On my daily basis news update from time to time, I find myself reading about a line of economist very worry about a relapse of the recession, a double dip or a very “gloomish” view of the future, while my feet is firmly set on the ground i need to point several critical differences between 1937 and 2010, while a do agree in the common view, that like during the depression, a large banking crisis derailed the financial system, household struggling with a mixture of large unemployment and a languishing recovery, but this line of economist are relying much more in the history book rather than reviewing the current global situation, my duty is to dispel few myths and unfounded fears arising from the media from time to time.
- It’s a depression like feeling: Yes the recession was awful and the effects may linger around the economic climate for several years, the economy has been expanding at feeble pace for over a year, people returned to spend albeit at more picky ways, and industrial production have been consistently picking up so far the recovery pace proves to be between the average recovery of a financial crisis and the historical average recovery from the typical recession.
- This recovery is very fragile: Well that depends vastly of where your head is looking, during the Great Depression, policy mistakes piled up one against another all around the world, by then only U.S and Europe had enough economic clout and weight to matter, the developing nations were agrarian and commodity exporters, with a large peasant population and thinly populated cities.
Now emerging nations proves to have a large urban population, growing services sectors and deepening domestic markets, booming China now is 2nd largest economy in the world and emerging countries middle class it’s already consuming from domestic and foreign companies, this broad set of countries with healthy financial systems and growing GDP and demand are a floating saviour that during the 30’s was inexistent
- This is a gloomy world and set to be sluggish for years: Yes and no, while most of the western world keep licking the wounds generated by excesses and poor management, most of the emerging world have already been growing as fast as ever, with low debt and healthy macro economy, this is more the picture of a 2 speed economy, thus duality is nearly everywhere, in U.S the lees indebted counties are already lifting their spending rapidly.
- Europe will disappoint: Everyone seems to say this except only by a smallish group of Euro fans, but reviewing raw data people tend to forget that Europe population it’s stagnant vs the 1% growth of U.S, in other terms, when it comes to GDP per capita, EU have been on par or outpacing U.S most of the decade, also EU have a more trade dependent industry network, a German industrial hinterland (with pan-european suppliers) and very good diplomatic-business relations abroad, helping the EU to tap growth with emerging nations, this proves a big leverage to keep boosting growth and confidence to the region, also the EU is very sensitive to devaluations, any big drop end up boosting growth like in the late 90’s.
- New protectionism will hinder trade growth: If during the worse part of the recession, little barriers were erected, it’s not likely that in the near futures will, as trade improved the variety of products and lowered prices across the world, protectionism may fail to take root in the current world.
- Fiscal hawks will push the economy to a double dip: Years from the behavioural economics helped to understand the decision making process of the companies, when it comes to taxes and interest rates the more certain about the future, the better, U.S business community lacks from this, even for economist the scenario it´s like trying to see thru thick fog, Europe instead took a giant step by setting a credible plan to cut deficit this is in fact helping the business to forecast, plan and using this blueprint for the future, the key in here is, clear out the expectations of the market, no matter if the deficit will persist or not, but the importance is to have a blueprint towards a sustained path, showing if taxes will be higher or not, large decisions depend on this government blueprints.
This is not a depression indeed and the elements of it are missing, every recession and depression have it´s similarities and differences, how to analyze and planning for a recovery must come from a deeper review of such diagnosis, so far i see we are not quite there in the same depression like scenario, now the trade is deeper, there are much more goods and manufacturing is more evenly spread across the world, services weigh in the GDP surpass more than 50% in the OCDE countries, and knowledge economy, and tertiary education is rising, this new setting could hold the key to a more sustainable recovery.
Mostrando entradas con la etiqueta Deficit. Mostrar todas las entradas
Mostrando entradas con la etiqueta Deficit. Mostrar todas las entradas
domingo, 19 de septiembre de 2010
viernes, 20 de agosto de 2010
A Roadmap to Stop Bleeding and Start Healing (Part 2)
In my previous post i talked a bit of the current situation in America, and the difference it makes for the economic agents to boost demand and in fact sustain the recovery.
Now as America faced large deficits twin deficits (trade and fiscal) thru the 2000’s, is time to redefine the policies to change such disbalances.
On the fiscal side U.S need urgently a consumption side taxes (VAT), this may not like the overall population but may help to restrain conspicuous consumption, and contain the trade deficit from the demand side.
On the supply side the corporate rate at nearly 40% remains terribly high, (and the OECD second highest), this at the time where revenues fail to hit 2% of the GDP in good times, but nations with lower nominal rates, also fetch more income from their corporations while the higher nominal tax, the less receipts (companies cut their tax bill thru several loopholes, high taxes are an incentive to such distortion) as the graphs show below
Also the countries with higher corporate taxes are more likely to show lower output growth, so higher output gain, less companies cutting artificially their tax bill added to the fiscal incentive to hire and build in America, are strong reasons to slash those rates and bring them in par with the EU at least.
Fiscal simplification could do a lot too, as easier tax fillings could fill the coffers with fresh resources.
All this new money raised from a lighter, simpler tax structure could be used to plug the deficit, improve infrastructure and finally boosting the goods producing industries, a bit like cutting trade deficit cutting demand, and increasing supply by turning more attractive America as a production site, and helping the companies to keep prices of their wares by paying less taxes thus able to absorb partially or totally the VAT, an act that importers wouldn’t be so eager to do.
¿Isn´t this look like a coherent way to raise tax revenue while stimulating production?
http://money.usnews.com/money/blogs/capital-commerce/2008/8/15/us-corporate-taxes-still-second-highest-on-planet-earth.html
Now as America faced large deficits twin deficits (trade and fiscal) thru the 2000’s, is time to redefine the policies to change such disbalances.
On the fiscal side U.S need urgently a consumption side taxes (VAT), this may not like the overall population but may help to restrain conspicuous consumption, and contain the trade deficit from the demand side.
On the supply side the corporate rate at nearly 40% remains terribly high, (and the OECD second highest), this at the time where revenues fail to hit 2% of the GDP in good times, but nations with lower nominal rates, also fetch more income from their corporations while the higher nominal tax, the less receipts (companies cut their tax bill thru several loopholes, high taxes are an incentive to such distortion) as the graphs show below
Also the countries with higher corporate taxes are more likely to show lower output growth, so higher output gain, less companies cutting artificially their tax bill added to the fiscal incentive to hire and build in America, are strong reasons to slash those rates and bring them in par with the EU at least.
Fiscal simplification could do a lot too, as easier tax fillings could fill the coffers with fresh resources.
All this new money raised from a lighter, simpler tax structure could be used to plug the deficit, improve infrastructure and finally boosting the goods producing industries, a bit like cutting trade deficit cutting demand, and increasing supply by turning more attractive America as a production site, and helping the companies to keep prices of their wares by paying less taxes thus able to absorb partially or totally the VAT, an act that importers wouldn’t be so eager to do.
¿Isn´t this look like a coherent way to raise tax revenue while stimulating production?
http://money.usnews.com/money/blogs/capital-commerce/2008/8/15/us-corporate-taxes-still-second-highest-on-planet-earth.html
A Roadmap to Stop Bleeding and Start Healing (Part 1)
Right now the American economy is sputtering, losing momentum just in the most needed time, with exports failing to propel the way the did early in the year, and jobs hard to come by, pretty much this is how a recovery works.
Either way consumer led or export led kicks (both a source of demand), the spare capacity begin to shrink (from factories to offices and retail), but not until business think they need to, so a sustained rhythm seems necessary, in factories this is pending orders or unfilled orders, and in retail means dropping inventories + more and constantly increasing traffic in store turning in to sales, after the current number of employees begin to seem unable to fulfill upcoming demand, is when the magic happens and hiring unwind, unfolding a virtuous cycle when increasing hiring, led to increasing demand, to increasing investment to expand capacity and so demand keep rising, etc.
In the current recession, few have been able to consolidate a robust demand from exports or consumers, Asia thru a mix of both, as governments help to reassure confidence and opening the grid of credit.
Europe seems to be quickening before and during the debt crisis, and such event sparked a temporary stimulus by making the euro cheaper, the European GDP data proved that PIIGS remain weak, but a lot stronger than consensus, and improving German fortunes may actually send demand shockwaves across the mainland, while at the same time government have been sending confidence to the economic agents thru tightening fiscal policy with still loose monetary one, as well a big 1 trillion dollar support to states in need have quite shored up confidence along the way, even in the current state Europeans are likely to begin to spend a bit more, companies keep tapping Asian demand and even after the budget cuts, mostly because they are not so harsh in most of the nations and spread out across a span of several years.
Meanwhile U.S economic policy remains quite dovish about how to mend the country, the real worry (the same from companies and consumers) is about the sustainability of the country current economic structure, lack of reforms, overspending, and not foreseeable credible plan to return to a more normal path, the current lack of confidence, is denting the ability of the economic agents to take decisions to invest, spend and thus they rather save (¿have everyone seen how much cash is kept by companies and how consumers are saving?) , U.S need reform to strengthen real income grow, a credible plan to restore confidence in the public finances and a way to pave a true recovery road, while at the same time cutting trade deficit and raising competitivity
Why is the keyword “confidence” in this comment? because economic agents will hold their decisions until the future seems more clear, this is keeping most of Americans guessing “what’s next for us” and “in this current environment im unable to spend”
Either way consumer led or export led kicks (both a source of demand), the spare capacity begin to shrink (from factories to offices and retail), but not until business think they need to, so a sustained rhythm seems necessary, in factories this is pending orders or unfilled orders, and in retail means dropping inventories + more and constantly increasing traffic in store turning in to sales, after the current number of employees begin to seem unable to fulfill upcoming demand, is when the magic happens and hiring unwind, unfolding a virtuous cycle when increasing hiring, led to increasing demand, to increasing investment to expand capacity and so demand keep rising, etc.
In the current recession, few have been able to consolidate a robust demand from exports or consumers, Asia thru a mix of both, as governments help to reassure confidence and opening the grid of credit.
Europe seems to be quickening before and during the debt crisis, and such event sparked a temporary stimulus by making the euro cheaper, the European GDP data proved that PIIGS remain weak, but a lot stronger than consensus, and improving German fortunes may actually send demand shockwaves across the mainland, while at the same time government have been sending confidence to the economic agents thru tightening fiscal policy with still loose monetary one, as well a big 1 trillion dollar support to states in need have quite shored up confidence along the way, even in the current state Europeans are likely to begin to spend a bit more, companies keep tapping Asian demand and even after the budget cuts, mostly because they are not so harsh in most of the nations and spread out across a span of several years.
Meanwhile U.S economic policy remains quite dovish about how to mend the country, the real worry (the same from companies and consumers) is about the sustainability of the country current economic structure, lack of reforms, overspending, and not foreseeable credible plan to return to a more normal path, the current lack of confidence, is denting the ability of the economic agents to take decisions to invest, spend and thus they rather save (¿have everyone seen how much cash is kept by companies and how consumers are saving?) , U.S need reform to strengthen real income grow, a credible plan to restore confidence in the public finances and a way to pave a true recovery road, while at the same time cutting trade deficit and raising competitivity
Why is the keyword “confidence” in this comment? because economic agents will hold their decisions until the future seems more clear, this is keeping most of Americans guessing “what’s next for us” and “in this current environment im unable to spend”
domingo, 4 de marzo de 2007
Deficit comercial de Estados Unidos: Hechos y Teoria
La mayoria de las personas llega a creer que el deficit comercial de Estados Unidos ha sido una constante durante la mayor parte de su historia, en base a ello deciden tomar el deficit de Estados Unidos como una constante y que por lo tanto es sustentable, sin importar mucho los niveles en los que se encuentre este, por lo tanto probare por medio de una grafica muy ilustrativa y de mi propia vision sobre el deficit comercial de Estados Unidos como esta postura puede ser erronea.
Estados Unidos habia tenido una trayectoria comercial regular, fluctuando entre deficit y superavits, aprovechando el ser un pais con una diversidad de sectores industriales, gran capacidad productiva asi como elevados niveles de productividad, esto habia generado que incluso hubiera registrado superavits comerciales por varios años consecutivos, este superavit se vio reforzado durante los años de postguerra, cuando Estados Unidos fue el gran patrocinador de la economia mundial y la exportacion de sus maquinarias haria resurgir la planta productiva mundial.
fue una estrategia inteligente para la promocion de crecimiento economico, fortalecimiento de Estados Unidos , sin embargo para finales de los 60's la produccion Europea era altamente competitiva en relacion a Estados Unidos, generando una inundacion de importaciones.
en 1971 se declararia la inconvertibilidad del dolar con el fin de proteger al pais de este mismo fenomeno y para mediados de los años 70's ya una gran cantidad de problemas economicos se habia gestado, deficit comeciales derivados de altos precios de petroleo.
sin embargo mucha gente parece ignorar puntos importantes, como son el que Estados Unidos vio un crecimiento destacable de su mercado interno, aun mas rapida que la expansion del PIB, la especializacion en algunas ramas industriales, asi como la conversion de una economia industrial a una de servicios parece haber cambiado la estructura comercial de Estados Unidos, haciendolo un pais rico pero con una gran desindustriaizacion (12% del PIB derivado de manufactura), esto parece haber causado una mayor propension a importar por parte de los consumidores, y de las industrias todo esto con el fin de reducir costos y hacerse mas competitivos.
por ende, Estados Unidos con el mercado domestico mas grande del mundo y dinamico del mundo, ha logrado ser afectado enormente en su cuenta corriente, todo esto apesar de que en 2005 el 87% de los productos que consumian los americanos eran de origen nacional.
desafortunadamente la reestructuracion industrial que ha generado que las empresas americanas hayan establecido centros de produccion en todo el mundo con el fin de generar mayores ganancias, pero sin perder los beneficios del mercado interno de Estados Unidos, sumado con el corporativismo Chino, y la dependencia de Asia de exportar para lograr un crecimiento economico, ha causado un gran daño para el pais.
Como conclusion, el deficit comercial dificilmente podra corregirse, ya que es resultado de un cambio en el modelo de produccion de Estados Unidos, haciendolo altamente dependiente en plantas del exterior para ofrecer costos bajos, y de la escasa necesidad de producir manufacturas en Estados Unidos, ya que el pais ofrece un mercado interno inmenso, haciendo que toda produccion que se genere en el pais, no tenga la necesidad de buscar mercado en el exterior, esto solo ha sido falso para bienes de capital como los aviones, maquinaria de construccion, equipo cientifico y otros.
por lo tanto para corregir esta gran sangria que sufre la economia, deberia cambia la mentalidad de las corporaciones americanas y reconsiderar sus estrategias, que le estan costando tan caro a su pais.
a continuacion ofrezco graficas del desempeño comercial de Estados Unidos desde 1900
Estados Unidos habia tenido una trayectoria comercial regular, fluctuando entre deficit y superavits, aprovechando el ser un pais con una diversidad de sectores industriales, gran capacidad productiva asi como elevados niveles de productividad, esto habia generado que incluso hubiera registrado superavits comerciales por varios años consecutivos, este superavit se vio reforzado durante los años de postguerra, cuando Estados Unidos fue el gran patrocinador de la economia mundial y la exportacion de sus maquinarias haria resurgir la planta productiva mundial.
fue una estrategia inteligente para la promocion de crecimiento economico, fortalecimiento de Estados Unidos , sin embargo para finales de los 60's la produccion Europea era altamente competitiva en relacion a Estados Unidos, generando una inundacion de importaciones.
en 1971 se declararia la inconvertibilidad del dolar con el fin de proteger al pais de este mismo fenomeno y para mediados de los años 70's ya una gran cantidad de problemas economicos se habia gestado, deficit comeciales derivados de altos precios de petroleo.
sin embargo mucha gente parece ignorar puntos importantes, como son el que Estados Unidos vio un crecimiento destacable de su mercado interno, aun mas rapida que la expansion del PIB, la especializacion en algunas ramas industriales, asi como la conversion de una economia industrial a una de servicios parece haber cambiado la estructura comercial de Estados Unidos, haciendolo un pais rico pero con una gran desindustriaizacion (12% del PIB derivado de manufactura), esto parece haber causado una mayor propension a importar por parte de los consumidores, y de las industrias todo esto con el fin de reducir costos y hacerse mas competitivos.
por ende, Estados Unidos con el mercado domestico mas grande del mundo y dinamico del mundo, ha logrado ser afectado enormente en su cuenta corriente, todo esto apesar de que en 2005 el 87% de los productos que consumian los americanos eran de origen nacional.
desafortunadamente la reestructuracion industrial que ha generado que las empresas americanas hayan establecido centros de produccion en todo el mundo con el fin de generar mayores ganancias, pero sin perder los beneficios del mercado interno de Estados Unidos, sumado con el corporativismo Chino, y la dependencia de Asia de exportar para lograr un crecimiento economico, ha causado un gran daño para el pais.
Como conclusion, el deficit comercial dificilmente podra corregirse, ya que es resultado de un cambio en el modelo de produccion de Estados Unidos, haciendolo altamente dependiente en plantas del exterior para ofrecer costos bajos, y de la escasa necesidad de producir manufacturas en Estados Unidos, ya que el pais ofrece un mercado interno inmenso, haciendo que toda produccion que se genere en el pais, no tenga la necesidad de buscar mercado en el exterior, esto solo ha sido falso para bienes de capital como los aviones, maquinaria de construccion, equipo cientifico y otros.
por lo tanto para corregir esta gran sangria que sufre la economia, deberia cambia la mentalidad de las corporaciones americanas y reconsiderar sus estrategias, que le estan costando tan caro a su pais.
a continuacion ofrezco graficas del desempeño comercial de Estados Unidos desde 1900
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