East and West Jan 8_Niall Ferguson

8/7/2019 East and West Jan 8_Niall Ferguson

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The West and the Rest:

Shifts in the Global Balance

of Economic Power

Skagen, January 2010


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Source: Maddison, World Economy


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But Asias industrial revolutions

70 yrs 26 yrs


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mean the shift from West to East

Source: IMF


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now looks unstoppable

Source: Goldman Sachs


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(Its happened before)

Source: Maddison


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Especially in manufacturing

Source: UN


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Source: World Bank

And the East is gaining fast


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Very fast

Source: Conference Board


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The demographics are clear

Source: United Nations


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And the Slight Depression

Source: Economagic


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has just speeded things up

Source: IMF


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We tried monetary stimulus (QE1)

Source: Federal Reserve

Fact: Fed lent $3.3trn in emergency

loans. Goldman Sachs turned to the

Fed for funding on 84 occasions, and

Morgan Stanley 212 times.


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And fiscal stimulus

Source: White House; CBO


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Causing a developed world debt explosion

Source: IMF


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But now the hangover has begun


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Source: BIS

Debt/GDP projections


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Source: FT


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The death of the Eurozone?

Source: FT


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Source: BIS

Debt/GDP projections (2)


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PIGS

RUS


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Source: OECD


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PIGS R US


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PIGS R US


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Can the US set its house in order?

What the CBOrecommends tostabilize debt/GDP by2015

Cut 12.5% off all adultbenefits OR

Raise all taxes by 11%

If we wait until 2025 Cut 26% of all adult

benefits OR

Raise all taxes by 26.5%


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Can the US set its house in order?

What the CBOrecommends tostabilize debt/GDP by2015

Cut 12.5% off all adultbenefits OR

Raise all taxes by 11%

If we wait until 2025 Cut 26% of all adult

benefits OR

Raise all taxes by 26.5%

White House to extendBush tax cuts for all andintroduce a payroll taxholiday

Bill: $900bn for 2 years,of which $120bn fromhigh-end taxpayers

NB Bond market actionhas already pushed upmortgage rates by 57bps


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Now here comes the political fallout

Source: Economist


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The Chinese fear inflation

Because the United States issuance of dollars isout of control and international commodityprices are continuing to rise, China is beingattacked by imported inflation. The uncertainties

of this are causing firms big problems. Commerce Minister Chen Deming, October

U.S. engaged in uncontrolled and irresponsiblemoney printing: As long as the world exercises no

restraint in issuing global currencies such as thedollar then the occurrence of another crisis isinevitable. Xia Bin, PBOC adviser, November


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Not surprisingly

Source: IMF


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With gold at +$1,300

Source: FT


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Source: TIC Monthly Reports

Hence the quiet unwind

Down 10% since July

2009, from 13% to 10%

of total federal debt in

public hands


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But U.S. fears deflation

Source: Bridgewater


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from a monetarist contraction
http://www.shadowstats.com/charts/monetary-base-money-supply


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Which leaves real rates positive

Source: Ambrosetti


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and runs the risk of a Greek tragedy

Source: CBO


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Source: Economist

Not to mention a 1-term Presidency


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And rapid strategic decline

Source: White House


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Hence the seductive appeal of QE2


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But that just leads to currency war, no?

If the Chinese dont takeactions [to endmanipulation of theircurrency], we have other

means of protecting U.S.interests. Obama at UNGen Assembly, Sept 23

Do not work to pressureus on the renminbi rate Many of our exportingcompanies would have to

close down, migrantworkers would have toreturn to their villages. IfChina saw social andeconomic turbulence,then it would be adisaster for the world. Wen Jiabao, Oct 6

NB Brazilian Finance Minister Guido

Mantega coined phrase currency war.


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But who gains more from Chimerica?

Source: Bridgewater

NB China accounted for almost a fifth of world growth in 2010 IMF


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Chinas Plan: 1. Consume more

Chinese auto sales have gone from 2m per year in 2005 to14m, c/w U.S. 11m; Chinese demand for cars to rise 10-fold

China to use 20% of global energy by 2035 up 75% since2008 IEA

Source: Bridgewater


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2. Import more

China now biggest export market for Brazil(12.5% of exports in 2009), South Africa(10.3%), Japan (18.9%) and Australia (21.8%)

Economist China accounted for about 46% of global coal

consumption in 2009 World Coal Institute

In 2009 consumed twice as much crude steelas the European Union, America and Japancombined Economist


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3. Invest abroad more

January 2010: Chinese investors made directinvestment in 420 overseas enterprises in 75countries and regions: $2.4bn

Asia 44.7%; Africa 41.8% Communication & transportation 33.9%;

petrochemical 24%

Labor service personnel dispatched overseas in

January: 24,200 Total LSP overseas ~770,000

Source: China.CN http://en.china.cn/content/d732706,cd7c6d,1912_6577.html


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4. Innovate more

Source: WIPO

Still d t


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Educational attainment

of the population aged

25-34 years

2003

Source: OECD, Economic Survey of

the UK, October 2005

Still dont

believe me?


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You do the Math

Source: TIMSS


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and the Science

Source: TIMSS


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The Slight Depression is a symptom

of a bigger shift

Documents

East and West Jan 8_Niall Ferguson