Malcolm Blair Robinson
May 31, 2010 By Malcolm Blair-Robinson

Some Worrying Figures

Whilst media attention is focused once again on the finances of members of the Cabinet, we think it is time to look at the big picture. There are some disquieting figures. Here are some of them.

If we look at where the real cash is, we look at the foreign currency reserves of of the World. The total for all countries is just over $9 trillion. China has the most at $2.5 trillion. If we add to China all the other key economies of S.E Asia with Japan, India and Russia, we come to $ 5.4 trillion, which is 65% of the total. If we add up the US., the UK. and the whole of the Eurozone we come to a mere $.65 of a trillion, or a tiny 9.6% of the total. If that figue does not scare you it should.

Next, let us have a look at the moneterist measure of M3. This is a broad range of bank account balances throughout an economy and monetrists use it as a measure of what is really going on beneath the surface. In the United States M3 is shrinking at a faster rate than at any time since the onset of the Great Depression. It is not just moneterists who are getting worried in the control room of the world’s largest economy.

Now let us look at external debt. This is money, goods and services owed by a country to overseas creditors, judged in foreign not domestic currency. This means it cannot be reduced by the country involved devaluing its currency. If it does that the debts get bigger.  All this kind of debt in the world (the latest figure go to June 2009) adds up to 98% of the world’s GDP. America has the largest debt but also the largest economy. The ratio of debt to its GDP is 94% or $43,000 per head of population.

The figures for the UK are appalling. Our debt to GDP ratio is 416%, which amounts to a staggering $ 147,000 for each and every one of us. That is very scary indeed. We are also in second place behind the US, although our economy has now sunk to number eight. To drive the unwelcome point home, Greece’s GDP/foreign debt ratio is 167%, or $49000 per head. Or perhaps a more realistic comparison, we owe almost as much as Germany and France put together, with more than twice our population and both with bigger economies.

There is revealed, in this snapshot, evidence that the Western economies are by no means on the road to recovery yet. Among those, we are in a much bigger relative mess than we are willing to admit. There is also doubt, born out by the US M3 measure, of whether the Western fiscal stimulus is working, or whether it is just piling up debt. This is what the arch monetarists think.

What we do know is  the economies with the cash are the ones which are growing apace. This crisis has always been billed by our politicians as Global. As with their own expenses, they have been rather less than frank. It is actually Western. We are at the epicentre.

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