The Ascent and Descent of Money

Thoughts and issues – The Ascent and Descent of Money #ACID Conference – Niall #Ferguson http://wp.me/p2g64Q-1N

The Ascent and Descent of Money # ACID Conference – Niall Ferguson

• Coming via video out of Oxford England
• 5th year into the slight depression (as opposed to the great depression)
• This time some of the smaller economies are being effected more than the big ones eg Greece

The Slight Depression

• In 2007-2009 the collapse was similar to the great depression
• From June 2009 the economy pulled out of the trend
• This was for 3 reasons
• Bank Failures – We learnt from the GD on monetary policy and saved the Banks from collapsing. Only a few failed
• All the major economies went into debt. Debate continues on if this was at the right level. Ie too much or too little. They mitigated but didn’t cure
• China, the third reason. 2nd largest economy in world, they maintained demand.

Europe
• Appears to be limits to what can be done with monetary union without fiscal union. Eg like EU
• No chance that the EU will be dismantled due to the high cost. If Greece left than it will be cut off from funds form EU, the rest the global and high inflation would lead to the collapse of banks.
• If Greece left, many others would be keen to do the same, eg Italy and Spain
• Germany have been going well due to structural reforms in 1990’s and they have been able to control their exchange rate
• Don’t bet on the break up of the Euro, but expect more EU to increase control of the member states
• Might be a EU control over foreign debt, EU Bonds, Money for bail outs, Germany wants a Federal Republic of Europe,
• Europe is bad but not terminal

China
• Overtake US in 4 yrs
• Worries about a China Crisis are over stated.
• Issues in China are more political than financial
• Party knows its doomed if discussion on Democracy occurs
• But expect that the new leadership will have 1 party state with the rule of law. Hong Kong is closer to this model.
• More secure Private Property, More internationalisation of the Yuan
• If the middle class output is larger that will do well for the Yuan.
• Expect economic liberalisation 12 month after the new leadership

Global Economy
• US not much room left to stimulate economy
• US has election in Nov and will experience contraction after this
• This will be a close election, expect BA in Presidency and still locked house
• US Companies have the balance sheet to assist but the government is not giving them confidence
• US Silicon Valley is still providing great input into the economy eg Facebook and Google, but is facebook a phase or not?
• Globalisation is still working
• The US share index is a barometer of global economy due to the effects of working globally
• It isn’t over yet, the outlook is very cloudy, but better than the 30’s
• Financial Services will be effected by popularism

• US getting close to Debt Ceiling, but it is a superpower and prints the worlds currency, So it is expected that they will keep borrowing.
• Unlikely that the US will hit an inflation issue and the dollar be devaluated, can’t inflate things like social security
• India has advantage over China that is has Law, Free Press and Democracy in place. The States are improving and they will need to move further before the Country settles
• Indonesia – Biggest problem is corruption and this needs to be tidied up
• Politically Populism is increasing but doesn’t appear to be revolutionary
• China’s middle class is larger and growing quicker than India
• The Arab Spring continues but we don’t know where it will end, expect it will be anti democratic