Credit crunch, did someone use the expression credit crunch?
Monday, December 24, 2007
Merry Xmas and A Happy New Year
Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.
Credit crunch, did someone use the expression credit crunch?
Credit crunch, did someone use the expression credit crunch?
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You are always pointing to the economic risks of the demographic changes in Europe. At the same time you just seem to ignore the even greater risks that for instance "the rising star" of India faces. India will probably face a very serious shortage of water in the not to distant future. See http://www.arlingtoninstitute.org/wbp/global-water-crisis/606
"At the same time you just seem to ignore the even greater risks that for instance "the rising star" of India faces."
Sorry, you've lost me here.I take it we are all agreed that fertility needs to be brought down in the North of India, that is the only way to slow up the rate of population growth since they are below replacement in the South already.
In Europe we need to do something urgently (in some countries) to RAISE fertility, so this is a sort of different issue.
"India will probably face a very serious shortage of water"
Look, the whole planet faces a problem on this level - as we can see with the price of oil and now food - providing 9 billion people (which is where we are going) with the per capital quantities of energy and raw materials that we now have in Europe and the United States. This problem is a global one, and not simply India's or China's, and obviously the solution to it isn't to maintain the vast majority of humanity in near poverty.
Anyway, a very good xams to you all the same.
"This problem is a global one, and not simply India's or China's, and obviously the solution to it isn't to maintain the vast majority of humanity in near poverty."
Sure, this is a global problem, but the distribution of the risks is very unequal. Additionally, China for instance gets a not so small part of its growth from an unsustainable draw on its own and the global resources. There are estimates out there that place about 30% of the chinese cost advantage to its neglect of basic environment standards.
BTW, both, China and India are considered at risk in the medium future from political instability. This prediction is based on a number of parameters. If these predictions come true, the demographic problems in parts of the west will be small fry.
Hi Anonymous, and thanks for coming back and clarifying.
When it comes to risk, I think it is a question of who is doing the assessement.
In economic terms I would say the countries most at risk at the present time (at risk of a serious short term correction) are definitely the EU10 East European ones. Following close behind comes Russia, and then maybe further on down the line China. We will se what she can do with this inflation problem she now has.
Medium term the two highest risk developed economies are undoubtedly Japan and Italy, simply because their public debt situation is not sustainable, and for age related reasons they cannot get the growth dynamics to make them so. When the financial markets finally wake up to this situation things could get very complicated indeed.
Close behind comes Germany for the same sort of export dependence low domestic consumption, rapid ageing reasons, and the high level of exposure to what happens next in Eastern Europe and Russia (similar case Austria incidentally, the Austrian banks could take a very big hit).
Of course, all of this could be wrong, but we are going to get to find out soon enough.
"BTW, both, China and India are considered at risk in the medium future from political instability."
Well I don't know who is doing the assessing here, beauty is always in the eye of the beholder, I suppose. I am looking at economic dynamics - which are what I know something about - and not political ones, but I don't see China as especially politically unstable, I must say. Quite the contrary in fact (unfortunately, with a lot of conformism and resignation). Of course China could be about to become hopelessly economically unstable, and since by this stage it will be the world's number one economy by dollar value (especially if the yuan corrects upwards) the whole world will get to know about this.
India politically unstable? I doubt it. India has been a democracy since independence, and has survived the bad times relatively intact. I see no good reason why the instability should increase now that things are getting better. Of course there will be distributional and re-distributional issues, as eg in France, but this is part of normal democracy not "political instability".
This morning I can see this headline in the FT:
"Bhutto's death raises spectre of instability"
I suppose from where you are sitting I must sound hopelessly deterministic (although most of the correlates do work surprisingly well it must be said) but
can't people see any connection, high fertility = higher probability
of instability, and the reasons aren't hard to understand: Morales,
Chavez, Afghanistan, Iraq, Nigeria, Ethiopia, Somalia etc. And as fertility comes down towards replacement level, the political instability reduces: Turkey, Argentina, Brazil, Chile, Morocco etc. And as you fall below replacement the problems we see tend to be economic, or political conservatism in the face of the need for reform rather than political instability per se.
In fact the only lowest low fertility society that is a real political problem is Russia, and arguably this is a very special case.
"Sure, this is a global problem but the distribution of the risks is very unequal."
This is true, but the relative balance is changing very fast here. The rise in oil prices is not a bad example. This may eventually crunch the US consumer more than it does India's expansion, where the fears are for overheating, not recession.
Looking at the relative capital flows perceptions of risk are changing fast at this very moment, and in many ways this then becomes self-reinforcing.
The specific study I was referring to is http://www.international-alert.org/climate_change.php
"India politically unstable? I doubt it. India has been a democracy since independence, and has survived the bad times relatively intact."
Times may change.
The political instability in India (if it comes to pass, I'm well aware of the uncertainties in predictions) would be the result of new developments. If India can't feed its 1000000000+ people, political instability surely will follow. And a severe shortage of water is what the models predict for the not to distant future.
I take an issue with your original post because I feel that you have some kind of tunnel vision: good demographics, good long term prospects. While good demographics certainly help, this is only a part of the picture.
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