DON'T PANIC ON THE ECONOMY

Government debt is said to be dangerously high.

(Debt to GDP ratios for 2014 may be 109% in the USA and 95% in the Euro area)

An International Monetary Fund (IMF) research paper is warning of high inflation, a tax on savings and governments defaulting on their debts.

The research paper may be wrong.

The UK had VERY high debts in 1816, but boomed, and reduced debt, in the century that followed.

The UK and USA should not necessarily be worrying about levels of debt.

Between 1949 and 1966, UK debt was mostly over 100% of GDP.

Yet growth was a healthy 3.19 % on average.

After 1966, when debt fell to between 30 and 90 % of GDP, growth fell to well below 3% on average.

ft.com



After World War II, public debt was higher than 90% of GDP in the USA and UK.

But growth rose and debt levels fell.

Slow growth in the UK and USA may now be causing debt to rise.

Spending on constructive things, such as infrastructure and educational improvements, can produce a positive return.

imghumour.com

An International Monetary Fund (IMF) research paper is warning of high inflation, a tax on savings and governments defaulting on their debts.

The research paper has been written by by Harvard economists Carmen Reinhart and Kenneth Rogoff for the International Monetary Fund (IMF).

Reinhart and Rogoff argue that in the USA and Europe, government debt is almost at the highest level it has been in two hundred years.

They explain that the debt problem cannot be solved by either 'growth' or 'austerity'.

In the 1930s, the World War I loans that the USA had made to Britain, France and Italy were 'forgiven'.

Reinhart and Rogoff argue that some western governments may simply not pay back the money they have borrowed.

IMF Paper: Global Government Debt Is the Worst in 200 Years / IMF paper warns of ‘savings tax’ and mass write-offs as West’s debt hits 200-year high (3 January 2014)

Reinhart and Rogoff may be wrong.

However, if people in the USA and Europe are going to have less money to spend, then certain corporations will suffer.

"In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. 

"Berkshire sold roughly 19 million shares of Johnson and Johnson, and reduced his overall stake in 'consumer product stocks' by 21%.

"Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.

Billionaires Dumping Stocks, Economist Knows Why / Full article here



The game of Monopoly can go on for ever, so long as you are allowed to borrow money.

You land on 'Mayfair' where your opponent has hotels.

You haven't got enough cash, so you borrow from 'the bank', which has limitless money.

Each time you pass 'Go' you pay 5% on your borrowing.

If your opponent lands on your hotels on 'Oxford Street', you then have enough money to pay back the money borrowed from the bank.



Of course, if your opponent has far more properties and hotelsthan you, you will end up with growing debts.

But, the bank always allows you to borrow more money.

So the game goes on for ever.

The game only ends if:

(1) the rules are changed so that there is a limit to borrowing

(2) and, one player has far more properties, hotels and cash than the other and the dice are generally in his favour.


imghumour.com

The USA currently has some economic problems.

Its debt is rising. 

Its population is ageing. 

Its schools are mediocre. 

Its infrastructure is rickety. 

Its politicians are corrupt.

It is spending too much money on wars.

There is a giant gap in wealth between the elite and the average citizen...


A well nourished man steals maize from a starving child during a food distribution at a feeding center in Sudan in 1998. Photo by Tom Stoddart.

But, so long as the US government can go on printing money, the game can go on for ever.

Of course, if the USA fails to get its house in order, the dollar will go down in value and ordinary people become much poorer.



Cyprus is not going to cease to exist just because its economy is in a mess.

Cyprus has oil and gas.

And the USA wants Cyprus inside NATO.



We should all look at Switzerland, which is made up of a number of counties (cantons).

The central government in Switzerland controls the railways. 

The cantons control education, labour, economic and welfare policies and so on.

Each canton has its own parliament and constitution. 

The communes vary in size from a few hundred to more than a million people.

Switzerland has lots of hotels!

The USA and parts of EUROPE need to look at MANAGEMENT and SKILLS

The main thing that has gone wrong in certain businesses, and certain economies, is bad management.

"Prof Van Reenen and his colleagues suggest that around 70 % of international differences in GDP per person are attributable to differences in the performance of management."

Capital investment cannot explain growth rates

SKILLS

Many people in the USA and UK are unemployable, because they lack the necessary skills.

In Germany, more workers have the necessary skills to find work; and these workers are better paid; and there is a lower gap between rich and poor.

"Germany channels roughly half of all high-school students into the vocational education stream from the age of 16...

"More than 40 per cent of Germans become apprentices.

"Only 0.3 per cent of the US labour force does so...

"The US is underskilled.

"It has high unemployment at a time when there are 3.5m job vacancies...

"The average hourly cost of a US manufacturing worker is $32. 

"In Germany it is $48." 

Why the US is looking to Germany - FT.com - Financial Times



Lowering taxes is not the answer.

"Many states, such as Michigan and Ohio, are realising that what desirable investors most covet is skilled labour.

"According to the OECD, the US comes last out of 29 countries in terms of the work readiness of its high-school leavers. 

"And 46 per cent of those who go to college fail to complete their four-year degree within six years...

"Almost half of Americans with a degree are in jobs that do not require one.

"Fifteen per cent of taxi drivers in the US have a degree, up from 1 per cent in 1970.

"Likewise, 25 per cent of sales clerks are graduates, against 5 per cent in 1970...

"The US needs to rejuvenate its community colleges, which offer two-year vocational degrees but are often starved of funds. And it needs to fall back in love with apprenticeships...

"Siemens recently had 2,000 applications for 50 vacancies in North Carolina. Only 10 per cent passed the aptitude test."

Why the US is looking to Germany - FT.com - Financial Times