Fareed Zakaria GPS – CNN 04-19-15

Salient to Investors:

Fareed Zakaria said:

  • Lee Kuan Yew said America will remain the world’s dominant power in the 21st century only if it is the dominant Pacific power.
  • Global stability will be shaped by how the US handles China.
  • Graham Allison at Harvard said that since 1500, war resulted in 11 of the 15 cases where a transition of power took place.
  • China is the second-largest economy, but first when measured by purchasing power parity: yet its IMF voting share is only equivalent to that of Holland and Belgium combined.
  • Washington should turn its energies, attentions, and effort to Asia.
  • Turkey will be an illiberal democracy for the foreseeable future. It is one of the strictest Internet sensors in the world and President Erdogan has called social media the worst menace to society. Erdogan has built a palace which is >30 times the size of the White House.

Henry Paulson said:

  • China will overtake the US as the world’s largest economy. China now builds more than half of the buildings on earth, consumes half the cement, half the coal, half the steel.
  • Xi Jinping wants and needs a good relationship with the US.
  • The US economy is growing but not quickly enough and with tremendous income disparity.
  • The greatest threat to US long-term pre-eminence is not China but our political inability to strengthen and revitalize our economy and competitiveness.

Larry Summers said:

  • The US economy is growing, but not creating jobs, while productivity is not rising anywhere near levels in the past. The cause is a global phenomenon of the industrial world, namely a surplus of savings due to increasing inequality, developing countries accumulating reserves, and people paying down debt versus much less demand and investment.
  • Despite record low interest rates and near-high non-employment we are investing less in infrastructure than in any time since WWII on a net basis.
  • Borrowing money at 1% or less on average to finance the federal government is not the real problem; which is not making investments that offer very high rates of return for our children – instead, we are deferring maintenance and leaving them with a large liability.
  • The US should raise the minimum wage and allow unions a way to organize, which has been unavailable due to the enforcement, or not, of labor laws for the last quarter century.
  • The fundamental objective should be to raise middle-class incomes.
  • The US federal deficit has gone from 11% of GDP to below 3% of GDP, lower relative to the economy than the average over the last 40 years.

Musta Akyol said power has corrupted the ruling party in Turkey – certainties to win the upcoming election – though President Erdogan is no Putin and Turkey will not impose Sharia law and become Saudi Arabia any time soon.

David Brooks at The New York Times said:

  • Marco Rubio is the best of the Republican presidential candidates – creative and intellectually smart. Scott Walker is very practical and very sharp and, unlike all of his competitors, was a governor.
  • We underestimate international trends and electoral tastes. Tough people are winning, including Netanyahu and Merkel.
  • 53 percent of the electorate will probably be women.
  • Politicians who have a deep inner voice, like Abraham Lincoln, are few. Most are busy all the time, lack an inner voice, and are all me, me, me.  The age we live in selects out those with an inner life.

Jeffrey Sachs said:

  • 2015 is our last chance to act on climate change. The earth is warming – 2014 was the hottest year in instrument record – and the climate is becoming more unstable.
  • The population of 800 million people in 1750 has increased to over 7 billion today, while each person now uses ten times the resources.
  • Technology can accelerate the disaster or solve it. While solar is clean and much less expensive, the fossil fuel industry is now much more productive.
  • If China and India continue to completely depend on coal then it does not matter what you and I do.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1504/19/fzgps.01.html

Fareed Zakaria GPS – CNN 04-12-14

Salient to Investors:

Fareed Zakaria said:

  • Kenneth Pollock says Iran’s foreign policy has been rational and prudent over the years.
  • China has less than 5% of the vote in the World Bank and less than 4% of the vote at the IMF.

Larry Summers said:

  • The US has lost its role as the underwriter of the global economic system.
  • US diplomacy has proved a disaster

Malcolm Gladwell said:

  • Americans are the most honest taxpayers in the world, with only Switzerland even close, yet the penalties for cheating are lower than almost anywhere else, the IRS audits a smaller number of taxpayers than almost any other developed country.
  • Americans perceive their tax system as legitimate.
  • Power is perceived as legitimate if it is respectful of those who are under its purview, if it is fair and trustworthy.
  • If you raise a child in comfort, the path to it doing something extraordinary is more difficult.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://transcripts.cnn.com/TRANSCRIPTS/1504/12/fzgps.01.html

Slow-Growth Forecasts Are Wrong – BloombergView 07-16-14

Salient to Investors:

Gary Shilling writes:

  • The pessimistic economic theories are wrong.
  • Weak growth will NOT last forever despite the Reinhart-Rogoff findings that the economy contracts at a 0.1 percent annual rate when government debt exceeds 90 percent of GDP.
  • In the late 1970s and early 1980s many economists presumed high inflation would last forever, yet we got disinflation by the mid 1980s. The post-war baby boom raised fears of a population explosion, yet was followed by the post-war baby bust.
  • Many experts believed that the aggressive monetary stimulus after the 2000 stock market collapse that appeared to have stabilized the economy meant that central bankers had overcome the business cycle, yet they caused the  2007-2009 recession.
  • Glenn Hubbard at Columbia Business School and Tim Kane at the Hudson Institute believe great powers fall into the trap of denying the internal nature of stagnation, centralizing power and rob the future to overspend on the present.
  • Larry Summers worries about persistently slow growth due to slow labor-force expansion and muted productivity growth.
  • Niall Ferguson at the Hoover Institution believes encroaching government is strangling private initiative, especially in the US, and threatens representative government, the free market, the rule of law and civil society.
  • Robert Gordon at Northwestern University believes that all the big growth-driving technologies have been fully exploited and that the era of 2 percent annual output growth per capita from 1891 to 2007 is over and that 1 percent annual growth and personal incomes growing at 0.5 percent annually is ahead.
  • Jonathan Laing wrote in Barron’s that the growth in the US labor force in coming decades will slow due to low birth rates and less immigration – both global trends – as will productivity advances. Laing believes any productivity increase will come from machines replacing middle-income employees.
  • Increased government regulation does stifle innovation and reduce efficiency and, therefore, growth. By 2018, the percent of Americans received meaningful financial support from the government will rise to 67% versus 28.7% in 1950, 52.4 percent in 1970 and 58.2 percent in 2007. Yet the fact that the 50 percent level was breached 43 years ago attests to the American character of deep-seated self-sufficiency.


Read the full article at http://www.bloombergview.com/articles/2014-07-16/slow-growth-forecasts-are-wrong

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Summers’s Stagnation Draws Doubt From Hatzius: Cutting Research – Bloomberg 12-12-13

Salient to Investors:

David Mericle and Jan Hatzius at Goldman Sachs said:

  • US economic weaknesses are more cyclical than secular. US growth will rebound in 2014 to as high as 3.5 percent versus the 2.25 percent average recovery rate so far.
  • The slow rate of recovery is in line with the historical response to major financial crises, and may even be better.
  • The drag caused by an excess supply of houses, pressure on consumers to pare debts, poor demand abroad and the need for fiscal retrenchment is starting to ease.
  • The economy won’t regain its potential until 2017 or 2018, leaving the Fed to keep its key rate near zero until 2016.

BoE Governor Mark Carney said advanced economies could regain strength and central banks can help, and while productivity has proved surprisingly weak, it is hard to see why there should have been a persistent deterioration in the rate of potential growth in Britain.

Larry Summers said in November that economies suffering from a persistent lack of demand are hard to fix with monetary policy, and that the US economy may be stuck in a rut because the interest rate consistent with full employment has fallen significantly below zero and central banks cannot cut rates much lower.

Yves Mersch at the ECB said Summers’s outlook was a highly pessimistic, even fatalistic and policy makers should step up structural reforms and encourage innovation.

John Hooley at the BoE said the full liberalization of China’s financial markets over the next decade would be almost unrivaled for its impact on the shape of the global financial system, and China’s international investment position could surge to 30 percent of GDP from 5 percent today if capital controls are reduced and the yuan traded more freely. Hooley said liberalization, if successful, could lead to more balanced and sustainable growth in China and help to rebalance global demand.

Paul Donovan at UBS said:

  • An age of plutocracy is taking hold as income inequality grows and corporate profits approach historical highs. Inequality will be exacerbated because the share of national income accounted for by profits is likely to remain high. He also notes that of all the tax categories, only those on corporate income have been cut more often than raised since 2010 among 20 advanced economies.
  • US corporate profits around their record at almost 13 percent of GDP. Of all the tax categories, only those on corporate income have been cut more often than raised since 2010 among 20 advanced economies.
  • Since 2008, nominal income growth has diverged and within the top 10 percent of the income distribution, the richest 1 percent have seen the most significant gains.
  • Gini coefficients for the US, UK, Japan, France and Canada have each risen since 2005, with the US index approaching 0.48.
  • Pretax income of the top 1 percent of Americans is 20 percent of all US income, comparable to levels in the early 20th century.
  • Poorer earners have suffered from inflation which has tended to be greater on the goods they typically buy.

Jay Bryson, Azhar Iqbal and Mackenzie Miller at Wells Fargo Securities said the US economy needs to rely on homegrown demand if it is to get stronger because even a 1 percent increase in economic growth in the euro area, China and Japan would have only a limited effect on US activity because exports account for just 13 percent of the US economy, lower than the 25 percent average of GDP across all countries.

Read the full article at http://www.bloomberg.com/news/2013-12-13/summers-s-stagnation-draws-doubt-from-hatzius-cutting-research.html

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Reinhart-Rogoff Rebuttal Says UMass Critics Politicized Debt – Bloomberg 04-26-13

Salient to Investors:

Carmen Reinhart and Kenneth Rogoff at Harvard acknowledged on April 17 that they had inadvertently left some data out of their calculations in “Growth in a Time of Debt”, but the error did not change their basic findings that countries with public debt in excess of 90 percent of GDP suffered measurably slower economic growth.

A study by Bradford DeLong at University of California and Lawrence Summers concluded that stimulus could generate so much growth that it would pay for itself.

Paul Krugman has continued to be one of the most vocal critics of fiscal cuts.

Read the full article at http://www.bloomberg.com/news/2013-04-26/reinhart-rogoff-dispute-umass-criticism-of-debt-study-findings.html

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Summers Says Euro Crisis Approach Evokes U.S. in Vietnam War – Bloomberg 10-19-12

Salient to Investors:

Larry Summers said Europe’s handling of the sovereign debt crisis evokes comparisons with US strategy during the Vietnam War which opted at each juncture to do the “minimum” to avoid an imminent catastrophe until it all collapsed. Summers said measures are not in place that will drive adequate economic growth, and that European monetary “divorce” cannot be managed without tremendous ill-effect to make it a realistic strategy.

Read the full article at http://www.bloomberg.com/news/2012-10-19/summers-says-euro-crisis-approach-evokes-u-s-in-vietnam-war.html