Category Archives: Global Economics

3 Charts That Show Stock Market Euphoria Is Totally Unprecedented

My Comments: I’m thinking of getting into the markets. That’s a sure sign the bottom will soon drop out.

Jesse Felder on March 18, 2017

Last week I focused on fundamentals, sharing 3 charts that show stock market valuations are totally unprecedented. This week I’ll focus on sentiment.

When looking at sentiment many people like to look at surveys. I prefer to look at what people are actually doing with their money. It’s a fact that we are now seeing record inflows into the equity markets but how do we put this into context?

First, I would just note that Rydex traders have been a good contrarian indicator for a long time. They recently positioned themselves more bullishly than any time in the history of this fund family, even surpassing the peak seen during the height of the dotcom mania.

I also like to look at margin debt, or total borrowing in brokerage accounts, as way of assessing speculative fervor. Nominal margin debt recently hit a new record high but I prefer to normalize this measure by comparing it to the size of the economy. This adjusted measure also recently hit a new, all-time high greater than that set in 2000.

Finally, we can look at household financial assets invested in the stock market compared to those in money market funds. Here is where we see the direct result of 7 years of zero percent interest rate policy. Households now have more than 15 times as much money invested in stocks than they do in money market funds, well beyond anything we have seen since the invention of these cash vehicles.

With as much money as they are now pouring into the equity markets, investors might do well to remember that bull markets aren’t born on euphoria.


The 5 Worst Possible Shocks To The Economy; From Washington, D.C.

My Comments: Fixing what ails us ain’t going to be easy. Especially when the two political parties are more intent on having the other fail than doing what we hired them to do in the first place.

My future is limited while that of my children and grandchildren has decades to run. Economics, despite it being hard for most of us to understand, is at the heart of a credible financial future for the vast majority of us. What follows are five things that must not happen.

Stan Collender, Forbes Contributor / Mar 5, 2017

What had been widely expected to be sure bets and slam dunk policy changes has quickly turned into multiple missteps and infighting as the White House and congressional GOP find it difficult to shift from opposing and resisting to legislating and governing.

Yes…as it planned…Congress did adopt a fiscal 2017 budget resolution in January. But that first (and by far easiest) step in the Trump/GOP economic strategy is the only one it has completed. The January 27 deadline Congress set for itself on the Affordable Care Act has long since been passed with no action by either the House or Senate and none expected anytime soon.

Meanwhile, the ACA repeal and replace saga is about to run smack into a series of economic events and requirements that will force the White House and Congress to devote their time, energy and political capital to other issues. This includes the soon-to-expire suspension of the national debt ceiling, the Trump fiscal 2018 budget that presumably will be released the middle of March (we’ll see), a continuing resolution that if not dealt with by April 29 will cause a government shutdown and a 2018 congressional budget resolution fight that could greatly complicate both repeal and replace/repair/rename and tax reform.

In a bout of irrationally optimistic expectations, investors and their advisors still seem to be assuming (or is it wishing and praying?) that it somehow will all come together. And the Trump/GOP economic policies may indeed all still happen even if they don’t occur as originally planned.

But in light of the unexpected that’s already happened, several new possibilities need to to be added to Wall Street’s calculus.

There are 5 economic policy-related events that aren’t currently being priced in by investors that will send severe shockwaves through the markets if they occur. Instead of a wrench, any of these 5 will throw a nuclear bomb into the GOP’s economic policymaking efforts.

1. No Tax Reform
As I’ve posted before, the corporate tax reform that seemed to be such a sure thing right after the election is now in trouble substantively, conceptually, procedurally and politically. It’s already hard to see it being enacted and going into effect in 2017, and it may still may not be in place in 2018. If the GOP loses House seats in the 2018 election, tax reform may have to wait until after 2020.

2. OMB Director Mick Mulvaney Resigns Or Is Fired
Trump’s budget plans are at odds with the preferences of the House Freedom Caucus, the group of 30-50 ultra fiscally conservative House Republicans who have the power to stop the president’s economic plans dead in their tracks. Before becoming Trump’s OMB director, Mick Mulvaney was a HFC leader and his at least tacit approval of the spending, tax and deficit changes the president wants will be one of the biggest reasons they’re enacted.

But as a member of Congress, Mulvaney specifically rejected much of what Trump is going to propose. If those plans or the compromises needed to get them adopted become more than he can stomach, it’s not hard to imagine Mulvaney leaving the cabinet. That would give the House Freedom Caucus license to oppose the president’s economic agenda.

3. Congress Refuses To Raise The Debt Ceiling
As noted above, the current suspension of the national debt ceiling expires shortly…on March 15. The Bipartisan Policy Center said last week that the Treasury will be able to manipulate the federal government’s cash balances until sometime this fall. What happens then, however, is anyone’s guess.

The common assumption is that congressional Republicans, who routinely opposed debt ceiling increases during the Obama administration, will hold their noses and vote to increase it this time when it’s needed. But that’s anything but certain, especially if the House Freedom Caucus feels that it has given up enough on everything from repeal and replace to tax cuts and military increases that aren’t offset with spending reductions elsewhere.

And just to complicate the situation further, OMB Director Mulvaney (see #1) steadfastly opposed raising the debt ceiling when he was a member of Congress.

4. An Annual $ Trillion Deficit
It’s both conceivable and likely that, in spite of the guarantees given during the campaign, the Trump economic and budget policies coupled with the now seemingly inevitable tightening of monetary policy by the Federal Reserve will lead to an annual budget deficit of $1 trillion or more as early as fiscal 2019. The total increase in the national debt during the first 4 years of the Trump administration could range between $4 trillion and $5 trillion.

5. A Downgrade Of U.S. Debt By The Rating Agencies
The last time the federal government’s credit rating was downgraded was in August 2011 when Standard & Poor’s said it was taking the action because the U.S. needed to raise the debt ceiling and have a “credible” plan to deal with long-term debt. S&P also said the government had become less effective or predictable.

Since then the U.S. debt held by the public has increased by about $4 trillion. And all of the same factors that convinced S&P to downgrade in 2011 will be present again in 2017.

Why Trump Can’t Make It 1981 Again

flag USMy Comments: Most of you know I’m no fan of Donald Trump. But I am a realist and my primary focus going forward is to figure out how to best help myself and my clients manage the fallout that is coming. While Reagan was recognized as a ‘great communicator’, Trump will be seen as a ‘great disrupter’. Whether that results in a net positive for all of us remains to be seen.

Some of my effort will be to help others define and articulate a world in which the values I think are important are not simply thrown in a dumpster. Among the forces at work that will at times stymie us is a push to re-invent the present so it more closely resembles the past. That’s not going to happen. The sooner we stop living in the past and accept what is in front of us, the better our chances for success.

By RUCHIR SHARMA / JAN. 14, 2017

As if Donald J. Trump’s victory wasn’t surprising enough, the economic reaction has been even more stunning. Despite forecasts of a stock market meltdown if he won, the market registered one of its strongest postelection rallies in more than a century. Now the euphoria is spilling into the wider economy, with business confidence skyrocketing and consumer confidence hitting a 15-year high. Much of this excitement is inspired by a growing consensus that Mr. Trump could be the most-business friendly president since Ronald Reagan.

Indeed Mr. Trump’s advisers say that over the next decade, their plans for tax cuts and deregulation could push the average annual growth rate back up to 3.5 percent — the same as during the Reagan presidency. Mr. Trump says the country can grow even faster. His backers dismiss skeptics as defeatists and have insisted there is “no law of nature or economics” that would prevent the United States from reviving the boom of the 1980s.

Only there is such a law. The forces that underlie economic growth have weakened significantly since the Reagan years, worldwide. No nation, no matter how exceptional, can try to grow faster than economic forces allow without the risk of provoking a volatile boom-bust cycle.

The potential growth rate of an economy is roughly determined — and limited — by the sum of two factors: population and productivity. An economy can grow steadily only by adding more workers, or by increasing output per worker. During the Reagan years, both population and productivity were growing at around 1.7 percent a year, so the potential United States growth rate was close to 3.5 percent. In short, Reagan did not push the nation’s economic engine to run faster than it could handle.

When Mr. Trump and his advisers promise to make America great again, they are in effect envisioning Reagan 2.0, while overlooking how much has changed. In recent years, America’s population and productivity growth have fallen to around .75 percent each, generously measured, so potential economic growth is roughly 1.5 percent, less than half the rate of the Reagan era. Any policy package that aims to push an economy beyond its potential could easily backfire — in the form of higher deficits and inflation.
The population and productivity formula is well known and undisputed — yet widely ignored amid the current euphoria.

In the last 1,000 years, no economy has ever broken free of the limits imposed by population growth. Before the late 19th century, global population growth did not exceed half a percent, and global economic growth did not exceed 1 percent for any sustained period. Before World War II, population growth increased to 1 percent, and economic growth accelerated to about 2 percent. After the war, the baby boom pushed population growth toward 2 percent, and economic growth rose to nearly 4 percent for the first and only time in world history.

Now, as families around the world have fewer children, global population growth has fallen to about 1 percent. The baby boom has gone bust, and the best any nation can do is contain the economic damage. With the United States population growth rate falling — last year to the slowest rate recorded since the 1930s — it is extremely unlikely that any president could juice the economy to grow at a steady 3.5 percent or more over the next decade.

Slow population growth undermines the economy by delivering fewer young people into the work force. Nations can partly compensate by raising the retirement age or admitting more immigrant workers. Mr. Trump, however, has no such plans. His advisers focus instead on bringing back the many American workers who have given up on finding jobs and dropped out of the labor force. But this strategy can have only limited effect. The main reason fewer workers participate in the nation’s labor force is not that they are discouraged, but that they are over 55, the age when many people stop working or work less.

In general, commentators who believe the United States can go back to the 1980s focus not on population but on productivity. They argue that Reagan-style tax cuts and deregulation can increase investment in new plants and equipment, and substantially raise output per worker. But productivity is much harder to measure and forecast than population.

Rather than enter that foggy debate, then, let’s assume Mr. Trump’s team can more than double United States productivity growth to the rate achieved in the Reagan era, 1.7 percent. Given the irreversible fact of slowing population growth, that productivity miracle would still raise the potential growth rate of the domestic economy to only around 2.5 percent. If that doesn’t sound so different from 3.5 percent, consider that every percentage point of growth in the domestic economy is worth more than $100 billion — the difference between feeling pretty good and Great Again.

The nub of the problem here is nostalgia for a bygone era. The postwar world grew accustomed to the rapid growth made possible by the baby boom. Not every country with rapid population growth enjoyed a steady economic boom, but few economies boomed without it. And for most countries, the era of population growth is now over.

The pressure of falling population growth means that every class of countries needs to adopt a new math of economic success, and bring its definition of strong growth down by a full point or more. For developed nations like the United States, with average incomes over $25,000, any rate above 1.5 percent should be seen as relatively good.
Comparing United States growth unfavorably to China’s, as Mr. Trump has, makes little sense because poorer countries always tend to grow faster. If your starting income is lower, it’s much easier to double it. But slowing population growth is also weighing on countries in China’s income class, and for them the baseline for economic success should also be revised downward, to around 4 percent.

The risks of excessive ambition are real. In recent years the actual growth rate of the United States economy has been about 2 percent, which is disappointing in comparison with the 1980s, but far from horrible, given its diminished potential. Often, if a country pushes the economy to grow much faster than its potential, it will start to suffer from rising debts and deficits. Inflation will rise, forcing the central bank to raise interest rates aggressively, which can prompt a recession. This risk is particularly high at a time, like the present, when the United States is already running the largest deficit ever recorded at this stage of an economic expansion.

It will be difficult to persuade people to accept the reality of slower growth. Voters in many countries are already turning to populists who are promising miracles and attempting nationalist economic experiments. The coming era is likely to bring more such experimentation and diversion, but the new math of slower growth will remain.
Ruchir Sharma, author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,” is chief global strategist at Morgan Stanley Investment Management.

The Biggest Losers in Trump’s Potential Trade War

My Comments: It’s been hard to tell if the mistakes coming out of the White House are simply the result of the learning curve necessary to be competent or whether it’s the result of overt incompetence. But I do think it’s increasingly clear that Donald Trump is in over his head.

The person most likely in charge now is Steve Bannon, who reminds me of a James Bond villain, trying to take over the world. Nothing coming out of the White House, despite the rhetoric that it will all clear up soon, suggests it’s in our best interest as citizens. I don’t see him as an evil person, but his motivation is to ultimately do what is in Steve Bannon’s best interest, and we’ve given him the keys to the kingdom. There’s very little we can do about it. Yet. This writer is too wishy washy; we will all lose if we concede the economic high ground.

Ronald Brownstein Jan 30, 2017

If Donald Trump’s aggressive moves on the international economy spark a trade war, the American communities that will lose the most in absolute terms are the giant metropolitan areas, largely along the two coasts, that are most deeply integrated into global markets.

But in proportional terms, the biggest losers from a trade war would be small and midsized cities, almost entirely in interior states, that are heavily dependent on exports of manufacturing goods or energy products.

That distinction between the communities with the greatest absolute and proportional stake in access to global markets emerges from an important analysis of exports’ role in local economies that was released Monday by the Metropolitan Policy Program at the Brookings Institution.

That contrast frames the political risk of Trump’s flurry of moves to raise barriers against imports and withdraw from U.S.-led efforts to open markets around the world—for instance, abandoning the Trans-Pacific Partnership agreement across Asia and demanding a renegotiation of the North American Free Trade Agreement with Mexico and Canada.

If Trump’s moves ultimately reduce trade flows and squeeze exports, the biggest U.S. losers will include not only big metropolitan areas that almost entirely supported Hillary Clinton in November, but also the smaller places that provided the core of Trump’s support. “You have to tell both parts of that story to get the full local picture,” said Joseph Parilla, a Metropolitan Policy Program fellow who specializes in local economies, particularly their connection to the global market.

In the new analysis, Parilla and Mark Muro, the Metropolitan Policy Program’s director of policy, produced data on trade flows at the county and metropolitan-area level that quantify this split-level picture.

On the one hand, they found that although Trump won about five-sixths of all U.S. counties, the counties that supported Clinton accounted for 58 percent of all American exports in 2015. The counties that backed Trump only generated 42 percent of all American exports. That’s in line with earlier Brookings calculations that Clinton’s counties accounted for about two-thirds of the nation’s total economic output.

The overall export imbalance reflects Clinton’s dominance in the metropolitan areas that are most firmly integrated into global markets. In 2015, Brookings calculated, 15 U.S. metropolitan areas each generated at least $25 billion in exports. That list is topped by New York ($132 billion), Los Angeles ($98 billion), Houston ($80 billion), Chicago ($63 billion), Dallas ($59 billion), and Seattle ($51 billion). And it extends through Boston and San Francisco (about $41 billion each); Detroit ($38 billion); Philadelphia and Miami (about $31 billion each); Washington, D.C., San Jose, and Atlanta (about $27 billion each); and Portland ($25 billion).

These are all places that have accelerated their growth by steering into the jet stream of the global economy. “The big cities, one of the reasons they are so big is that they have figured out how to provide products and services that have a lot of global demand, and they have been able to build a lot of wealth because they are doing things that very few other places in the world can do,” Parilla said. “New York in finance and L.A. in media, and Houston in energy and Seattle in aerospace and tech, and San Jose in a range of technology and advanced-manufacturing sectors—these are absolutely global hubs for these advanced, traded industries. And a lot of the country’s wealth is invariably [generated] in those places.”

They are also almost all places where Clinton trounced Trump last fall. Overall, Clinton won 88 of the nation’s 100 largest counties, even slightly more than Obama did in 2012. In that way, a Trump turn toward protectionism would represent another offensive against the interests of major metros that overwhelmingly rejected him—a pattern evident in his attacks on so-called sanctuary cities, his drive to repeal the Affordable Care Act, and his demand for an investigation of voter fraud focused on urban areas.

But as Muro and Parilla show, the trade picture is more complex. Although the big metropolitan areas generate the most exports, selling to the world is often proportionally more important to smaller places. In fact, the Brookings analysis found that while the Clinton counties accounted for most of the nation’s absolute export volume, exports accounted for a larger share of the total economic output of counties that Trump won (13 percent) than of those that Clinton carried (10 percent).

The metropolitan areas where exports account for the largest total share of local economic output are smaller and midsized communities that are almost all hubs for either manufacturing or energy production. These places read like a recap of Trump’s campaign-travel itinerary: Columbus, Elkhart, Kokomo, and Lafayette in Indiana; Racine, Fond du Lac, and Sheboygan in Wisconsin; Lake Charles and Baton Rouge in Louisiana; Waterloo, Iowa; Hickory and Rocky Mount in North Carolina,; and Midland and Battle Creek in Michigan. The list of metropolitan areas where exports provide the greatest share of total gross domestic product doesn’t reach a big city until Seattle—which ranks about 40th.

For the big, mostly blue-leaning metropolitan areas, a turn toward protectionism is a relatively unambiguous threat. “This is pretty clearly negative for those places,” Parilla said. Not only do they depend on selling to global markets, but they also “benefit from the fact that people from all over the world come to these places because they see these locations as the best destination to advance their economic prospect.“ Protectionist trade policies, reinforced by immigration limits, could stanch those flows.

For smaller communities at the foundation of the Trump coalition, the ledger is more complex. Many of those smaller places, Parilla notes, would initially welcome a more protectionist trade policy, on the belief that it will force manufacturers now relocating or building new facilities abroad to reinvest in the United States. The downside for them is less visible, but potentially more consequential: the cost to their local economies if retaliation from other nations, or simply a diminished effort to open other markets, leads to fewer sales from American firms to the world.

“When you start to [assess] what the motivation is … [for] the new administration, they were brought in to respond to a lot of these smaller communities,” Parilla said. “And [a protectionist approach] is just really dangerous [for them] because of how export-intensive some of them are. The bet, obviously, on their part is [that] it is going to be beneficial—that more production is going to concentrate in these places as a result of us closing ourselves off. But that takes a zero-sum view of trade. And if you play that out and you suggest there is going to be retaliatory measures—and overall global trade becomes less and less an important part of what drives our economy—then the most export-intensive places stand to see some changes in their economy.”

For example, a protectionist approach might save jobs at one factory, but those policies could eventually mean another employer down the road doesn’t hire new workers, or lays off existing ones, because their export markets contract.

Parilla acknowledges that it’s difficult for local officials to keep that broader perspective in mind when trade’s losers are so much more visible than its beneficiaries. But the Brookings data showing the heavy reliance on trade in the smaller cities, he said, make clear that “what might incentivize production for one industry … might be limiting opportunities for another.” And that’s why a protectionist lurch that seemingly favors Trump’s small-town bastions over the Democratic-leaning major metropolitan areas might ultimately hurt both types of communities.

America’s Rise of Nationalism Has It Barreling Towards a Crisis

flag USMy Comments: The past 70 years have seen a remarkable transformation from what was essentially a sophisticated tribal approach to security for a given group of people, to one that begins to recognize we are one planet and all of us, to some degree, are intricately connected as we attempt to survive and thrive as a species.

While 70 years seems a lifetime to most of us, we can agree it’s a small fraction of time since humans first walked on this same planet. This recent transformation has moved in fits and starts, depending on where you live and the resources you have and use to define your success.

There is a reset happening which in the larger scheme of things is a good thing. It will either confirm that we’ve made some bad choices and/or it will create a road map for society to move forward. Either way, it was bound to happen. These comments by George Friedman and Allison Federika align closely with my values and wishes for the world that my children and grandchildren will inherit. It remains to be seen if what is happening will be in their best interest.

George Friedman and Allison Fedirka, Mauldin Economics / Jan. 18, 2017

This year, the United States will be the main geopolitical power. And President Donald Trump will run it. This will be the first big shift to nationalism in US politics.

This rise in nationalism is global. Its rise stems from the rejection of the internationalist model. This has ruled international relations since the end of World War II.

The US does not answer to any regional blocs or international powers. And yet, the US will still see a strong rise in nationalism.

Trump’s election portends an economic crisis

Since its founding, the US has met a crisis every 50 years. The most recent was the election of Reagan in 1980.

About ten years before a crisis, new socio-economic problems emerge. Trump’s election does not mean a crisis. But it does foresee the arrival of one in the 2020s.

The main inside economic problem for the US today is less middle-class buying power. A worker in the lower-middle class earns about $2,000 a month after taxes and has employer-provided health care. That person would not be able to afford more than rent for an apartment.

Economic chaos has political effects

One group badly hit by less buying power is the white working class. It can be thought that these pains would affect their voting. Trump knew this demographic. He used it as his base to win.

The rise of US nationalism shows that lengthy economic chaos must have political effects. They play out where domestic socio-economic crisis meets global economic slowing.

The 2008 financial crisis shook core ideas that upheld the benefits of free trade. The crisis’s other two big effects were economic slowing in industrial countries and more unrest in export-dependent countries.

This has been an issue since the founding of the nation

Free trade now must prove its worth. Protectionism—economic nationalism—has gained speed.

The balance of free trade and protectionism has been a major political issue in the US since the country’s founding. The US economy is mostly safe from a decline in exports, which make up 12.6% of GDP. But the crisis made space for a rethink of trade deals.

These trade talks tied to the US are over less buying power and standards of living.

US internal stresses will determine foreign policy

The debate about economic survival bleeds into big questions. These are immigration policy, military commitments, trade deal terms, and foreign aid—among others.

Today, nationalism looks better. For those who lost after the 2008 crisis, internationalism has not solved the world’s political, security, and economic crises. It’s also seen as the cause of those problems.

In the US—and at a global level—nationalism may not win. But this needs internationalism to present itself in a way that seems like a real option.

Except in war, foreign policy shifts do not happen quickly in the US. The US is under internal stresses that will be seen in its foreign policy.

The 16 countries with the world’s best healthcare systems

Cost-of-careMy Comments: With all the crap going on in Washington about repealing the ACA, it might be helpful to know (or maybe not) where we stand on the global stage when it comes to health care. A London based think tank created a Global Prosperity Index, and among their results is a ranking on health care. Below are the first 16 out of 150 countries on the relevant scale, counting down from Canada as #16.

On the aggregate index, the US ranks #17, but on the healthcare index, we rank #32. For those of you who want to make America great again, you need to look way beyond the politics of this. Unless you simply want to die early and in pain.

The guiding metric is the relative cost of care, and medical outcomes. For a country that prides itself on being a world leader, health care outcomes per dollar spent in this country, is pathetic.

Will Martin / January 13, 2017

The Legatum Institute, a London-based research institute released its 10th annual global Prosperity Index in November, a huge survey that ranks the most prosperous countries in the world.

The organization compares 104 variables to come up with its list, splitting those variables into nine subindexes. One of the big components of the ranking is how healthy a country’s people are.

Health is measured by three key components by the Legatum Institute: a country’s basic mental and physical health, health infrastructure, and the availability of preventative care.

Perhaps unsurprisingly, the countries that have the best scores in the Prosperity Index, and therefore rank as the world’s healthiest, are generally big, developed economies with large amounts of resources.

Britain — whose NHS pioneered free at the point of use healthcare globally — misses out on this list, finishing 20th in the Legatum Institute’s health sub-index.

Take a look at the top 16 countries below:
16. Canada — Canada’s 1984 Health Act entrenches in law the country’s system of free at the point of access healthcare, known as Medicare. Canada’s system is not perfect however, and in recent years the number of Canadians going south for private care in the USA has grown.
15. Qatar — The best standards of health in the Middle East can be found in the wealthy nation of Qatar. The nation has recently taken steps to implement a universal healthcare system across the entire country.
14. France — Famed for the quality of its health services, it is not surprising to see France close to the top of the pile. The country’s average life expectancy is 82.
13. Norway — Norway, along with its Scandinavian counterparts, often comes close to global quality of life rankings, and one reason is the health of its citizens. The country’s healthcare system is free for children under 16, but adults must pay for services. The country spends more per person on healthcare than any other country on earth.
12. New Zealand — New Zealand is one of the most active countries in the world, with the nation punching well above its weight in international sporting competitions. It has an average life expectancy of 81.6 years.
11. Belgium — With an average age of 81.1, Belgium’s life expectancy is just outside the world’s top 20. The country has universal healthcare, but also requires mandatory health insurance for all citizens.
10. Germany — Despite a love of beer and sausages, Germans are some of the world’s healthiest people. The country’s average life expectancy is 81.
9. Israel — Israel is the highest ranked of any Middle Eastern state on the Legatum Institute’s health sub-index, and the country has the 8th highest life expectancy on the planet, 82.5 years.
8. Australia — With great weather and low pollution, it is not surprising that Australia is ranked as the healthiest nation in the southern hemisphere. Its average life expectancy is 82.8, the 4th highest in the world.
7. Hong Kong — The tiny city-state of Hong Kong has 11 private and 42 public hospitals to serve its population of just over 7.2 million people. In 2012, women in Hong Kong had the longest average life expectancy of any demographic on earth.
6. Sweden — As with most quality of life and health rankings, northern European countries like Sweden score highly. Swedish men have the 4th highest life expectancy of any nation, living to an average of 80.7 years.
5. Netherlands — In 2015 the Netherlands gained the number one spot at the top of the annual Euro health consumer index, which compares healthcare systems in Europe, scoring 916 of a maximum 1,000 points
4. Japan — The country’s life expectancy — 83.7 — is the highest on the planet. That has caused demographic issues in the country, with its population aging rapidly.
3. Switzerland — Rich, beautiful, and incredibly healthy. Switzerland has pretty much all anyone could want from a country. Its healthcare service is universal and is based upon the mandatory holding of health insurance by all citizens.
2. Singapore — Another small city-state to make the top of the Prosperity Index’s health sub-index. Singapore’s 5.6 million citizens have an average life expectancy of 83.1 years old.
1. Luxembourg — Nestled between Belgium, France, and Germany, the wealthy nation of Luxembourg tops the Legatum Institute’s health sub-index. The country’s average life expectancy is 82.

The Risks That Threaten Global Growth

changeaheadroadsignMy Comments: Readers of this blog will recall my observations about risk in general and in particular, those that will influence our economic well being in years to come.

With the new administration seemingly in favor of conflicts over trade between nations, and of retreating from the forces that have fostered global economic growth for the past 7 decades, these comments by Martin Wolff seem prescient.

Just as I tend to agree with Trump’s call to ‘drain the swamp’, or in my words, re-assess the assumptions on all levels that led us to where we are now, there are major forces at work over which we have virtually no control that demand a reassessment of economic assumptions. The next few decades are going to be tough for a lot of us.

by Martin Wolff, January 3, 2017

What is going to happen to the world economy this year? Much the most plausible answer is that it is going to grow. As I argued in a column published at this time last year, the most astonishing fact about the world economy is that it has grown in every year since the early 1950s. In 2017 it is virtually certain to grow again, possibly faster than in 2016, as Gavyn Davies has argued persuasively. So what might go wrong?

The presumption of economic growth is arguably the most important feature of the modern world. But consistent growth is a relatively recent phenomenon. Global output shrank in a fifth of all years between 1900 and 1947. One of the policy achievements since the second world war has been to make growth more stable.

This is partly because the world has avoided blunders on the scale of the two world wars and the Great Depression. It is also, as the American economist Hyman Minsky argued, because of active management of the monetary system, greater willingness to run fiscal deficits during recessions and the increased size of government spending relative to economic output.

Behind the tendency towards economic growth lie two powerful forces: innovation at the frontier of the world economy, particularly in the US, and catch-up by laggard economies. The two are linked: the more the frontier economies innovate, the greater the room for catch-up. Take the most potent example of the past 40 years, China. On the (possibly exaggerated) official numbers, gross domestic product per head rose 23-fold between 1978 and 2015. Yet so poor had China been at the beginning of this colossal expansion that its average GDP per head was only a quarter of US levels in 2015. Indeed, it was only half that of Portugal. Catch-up growth remains possible for China. India has still greater room: its GDP per head was about a 10th of US levels in 2015.

The overwhelming probability is that the world economy will grow. Moreover, it is highly likely that it will grow by more than 3 per cent (measured at purchasing power parity). It has grown by less than that very rarely since the early 1950s. Indeed, it has grown by less than 2 per cent in only four years since then — 1975, 1981, 1982 and 2009. The first three were the result of oil price shocks, triggered by wars in the Middle East, and Federal Reserve disinflation. The last was the Great Recession after 2008’s financial crisis.

This is also consistent with the pattern since 1900. Three sorts of shocks seem to destabilise the world economy: significant wars; inflation shocks; and financial crises. When asking what might create large downside risks for global economic growth, one has to assess tail risks of this nature. Many fall into the category of known unknowns.

For some years, analysts have convinced themselves that quantitative easing is sure to end up in hyperinflation. They are wrong. But a huge fiscal boost in the US, combined with pressure on the Fed not to tighten monetary policy, might generate inflation in the medium term and a disinflationary shock later still. But such a result of Trumponomics will not occur in 2017.

If we consider the possibility of globally significant financial crises, two possibilities stand out: the break-up of the eurozone and a crisis in China. Neither is inconceivable. Yet neither seems likely. The will to sustain the eurozone remains substantial. The Chinese government possesses the levers it needs to prevent a true financial meltdown. The risks in the eurozone and China are unquestionably real, but also small.

A third set of risks is geopolitical. Last year I referred to the possibility of Brexit and “election of a bellicose ignoramus” to the US presidency. Both have come to pass. The implications of the latter remain unknown. It is all too easy to list further geopolitical risks: severe political stresses on the EU, perhaps including the election of Marine Le Pen to the French presidency and renewed inflows of refugees; Russian president Vladimir Putin’s revanchism; the coming friction between Mr Trump’s aggrieved US and Xi Jinping’s ascendant China; friction between Iran and Saudi Arabia; possible overthrow of the Saudi royal family; and the threat of jihadi warfare. Not to be forgotten is the risk of nuclear war: just look at North Korea’s sabre-rattling, the unresolved conflict between India and Pakistan and threats by Mr Putin.

In 2016, political risk did not have much effect on economic outcomes. This year, political actions might do so. An obvious danger is a trade war between the US and China, though the short-term economic effects may be smaller than many might suppose: the risk is longer term, instead. The implications of the fact that the most powerful political figure in the world will have little interest in whether what he says is true are unknowable. All we do know is that we will all be living dangerously.

An important longer-run possibility is that the underlying economic engine is running out of steam. Catch-up still has great potential. But economic dynamism has declined in the core. One indicator is falling productivity growth. Another is ultra-low real interest rates. Mr Trump promises a resurgence of US trend growth. This is unlikely, particularly if he follows a protectionist course. Nevertheless, the concern should be less over what happens this year and more over whether the advance of the frontier of innovation has durably slowed, as Robert Gordon argues.

A good guess then is that the world economy will grow at between 3 and 4 per cent this year (at PPP). It is an even better guess that emerging economies, led yet again by Asia, will continue to grow faster than the advanced economies. There are substantial tail risks to such outcomes. There is also a good chance that the rate of innovation in the most advanced economies has slowed durably. Happy New Year.