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The Main Issues

This week we're going to take a quick look at the world's major economies and consider the main issues that confront them.


The US economy makes up 21% of global GDP. Annual per capital GDP is $51,700. The country's population is 314 million and is forecast to grow by 17 million (or 5.3%) by 2018.

The US Current Account deficit is 2.7% of GDP, down sharply from 5.8% in 2006. The government's budget deficit was 8% of GDP in 2012, but forecast to be only around 4% of GDP in 2013. The government's gross debt to GDP is 103%. The Fed, the US central bank, is creating $85 billion of fiat money a month, which is approximately 6% of GDP per year. The economy grew by 2.8% in 2012.

Main Issue: How to wind down - and eventually end - Quantitative Easing, without causing a stock market crash, a property market crash and a new, severe global recession.


China's economy is the second largest in the world. It accounts for 10% of global GDP. Per capita GDP is $6,100. The country's population is 1.35 billion and is forecast to increase by 41 million (or 3%) by 2018.

China's Current Account surplus is 2.4% of GDP, down sharply from 10% of GDP in 2007. The government's budget deficit was 2.2% of GDP in 2012 and gross government debt was 26% of GDP. It should be noted, however, that the finances of the provincial governments may be a cause for serious concern. The PBOC, China's central bank, is not creating fiat money in a QE-style operation. However, it has accumulated $3.7 trillion in foreign exchange reserves since 1990 by creating an equivalent amount of fiat money. The economy grew by 7.7% in 2012.

Main Issues: China's economic growth model of very rapid investment growth and export-led growth is in crisis because the Americans, the Europeans and the Chinese themselves do not have sufficient income to absorb China's current industrial output. Extremely rapid credit growth since 2009 threatens to end in economic disaster.


Japan's economy is the third largest in the world, accounting for 8% of global GDP. Per capita GDP is $46,700. The country's population is 128 million. It is forecast to shrink by 2 million (or 1.7%) by 2018.

Japan's Current Account surplus was 1.0% of GPD in 2012, down significantly from 4.9% in 2007. The government's budget deficit was 10% of GDP and gross government debt was 238% of GDP in 2012, much larger than any other industrialized country. Despite this very high level of government debt, it should be noted that the Japanese government can still borrow at extremely low interest rates, only 0.6% per annum on 10-year government bonds. The Bank of Japan, the central bank, is creating the equivalent of $70 billion per month or 14% of GDP per year - even more than the US central bank relative to the size of the US GDP. Japan's economy grew by 2.0% in 2012.

Main Issues: Very high government debt levels, double digit budget deficits, declining global export competitiveness (especially relative to China and Korea), and a shrinking and rapidly aging population.


Germany's economy accounts for 5% of global GDP. Its per capita GDP is $41,900. The country's population is 82 million. It is forecast to decline by 1 million (or 1.2%) by 2018.

Germany's Current Account surplus was 7% of GDP in 2012 and it has averaged more than 6% of GDP per year since 2005. That makes Germany's trade surplus one of the main sources of the global imbalances destabilizing the world economy. The government's budget was balanced in 2012 and the government's gross debt to GDP amounted to 82%. Being part of the Euro Zone, Germany's monetary policy is controlled by the European Central Bank. The German economy grew by 0.9% in 2012.

Main Issues: German banks have made large loans to many of its crisis-hit European neighbors. It is now having difficulty recovering those loans. Moreover, Germany's large Current Account surplus is generating still more liquidity that must either be lent abroad or allowed to enter the Germany economy. Lending abroad could produce yet more non-performing loans, while allowing the money to enter Germany could cause asset price inflation and an economic bubble there.


Brazil's economy accounts for 4% of global GDP. Its annual per capita GDP is $11,400. The country's population of 198 million is expected to increase by 8 million (or 4.3%) by 2018.

Brazil's Current Account has swung from a surplus of 1.6% of GDP in 2005 to a deficit of 2.5% of GDP in 2012. The government's budget deficit was 2.7% of GDP and its gross government debt was 68% of GDP in 2012. The economy grew by 0.9% last year.

Main Issues: Brazil's economy is heavily dependent on commodity exports. Its manufacturing industry is being undermined by more competitively priced imports from China.


The UK economy accounts for 3% of global GDP. Per capita GDP is $39,000. The country's population is 63 million and is expected to increase by 3 million (or 4.7%) by 2018.

The UK's Current Account deficit was 3.8% of GDP in 2012. The government's budget deficit was 7.9% of GDP and the government's gross debt to GDP was 89% in 2012, twice as high as in 2007. The Bank of England has suspended its QE program for the time being. However, it did aggressively create fiat money and buy government bonds between 2008 and 2012; and, as a result, it now holds roughly 30% of the government's debt - a much larger share than in any other country. The UK economy grew by 0.2% in 2012.

Main Issue: The UK economy is very heavily reliant on the Finance industry, which is unstable at best, and a giant Ponzi scheme at worst. Future banking crises could lie ahead.


India's economy makes up 3% of global GDP. Its annual per capita GDP is $1,500. The country's population is 1.25 billion and is expected to surge by 100 million (or 8%) by 2018.

India's Current Account deficit is 4.8% of GDP and has deteriorated steadily since 2006. The government's budget deficit was 8% of GPD and gross government debt to GDP was 67% in 2012. The economy grew by 3.2% in 2012.

Main Issues: India is challenged on a number of fronts. Its inflation rate, at 11%, is a serious problem. The government's budget deficit has averaged nearly 8% a year since 2005. Finally, the country's persistent Current Account deficit has to be financed by importing capital. This makes the country vulnerable to domestic asset price inflation if too much foreign money comes in, and vulnerable to a sudden spike in interest rates should that foreign money rush out.

Note: The data cited above was sourced from the IMF and the United Nations Statistics Division. The % share of global GDP numbers are for 2011. All other data refer to 2012 unless otherwise indicated.

Original publish date: November 15, 2013

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