuing recession in the periphery.
China
GDP per person is now equivalent to US$4.4k per person and with prospective growth continuing at 7% to 8% will still take many years to reach the levels of the developed countries.
Total GDP is forecast to be 71/2% to 8% for the coming year 2013.
Australia and NZ
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