Out of the frying pan… And into the fire!

6 years ago (around this time of year actually), the world economy entered what is now dubbed as “The Great Recession”. Banks were out of money and were on the bring of collapse and the Government stepped in to bail them out. Sadly, this left a lot of us “consumers” pretty skeptical about the future (rightly so), so we weren’t doing anyone any favours by saving all our money. The Governments answer to a recession with low-consumer confidence? Spending. Public spending in the UK has been rising constantly since 2000, but rose even more so after 2008 in a bid to jump-start the recovery (can be seen here). This required an awful lot of borrowing. However, there wasn’t enough revenue coming in from taxes and other public sector areas to cover this up (there still isn’t). What we have now is a Government that borrowed a lot of money with no way to pay it back (de ja vu. More detail on the Government’s activities can be found here)

This isn’t just limited to the UK government of course. This situation extends to the private sector, where people have been taking advantage of ultra-low interest rates (debt has fallen slowly in the UK, but it is rising rapidly in the Far East. The trend over there is that risky borrowing is reaching unsustainable levels – another de ja vu), and the Eurozone, which is on the brink of a triple-dip recession. (Fun fact: global debt rose from 180% of total GDP in 2008 to 212% last year). Now although the UK economy IS growing, we can argue that it’s not growing fast enough (it’s growth rate fell to 0.7% in Q4 of 2013, down from 0.8% from Q3). For the private sector, the only way to deter risky borrowing is to raise interest rates, however this may damage the prospects of a healthy recovery in the short-term. For the public sector – they need some more revenue through taxes and profits from corporations they own. So now we are left with a dilemma – should we make an effort to curb debt in the short-term, which will damage the recovery in the short-term, or keep the ball rolling and see what happens in the long-term?

One thing is for sure, Rising debts + slow growth = another crisis. China – the economy practically holding the world together, has seen a significant deceleration in growth over the past few years. So there is no guarantee this recovery will work out in the short-term with current policies anyway.

It seems pretty clear that in an attempt to save their respective economies, Governments have probably made a bad situation even worse. With governments closing in on bankruptcy because of their net debt, who will be there if the big banks were to fail again?

Record World Debt could trigger new financial crisis

This article is something I read precisely 1 and a half years ago – it’s regularly updated and has some scary yet interesting information about the UK economy (whilst also trying to sell you their service).

The End of Britain

(Sorry if this post is a bit all over the place – it’s been a while since I posted on here, still trying to get back in the swing of things!)

The pros and cons of Walmart.

A fantastic article highlighting how deregulation has led to increased market concentration in the retail and food manufacturing sectors in the US and pretty much around the world.  It can be argued that monopsony power can increase econonic welfare through reduced prices for the consumer and higher profits for the monopsonist, but at what expense?  Depressed wages of the workers in the supply chain and possible reduced quality of products as suppliers attempt to cut costs.

Should government intervene and regulate the market to protect smaller businesses either competing or supplying the monopolist/monopsonist?  Is it in the interests of countries like India to let the likes or Walmart and Tesco have free reign?

A good opportunity to develop your chains of analysis and evaluation points.

Breaking up Walmart?

A world without OPEC and a halt to global warming?

The recent drop in oil prices lends itself to fascinating analysis.  OPEC members are finding it difficult to agree on a strategy to increase price and are more inclined to ‘cheat’ and sell more for less to protect revenues and market share.  High expenditure projects in Venezuela and some Middle Eastern countries  have placed greater emphasis on generating revenues to balance the books and, with the falling price of oil, they are perilously close to fiscal deficits.  As an aside one of the articles below questions the motives for such spending and  thus begs the question as to what may occur when such spending ceases?

The increase in US shale oil appears to exacerbate the situation further as supply is outstripping demand and on the face of it would signal the beginning of the end of OPEC.   Combined with the latest UN backed report stating that the use of fossil fuels should be fazed out by the end of this century if irreversible damage to the planet is to be avoided, countries like Kuwait need to restructure their economies sooner rather than later.

Great opportunity for development of chains of analysis and evaluation with diagrams.

A World Without OPEC?

Fossil fuels to go!