[Graeme]

The great corporate cash-hoarding crisis

A troubling change is taking place in American business, one that explains why nearly six years after the Great Recession officially ended so many people cannot find work and the economy remains frail.

The biggest American corporations are reporting record profits, official data shows. But the companies are not investing their windfalls in business expansion, which would mean jobs. Nor are they paying profits out to shareholders as dividends.

Instead, the biggest companies are putting profits into the corporate equivalent of a mattress. They are hoarding what just a few years ago would have been considered unimaginable pools of cash and buying risk-free securities that can be instantly converted to cash, which together are known in accounting parlance as liquid assets.

This is just one of many signs that America’s chief executive officers, chief financial officers and corporate boards are behaving fearfully. They are comparable to the slothful servant in the biblical parable of the talents who buries a fortune in the ground rather than invest it. Their caution, aided by government policy, costs all of us.

aljazeera

Corporate America Is Hiding $2 Trillion In Profit From The IRS

The largest American multinational companies parked an additional $206 billion of profits in offshore accounts last year, according to Bloomberg, bringing the total amount of profits stashed where U.S. tax officials can’t touch them up to about two trillion dollars.

The 307 companies that Bloomberg examined now hold a combined $1.95 trillion offshore, allowing them to avoid paying U.S. taxes on those earnings. The majority of the total is concentrated in just a few corporate hands. The largest 22 of those companies hold more offshore than the other 285 combined.

General Electric leads the pack, with $110 billion held offshore. Tech companies like Microsoft ($76.4 billion), Apple ($54.4 billion), IBM ($52.3 billion), and Google ($38.9 billion) also dominate, along with drug companies like Pfizer ($69 billion) and Merck ($57.1). The tech giants have drastically accelerated their offshore holdings in recent years, with Microsoft and Google more than doubling and Apple more than quadrupling offshore profit holdings from 2010 to 2013.

thinkprogress

[Graeme]

On the Wrong Side of Globalization

By JOSEPH E. STIGLITZ

Trade agreements are a subject that can cause the eyes to glaze over, but we should all be paying attention. Right now, there are trade proposals in the works that threaten to put most Americans on the wrong side of globalization.

The conflicting views about the agreements are actually tearing at the fabric of the Democratic Party, though you wouldn’t know it from President Obama’s rhetoric. In his State of the Union address, for example, he blandly referred to “new trade partnerships” that would “create more jobs.” Most immediately at issue is the Trans-Pacific Partnership, or TPP, which would bring together 12 countries along the Pacific Rim in what would be the largest free trade area in the world.

Negotiations for the TPP began in 2010, for the purpose, according to the United States Trade Representative, of increasing trade and investment, through lowering tariffs and other trade barriers among participating countries. But the TPP negotiations have been taking place in secret, forcing us to rely on leaked drafts to guess at the proposed provisions. At the same time, Congress introduced a bill this year that would grant the White House filibuster-proof fast-track authority, under which Congress simply approves or rejects whatever trade agreement is put before it, without revisions or amendments.

Controversy has erupted, and justifiably so. Based on the leaks — and the history of arrangements in past trade pacts — it is easy to infer the shape of the whole TPP, and it doesn’t look good. There is a real risk that it will benefit the wealthiest sliver of the American and global elite at the expense of everyone else. The fact that such a plan is under consideration at all is testament to how deeply inequality reverberates through our economic policies.

Worse, agreements like the TPP are only one aspect of a larger problem: our gross mismanagement of globalization.

Let’s tackle the history first. In general, trade deals today are markedly different from those made in the decades following World War II, when negotiations focused on lowering tariffs. As tariffs came down on all sides, trade expanded, and each country could develop the sectors in which it had strengths and as a result, standards of living would rise. Some jobs would be lost, but new jobs would be created.

Today, the purpose of trade agreements is different. Tariffs around the world are already low. The focus has shifted to “nontariff barriers,” and the most important of these — for the corporate interests pushing agreements — are regulations. Huge multinational corporations complain that inconsistent regulations make business costly. But most of the regulations, even if they are imperfect, are there for a reason: to protect workers, consumers, the economy and the environment.

What’s more, those regulations were often put in place by governments responding to the democratic demands of their citizens. Trade agreements’ new boosters euphemistically claim that they are simply after regulatory harmonization, a clean-sounding phrase that implies an innocent plan to promote efficiency. One could, of course, get regulatory harmonization by strengthening regulations to the highest standards everywhere. But when corporations call for harmonization, what they really mean is a race to the bottom.

When agreements like the TPP govern international trade — when every country has agreed to similarly minimal regulations — multinational corporations can return to the practices that were common before the Clean Air and Clean Water Acts became law (in 1970 and 1972, respectively) and before the latest financial crisis hit. Corporations everywhere may well agree that getting rid of regulations would be good for corporate profits. Trade negotiators might be persuaded that these trade agreements would be good for trade and corporate profits. But there would be some big losers — namely, the rest of us.

These high stakes are why it is especially risky to let trade negotiations proceed in secret. All over the world, trade ministries are captured by corporate and financial interests. And when negotiations are secret, there is no way that the democratic process can exert the checks and balances required to put limits on the negative effects of these agreements.

nytimes

[Graeme]

New doomsday poll: 99.9% risk of 2014 crash

Global risks are accelerating. This is our fourth major poll update of industry leaders: A critical review of their warnings from early last year when we first predicted a 87% risk of a crash: Bernanke’s Fed saw an “unsustainable bubble” ... Gross: “credit supernova” ... Gundlach: “kaboom ahead” ... Ellis: “Don’t own bonds” ... Shilling: “shocker” ... Roubini: “Prepare for perfect storm” ... Shiller: “Irrational exuberance is back” ... Schiff: “Doubling down” on “doomsday” prediction ... InvestmentNews’ warning 90,000 advisers: “tick, tick ... boom!”

A few weeks later the crash risk was up to 98%. Then a dramatic preholiday uptick in investor sentiment. America’s collective unconscious tired of negativity after a Halloween headline: “Economic guillotine dead ahead.” A week later, 2014 became the “Year of the Boom.” Bank of America’s chief strategist screamed: “Bet on the bulls now.” The Great Gatsby spirit was celebrating the holidays: “Even old grumpy Dr. Doom, celeb economist Nouriel Roubini, began humming a happy tune all over television: “A global recovery is going to occur, get into equities.”

What really happened? Fed politics. Short-term, Larry Summers withdrew as a candidate for the Fed chairman’s job. Dark cloud lifted as Janet Yellen become the pick. Wall Street cheered, Bernanke’s easy-money printing presses would not screw up their year-end bonuses. Plus Main Street was mentally exhausted, tired of the bad news, relentless political drama. We needed a holiday break.

By Thanksgiving, “irrational exuberance” was accelerating in full holiday tilt: Headline: “Shiller’s hot P/Es will power a roaring bull till 2017,” and 2014 got branded the “Katy Perry market!” A week later, a Thanksgiving headline added: “10 reasons to be a bull in 2014.”

But long term? What’s really ahead for America in 2014? Warning, something bigger is hiding in the deep shadows of our collective brain. At a recent lunch with an old friend, one of the world’s more successful commodities traders, he confirmed that “something” was dead ahead. But not just another brief statistical shift in sentiment. Not a medium-term volatility shift. America, the world, are in a historic transition, a paradigm shift, a mysterious upheaval that few will grasp till it moves further along.

Dark road dead ahead: Yellen, Gross, GOP, off-center, all tested

More losses? How bad? Worse than 2000 and 2008? Yes. Wall Street, Main Street, Washington, the global economy, will all be knocked off-center. Traders are focusing on St. Patrick’s Day for guidance, below S&P 1,850, Dow 16,400, with a downturn accelerating after a macroeconomic news event in mid-April. For Wall Street’s short-term thinkers, all easy to dismiss, they make money on the action, up or down.

But this trader’s track-record says listen. His predictions fit our polls. The underlying reason is simple: Yellen’s policy is to keep printing cheap money. Remember last summer: Bernanke still in power? Wall Street feared Summers would hurt bonuses. Gross screamed, “QE must end.” Yet market kept rising. Pimco lost. Gross was off-center. His partner Mohamed El Erian left. Gross’s confusion was just one of many signs of a fundamentally flawed monetary policy dating back to Greenspan and Reaganomics

What’s ahead is even bigger: A black swan. Unpredictable. A macroeconomic catastrophe in China, Russia? Something politically dramatic, like the fall of the Berlin Wall? Oil wars? What do you see? Dismiss? Comment: Will 2014 continue the bull? Correction? Bear? The “big one” predicted for last year? Finally coming? Our poll resembles the one we reported on from 2004 to 2008, summarized shortly before the collapse.

marketwatch

[Graeme]

5 ways the Fed can get the economy back to normal

The U.S. economy’s recovery and subsequent expansion since 2008 has been painfully slow, but appears to be gaining traction. The Federal Reserve’s monetary policy should reflect this reality. Interest rates cannot stay low forever, and central bank balance sheets should not grow to the sky.

According to the most recent data available, economic activity remains subpar, but 2.5% real GDP and 6.7% unemployment with 1.6% core inflation is hardly a crisis state. At some point, continuing the Fed’s extraordinary quantitative easing measures indicate that the underlying economy is not healthy, creating more uncertainty for investors, businesses and consumers.

To counter this, the Fed should spell out what a more normalized monetary policy would look like, starting with its policy meeting this week. Here are five actions the Fed should take:

1. Continue to unhinge forward guidance from the current unemployment target

In spite of the recent blip-up in unemployment to 6.7%, this rate is dangerously close to the 6.5% mark the Federal Open Markets Committee (FOMC) has pegged as possibly warranting a move from its current level. The Fed knows that the reduction in unemployment from 10% to 6.7% is likely due in large part to changing labor force dynamics — a generational drop in the participation rate to 63%, not resurgence in true job creation. So, if 6.5% is no longer relevant, what is the new standard?

marketwatch

[Graeme]

Citigroup's Schofield: Global Economy 'May Be Heading Into Grumbling Discontent'

While the turmoil surrounding Ukraine wasn't enough to derail a strong U.S. stock rally, the East-West conflict could bode ill for the global economy, says Mark Schofield, head of interest rate strategy at Citigroup.

Already the United States and Europe have imposed sanctions on Russia.

"All-in-all, it feels as if we may be heading into a summer of grumbling discontent, rather than the steady and progressive U.S.-led recovery that had become the consensus view around the start of the year," Schofield writes in a commentary obtained by CNBC.

The problem isn't merely the possibility of military conflict, he says.

"The concerns stem not just from raised geopolitical risk but also from fears surrounding the longer-term macroeconomic implications," Schofield explains.

"Clearly the tensions in Ukraine have been central to the recent bouts of market uncertainty, but the greater concerns going forward probably come from the risk of significant damage to economic confidence and to economic recovery than from the threat of an escalation in military tensions."

To be sure, the crisis isn't strong enough yet to do serious damage, Schofield notes.

"The current crisis seems to have the right mix of potential threats and risks to finally unsettle investors, but it probably needs to be a little more widespread before serious damage is done."

Ultimately, Russia could suffer worst of all, experts say.

"The reality is that Russia is dependent on the international economy in a way that wasn't true 10 years ago," John Beyrle, a former U.S. ambassador to Russia, tells CNNMoney.

moneynews

[Graeme]

Moving towards a green global economy

Sesame Street’s Kermit the Frog once lamented that “it’s not easy bein’ green”. Today, this sentiment is surprisingly relevant to the global economy — only it is becoming green that is the problem.

Last September, the Intergovernmental Panel for Climate Change warned that if the world sticks with “business as usual”, global temperatures will rise by 4°C to 6°C — far beyond the 2°C increase that has been deemed “safe”. This prompted United Nations Secretary-General Ban Ki Moon to challenge political, economic and financial leaders in January to intensify their efforts to achieve a new global agreement on climate change by next year.

INVESTING IN SUSTAINABILITY

However, as important as high-level deals are, they will amount to little unless they are backed by considerable investment in areas such as smart grids, energy storage and renewable resources. Indeed, the International Energy Agency estimates that nearly US$1 trillion (S$1.27 trillion) worth of investment will be needed annually between now and 2050 to put the world economy on a more sustainable path.

While that may seem like a lot of money, it is the equivalent of only 1 per cent of global GDP and less than 0.3 per cent of global financial assets. Moreover, since 2007, major central banks have proven that they can augment their balance sheets by more than US$1 trillion annually, without triggering inflation. In other words, the world can afford the transition towards a green economy.

Nonetheless, last year, green investment amounted to only US$254 billion — implying an annual shortfall of nearly US$750 billion. To bridge the gap, governments of advanced countries are leveraging their limited public funds to catalyse private-sector investment. At the same time, developing countries are rapidly increasing their contributions to green finance, with domestic clean-energy financing in non-OECD (Organization for Economic Co-operation and Development) countries having surpassed OECD-country levels in 2008.

But the problem remains that the current structure of markets impedes their ability to adjust to climate change. What is really needed is not money, but the political will to correct market failure by bringing about fundamental shifts in the metrics, institutions and policies that govern how investors evaluate economic activities.

todayonline

[Graeme]

Markets may be underestimating threats to the global economy

For starters, there is the risk of a hard landing in China. The rebalancing of growth away from fixed investment and toward private consumption is occurring too slowly, because every time annual GDP growth slows toward 7%, the authorities panic and double down on another round of credit-fueled capital investment. This then leads to more bad assets and non-performing loans, more excessive investment in real estate, infrastructure, and industrial capacity, and more public and private debt. By next year, there may be no road left down which to kick the can.

There is also the risk of policy mistakes by the US Federal Reserve as it exits monetary easing. Last year, the Fed's mere announcement that it would gradually wind down its monthly purchases of long-term financial assets triggered a "taper" tantrum in global financial markets and emerging markets. This year, tapering is priced in, but uncertainty about the timing and speed of the Fed's efforts to normalise policy interest rates is creating volatility. Some investors and governments now worry that the Fed may raise rates too soon and too fast, causing economic and financial shockwaves.

Third, the Fed may actually exit zero rates too late and too slowly (its current plan would normalize rates to 4% only by 2018), thus causing another asset-price boom – and an eventual bust. Indeed, unconventional monetary policies in the US and other advanced economies have already led to massive asset-price reflation, which in due course could cause bubbles in real estate, credit, and equity markets.

Fourth, the crises in some fragile emerging markets may worsen. Emerging markets are facing headwinds (owing to a fall in commodity prices and the risks associated with China's structural transformation and the Fed's monetary-policy shift) at a time when their own macroeconomic policies are still too loose and the lack of structural reforms has undermined potential growth. Moreover many of these emerging markets face political and electoral risks.

Fifth, there is a serious risk that the current conflict in Ukraine will lead to Cold War II – and possibly even a hot war if Russia invades the east of the country. The economic consequences of such an outcome – owing to its impact on energy supplies and investment flows, in addition to the destruction of lives and physical capital – would be immense.

Finally, there is a similar risk that Asia's terrestrial and maritime territorial disagreements (starting with the disputes between China and Japan) could escalate into outright military conflict. Such geopolitical risks – were they to materialise – would have a systemic economic and financial impact.

theguardian

IMF's Lagarde: Global Economy May Face Years of Slow, Subpar Growth

The global economy risks years of sluggish growth without aggressive steps by central bankers and lawmakers around the world to boost output, the head of the International Monetary Fund said Wednesday.

"The recovery is taking hold, but is too slow," IMF Managing Director Christine Lagarde said in a prepared remarks to Johns Hopkins University's School of Advanced International Studies. The speech set the stage for the spring meeting of finance ministers and central bankers here next week.

Ms. Lagarde said bold policies are needed to fuel stronger growth. "Unless countries come together to take the right kind of policy measures, we could be facing years of slow and subpar growth," she said.

The IMF chief said the European Central Bank and the Bank of Japan need to continue easy-money policies to combat stubbornly low inflation. And governments around the globe must restructure their economies to ease unemployment, reduce burdensome debt and bolster investor confidence.

She also warned that Ukraine's economic and political crisis, if not managed well, could cloud the world's economic prospects.

Ms. Lagarde's comments come a day after the IMF extended its access to a $570 billion emergency lending stockpile, citing threats to the global economy.

wsj

CITI: Here's What Will Happen To The Global Economy In The Next 4 Years

An economic slowdown in China, elevated geo-political tensions between Russia and Ukraine, and the Fed’s tapering of its stimulative asset purchase program are some of the biggest events in markets.

But there are so many more market stories we need to be watching.

In it’s latest 52-page Global Economic Outlook and Strategy report, Citi’s Willem Buiter and his team give us a sense of where the world’s major economies are headed.

The economists expect the global economy to expand 3.1% this year and 3.4% in 2015.

Citi’s Michael Saunders writes that they continue to cut their emerging market growth forecasts, though “this month’s revision largely reflects a large cut to our Russia GDP forecast, reflecting heightened uncertainty and the CBR’s recent rate hike.”

In China, Saunders expects policymakers to react to slower growth by “renewed credit easing.”

Among developed economies, Citi expects higher growth from the euro area, UK, and Sweden raising their forecasts, but cut Japan’s growth forecast. In the U.S., Citi expects the recent winter weakness to be reversed and thinks rate hikes won’t come till mid-2015.

We highlight a few of their viewpoints for each of the world’s most important economies including GDP forecasts through 2018.

businessinsider

[phaster]

just to point out the headline depends upon a certain point of view, by this I mean if 2 trillion was being hidden from the IRS it would not be public knowledge and would not be accounted for (i.e. off the books as in unreported "drug lord" cash from the sale of drugs brought into the USA by undocumented means)

Take apple for instance, the company culture is affected by the fact that it had some pretty rough times back in the middle part of the 1990's before steve jobs took back the helm as iCEO for the salary of $1 per year. Because of this brush with almost going bust, apple company culture because of a hoarder of money (much like the generation that survived the 1930's economic depression who were "savers")

What apple and other companies are doing by keeping foreign profits out of the country isn't illegal, its actually a rational economic decision (i.e. avoiding unnecessary USA taxes) and akin to an individual who lived thru the 1930's depression who was conditioned to save up a reserve for the preverbal rainy day.


Corporate America Is Hiding $2 Trillion In Profit From The IRS

The largest American multinational companies parked an additional $206 billion of profits in offshore accounts last year, according to Bloomberg, bringing the total amount of profits stashed where U.S. tax officials can’t touch them up to about two trillion dollars.

The 307 companies that Bloomberg examined now hold a combined $1.95 trillion offshore, allowing them to avoid paying U.S. taxes on those earnings. The majority of the total is concentrated in just a few corporate hands. The largest 22 of those companies hold more offshore than the other 285 combined.

General Electric leads the pack, with $110 billion held offshore. Tech companies like Microsoft ($76.4 billion), Apple ($54.4 billion), IBM ($52.3 billion), and Google ($38.9 billion) also dominate, along with drug companies like Pfizer ($69 billion) and Merck ($57.1). The tech giants have drastically accelerated their offshore holdings in recent years, with Microsoft and Google more than doubling and Apple more than quadrupling offshore profit holdings from 2010 to 2013.

thinkprogress

[Graeme]

Guarding the global economy’s biggest risk

Inside, a further 31 uniformed guards stand stiffly around the perimeter, while 10 bulky men in plain clothes occupy all the available chairs. It’s hardly the ideal environment to buy an apartment in the 23-tower development under construction next door.

But the muscle is not in place to control would-be buyers. It’s been brought in by the developer, New Century Real Estate, to intimidate protesters who have spent the last three weeks picketing the company.

Such a protest, in a country that cherishes the appearance of harmony above all else, is certainly unusual. But even more unusual is the lack of a quick fix, engineered by the local government to paper over any loss of confidence in the property sector and prevent the details becoming public.

For those wanting to better understand China, this is an opportunity.

The messy property dispute, playing out three hours from Shanghai, provides a rare insight into strains in the property industry. It shows that, contrary to popular belief, ­Chinese home buyers are indeed carrying a significant degree of leverage and that in many cases two generations of wealth is required to buy an apartment, even in an outlying city. It’s about the nascent signs of an upset that could derail China’s credit markets and send shock waves through the global economy.

Most of all, the dispute shows that any property correction in China will probably have its genesis in an unknown “fourth-tier” city such as Taizhou, where developers have expanded aggressively with easy credit from state-owned banks.

afr

[Graeme]

Five signs that the global economic recovery may be an illusion

Imagine, therefore, that in five years' time the IMF is doing its postmortem on another period of global turbulence. What will it say were the warning signs missed during 2014? Here are five to be going on with.

The first will doubtless feature in the WEO due to be published on Tuesday: the global economy's dependency on exceptionally low interest rates. Since peaking in the 1970s, the trough in interest rates has been lower in each subsequent cycle and they are now barely above zero. Countries such as Britain and the US have only been able to revert to their trend rate of growth through periods of looser and looser monetary policy. As Adair Turner noted in his lecture to the Cass Business School in February, this has averted the threat of secular stagnation – but at a price. The recovery engineered by Greenspan was a case of "the hair of the dog", and the same applies in spades to the one since the Great Recession of 2008-09.

The second threat is a bond market crash as the world's central banks try to return monetary policy to a more normal setting. Central banks are adopting a cautious approach to this process, with the Federal Reserve gradually reducing the amount of bonds it buys under the quantitative easing programme and the Bank of England using forward guidance to reassure borrowers that any increase in official interest rates will be modest and gradual.




Finally, there are two slow-burn problems that the world ignores at its peril. In an interview with the Guardian last week, Jim Yong Kim, the president of the World Bank, warned of the risk of resource conflicts within the next five to 10 years unless the international community gets serious about dealing with global warming. The catalogue of extreme weather events – from floods in the UK to droughts in Australia – is growing. The inaction of policymakers on climate change is the same as Greenspan's on asset-price bubbles: deal with the problem if it arises. We all know how that ended.

Kim also says that action needs to be taken against rising inequality. So does the IMF's managing director, Christine Lagarde. For the first three decades after the second world war, the global economy was by and large the story of a rising tide lifting all boats. That is no longer the case, with a tiny elite now grabbing the lion's share of global growth. At the bottom, and increasingly for those in the middle as well, it is a case of wage squeezes, high unemployment, debt, austerity and poverty. The 85 richest people on the planet own the same wealth as half the world's population but seem oblivious to the risk of widespread social unrest. So, of course, were the Bourbons and the Romanovs.

theguardian

[Graeme]

The Great Eight: Trillion-Dollar Growth Trends to 2020

Daily turmoil on a global scale is giving business leaders and investors plenty of reasons to stay hunkered down as they confront huge challenges in the here and now. Spreading sovereign debt woes, volatile markets, unstable currencies, political gridlock and stalled growth plague the big developed economies. Meanwhile, China, India and other rapidly emerging economies are flexing their strength as they adjust to the phenomenal growth that has been the biggest economic story of the past two decades.

In the conventional view, the current turbulence portends deep, enduring structural shifts that will set the business agenda for the foreseeable future. We fully expect macroeconomic shocks over the coming decade, with discontinuities that will shape the options companies have to adapt and grow.

Yet behind the dire headlines and day-to-day frictions of the marketplace, eight trillion-dollar macro trends are at work in the global economy. The pursuit by businesses and governments of the macro trends’ growth potential will touch many corners of the globe.

Europe, Japan and the US certainly face an extended period of economic turbulence and slow growth, particularly in the first half of the decade. But as we will see, half of the macro trends affect both emerging and advanced economies. Thus, while we embrace the exciting opportunities in emerging markets, we also see opportunities where many commentators see none right now—in the home markets of many of the world’s leading businesses.

A shift in global growth. Although we will continue to see pockets of economic turbulence, look for the global economy to expand at a 3.6 percent annual rate over the longer term, resulting in world GDP swelling to $90 trillion by 2020—40 percent larger than it is today. The sources of economic growth will tilt increasingly toward emerging economies. Whereas the advanced economies currently generate two-thirds of global GDP, developing and emerging economies will contribute an outsized share of the growth in the future. By 2020, the advanced economies’ proportion of world GDP will drop to 58 percent, a sizable change over a relatively short period.

The growth of world population by 750 million, nearly all of it originating in developing and emerging economies, will account for about one-quarter of the rise in GDP. Increased productivity will generate the rest, as per capita GDP grows by 30 percent over that period. But, while we expect the next few years to remain challenging in the West, we can see a path for growth to accelerate in the latter half of the decade, particularly if governments begin tackling their public and private debt burdens. Indeed, our analysis anticipates that Europe and the US will contribute an additional $8 trillion to global GDP by 2020.

Macro trend: The next billion consumers. The rising wealth of emerging economies will continue to bring a broader range of consumption goods to huge numbers of new consumers. More of them will cross the critical annual household income threshold of $5,000, planting them in the ranks of the “global middle class” and enabling more discretionary spending. Although still considerably poorer than the middle-class consumers in the advanced economies, their vast numbers and increasing ability to devote more income to a broader range of goods and services will create an enormous new market. Estimated contribution to global GDP by 2020: $10 trillion.

Macro trend: Old infrastructure, new investments. In the advanced economies, renewed economic vitality will require refurbishing and expanding critical infrastructure, much of which was built more than a half-century ago. But with public finances under strain, the job will increasingly present opportunities for public-private partnerships. In emerging economies, continued infrastructure development will be needed to accommodate growth and lay a foundation for future expansion. Estimated contribution to global GDP by 2020: $1 trillion.

bain

[Graeme]

Finance Officials: Global Economy Turns the Corner

The world's top finance officials expressed confidence Saturday that the global economy finally has turned the corner to stronger growth. This time, they may be right.

Despite challenges that include market jitters about the Federal Reserve's bond-buying slowdown and global tensions over Ukraine, policymakers said they believe there is a foundation for sustained growth that can provide jobs for the millions of people still looking for work five years after the worst recession since the Great Depression of the 1930s.

"Creating a more dynamic, sustainable, balanced and job-rich global economy remains our paramount collective goal," the policy-setting panel of the 188-nation International Monetary Fund said in a concluding communique.

IMF Managing Director Christine Lagarde and the finance ministers who sit on the IMF's policy panel said they believed the world had entered a new phase with stronger growth that will begin to make in-roads into unemployment that remains painfully high in many nations.

At a closing news conference, Lagarde referred to the years 2008 through 2010 as an economic "disaster" and she said now "we are moving into a strengthening phase."

The IMF in its latest economic forecast predicted global growth would strengthen to 3.6 percent this year and an even better 3.9 percent in 2015.

That growth is being supported by a stronger recovery in the United States, which private economists believe could grow this year at the fastest pace in five years. This strength in the world's largest economy is helping to offset some slowing in major emerging markets such as China although emerging economies are still powering ahead at rates well ahead of developed nations.,

The finance officials acknowledged a number of threats to their forecast, ranging from periodic stock market jitters as investors worry that the Fed may mishandle its effort to gradually end the bond buying it has used to lower long-term interest rates to concerns that the political stand-off over Russia's annexation of Crimea could undermine market confidence.

abcnews

[Graeme]

WTO raises outlook for global trade in good sign for world economy

Global commerce is set to grow by 4.7 percent this year, the World Trade Organization said on Monday, with recovery in rich economies expected to mitigate risks in developing nations.

The WTO previously had forecast that trade would expand by 4.5 percent in 2014, up from an estimated rate of 2.1 percent in 2013.

So the latest forecast points to substantially more than a doubling of the growth achieved last year.

Trade is a key measure of the health of the global economy which it both stimulates and reflects.

Asia will continue to fuel growth rates, the WTO said, although China's exceptionally strong expansion is slowing.

In addition, Europe and North America's recovery is also set to be a key driver on both the import and export fronts.

"For the last two years trade growth has been sluggish. Looking ahead, if GDP (gross domestic product) forecasts hold true, we expect a broad-based but modest upturn in 2014, and further consolidation of this growth in 2015," WTO chief Roberto Azevedo told reporters.

The WTO predicted that trade growth would pick up pace next year, reaching 5.3 percent.

"Prospects for world trade and output in 2014 and 2015 are better than they have been for some time, but leading economies remain fragile, including some of the most dynamic developing countries that until recently were propping up demand," the WTO said in a statement.

gmanetwork

[Graeme]

WTO raises outlook for global trade in good sign for world economy

Global commerce is set to grow by 4.7 percent this year, the World Trade Organization said on Monday, with recovery in rich economies expected to mitigate risks in developing nations.

The WTO previously had forecast that trade would expand by 4.5 percent in 2014, up from an estimated rate of 2.1 percent in 2013.

So the latest forecast points to substantially more than a doubling of the growth achieved last year.

Trade is a key measure of the health of the global economy which it both stimulates and reflects.

Asia will continue to fuel growth rates, the WTO said, although China's exceptionally strong expansion is slowing.

In addition, Europe and North America's recovery is also set to be a key driver on both the import and export fronts.

"For the last two years trade growth has been sluggish. Looking ahead, if GDP (gross domestic product) forecasts hold true, we expect a broad-based but modest upturn in 2014, and further consolidation of this growth in 2015," WTO chief Roberto Azevedo told reporters.

The WTO predicted that trade growth would pick up pace next year, reaching 5.3 percent.

"Prospects for world trade and output in 2014 and 2015 are better than they have been for some time, but leading economies remain fragile, including some of the most dynamic developing countries that until recently were propping up demand," the WTO said in a statement.

gmanetwork

[Graeme]

Asia’s growing importance in the global economy

This post shows that if current GDP trends were to continue, even at a moderated pace, Asia will become the world’s most important economic region and China the world’s largest economy. Emerging market and developing economies have overtaken the advanced economies on a purchasing power parity basis. The major component of this GDP convergence has been the rise of developing Asia, particularly China. Asian GDP (both developed and developing) is now approaching the GDP of the European Union and the United States combined.


Emerging market and developing economies now account for over 50 per cent of the world economy on a PPP basis, surpassing the total weight of the developed economies. This is a remarkable change from 1990 when the emerging market and developing countries accounted for a little over 30 per cent. Since 1990 emerging and developing economies have been on an ever-upward trajectory, with the global crisis beginning in 2007 thus far affecting mainly the United States and Europe.

The contemporary structure of the world ‘political’ economy has been shaped by the advanced economies, particularly the United States. This liberal economic order has ‘allowed’ the rise of developing countries, who are now demanding a larger say in global economic institutions such as the World Trade Organisation.

But domestic political developments could be just as important. Over the next generation, how the advanced countries deal with challenges to their economic supremacy and counter the negative domestic consequences of globalisation will shape the future trajectory of the world political economy.
Protectionist responses to relative decline and growing inequality in developed economies would be damaging in an integrated and thus interdependent world economy.Global and regional production structures would exacerbate the impact of protectionist responses, although their existence could also make any shifts toward protectionism more costly and therefore less likely. Whatever the case, the ability of the developed world to influence structure remains paramount. An ironic, if unlikely, turn away from globalisation in the advanced economies would negatively affect export-oriented economies disproportionately.

Asia’s ability to avoid conflict.will also be paramount for a continuation of current trends. Asia’s current situation is unprecedented. Three major powers – China, Japan and India, together with the United States – will shape the future of the region.

macrobusiness

IMF definitions
Advanced economies
Composed of 35 countries: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan Province of China, United Kingdom, and United States.

Major advanced economies (G7)
Composed of 7 countries: Canada, France, Germany, Italy, Japan, United Kingdom, and United States.

Other advanced economies (Advanced economies excluding G7 and euro area)
Composed of 14 countries: Australia, Czech Republic, Denmark, Hong Kong SAR, Iceland, Israel, Korea, New Zealand, Norway, San Marino, Singapore, Sweden, Switzerland, and Taiwan Province of China.

European Union
Composed of 27 countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Romania, and United Kingdom.

Emerging market and developing economies
Composed of 153 countries: Afghanistan, Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, The Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Democratic Republic of the Congo, Republic of Congo, Costa Rica, Côte d’Ivoire, Croatia, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, The Gambia, Georgia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Hungary, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kiribati, Kosovo, Kuwait, Kyrgyz Republic, Lao P.D.R., Latvia, Lebanon, Lesotho, Liberia, Libya, Lithuania, FYR Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, Niger, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Rwanda, Samoa, São Tomé and Príncipe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Solomon Islands, South Africa, South Sudan, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Sudan, Suriname, Swaziland, Syria, Tajikistan, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Vietnam, Yemen, Zambia, and Zimbabwe.

[dolanbaker]

I assume that the step at 1992 was the USSR being relegated from the advanced economies list!

[lasseter]

Currency manipulation has been the key to the western economies power base I believe. By keeping the currencies of the developing world cheap relative to ours we have been able to exploit their natural resources and manufacturing. You only have to look at he price of gold in various countries to see this. Over the past 3 years gold in US and Aussie and Euro's has fallen a lot but in south american currecies it has steadily climbed.

If the emerging economies ever get control of their money we will see a rapid decline in Western prosperity.

[Graeme]

America has conquered its debt crisis with incredible speed

Americans are purging their excesses one by one. Spending by the US Federal government has seen the steepest drop as share of national income since demobilisation after the Second World War.
Claims that President Barack Obama is bankrupting America with a lurch towards hard-Left statism are for tabloid consumption only. Outlays have fallen from 24.4pc to 20.6pc of GDP in five years. Spending is roughly in line with its 40-year average. This fiscal squeeze has been achieved without driving the economy into recession or a Lost Decade, a remarkable feat.

The US Congressional Budget Office expects the budget deficit to drop to 2.8pc of GDP this year, and 2.6pc next year. This is about the same as the eurozone but with a huge difference. The US economy is expanding fast enough to outgrow its debts.

The US energy revolution is of course half the story. It has stoked booms across the Dakotas, Wyoming, Nebraska, Washington, Oregon, Utah and Texas.



Yet the other half of the story is monetary stimulus a l'outrance - quantitative easing - to offset fiscal tightening and prevent a "pro-cyclical" downward spiral, which is what occurred when the European Central Bank jumped the gun and raised rates twice in 2011 before recovery was entrenched, setting off the catalysmic crisis that nearly destroyed EMU in mid-2012.

This policy mix is no novelty. Britain pursued the same strategy with success after leaving the Gold Standard dollar-peg in 1931 and after leaving the ERM fixed system in 1992, and arguably again over the last five years though the jury is still out this time.

America's public debt has peaked at 72.3pc of GDP (bonds held by the public). The CBO expects the ratio to fall gently for the next three years. Such is the magic of the denominator effect. Economies do not have to cut debt in absolute terms to whittle away debt. The Romanian dictator Nicolae Ceaușescu thought otherwise and assiduously paid off Romania's debts just in time for his own execution in 1989. Those shaping eurozone policy today sometimes seem to be in thrall to this same atavistic belief.
Growth does the job so much faster. US household debt has plummeted from 98pc to 81pc of GDP in four years. The ratio of debt payments to disposable income fell to 9.9pc in March, the lowest since the Federal Reserve's modern data series began in 1980. Most mortgage debt is locked at fixed interest rates so this will not change fast when the Fed tightens in earnest.

Charles Dumas from Lombard Street Research -- author of the America Phoenix in 2011, before it was fashionable -- says the mix of "soaring household wealth" and lower debt burdens leaves the US poised for a surge in consumer-led growth. He predicts a mini-boom, lasting until 2016.

telegraph

[lasseter]

Outlays have fallen from 24.4pc to 20.6pc of GDP in five years.

Meaningless considering how much money has been created and pushed through the banking system. US debt last time I looked was still increasing at an exponetial rate. Besides, measures of GDP no longer reflect events in the real economy, most of it is calculated from loan production, stock market transactions and the like.

I could sell you 5 Billion in shares in the morning and you could sell them back to me in the afternoon and that's 10 Billion aded to GDP.

[Oldfarmermac]

I personally think we have reached the point at which economic growth is restrained by hard resource shortages. Credit and confidence in the wonders of mankind's ingenuity can accomplish only so much and only so fast.

It gets a little harder each year to increase the production of oil and gas and maybe coal as well and we are not building nuclear plants or renewables fast enough to fully balance our appetite for energy in my opinion.

So on a per capita basis we are getting by with less energy and a lot of countries are getting by with less in absolute terms.

Of course it is possible for economic growth to occur with a lower input of energy- if gains in efficiency are larger than the declines in supplies and if more economic activity occurs in low energy parts of the economy and less in energy intensive parts.More dental work and less steel production can allow growth on less energy.

More efficient cars allow more driving on less gasoline and the efficiency of new cars is improving fast- but the efficiency of the existing fleet of cars is not improving very fast because cars last a long time.

The question comes down to this:

Can we increase economic efficiency in terms of energy faster than energy supplies rise in price and or decline in quantity?

If the world supply of oil and gas were to hold steady we could eek out some growth but not a lot.

IF the supply declines as I believe is already happening I doubt we can adapt FAST ENOUGH to maintain growth.

At some point in an energy constrained economic environment a lot of highly energy intensive businesses will fail.Another doubling of the price of oil will play havoc with cheap air travel and a lot of resorts dependent on middle class and even working class customers flying in will go broke for instance.

Nasty positive feedback loops will begin to appear in the near future in my opinion and after that growth will be a fond memory given all the new unemployed folks on welfare.

It is not just the supply of energy that is troublesome.We are looking at using a lot more energy to desalinate drinking water for instance - water that used to be free for the pumping from aquifers or rivers.

Soils are being gradually degraded and hence it takes a little more fertilizer - which is a very energy intensive input- to maintain food production from year to year.It takes a little more diesel to run irrigation pumps.

Massive savings in energy are possible in some areas such as lighting.We will be mandating higher energy efficiency standards in a lot of areas.

But there is not much room to improve energy efficiency in a lot of key areas such as the manufacture of fertilizer or desalinating and delivering water.

We may actually have to go back to more plowing and less use of herbicides on farms - which would increase on farm energy use substantially.