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West – Developed & Deep in Debt

January 26, 2012 3 comments

The entire Developed world is deeply in debt. Will this debt ever get paid?

Britain - A World Leader In Indebtedness! (Source McKinsey Reports). Alt image URL - http://goo.gl/k6soE

Britain - A World Leader In Indebtedness! (Source McKinsey Reports). Alt image URL - http://goo.gl/k6soE

debt problems of the western world go much beyond the current crisis. For one thing, as the authors point out, public debt levels are likely to rise as populations age and governments try to deliver on the promises (pensions, health care and so on).

As public debt levels rise beyond the “danger threshold”, they will tend to pull growth down. This, in turn, could make household and corporate debt servicing far more difficult and countries that are already saddled with dangerously high levels could find themselves in the middle of a crisis. Thus, even if there is a solution to the current crisis in Europe, the “debt” problems of the western world are far from over.

Tailpiece

What worries us about the spirit of good cheer that has suddenly returned to the markets is that it might lead to temporary appreciation in the euro. This, alas, could bring back the spectre of a crisis in the region and revive fears of a break-up in the currency union. One of the pre-conditions for the survival of the union is an orderly deprecation of the currency towards some sort of “fair value” that we think could lie anywhere between 1.15 and 1.20. This would make the beleaguered countries of the periphery more competitive and reduce their incentives to exit from the union. If the currency starts to appreciate again, things go back to square one and the sustainability of the union is back under a cloud of uncertainty. Financial markets tend to be prescient about these things and it is possible that while other currencies and assets rally against the dollar, the euro could at least stay put. (via Abheek Barua & Shivom Chakravarti: Deconstructing debt).

DEBT THREATS (Debt levels as a % of GDP)
Debt Household Non-financial Government Total
US 95 76 97 268
Japan 82 161 213 456
UK 106 126 89 321
Italy 53 128 129 310
Denmark 152 119 65 336
Netherlands 130 121 76 327
Greece 65 65 143 273
Portugal 106 153 107 366
Source: Bank for International settlements & Eurostat  Table source & courtesy – business-standard.com

Clear message

Estimates vary. Assumptions change.

Regardless, of difference in estimates, or the variation in assumptions, debt levels of the developed world are awesome.

The table on top is based on McKinsey Consulting’s estimates released in 2009.

Some figures were revised after McKinsey estimates were made. Like from Ireland. Or after the QE and QEII, US govt debt has ballooned from roughly US$9 trillion to 15 trillion.

The deficit has ballooned to nearly $48,000 for every man, woman and child in the U.S. This year alone, the U.S. will spend $1.3 trillion more than it takes in.

The debt has expanded at an alarming pace, from $7.5 trillion in 2004 and $5.6 trillion in 2000. At the current rate, Debtclock.org reckons that the debt will top $23 trillion in 2015, though the nonpartisan Congressional Budget Office puts the estimate at $17.6 trillion. (via U.S. Debt Tops $15 Trillion Mark Today – ABC News).

Looking at these two sets figures, two questions come to my mind.

One: How does the West+Developed world plan to repay these debts?

Only two things can happen from here. Either governments are going to default outright. Or they are going inflate away their debts, using compliant central banks to keep interest rates significantly below rising prices for many years. Either way, everyone is going to lose a lot of money. Whether it is through a default or inflation doesn’t make much difference in the medium term. (via France and the death of the sovereign debt market – Matthew Lynn’s London Eye – MarketWatch).

Two: If the whole of the Developed world is so deep in debt, it is obvious that someone else has lent them this money?

Obviously, the Developed World is a net borrower – and someone has lent that money to the Developed world – or underwriting this Debt, based on which this debt is being issued.

Since all the major economies of the world (except Russia and China) are deeply in debt, who is doing the lending? Russia and China are in a position to be creditors, only to a limited extent. But cannot account for major part.

This leaves us with the poor countries of the world.

Are the rich of this world, bleeding the poor?


The road from Copenhagen | Ed Miliband | Comment is free | The Guardian

December 26, 2009 Leave a comment
Stop this scaremongering! We got enough problems of our own to worry about yours!

Stop this scaremongering! We got enough problems of our own to worry about yours!

We did not get an agreement on 50% reductions in global emissions by 2050 or on 80% reductions by developed countries. Both were vetoed by China, despite the support of a coalition of developed and the vast majority of developing countries. Indeed, this is one of the straws in the wind for the future: the old order of developed versus developing has been replaced by more interesting alliances. (via The road from Copenhagen | Ed Miliband | Comment is free | The Guardian).

Old bulldog … old tricks

President Bharrat Jagdeo. *Photo credit: thereddsite.files.wordpress.com

President Bharrat Jagdeo. *Photo credit: thereddsite.files.wordpress.com

Gordon Brown, The British Prime Minister declared, “today, together with Norway and Australia, the UK is taking a further step to a Copenhagen agreement: publishing a framework for the long-term transfer of resources to meet the mitigation and adaptation needs of developing countries.” (Paris Hilton note, who the PM of Britain is!)

More interesting was when Europe went ahead and committed funds and disbursed carbon credits. Small amounts – but nevertheless a significant step! So, what gives! How come Europe was disbursing – not serious money, but more than pocket money, without using IMF, World Bank, et al. No UN! How come?

Anglo-Euro efforts

The joint trojan operation (Norway, Australia and UK + EU) against China (or was it India?) was immaculately pursued. Bernarditas de Castro Muller, former lead coordinator and negotiator for the G77 and China in Copenhagen, writing in the Guardian of UK, reported,

The UK financed workshops in selected vulnerable countries and deployed climate envoys. One of its envoys told intransigent negotiators that the UK would mobilise a group of vulnerable countries to pressure the major developing countries – such as China, Brazil and India – into committing to emissions reductions, contrary to their obligations under the climate treaty.

The EU for example made sustained attempts to influence and pressure developing nations – something that only served to increase their cohesion. They bribed where they could, promising the same recycled financing and maybe more to come if countries bent to their demands. And they bullied when they could not bribe.

India’s neighbours, like Maldives, Bangladesh were co-opted – as were countries, led people of Indian extract like Caribbean island of Guyana, Mauritius. The strategy was to isolate China and pair India with the ‘vulnerble 14′ – like Maldives, Guyana, Bangldesh, etc. For instance, alongwith Mohammed Nasheed, Bharrat Jagdeo in Guyana, was faultlessly pursued. Long ignored and isolated, countries like Guyana suddenly found themselves in the spotlight.

Agreeably surprised, they wondered how Guyana “received a disproportionate amount of coverage and access given its size for its progressive and leading stance on climate change.” Time magazine nominated Guyanese president Bharrat Jagdeo, as one of Heroes of the Environment 2008. This year Time magazine included Mohammed Nasheed in its Heroes of the Environment 2009. It was also announced,

Stabroek News in Guyana has confirmed that President Bharrat Jagdeo has been nominated for the 2010 Nobel Peace Prize for his efforts to combat climate  change. He was nominated by Professor David Dabydeen, Director of the Centre for Caribbean Studies at the University of Warwick.

US actor Harrison Ford and Guyana's President Bharrat Jagdeo at a news conference about forest protection on September 21, 2009 in New York. Photograph: Don Emmert/AFP/Getty Images

US actor Harrison Ford and Guyana's President Bharrat Jagdeo at a news conference about forest protection on September 21, 2009 in New York. Photograph: Don Emmert/AFP/Getty Images

The Commonhealth Heads meeting a few weeks before Copenhagen was supposed to seal this ‘alliance.’ Intriguingly, the French President Sarkozy joined the Commonwealth Summit, with Danish Prime Minister Lars Loekke Rasmussen and UN Secretary General, Ban Ki Moon – and proposed a US$10 billion fund for climate change. Just imagine the French joining in a Commonwealth meet (a first, I would think).

Possibly it was the US efforts which made China and India stand together at Copenhagen.

Why the US did not ratify the Kyoto Protocol?

The political undertones of climate control talks are unravelling. The first major smoke signal was when the USA refused to ratify the Kyoto Protocol – while talking about global warming and climate change at the same time. Sometimes puzzling and wholly beyond understanding! The lip service paid by the US to climate change can be best summarized by a Hindi idom हाथी के दांत, खाने के एक, दिखाने के एक. Meaning, elephants have two sets of teeth – one for actual use and another for show.

Cynical subversion of media, honours and public opinion

Cynical subversion of media, honours and public opinion

The third element in the multilateral equations set was the efforts made by Bush /Obama to get India and China to ‘get on the climate change band wagon’ with the US. The Chinese ‘unilateral’ announcement of ‘voluntary’ carbon intensity cut after Obama’s trip to China a few days before Copenhagen was a signpost of this unusual ‘alliance’. India followed soon thereafter with its own ‘voluntary’ carbon intensity cuts. One of the justifications of Bush’s nuclear deal with India was climate change.

This US master-stroke of Obama+BASIC meeting, ensured that the “only breakthrough was the political coup for China and India in concluding the anodyne communiqué with the United States behind closed doors, with Brazil and South Africa allowed in the room and Europe left to languish in the cold outside.”

In hindsight, US covert resistance to climate change was actually resistance to the monopolisation by the EU on the climate change agenda and campaign. Under the garb of climate change, EU was trying to do what US did to the world, under the garb of poverty elimination, population control, Bretton Woods in the aftermath of WW2.

What were the BASIC countries resisting

Writing from a Western standpoint, John Lee, in the Guardian, of the UK, faults China for not allowing,

“Teams of international economists, scientists, inspectors and statisticians roaming China to gather information on carbon emissions and reduction initiatives … reporting to political masters in America and Europe … (on) the further problem of cheating in current and future carbon reduction schemes.” (ellipsis and linking text in brackets mine).

The Climate Change Agreement would have delivered us - hog tied and helpless!

The Climate Change Agreement would have delivered us - hog tied and helpless!

Ed Milliband, Britain’s Energy Minister, younger brother of British foreign secretary, David Miliband, writing for the Guardian,

“We cannot again allow negotiations … to be hijacked in this way. We will need to have major reform of the UN body overseeing the negotiations and of the way the negotiations are conducted (for this) global campaign, co-ordinated by green NGOs, backed by business … we must keep this campaign going and build on it. It needs to be more of a genuinely global mobilisation, taking in all countries …this year has proved what can be done, as well as the scale of the challenge we face. (ellipsis and emphasis mine).

Indeed much has been done.

Face behind the mask

Faceless NGOs, without accountability to anyone, were able to bring global political leadership, to the very brink of an agreement. Like Milliband’s boss, Gordon Brown remarked, “the political will to secure the ambitious agreement … comprehensive and global agreement that is then converted to an internationally legally binding treaty in no more than six months.was very much there. The same 25,000 people (25 countries x 1000 powerful people) who rule over the G8-/OECD wanted the poor to invite these 25,000 to have undue and illegitimate oversight over our ‘poor’ lives – in the name of climate change.

The message I got ... loud and clear

The message I got ... loud and clear

To deliver more than 600 crore (6 billion) of humanity to an agreement that would have allowed the likes of the Milliband Brothers (and their NGO ‘partners-in-crime’) to pry into our lives, our affairs and dictate our very existence – with our own consent. Without recourse, with no checks and balances. With large amounts of unaccounted money at their disposal. To decide how we live our lives. Under a system, that would have re-invented colonialism, in a way wholly unknown to us earlier.

Any deal was a bad deal

Last time around, India was called the deal breaker at Doha. This time around, it is China. Who gets called, what by whom, may seems unimportant! But as my grandfather reminded me many times, बद हो जाओ, लेकिन बदनाम नहीं (Beware of getting a bad reputation).

The Guardian, goes onto say, “Only China is mentioned specifically in Miliband’s article but aides tonight made it clear that he included Sudan, Venezuela, Bolivia, Nicaragua and Cuba, which also tried to resist a deal being signed.” Sadly India is not included in this list of ‘deniers’ who are, as Gordon Brown puts it, “anti-science and anti-change environmental Luddites who seek to stand in the way of progress.”

Climate control noise is just drowning out all debate

Climate control noise is just drowning out all debate

How I wish India was blamed for the failure of Copenhagen!

De-construction of climate change by 2ndlook

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