Is it just me, or does the world economy seemed to be in suspended animation–a butterfly pinned to the corkboard? Or perhaps a weightless astronaut at the apex of a parabolic rocket shot?
The much-ballyhooed restocking effect finally showed up in the Q4 GDP report, but all was not well in other areas: notably consumption, whose growth delined on a quarterly basis. Where is the final demand coming from? Build it and they will come?
An then there is Greece and Spain and Japan and Ireland and the UK and…how will any of them avoid outright default or the printing press? The overly subscribed Greek debt issue was completely underwater in the span of two days, as spreads continued to widen. Buyers’ remorse indeed. How long until catastrophe?
And then Obama’s call for doubling exports in five years. How will that be possible without a dramatic weakening of the dollar against the people’s currency?
Big changes are brewing. Don’t look down.
A comment with respect to the situation in Japan. I recently met with a very prominent Japanese economist who pointed out that, when push comes to shove, Japan can get its financial house in order by raising the consumption tax. At the moment, the consumption tax rate in Japan is 5%, versus about 19% in the Euro zone and 25% in Denmark and Sweden. Since Japan collects about 10T yen from the consumption tax and has a budget deficit of approximately 30T yen, fiscal health can be restored by doubling or tripling the consumption tax and simultaneously cutting pension and healthcare spending. These steps are politically difficult, but they are available and feasible in case of a crisis. Since the government debt is mostly held domestically, I do not expect Japan to attempt to print its way out. Indeed, the yen may be an attractive store of value going forward.
Interesting observation; not sure what the impact of a declining population is on consumption. My guess is that it would be a short-term fix. Then there is the issue as to how high you can raise the sales tax before demand falls too far to sustain income in other areas. It’s certainly an idea worth thinking about.
The other problem that all debtor countries have is that the debt load isn’t a problem until it is (suddenly). Would they pre-emptively raise the tax…?