Archive for July 2011

Even – Up or Down with the economies?

July 15, 2011

Let’s start with some numbers: the population in China 1,3 billions – India 1,2 bn – EU 0,5 bn – USA 0,3 bn – Brazil 0,19 bn – Russia 0,14 bn; GDP in China $ 10,1 trillions – India 4,1 trn – EU 14,8 trn – USA 14,7 trn – Brazil 2,2 trn – Russia 2,2 trn; Current Account Balance in China $ 272 billions – India neg. 27 bn – EU neg. 5 bn – USA neg. 561 bn – Brazil neg. 53 bn – Russia 69 bn. The trade (export+import) between the USA & EU is at $ 364 billions, USA & China $ 231 bn, and EU & China $ 263 bn. These figures tell us the fact we all know already, but it is good to see again, that the world trade with China is not in balance. Furthermore the business over the Atlantic is still very large – the USA and the EU should keep that in mind and try to keep it that way. Interestingly enough Brazil is exporting more to EU than to  the USA, and Mexico has a free trade agreement with EU.

The public debt is a huge issue in the USA (58,9% of GDP), but in very many other countries as well like Greece (144 % of GDP), Iceland (123,8% of GDP), Italy (118,1 % of GDP), and Belgium (98,6% of GDP) and many more. Who would think that Germany’s public debt is 78,8% of GDP?! Then there is the issue with the external debt and that looks also bad in Germany and France both with $ 4,7 trillions; Japan $ 2,4 trn; Italy and Ireland both with $ 2,2 trn, and Belgium $ 1,2 trn. The USA and EU have both around $ 13,9 trillions of external debt! This debt issue is huge and must get solved, too. There is lots of money in the world and more is getting printed every day, but are these nations ever going to pay their debt? I doubt that strongly. There will be the catch 22 issue with this – lenders have given too much credit and borrowers have taken too much on debt. Now the sums are so large that I think following will happen: the world trade must get stabilized and therefore exchange rates must get fixed (that would mean also revaluation of Chinese Yuan), countries in a deep debt must get an agreement to pay less interests and reduce the balances over a longer period of time. Otherwise there would be huge write offs on creditors’ side which would lead to a complete halt of world trade and  most likely into unfunctioning of the world’s financial system. Some will see that to be inevitable anyhow, but I strongly believe in the leadership in the political, economical, and the financial arena that steady healing masures in a cooperation are better than a huge crisis and a complete rebuilding of the systems we have in place today. I don’t like the way how rating companies would see reduction of interest rates or longer payment terms as defaults of any kind – certainly the capablity to pay is reduced, but not nullified. If financial institutions are not forced to write off their receivables then the default is only theoretical. I firmly want to build rather than destroy.

There are also other issues many countries must solve despite of the financial issues like agening population (30% of work force will retire over next 15 years in Europe, Russia’s populationis decreasing by 1 million per year, and there is a real estate and stock market bubble (my estimate 30% overvalued) in China. On top of this the inflation and higher interest rates have showed up. All this and other things like environmental issues keep the world busy in finding solutions for the future. Now is the time to think and then act! Will the world economy stay even, grow or fall into a new recession or even into a economic disaster is the question. I believe in a slow growth globally.