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ASCI WORLD ECO SIT

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The total world reserves in 2014-Q2 was $12.00 trillion, of which 60.7% was held in US dollars, 24.2% in Euros, 4% in Yen and 3.9% in UK Pounds.

Almost all of these reserves are held by individual countries in the form of bonds, mostly earning very small interest rates. This is like money invested in a bank, but in reality it is money being lent to the issuing country.

Since the reserves are mostly in US dollars and Euros, the issuing countries have little reason to hold much as reserves. The USA’s total reserves amount to about $139 billion. Contrast this to India’s $398 billion and China’s $4055 billion.

By 2011, the picture had been flipped on its head: emerging and developing countries held 67% of total reserves, with less than 39% allocated. Emerging countries now hold roughly $6.8 trillion in reserve currency.

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ASCI WORLD ECO SIT

  1. 1. Where do we go from here? January 23, 2015 Mohan Guruswamy 1
  2. 2. The once and future world? Major world economies from 0-2005. January 23, 2015Mohan Guruswamy 2
  3. 3. How the World grew to be Rich. January 23, 2015Mohan Guruswamy 3 In 2012 the World GDP totaled about $71.83 trillion ($45.73 trillion in 1990 US dollars) and the per capita GDP was $12400. During the past eight years the WGDP grew at about 4% a year. In 1960 the WGDP was $6.85 trillion (1990). The WGDP was just $1.1 trillion in 1900 and took half a century to grow fourfold to $4.01 trillion and grew ten fold to $41 trillion (1990). The big leaps began after 1971 when US President Richard Nixon unilaterally delinked the US dollar from the international gold standard.
  4. 4. 01/23/15Mohan Guruswamy 4 “Using the past as a mirror, we will see some going up while others will be coming down.”- Hu Jintao For the last 50 years, the world economy has benefited from a demographic boom that has contributed 1.8 percent to average annual global GDP increases, helping to generate an unprecedented level of growth. This demographic headwind is coming to an end. With populations aging and fertility rates dropping around the world, the growth rates of the past 50 years may prove to be the exception, not the rule. In the next fifty years as many countries decrease in the sizes of their population and economies, some others will be traveling in the opposite direction. India is expected to be one of them.
  5. 5. The Growth of Trade. January 23, 2015Mohan Guruswamy 5 The total world trade in 2013 was $37.7 trillion, with China (including Hong Kong) the biggest player accounting for $5.31 trillions. The top five global traders account for $19.11 trillions or 50.6% of global trade. Almost a quarter of the global trade is accounted by the USA, Germany and Japan. The EU share of world trade is $4.49 trillions and the USA’s is $3.91 trillions also accounting for about a quarter of world trade.
  6. 6. Year Gross World Product (GWP) (trillion $) Per capita GWP ($) Annual Growth of GWP (%) Annual Growth of P/C GWP (%)  1980 26.8 6,042 -- -- 1985 30.7 6,345 2.75 0.98 1990 36.3 6,867 3.4 1.59 1995 40.8 7,168 2.36 0.86 2000 48.6 7,985 3.66 2.18 2004 55.9 8,753 3.56 2.32Source: World Watch Institute 2002 & World Economic Outlook Database, 2005, IMF Growth of the world 1980-2004. January 23, 2015Mohan Guruswamy 6
  7. 7. January 23, 2015Mohan Guruswamy 7 WGDP growth since 2004.
  8. 8. January 23, 2015Mohan Guruswamy 8 The world at the end of the current decade.
  9. 9. January 23, 2015Mohan Guruswamy 9 The Once and Future World!
  10. 10. January 23, 2015Mohan Guruswamy 10 Top 10 GDP’s (PPP).
  11. 11. January 23, 2015Mohan Guruswamy 11 The Rise of Asia.
  12. 12. January 23, 2015Mohan Guruswamy 12 Who contributes how much to world growth 2010-19.
  13. 13. January 23, 2015Mohan Guruswamy 13 BRIC’s will be bigger than G-6 by 2050. (In 2003 US $ bns.)
  14. 14. Break-up of World Reserves. January 23, 2015Mohan Guruswamy 14
  15. 15. % Composition of Reserve Currencies. January 23, 2015Mohan Guruswamy 15
  16. 16. The Dollar is King! January 23, 2015Mohan Guruswamy 16
  17. 17. The total world reserves in 2014-Q2 was $12.00 trillion, of which 60.7% was held in US dollars, 24.2% in Euros, 4% in Yen and 3.9% in UK Pounds. Almost all of these reserves are held by individual countries in the form of bonds, mostly earning very small interest rates. This is like money invested in a bank, but in reality it is money being lent to the issuing country. Since the reserves are mostly in US dollars and Euros, the issuing countries have little reason to hold much as reserves. The USA’s total reserves amount to about $139 billion. Contrast this to India’s $398 billion and China’s $4055 billion. The narrative so far. January 23, 2015Mohan Guruswamy 17
  18. 18. That last figure will tell you how much China is invested in the USA, and also how much leverage the USA can exercise over China to ensure complaint behavior. In 1995, advanced economies held around 67% of total foreign exchange reserves, with 82% of these being allocated reserves. By 2011, the picture had been flipped on its head: emerging and developing countries held 67% of total reserves, with less than 39% allocated. Emerging countries now hold roughly $6.8 trillion in reserve currency. Who says Wealth is Power? January 23, 2015Mohan Guruswamy 18
  19. 19. This is a situation where the rest of the world invests in the USA, so that it in turn can splurge on itself. When the US is short, it just prints some more dollars, which the rest of us lap up quite happily. Every time the USA goes into convulsions due to its profligacy and economic mismanagement, the world go into a tailspin, because the USA is the world’s biggest importer and it is where the world keeps its money. January 23, 2015Mohan Guruswamy 19 When our Money becomes our Problem
  20. 20. The Federal Reserve Open Market Committee (FOMC) has has announced its goal to devalue the dollar by 33% over the next 20 years. But, an increase of 2% a year over a period of 20 years will lead to a 50% increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today. January 23, 2015Mohan Guruswamy 20 What will the Dollar be worth?
  21. 21. Countries like China and India produce goods and services at low cost for consumption in the USA, which in turn pays them in dollars, which they in turn deposit in US banks. Since money cannot sit still, this money in US banks is then lent to Americans, who today have the highest per capita indebtedness in the world, to splurge on houses, cars, plasma TV’s, computers and play stations which they can often ill-afford. How the system actually works. January 23, 2015Mohan Guruswamy 21
  22. 22. Why is the USA so important? January 23, 2015Mohan Guruswamy 22
  23. 23. January 23, 2015Mohan Guruswamy 23 The USA’s Imbalanced Trade with the World.
  24. 24. January 23, 2015Mohan Guruswamy 24 The Siamese Twins!
  25. 25. January 23, 2015Mohan Guruswamy 25
  26. 26. January 23, 2015Mohan Guruswamy 26 Whatever happened to Japan?
  27. 27. January 23, 2015Mohan Guruswamy 27 Age structures of China & India 2000-10-25-35.
  28. 28. China’s Increasing Dependency Ratios. January 23, 2015Mohan Guruswamy 28
  29. 29. January 23, 2015Mohan Guruswamy 29 China’s aging problem. It will get old before it gets rich. Life expectancy has more than doubled from 35 in 1949 to 75 today, a miraculous achievement. Meanwhile, the fertility rate has plummeted to 1.5 or lower, far below the 2.1 needed to keep a population stable. Cai Fang, a demographer at the Chinese Academy of Social Sciences, says the country will have moved from labour surplus to labour shortage at the fastest pace in history. In 2011, its workforce shrank for the first time, years before anyone had predicted. Japan reached a similar turning point in about 1990. By then, its living standards were already at nearly 90 per cent of US levels. In purchasing power parity terms, China’s per capita income is still below 20 per cent. “There’s now no doubt,” says Professor Cai. “China will be old before it is rich.”
  30. 30. India’s Dependency Ratios 2005-2050. January 23, 2015Mohan Guruswamy 30
  31. 31. January 23, 2015Mohan Guruswamy 31 On conservative growth forecasts, Asia is predicted to add 2.5 billion people to the world’s middle classes in the next 20 years. The middle class in both China and India is growing at an extraordinary rate. China’s middle class could swell to 50% of its population in just 12 years. India’s middle class could rise even more rapidly because Indian households benefit more from Indian growth than do Chinese households, given the prevailing distribution of income’. The Age of the Middle Class.
  32. 32. January 23, 2015Mohan Guruswamy 32 Urbanization will reshape the world.
  33. 33. January 23, 2015Mohan Guruswamy 33 India’s late surge!
  34. 34. 1/19/15Mohan Guruswamy 34 In just 15 years from now!
  35. 35. January 23, 2015Mohan Guruswamy 35 Why everybody is excited about India?
  36. 36. January 23, 2015Mohan Guruswamy 36 India’s burgeoning middle-class.
  37. 37. January 23, 2015Mohan Guruswamy 37 The implications of India’s urbanization.
  38. 38. January 23, 2015Mohan Guruswamy 38 Cargestion will push investment in Mass Transit.
  39. 39. January 23, 2015Mohan Guruswamy 39 Key sectors for India.
  40. 40. But a fast take-off for India! January 23, 2015Mohan Guruswamy 40
  41. 41. January 23, 2015Mohan Guruswamy 41

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