The Perspective on Global Economic and Financial Status for 2013 and its impact on the future of the global economy
Posted Jan 26 2013 7:21am
(1888PressRelease) Short-term supply shocks are not just inadequate remedies but can hide the real sickness of the world's economy: debt mismanagement and its ensuing crises. Indeed, "The Emperor has no clothes".
During the year 2012 all economic forecasts were documented and recorded; as it stands today, predicted economic growth has fallen short of expectations. Essentially, growth has been calculated at 30% to 50% below forecasted trends. This review has seriously affected the world economy and supported continued apprehension towards a cure for the financial crisis in Europe, Asia and America. Most believe 2013 will be a year of further economic disparity and uncertainty. 2013 is already here, and we do not see any change or hope in a global economy.
The European Central Bank, Bundesbank in Germany, Bank of China, England Central Bank, and the Fed anticipate a recession and anticipate economic growth in 2013 to be significantly low. In Japan trust in the financial marketplace has severely deteriorated which was represented by a 10% increase in the second quarter alone bringing the total public debt to 214% of the country's GDP. The inception of the Euro in 2002 was seen as a major step towards Financial, Fiscal, Foreign Affairs and Economic integration. Europe envisioned positioning itself as a unified entity speaking in one voice for the economic prosperity of all.
The anchor country which fortified this eleven country venture was Germany who financed the effort with its country's economic surplus. In 2005 the European membership was increased to 25 countries. Many of the countries joined the effort with hopes of Brussels' European Central Bank extending its coffers to their individual countries as financier for their development projects. The printing of money in this fashion can best be categorized as analogous to the "baby boom" generation for money as this increase in paper production devalued the purchasing power of the currency and proved to have a negative effect on smaller less developed countries. The projects funded during this time were economically unnecessary and approached malfeasance as countries mismanaged their development and debt began to spiral out of control; all because the country's loans were reimbursed by the European central Bank and other lending institutions.
This funding from Brussels European Central Bank was blessed by other private institutions and continued perpetually. When the USA market was shocked in 2007 due to controversial lending practices, these European countries did not expect a similar fate. In fact, they were traveling the same road as the USA. Banks in the USA were able to easily lend because their loans were backed or guaranteed by a government agency much like the loans in these European countries were backed by a government entity; the Brussels European Central Bank. The collapse of the European economy should have been foreseen since many of policies the central bank followed were modeled after the USA which is printing money to finance development. The problem mainly exists for two reasons; the associated costs to print money and non-sustainable economic development projects these countries invested in. Stated simply, these countries invested in projects that did not last to service the countries associated debt pertained to the individual project. As more and more projects failed in this manner, a debt tsunami occurred much like the crisis that persisted in the USA.
According to Dr. Mehenou Satu Amouzou President of MSA Inc. Investment Trade and Management, this debt mismanagement and later crisis was predictable and could have been managed much more efficiently. It was novice to think that Poland, Bulgaria or Greece could become Germany over night. According to Dr. Mehenou Amouzou the global economic crisis in particular, financial market disparity is everyone's problem and we all bear the burden to cure it. The willingness of the central bank to purchase Euro Zone's short term bonds in the secondary market serves as a band aid because the central bank has unlimited resources. However, the band aid will not hold forever. At some point, a fortified remedy will be necessary to stop the permanent bleeding. If there is an explosion in the Euro Zone, some countries will break from the European Economic community causing massive consequences such as; the breakup of the European Financial System, identity as European Nations, shortage of spending power for infrastructural improvements and advancements, and ultimately a recession that may affect the financial sectors of many of countries on all the continents. According to certain economists the breakup of the Euro Group will increase unemployment above 22% in the world and will cost Greece alone close to 1.3 Trillion dollars to cure its debt with defaults and exit cost.
As we begin to analyze this eminent crisis, the first question is how much currency has Greece actually borrowed? Research has estimated this number to be $1.3 Trillion USD. The second concern is even if this debt is repaid; will Greece stabilize itself by continuing to operate economically in the Euro zone? Anything is possible however I and others who have followed the Euro zone phenomenon note that the cloud of debts above Greece and other countries have persisted for several years. Some of the lending institutions are aware that these loans will most likely never be repaid simply because the funds never reached an economic development project which means these loaned funds were never given the opportunity to generate any revenues from their investment. Instead, the loaned funds entered a system of progressive corruption. This system of progressive corruption is always present in less developed countries where they lack oversight committees and organizations.
The 2008 crisis has affected the world's economy and the associated fiscal policy that was codified to assure its effective implementation and management. Today the crisis has detrimentally disturbed many countries in Europe, not just Greece, Italy, Ireland and Portugal, but the continued support of these so called super countries and its impact has reached many smaller countries speeding their demise as they struggle to support increasing debt. Recently Greece received 50 Billion Euros to repay part of its growing debt to certain banks while the rest was reserved for public investment in hospitals and other basic necessities. Instinctively, because the Euro ties these countries together essentially, the lives of people in Greece depend on the occurrences of other Euro countries. Specifically, Greece is dependent on the German election, where Greece's future and its debt management will be decided. At the same time Greece has become a welfare state with huge debts that will never be repaid and a general public that depends on the European Food stamp to survive. The general consensus in the financial community is these countries will fall further into debt until they default further increasing their financial risk until depression occurs. The only viable remedy will be for lenders to forgive half of the debts.
Dr. Mehenou Amouzou in one of his articles published a year ago "The World Financial Honey Moon is over: Debt Crisis Continues to Wage war on Economy Policy" he stated Printing new money to finance existing debt will be a fiasco. The only tangible solution is to cut the outstanding debt in half, this means to forgive 50% of the country's current debt in exchange and conditioned upon drafting new policies to promote investing in more productive industries, creating jobs and committing to sustaining economic growth at a yearly average which falls between 3% and 5% with progressive growth of 0.5% to be added each year.
France for instance, was seriously affected before the crisis starting in 2007. Prior to the dislocation of the former Soviet Union in 1989 France balanced its commercial debt with the rest of the developed countries by leveraging its dominance in its former colonized countries. In these dominant countries, France controlled 90% of the country's financial marketplace and left 10% to be divided by other developed countries like China to split. As the global economy further developed French Administrators found it necessary to shift its resources from its former colonized possessions to the riper eastern countries. This overnight disengagement from its former colonies (as some have characterized the act) was viewed as an act of betrayal since for over 75 years approaching 200 years these French colonies relied upon the direction and leadership of France and maintained loyalty long before the break of the Soviet Union and the development of new independent countries. The betrayal goes further. Although there have been several French Administrations since 1989 there remains one constant; control. The French maintained control to pilferage the colonies' natural resources as exports while neglecting to reinvest in the colonies' infrastructure and building the colony to an independent municipality.
The difference between the Japanese and their ex-colonies juxtaposed with the French and their ex-colonies is the Japanese developed a scheme to transfer technology by substitution to their colonies. This in turn allowed these countries to tale Japan and has created the four tigers (four countries who are leaders in the global technology industry) and certain technological advancements were extended to other countries in Asia. USA involvement in Asia has also contributed to the economy growth where French colonies were left to dwindle because of Frances' control and ineptness in the global marketplace.
The French exodus from its colonies to the Eastern European countries was ill advised. First, the French underestimated the competition for control of these newly developed countries. Germany and England already boasted a presence in this region and were pouring resources here to continue and sustain its growth. At the same time, the betrayed colonies began to open its markets to China, South Korea and the U.S. which gave them invested capital for economic development in the colonies' infrastructure and to build trade relationships.
Unintentionally, France has lost 85% control of its former colonies to now be estimated 10% to 15% which is still in regression. France's annual balance of payment which mainly represents a deficit compared with other developed countries continues to stagnate because relied on its colonies to purchase its products. With France's betrayal and exodus it lost 90% of purchasing power from colonized consumers while non-French products were represented by French companies as a result of "France Private Domain."For the past five years 600 Billion Euros have been borrowed representing a monthly average close to 10 Billion Euro adding to an exorbitant debt balance. This year is going to be very difficult for France and other Euro Zone countries; the downward spiral will continue. All the economic indicators are in the red and France has a higher possibility to default in this 2013.
Lawmakers in France are faced with the challenge of managing government income tax and its effectiveness to service the country's basic expenditures. Because annual taxes collected will not service the cost of basic expenditures for the country long term debt continues to rise and accumulate remaining unpaid. France's debt represents nearly 90% of its GDP; the country's total 2012 spending was 376.2 Billion Euros compared to 363.4 Billion in 2011. The total income was approximately 290.8 Billion Euros in 2012 compared to 271.8 Billion Euros in 2011. While total income has risen for the year, total spending also increased for the same year. Today, France total debt is near 1,789.4 Trillion Euros with yearly interest cost close to 49 Billion Euros.
The country will continue to borrow to live further increasing its debt until its lending sources are depleted. The country today is challenged to service its debt and may as we have seen in the past with Central America default as a nation. Dissention among law makers is steadily increasing as they race to blame the Euro for these problems. The general consensus ponders the pros and cons of the policy, its implementation and management. Some politicians are raising the issue if it is worth it to be part of the European community since maintaining membership has costly repercussions; the member countries have essentially forfeited their sovereignty to bureaucrats who are not elected by their citizens and who have no real concern for the viability of the nation.
As Dr. Mehenou Amouzou has previously stated, in order for the Euro Zone problem of debt spiral economics to be eradicated policy desperately needs to be revised. Short-term supply shocks are no longer a plausible remedy as these remedies are surely band aids to succumb a raging eruption with debris which lands squarely on the citizens' shoulders. This type of policy certainly leads to recession and degradation of the community with long-term implications far more depleting of future generations.
For more information from Dr. Amouzou please see his previous articles:
* COULD THE WORLD AND THE EUROPEAN FINANCIAL SYSTEMS SURVIVE THIS WORLD WAR III FINANCIAL CRISIS OR IT IS THE END OF THE WESTERN CIVILIZATIONS?
* CORRUPTION AND DEVELOPMENT IN THE DEVELOPING COUNTRIES
*THE WORLD FINANCIAL HONEY MOON IS OVER: DEBT CRISIS CONTINUES TO WAGE WAR ON ECONOMY POLICY
*EUROPEAN CENTRAL BANK'S OUTRIGHT MONETARY TRANSACTIONS (OMT): THE BAZOOKA APPROACH
Dr. Amouzou received his Master in Business, from the European Advanced Institute of Management, also a Certificate in Finance and Investment in Paris, France. He completed his Post Graduation work in Political Strategy, International Relation and Defense Strategies and earned his Ph.D. in International Finance.
* Contribution to this article was made by Byron K. Belser from Leverage PartnerGroup. Mr. Belser assists Dr. Amouzou and holds degrees in Development Economics & Law.
* Ray West from West International
* Enrique H. Mayor, JD from HMGroup International Managing Partner