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The Global Economy Could Face Disaster If The West

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Is it fair to blame the Chinese and their Asian neighbours for the parlous state of the world economy? There is no doubt that the imbalances hail from Asia. As Ben Bernanke, of the Federal Reserve, says: "It is not true that the recent deterioration in the US current account primarily reflects economic developments within the US itself." Instead, it reflects "a global savings glut", which has arisen because many of the Asian economies do not invest enough to absorb the savings they are generating. The second chart shows savings rates in major regions of the world. It illustrates starkly the exceptionally high savings of the Asian emerging economies, and the low savings in the US.

The brutal fact is that, had the US not been prepared to soak up the tide of savings from Asia - by expanding its budget deficit and allowing interest rates to drop to 1 per cent, so stimulating massive consumer borrowing - there would have been a slump. In effect, the US government and the Federal Reserve were left with no choice but to act in this way to keep growth going in their own country, and indeed the rest of the world. They still have no choice, which is why their imbalances, most spectacularly the trade deficit, continue to grow, making the economic dangers facing the world ever more menacing.

WTF? It's the Asians fault for saving money?

Yeah right. The Federal Reserve, wild property speculation and rampant consumer spending was all because they had no choice. I'm buying a Plasma on credit because the Chinese forced me to :rolleyes:

I don't know what planet this guy came from but can he go back if he is going to speak this drivel?

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Actually the savings glut is real - but the bulk is from companies, not Asia.

Basically most private firms have become much more efficient over last few years, and converts to "cost of capital" E.g. the company I work for is now down to about 8% gearing, pays out big dividends, and has no problem financing projects from internal cash flow. To be honest, the small amount of borrowing is now really just to make sure our lines of credit stay open and active. The problem is finding projects that meet our criteria - but we (and most companies) are now disciplined enough not to go ahead and buy something/ invest just because we have the cash to do so.

Consumers on the other hand...

So we are ending up in the odd position where households are net debtors, and companies net creditors...! (rather than households lending to companies via banks, now companies lending to households via banks)

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Actually the savings glut is real - but the bulk is from companies, not Asia. 

Basically most private firms have become much more efficient over last few years, and converts to "cost of capital"  E.g. the company I work for is now down to about 8% gearing, pays out big dividends, and has no problem financing projects from internal cash flow.  To be honest, the small amount of borrowing is now really just to make sure our lines of credit stay open and active.  The problem is finding projects that meet our criteria - but we (and most companies) are now disciplined enough not to go ahead and buy something/ invest just because we have the cash to do so. 

Consumers on the other hand...

So we are ending up in the odd position where households are net debtors, and companies net creditors...!  (rather than households lending to companies via banks, now companies lending to households via banks)

And even the FT agrees with you in todays edition :)

Lex: UK investment

Published: August 29 2005 13:56 | Last updated: August 29 2005 19:02

Britain's captains of industry do not always see eye to eye with Gordon Brown. But they have taken his most famous maxim to heart: prudence. UK business investment grew by just 0.5 per cent in the second quarter.

Nominal investment spending as a proportion of gross domestic product is 9 per cent, a 40-year low. Yet companies are awash with cash. Average gearing for FTSE 350 companies is just 33 per cent.

Executives have learned their lesson. Having splashed out on new kit during the late 1990s, with little discernible gain in productivity, they are hesitant to embark on another spree. Profit growth expectations have fallen for three straight quarters. Directors have sought to rebuild credibility with shareholders by returning cash, with annual dividend growth hitting 10 per cent in the last few months.

There are some hopeful signs. Merger activity is up, and ABN Amro found this year that 60 per cent of listed UK acquirers have outperformed the market in the month after their deals were announced, indicating that investors are backing mergers again. A pick-up in lending to UK industrial companies also points to higher investment in the future.

With the UK consumer taking a breather, Mr Brown will be keen for companies to put their hands into their pockets. But this year's target for business investment growth of 4.5 per cent looks impossible. And with debt yields already so low and interest cover steady, further cuts in interest rates will have little impact.

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737 - good find!

I am manager of small business unit (not in UK) (92 staff, 34m annual sales, about 15m GBP costs)

Staff groan continuously how the equipment at work lags what they have at home. But our stuff does what we need it to do - vehicles we keep for 9 years, not a flat screen to be seen anywhere. They know not to bring even a small expenditure request to me without a solid ROI case, (which is tracked) and I know not to make expenditure requests upwards without the same.

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I hope you bears understand what the lead article in this thread means. t means you'd better get out & buy yourself one of those Sequence (Barnard Marcus?) seller deposit FTB places, because they're talking about letting inflation rip with low IR's & higher import costs devaluing the USD (& GBP & other western currencies liek dominos?).

Back to the 70's soon. :D

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Dr Bubb,

The US and the West should have realised a long time ago that the Chinese revaulation of their currency and the push through globalisation was having a serioulsy bad effect on the future of their economies, they didn't and now they are in one hell of a jam.

Economically and militarily we are looking at a scenrio where China will eat the US's chips and there is an almost totally unreconstructed Chinese govt. in place.

I think it only just sinking in what they have done.

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Dr Bubb,

The US and the West should have realised a long time ago that the Chinese revaulation of their currency and the push through globalisation was having a serioulsy bad effect on the future of their economies, they didn't and now they are in one hell of a jam.

Economically and militarily we are looking at a scenrio where China will eat the US's chips and there is an almost totally unreconstructed Chinese govt. in place.

I think it only just sinking in what they have done.

I have read over the years and seen snippets of the "we won the war but they are winning the peace" argument about Japan cleaning the US up economically

At any stage the major players (Japan, China, Russia et al) could theoretically(sp) dump their US $$ with serious consequences for the US. Think of it as War without soldiers.

Outsourcing your manufacturing OS should be seen as treachory. But then again these major multi-nationals know no loyalty and fly a flag for convenience not out of any sense of patriotism. In fact I imagine that these CEO's laugh at the idea. :angry:

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Outsourcing your manufacturing OS should be seen as treachory. But then again these major multi-nationals know no loyalty and fly a flag for convenience not out of any sense of patriotism. In fact I imagine that these CEO's laugh at the idea. :angry:

It's a good thing for the world that major multi-national companies are not nationalistic (although you could have fooled me from where I sit in a giant French company).

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It's a good thing for the world that major multi-national companies are not nationalistic (although you could have fooled me from where I sit in a giant French company).

How so? (being a good thing)

On working in a French company -> perhaps you're only seeing the loyalty of the line workers not the big Kahuna's?

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My first graduate job was for P&G in Thurrock, Essex

During training, we got given a pep talk about how we all had to do our best because Kao were really good, and they were Japanese!!!

I stood up, and pointed out that (1) if Kao does well, good for them, it isn't a zero sum game. I can buy shares in them if I want anyway, so can benefit from their success. With open capital markets, nationality of companies is meaningless. (2) if I thought in such narrow xenophobic terms I would be working for Unilever, not P&G

By mutual agreement, I left after 3 months.

Disclaimer - I work for a Anglo-Chinese company now.

BTW nationality of companies is meaningless - true. Culture of a company isn't meaningless - but that is only tangentially related to nationality. The best company in the world today is Toyota, and the Toyota Way isn't specifically Japanese, as can be seen by their success in Europe (those evil Japanese CEO's outsourcing manufacturing to Europe!)

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My first graduate job was for P&G in Thurrock, Essex

During training, we got given a pep talk about how we all had to do our best because Kao were really good, and they were Japanese!!!

I stood up, and pointed out that (1) if Kao does well, good for them, it isn't a zero sum game.  I can buy shares in them if I want anyway, so can benefit from their success.  With open capital markets, nationality of companies is meaningless.  (2) if I thought in such narrow xenophobic terms I would be working for Unilever, not P&G

By mutual agreement, I left after 3 months. 

Disclaimer - I work for a Anglo-Chinese company now. 

BTW nationality of companies is meaningless - true.  Culture of a company isn't meaningless - but that is only tangentially related to nationality.  The best company in the world today is Toyota, and the Toyota Way isn't specifically Japanese, as can be seen by their success in Europe (those evil Japanese CEO's outsourcing manufacturing to Europe!)

Clearly you are some employers' idea of a complete nightmare. Someone who is prepared to stand up and say what we thinks regardless of the consequences.

Admirable in my book. :)

Edited by Smell the Fear

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How so? (being a good thing)

On working in a French company -> perhaps you're only seeing the loyalty of the line workers not the big Kahuna's?

I am wary of launching yet another philosophical debate about the merits or demerits of globalism or capitalism or whatever but would just point out that throughout history, in general:

Human affairs conducted through nation states: conflict; problems; war; waste

Human affairs conducted through international business: wealth-creation; useful products; jobs; cooperation

If all big companies were overtly patriotic and nationalistic we'd be in even worse mess than we currently are. Some companies still are and these tend to amplify conflict and do not create wealth as effectively as companies blind to borders. Hopefully in time market forces will deal with those.

In my company most of the time it's the behaviour of the senior management that I see. They are not driven by the interests of the line workers but rather by the (perceived) interests of their clique and of the state. After all, it is a part owner.

Edited by BoredTrainBuilder

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After a few years of whinging (and maybe soem warring), adaptable Americans

will face their fate, and begin on their real mission: to invent their way to a

sustainable future using renewables, and new sources of energy.

Or they might just decide to eat some more cookies!? :P

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I am wary of launching yet another philosophical debate about the merits or demerits of globalism or capitalism or whatever but would just point out that throughout history, in general:

Human affairs conducted through nation states: conflict; problems; war; waste

Human affairs conducted through international business: wealth-creation; useful products; jobs; cooperation

Seen 'The Corporation'?

I really enjoyed it, simply as both Milton Friedman and Noam Chomsky both said that corporations only exist for profit. Human welfare, Environmental, etc. are all secondary concerns...

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Seen 'The Corporation'?

I really enjoyed it, simply as both Milton Friedman and Noam Chomsky both said that corporations only exist for profit. Human welfare, Environmental, etc. are all secondary concerns...

Exactly. You know where you are with companies, so I trust them more. It is religions/ governments/ non profit making organisations that you have to watch out for... (afaik, the damage and evil done by that lot far outweighs companies. E.g. compare and contrast Bhopal, where a profit maximising company cut corners and accidently gassed thousands to death, and Nazi Germany, that deliberately gassed millions. Or Saddam Hussein gassing Kurds. Companies at least try not to kill people, because it is bad for profits. Other organisations without that constraint (to only exist for profit) have no such qualms)

But very off topic!

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Just been talking to somebody who says Japan owns a bigger proportion of the US debt than China.

Would somebody confirm please (and what are the implications?)

Thanks!

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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