The outlook for 2013 and beyond – Philip Coggan at the LBS Investing Strategy event
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Philip Coggan is the Buttonwood columnist of The Economist. Previously he founded the "Short View" column and wrote the "Long View" and "Last Word" columns at the Financial Times. In the presentation he explores current issues with the eurozone. The “Investment Strategy 2013: Peering into the Crystal Ball” event was organised by The Pensions Management Institute and London Business School’s Alumni Club. It took place on 8 October 2012.
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The outlook for 2013 and beyond – Philip Coggan at the LBS Investing Strategy event
- 1. The outlook for 2013 and beyond Philip Coggan, Buttonwood columnist
- 2. Europe: four problems Too much debt Too much owed to foreigners Too big a deficit Too uncompetitive
- 5. Too much owed to foreigners
- 7. Not competitive part 2
- 8. Adding the totals Combined ranking (low is bad, high is good) Greece 10 Italy 21 Portugal 21 Ireland 23 Spain 24 France 26 Germany 46
- 9. The long-term cycle Money has two main functions Medium of exchange Store of value Debtors emphasise the former, creditors the latter If creditors “fix” the value of money, via gold standard or exchange rate, debtors are overwhelmed
- 10. Expunging debt Debt can be written off, inflated away or devalued away SOMEONE MUST LOSE Problem with euro crisis is that they have been slow to recognise this Debt passed round system, like Queen of spades in Old Maid Germans must choose their poison
- 11. Here is the bill, Angela
- 12. Extend and pretend Costs of exit are so large that forbearance will keep being tried New ECB programme; Britannia rules the waves and the ECB waives the rules Money won’t be paid back but debt will be endlessly extended Not great for eurozone economy but not catastrophic either
- 13. Long-term Too much debt US might grow its way out of it But Europe has demographic problem Number of workers per pensioner Britain: 1970 4.3, 2010 3.6, 2050 2.4 Germany: 1970 4.1, 2010 3, 2050 1.6 Spain; 1970 5.6, 2010 3.7, 2050 1.5 Japan: 1970 8.6, 2010 2.6, 2050 1.2
- 14. So we must retire later 70 or bust People in DC schemes already retire one year later than DB But two problems; DC not saving enough Public sector in DB Battle between rich and poor, old and young, taxpayers and public sector workers, one country and another
- 15. Final thought All pensions are claims on future workers; can’t get round it Catch two-and-twenty; May be some niche sources of excess return but everyone can’t get them Basic return – economic growth and risk-free rate. No inherent source of return in, say, volatility