The Real Causes by Howard Nicholas
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The Real Causes by Howard Nicholas

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  • Source: EconomistOwn composite, US, EU and Japan
  • Source: EconomistOwn composite, BRICs
  • Source: EconomistOwn composite in US, Japan and Euro area* Changed from annual to monthly basis
  • 1. Most of the advanced country deficits funded bank bail-outs. Most of the developing country deficits funded infrastructure development and lending to productive enterprises.
  • Source: Economisthttp://www.economist.com/blogs/dailychart/2011/08/emerging-vs-developed-economies
  • Also note shifts in global economic power and economic thinking.
  • End of periodAnnual, Nov for 2012 only
  • As a result, core inflation – defined as yoy growth in the Personal Consumption Expenditure (PCE) deflator excluding food and energy – has now dropped under 1.1%, to the lowest reading in its entire 53-year record. (ECRI, June 3, 2013)
  • Replace to http://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/?Can be changed to other chart(Source: http://www.moneyweek.com/investments/stock-markets/the-most-important-driver-of-stock-market-returns-14646)
  • Palm oil, Malaysia Palm Oil Futures (first contract forward) 4-5 percent FFA, US$ per metric ton
  • Rubber, Singapore Commodity Exchange, No. 3 Rubber Smoked Sheets, 1st contract, US cents per pound

The Real Causes by Howard Nicholas The Real Causes by Howard Nicholas Presentation Transcript

  • Howard Nicholas International Institute of Social Studies, Erasmus University Rotterdam
  • • Severe economic and financial crises in period 2007-9 • Renewed weakness in the global economy from mid-2010 onwards – Falling GDP and industrial production growth – Continuing high unemployment – Loss of confidence in countries with excessive debts – the Eurozone crisis – Considerable volatility in global financial markets The Global Economic Problems
  • (Data Source: Economist, Calculated by author) Weakening industrial production and real GDP growth in advanced countries, 2008 (Jan) – present (Jun 2013)
  • (Data Source: Economist, Calculated by the author) Weakening industrial production and real GDP growth in developing countries, 2008 (Jan) – present (Jun 2013)
  • (Data Source: Economist, Calculated by the author) Unemployment still high in advanced countries, 2008 (Jan) – present (Jun 2013)
  • • Reductions in interest rates and printing of money (to aid banking system) • Budget deficits (also to bail out banks) • Bail-outs of banks and some non-financial corporations (1) Major policy responses to 2007-9 crisis and ensuring global economic turmoil
  • • Government monetary and fiscal irresponsibility in the advanced countries coupled with exchange rate manipulation by the Chinese. • Speculative excesses by the financial sector in the advanced countries coupled with mercantilist policies of the Chinese and other Asian economies. Standard explanations for the global economic problems
  • • Shift in balance of global economic power away from the U.S. and towards Europe and Developing countries. • Workings of cycles, especially the long cycle – end of phase in which financial sector becomes too big • Fall or stagnation in real wage levels in the U.S. (and other advanced countries) hidden by an excessive expansion of credit (1) • Misguided policies and data manipulation in the advanced countries have aggravated problems. Real causes
  • THE SHIFT IN GLOBAL ECONOMIC POWER 10
  • THE BUSINESS CYCLE 12
  • A Typical Cycle • Output growth up • Inflation up • Interest rates up • Output growth down • Inflation down • Interest rates down
  • Types of Cycles Cycle Duration Source K-Wave 50-60 yrs Major innovations Juglar 7-11 yrs Fixed capital investments Kitchin 3-4 yrs Inventory capital changes
  • Combining waves
  • Long cycle phases upswing downswing Long Cycle Phases • Major tech, innovations lead to rise in profits, investment and output • Prices rise towards end of phase (technological and production capacity limits are reached) •Primary commodity prices peak by the middle of the upswing • Profits, investment and output growth fall • Unemployment rises and real wages and prices fall…debt rises • Primary commodity prices bottom and then start to rise •Shift in global economic power accelerates
  • (Source: Goldstein 1988 (modified)) Long Cycle Dating Trough Peak Trough Duration Hegemonic Power Technology 1790 1814 1848 58 Britain Canals 1848 1872 1893 45 Britain Railways, Steam (steam engine) 1893 1917 1940 47 Britain Steel, Combustion engine, Electricity, Chemicals, Telephone 1940 1975 2000 60 United States Electronics, Plastics, Aerospace, Nuclear energy 2000 2030 2050 50 United States Computers, Biotechnology, Robotics
  • Long Cycle Interest Rates, US 20 yr bonds, 1954 – 2012 * 1987-92 data is estimate (Data Source: US Federal Reserve St.Louis)
  • FUTURE PROSPECTS
  • Short-term prospects • Should be another global recession, led by recession in the US by 2014 at the latest • Return to easy monetary policies in the advanced countries • Continuing tightening of fiscal policies in advanced countries
  • 1958 1970 1975 (oil shock) 1980 1991 2001 2008 2014/5 Juglar dating – cycle bottoms
  • U.S. Imports, growth rate 1993 – April 2013 (Source: ECRI, 3rd June 2013)
  • Longer-term prognosis • Stagnation in the advanced countries (1) – Continuing migration of production to developing countries – Continuing high unemployment – Continuing high government debt and budget deficits – Inflation problems • More rapid growth in the developing countries (2) – Continuing growth of Asia – possible formation of a monetary union – Rise of Latin America and Africa
  • Cyclical movement of US debt
  • All primary commodities, 2000 (Jan) – 2013 (3rd Sep) (Source: Economists, Chart by author)
  • Palm oil, 2000 (Jan) – 2013 (Aug) (Source: International Monetary Fund, Chart by author)
  • Rubber, 2000 (Jan) – 2013 (Aug) (Source: International Monetary Fund, Chart by author)