Will the world economy be in better shape in 2013 than in 2012?

[88m3]

Defending the motion
Anatole Kaletsky
Co-chairman and chief economist, GaveKal Dragonomics
There are three broad arguments for optimism about 2013: long-term trends in globalisation and technology; short-term cyclical forces; and expectations among businesses and investors.

Against the motion
Mohamed El-Erian
CEO, PIMCO
I desperately want 2013 to be better for the global economy than 2012. And there are some encouraging signs. Unfortunately, they are too few to make a meaningful improvement likely.

 

[thekingsmen]

The answer: Nope.

 

[88m3]

The moderator's opening remarksJan 8th 2013 | Daniel Franklin
The start of a new year is a natural time to ponder the economic outlook. But that is not the only reason this debate is particularly timely. The global economy is at an intriguing stage, when contrasting stories about the year ahead can look equally plausible.

Some signs point to continuing gloom. By keeping interest rates at or close to zero, the Federal Reserve and other central banks are clearly suggesting that they do not expect a vigorous recovery soon. Business people around the world have low expectations: the latest Economist/FT Global Business Barometer, a quarterly poll of executives around the world, remains deep in negative territory, with the balance of those expecting the global economy to improve over those expecting it to worsen at minus 11. Yet stockmarkets have been more bullish. And the Economist Intelligence Unit forecasts that global GDP (measured at purchasing-power parity) will grow by 3.4% in 2013—hardly stellar, but an improvement on 3.0% achieved in 2012.

So is the glass half full or half empty? We are fortunate to have two outstanding observers of the world economy to argue it out. Anatole Kaletsky, for the optimists, is a distinguished columnist and consultant who now writes for Reuters. He has championed a fresh approach to economics both in his book, "Capitalism 4.0", and through the Institute for New Economic Thinking. On the pessimistic side, Mohamed El-Erian is chief executive of PIMCO, one of the world's biggest bond investors. He is also a columnist for Foreign Policy and author of an acclaimed book, "When Markets Collide".

In their excellent opening statements, both of them focus on fundamental factors, but reach opposing conclusions. Mr El-Erian points to weak drivers of growth, the weight of debt and the failures of politicians, which mean that in his view, regrettably, the West will not attain the "escape velocity" needed to emerge from its chronic troubles, the worst of which is high unemployment. Mr Kaletsky, by contrast, expects people to be favourably surprised in 2013. He sees the conditions in place for a short-term cyclical upswing everywhere except Europe. And he believes the longer-term trends that justify optimism about the economic future will come to the fore as a "new model of managed capitalism" starts to settle down.

Both Mr Kaletsky and Mr El-Erian acknowledge that a balance of forces is in play. A lot therefore rests on judgments about the relative strengths of the tailwinds and headwinds affecting the global outlook. I expect the argument to hone in on some of these questions. How strongly could the American economy, and its housing and jobs markets in particular, rebound? To what extent can Chinese growth lift other economies? How great is the risk of political blunders, either in Europe or in America?

Of course, expectations for the coming year are likely to vary a lot depending on which country you are in. The euro zone is in recession, whereas China is powering ahead again. A chart in The Economist this week starkly illustrates this geographical divergence: it shows the countries forecast to grow most strongly in 2013 (Macau, Mongolia) and those whose economies are expected to shrink the most (Portugal and Greece, which is entering its sixth successive year of recession).

That is why it will be especially interesting to hear perspectives from people around the world in this debate. Please do weigh in.

The proposer's opening remarksJan 8th 2013 | Anatole Kaletsky
There are three broad arguments for optimism about 2013: long-term trends in globalisation and technology; short-term cyclical forces; and expectations among businesses and investors.

The last argument is perhaps the most surprising, so let us begin there. Expectations for 2013 are uniformly gloomy, but this is good news. According to The Economist's December forecasting poll, American growth will weaken from a feeble 2.2% in 2012 to just 1.9% in 2013, the euro-zone economy will shrink for the second year running, and Japan will sink back into near-stagnation after the brief spurt of decent growth it enjoyed in 2012 due to post-tsunami reconstruction. Even China is expected to stay quite weak, accelerating only marginally from 7.8%, its slowest growth since the turn of the century, to 8.2% in 2013, if the IMF's forecasts are to be believed. GDP growth may not be the sole criterion of economic success, but if the forecasts for 2013 prove right, there can be little hope of major improvements in employment, financial stability, consumer confidence or government finances. So why is this good news?

Gloomy expectations mean that businesses and investors will be caught napping if growth accelerates. They will then race to catch up, thereby amplifying the effects of favourable surprises, not only on financial markets but also on business investment, housing, consumer durables and other sectors driven by pent-up demand. But why expect favourable surprises? Because of the two main reasons for economic optimism in 2013: short-term cyclical conditions and long-term structural change.

Cyclical upswings are now under way in every region of the world apart from Europe. In China and the rest of Asia, growth is rebounding strongly after a lull caused by soaring oil prices in the summer of 2011 and the fears of a European financial meltdown in the first half of 2012. Europe, by contrast, is probably condemned to another year of recession, but its troubles will have limited global impact provided a financial meltdown is avoided, which is now a good bet.

America is the big economy whose prospects are most uncertain—and therefore the most likely to surprise. American growth accelerated strongly in 2012, from 1.6% annualised in the first half to 3.1% in the third quarter, and the slowdown expected in the fourth quarter is for strictly temporary reasons: Hurricane Sandy and the November election. The question is whether 2013 will build on the third quarter's 3%-plus momentum, rather than reverting to the feeble conditions of the first half. The prospects look good.

Financial conditions are normalising, with American banks increasingly able and willing to lend. Employment and consumer sentiment are clearly improving, with 157,000 new private-sector jobs monthly since March 2010. Most importantly, the housing market is rebounding strongly. Collapsing residential investment has reduced American GDP growth by 1% annually since 2009. As the housing headwind turns into a tailwind, stronger growth is almost assured.

Why then have most forecasters remained so gloomy? The short-term answer has been uncertainty about politics and policy—about the euro, quantitative easing, the American election, the Chinese leadership transition and most recently the fiscal cliff. But these political uncertainties have now been resolved. The euro is not about to vanish. The Federal Reserve won't change monetary policy. President Obama will not be unseated. And major changes in American fiscal policy are now unlikely, at least for the next year or two.

As economists and business leaders realise that politics has stabilised, their attention will shift back to economics. And once this happens, they will notice that economic fundamentals are rather better than they had imagined. Such confidence will initially be inspired by short-term cyclical improvements, but gradually the profound long-term changes in the world economy will come to the fore.

Pessimists maintain that long-term structural change is precisely the problem. In his book, "When Markets Collide", published in 2010, Mohamed El-Erian was the first to predict that the global financial crisis had created a "New Normal" in which weak economic growth was inevitable for decades ahead.

I take the opposite view. In my book, "Capitalism 4.0", published the same year, I described four powerful "mega-trends", all dating back to around 1989, which powered the bull market of the 1990s: the end of communism, which unified the world in a single economic system; the opening of China and India, which added 3 billion new producers and consumers to global markets; the new information technology, which drove globalisation by slashing communication and logistics costs; and the universal adoption of pure paper money, which freed macroeconomic policy from the constraints of gold standards and artificial currency pegs.

I argued that these trends justified enormous optimism, but for that very reason they created financial bubbles—and subsequent busts. The tragedy of 2008 was that blind faith in markets prevented policymakers from managing this inevitable boom-bust cycle until it was too late, thereby creating an unprecedented financial crisis. That crisis, however, is now over. Politicians and central bankers now recognise that economies need to be managed and markets cannot just be left to their own devices. As a result, a new model of managed global capitalism is evolving and is gradually replacing the market fundamentalism that dominated the 30 years to 2008.

As this new model develops and stabilises, the favourable trends that started in the 1990s will again drive the global economy. The deleveraging emphasised by Mr El-Erian and other proponents of the new normal will remain an important counter-force against these positive global trends. But when the history of the 21st century is written, I doubt that deleveraging will merit a chapter alongside the end of communism, the rise of China, the invention of the internet and the rediscovery of macroeconomic management.

The opposition's opening remarksJan 8th 2013 | Mohamed El-Erian
As an economist and a parent, I desperately want 2013 to be better for the global economy than 2012. And there are some encouraging signs. Unfortunately, they are too few to make a meaningful improvement likely. Let me explain.

At PIMCO, part of our job is monitoring data releases from around the world, drawing on the insights of colleagues located in our global offices. We aggregate our views and use repeatedly tested analytical frameworks to specify a distribution of likely outcomes.

We have been encouraged by signs of continuing healing, including the following:

• The American housing sector has stabilised, banks are profitable and have stronger balance sheets, and the finances of large corporations are robust.

• Europe has materially reduced the risk of financial implosion, with policymakers evolving from denial to more coherent decision-making.

• China's new leadership is committed to facilitating a soft landing for that country's economy and already shows signs of succeeding.

This is all to the good. Yet, as long-term observers of cyclical and secular trends, we cannot but worry that improvements in Western economies are yet to attain the critical mass needed to overcome three tricky challenges: weak drivers of economic growth, too much debt in the wrong places and insufficient political co-ordination.

Four years after the global financial crisis, high unemployment remains a major headache for many Western countries—so much so that joblessness risks getting embedded in the structure of their economies. In America, almost 5m people are "long-term unemployed", and this does not include the millions that dropped out of the measured labour force. In such circumstances, skills atrophy, mobility declines and productivity sags. The youth dimension is even more alarming: almost a quarter of 16-19 year olds in the labour force are jobless. They risk going from being unemployed to becoming unemployable. The numbers are worse in Europe: Greece and Spain struggle with youth unemployment rates in excess of 50%; Italy and Portugal over 30%.

The West is yet to regain sufficient dynamism—in absolute terms and relative to emerging countries. Gradual healing is not enough. To project a better 2013, we must also believe that these economies will attain "escape velocity". Unfortunately, they are not there yet.

The private sector is incapable of generating sufficient growth momentum on its own. Households still struggle under the weight of debt and limited income growth. The housing recovery, while real, is not strong enough to restore homes as the cash machines that were so instrumental in past recoveries. And companies with cash will not invest heavily unless there are lots of customers to whom they can sell.

Foreign buyers won't do it either. China is stabilising, but at a lower growth. Other BRIC economies confront new challenges. As such, emerging countries are no longer able to robustly pull everyone else along.

What about the public sector? Rather than step up to the challenge of a lifetime, our politicians prefer to bicker and dither. The result: incremental and haphazard policymaking.

The American Congress has gone three years without meeting the most basic of all economic governance responsibility—that of passing an annual budget. Instead of investing in growth engines and helping to overcome damaging debt overhangs, it creates new headwinds. The recent "fiscal cliff" spectacle is the latest example of this phenomenon. It is also a prelude to another political drama in the next few weeks over the debt ceiling.

The political situation is even more complicated in the euro zone where 17 countries must work together. It is hard for the group to agree on comprehensive remedies when members lack a common understanding of the past and present.

Fortunately, there are public institutions that have not shied away from their responsibilities: central banks. Under the bold leadership of Ben Bernanke and Mario Draghi, the Federal Reserve and the European Central Bank, the two most influential central banks in the world, have tried to overcome headwinds created by bickering politicians and post-bubble economic complications. To do so, they have resorted to highly experimental and untested policy tools, underscoring two important realities: first, their windbreakers are temporary; second, the time they buy is not costless—it comes with spreading collateral damage and unintended consequences.

So wherever we look, we are unable to identify drivers that constitute a critical mass of positives for a strong recovery in 2013. Nor are we able to assert that politicians will suddenly become more responsible. It seems that a higher risk of financial turmoil is needed to get them to co-operate.

Our reality is discomforting—for the common good and for that of generations that follow. Without a major catalyst, the global economy is likely again to underperform in 2013. And if disruptors were to emerge and change the underlying dynamics, improved medium-term prospects would come at the cost of greater initial disappointments in the new year.

 

[88m3]

Economist Debates: World economy: Statements


Debate will run through the 18th

 

[88m3]

The answer: Nope.

This thread requires critical thinking and literary skills. Don't bother bruh.

 

[thekingsmen]

This thread requires critical thinking and literary skills. Don't bother bruh.

You asked the question I answered it. More unemployment, no new created stable jobs, more Bank Bail-outs, more Foreclosures of homes by Banks. This has been already been boiling up to the brim.

There is more...

http://www.wsws.org/en/articles/2013/01/09/welf-j09.html

 

[Gallo]

Well lets start with the US. The 2013 crystal ball is a bit cloudy because of the Debt Ceiling and remaining Fiscal Cliff issues. If Republicans in the House of Representatives cause the US to default, it could be catastrophic for the economy. Ultimately I don't think they are stupid enough to do it. But the stupidity of Congressional Republicans never ceases to amaze me. Every time I think they can’t be more stupid, they are. So as a rule of thumb, never underestimate the stupidity quotient of a Republican congressman. Equity markets have traditionally under estimated the Republican stupidity quotient.

I expect a lot of drama over the course of the next few months related to the Debt Ceiling and remaining fiscal items. Congress has had a year and a half to fix these issues and they have repeatedly failed to do so. Next month I expect the market to begin pulling back due to the increasing uncertainty of a US debt default. I don't think this is going to be pretty. Republicans appear to be digging in their heels. I think it will be resolved by the end of March, one way or the other, but not without a lot of drama. And drama is not good for the stock markets. My guess is, it will be a Senate deal and Boehner will break the "Majority of a Majority" rule again in the House which will allow House Democrats to push the final deal across the finish line as they did a few days ago.

If Republicans in Congress cause a default and are unable to get their act together and the pain of default sets in, I would expect either Republicans to eventually yield or President Obama to use extraordinary measures to bypass Congress like the trillion dollar coin or invoking the 14th Amendment. If a default were to occur, I don't expect it will last long. The moment those Social Security and other government checks stop showing up, even the Tea Party folks are going to be in arms. But the "full faith and credit" of the nation will have been severely damaged. The US would be seen in a far different light. It would no longer be seen as the bastion of security it has been for more than a century. It would cause interest rates to rise. And the Federal Reserve might be unable to keep rates low. A US debt default would take us into uncharted territory, and that is not good for business or the equity markets.

Assuming we get through the Debt Ceiling and remaining Fiscal Cliff issues intact, then I expect the balance of the year will be great for investors. China is recovering. Europe is recovering. And the best place to have money invested would in financials and the housing industry. Financials traditionally lead the way in a recovery. Housing related stocks did quite well last year. Assuming Congress and more specifically Republicans, don’t screw things up, I expect both banking and real estate to continue to do well this year.

What happens this year in the equity (stock markets) depends on resolution of the Debt Ceiling and remaining Fiscal Cliff issues. Republicans in Congress can make this a great year or they can really screw it up. We need to raise the debt ceiling - not paying our bills is not a realistic option. It just makes the US government a deadbeat and raises the cost of borrowing which worsens our public debt problems. We need to fix our deficit problem by selectively reducing expenditures and raising taxes. That is the bottom line. That is what Congress needs to do. If they do it great, If they don’t we are going to have trouble.