Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Die Billionen Schuldenbombe Dr. Daniel Stelter Debt levels clearly not sustainable Long-term asset values around 4 times GDP Debt (% of GDP) 500 450 419 400 391 350 76 300 250 273 119 283 81 101 89 200 150 50 102 259 67 77 82 251 210 106 105 109 88 51 77 87 123 241 69 133 63 233 100 348 309 60 78 400% historical average wealth to GDP 88 191 71 132 89 63 109 260 109 114 100 0 1 Private households Non-financial institutions 1. Total for Euro zone countries Note: Debt data as of 2011; non-consolidated total liabilities of governments, households, and non-financial corporations (loans only) at market prices Source: Eurostat; Federal Reserve; Thomson Reuters Datastream; bto analysis 2 Government Not to talk about hidden liabilities … Public gross debt/GDP prediction Germany France No change in fiscal policy and age-related spending 600 Small gradual adjustment (fiscal balance improves by 1 percentage point of GDP over the next 5 years) 400 200 Small gradual adjustment with age-related spending held constant at level of 2011 (in % of GDP) 0 1980 2000 2020 2040 1980 US 2000 2020 2040 Japan UK 600 400 200 0 1980 2000 2020 2040 1980 2000 Source: Source: "The future of public debt: prospects and implications", BIS Working Paper, March 2010 3 2020 2040 1980 2000 2020 2040 How to deal with too much debt? Austerity 4 Austerity at work Greece in numbers 2 Even a 30% debt relief does not really help in billion € 400 1 3 Two bailouts have already been necessary -11 Shrinking GDP makes debt repayment even more difficult 300 -47 356 Debt relief 107 Public revenues shrink faster than expenditures 5 A significant part of the economy is not counted in official statistics and does not bring tax revenues 240 233 186 200 4 345 Second 130 6 -20 108 100 88 65 First 110 0 Nominal GDP (2008) Nominal GDP (2011) Public debt (2011)1 Public debt (2012)2 Bailouts (so far) The population tries to rescue their savings 42 Public expenditures (2011) Public revenue (2011) Black market (2009) Deposit flight (Aug 2011— Jul 202) 1. Forecasted nominal value (market value is used in all other analyses) 2. Before repurchase of government bonds in January 2013 Source: National Statistical Service of Greece; Eurostat; Greek Ministry of Finance (Public Debt Bulletin June 2012); Eurostat; Transparency International; Wall Street Journal; Bloomberg; bto analysis 5 How to deal with too much debt? Austerity Growing out of the problem 6 The growth formula is broken Economic growth = workforce × productivity Population evolution … … GDP growth per capita Percent p.a. World population in million 10,000 BC–2100 AD–2100 AD 3.0 Actual US +0.9% 2.5 10,000 Highest growth from 1950–2000 of ~1.75% p.a. 2.0 1.5 5,000 1.0 +0.5% +0.1% 0.5 Actual UK CAGR 0 10000 1 400 600 800 100012001400160018002000 0.0 1300 1400 1500 1600 1700 1800 1900 2000 2100 Note: Historical estimates of World Population estimates reflect "lower estimates" of US Census Bureau. Data by 2009 from US Census Bureau, starting 2010 from UN World Population Prospects Source: US. Census Bureau, Historical Estimates of World Population, 2012; United Nations, Department of Economic and Social Affairs, Population Division (2011). World Population Prospects: The 2010 Revision; Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the six headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 7 Headwinds for further productivity gain Innovation with less impact on productivity than in the past Percent per year 3.0 The West is falling behind on education 2.5 Hypothetical path Intensified international competition labor cost pressure Source: Robert Gordon, "Is U.S. economic growth over? increases Faltering innovation confronts the six 2.0 1.5 headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 Efforts to reduce CO2/the end of Actual US 1.0 Actual UK 0.5 0.0 1300 1400 1500 1600 1700 1800 1900 2000 2100 cheap resources Underinvestment in assets by public and private sector Increased income inequality Source: Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the six headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 8 Debt above 90% of GDP leads to lower growth rates GOV NFC Source: Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the six headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 HH 0–70% debt/GDP 71–100% debt/GDP Total 1. GOV = public debt (gross liabilities) 2. NFC = Non financial corporations (total liabilities less shares and other equity) 3. HH = household debt (gross liabilities) Note: All data as of 2011S Source: BIS; Eurostat; national central banks; Thomson Reuters Datastream; bto analysis 9 >100% debt/GDP How to deal with too much debt? Austerity Growing out of the problem Back to Mesopotamia 10 Back to Mesopotamia? Including haircut Debt (% of GDP) 500 450 380 287 1,367 1,568 1,122 127 766 7,388 10,810 9,936 419 391 400 350 1,861 119 348 76 309 300 102 88 250 259 251 260 241 273 283 81 101 89 210 Faltering 51 67 economic 71 Source: Robert Gordon, "Is U.S. growth over? innovation confronts the six 69 191 200 180% headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 60 132 133 150 82 77 63 100 50 109 114 88 109 123 109 78 89 233 63 87 77 threshold 106 100 105 0 1 Private households Non -financial institutions 1. Total for Euro zone Note: Debt data as of 2011 Non-consolidated total liabilities of governments, households, and non-financial corporations (loans only) at market prices Source: Eurostat; Federal Reserve; Thomson Reuters Datastream; bto analysis 11 Government Debt overhang (B€) Significant hit for savers Including haircut Necessary debt reduction and remaining HH financial assets (%) 125 380 287 1,367 1,568 1,122 127 766 7,388 10,810 9,936 1,861 100 16 75 39 31 52 28 39 47 Japan's and 74 81 Ireland's 100 100 50 household 84 Faltering innovation confrontsfinancial Source: Robert Gordon, "Is U.S. economic growth over? the six 72 69 61 61 headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 53 assets less 25 48 than 26 19 necessary 0 for debt reduction -22 -23 -25 1 Household financial assets needed for debt reduction 1. Total for Euro zone Note: Debt data as of 2011 Non-consolidated total liabilities of governments, households, and non-financial corporations (loans only) at market prices Source: Eurostat; Federal Reserve; Thomson Reuters Datastream; bto analysis 12 Remaining household financial assets Debt overhang (B€) Cyprus = Mesopotamia Source: Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the six headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 Source: Financial Times, 26 March 2013, Economist "The Cypriot deal: Second time unlucky", 30 March 2013 13 How to deal with too much debt? Austerity Growing out of the problem Back to Mesopotamia Inflation 14 Financial repression? Number of years to reach 180% threshold 100 Interest rate – GDP growth = -1 Interest rate – GDP growth = -5 80 60 Source:40Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the six headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 20 0 Actual 2011 Interest rate – GDP growth -0.6 0.3 -0.6 Note: 2011 data, Portugal interest paid as of 2010 Non-consolidated total liabilities of governments, households, and non-financial corporations (loans only) at market prices Source: OECD; bto analysis 15 -0.6 -0.9 2.1 1.4 1.0 5.9 The idea of helicopter money is gaining popularity Let us suppose that one I willover? argue for a … in some extreme Source: Robert Gordon, "Is U.S. economicToday growth Faltering innovation confronts the six day a helicopter flies different approach and circumstances— those in headwinds", NBER Working Paper 18315, http://www.nber.org/papers/w18315 over this community and drops an additional $1000 in bills from the sky, which is, of course hastily collected by members of the community … suggest that the Bank of Japan cooperate temporarily with the government to create an environment of combined monetary and fiscal ease to end deflation and help restart economic growth in Japan. which there is a simultaneous and significant fall in both the price level and real output—it is unambiguously clear that OMF would be the best policy, and in some circumstances may be the only policy available to prevent continual deflation. Milton Friedman The Optimum Quantity of Money, Chapter 1 1969 Ben Bernanke Speech before the Japan Society of Monetary Economics Tokyo, May 31, 2003 Adair Turner Financial Services Authority Chairman, Lecture at the Cass Business School, London, February 6, 2013 Source: The Economist; Financial Times; Irish Times; bto analysis 16 Just retire the QE debt? After buying £325B of debt from the market, the public sector (the Treasury) is paying interest to itself (the BoE) on debt that it owes to itself. Instead of selling the debt back into the market, the BoE can retire the debt. At a stroke, £325bn of UK government debt disappears. If the US follows suit, about $1.5T Source: Robert Gordon, "Is U.S. economic growth over? Faltering innovation confronts the of six USPaper government will be retired. headwinds", NBER Working 18315,debt http://www.nber.org/papers/w18315 The main obstacle to retiring the debt lies with the markets and credit rating agencies. They may see this as a slide towards Weimar Republic economics: monetary financing of government debt by printing money. Consequently, both the BoE and the Treasury cannot be seen to advocate retiring QE-acquired debt at this stage. Source: Financial Times, 11 March 2012, page 9 17 How to deal with too much debt? Austerity Growing out of the problem Back to Mesopotamia Inflation 18 Die BillionenSchuldenbombe Wie die Krise begann und warum sie noch lange nicht zu Ende ist