The Tribune

EDITOR, The Tribune

The boom and bust cycle of the global economy is well established. WTO says global trade has under performers with growth of 3% and is expected to decline in 2019 to 2.6 %. The IMF forecast a global slowdown for 2019. The United States (US) is the world’s largest economy in nominal GDP so I will focus mainly on the US in my analysis.

Farm loan delinquency in the US is at its highest in nine years. December had a $79 .5 billion goods deficit which is up 12.8% from November($70.5 billion). There was a $4 billion dollars decline in exports to $ 135.7 billion and a $5 billion increase in imports to $215.2 billion. JC penny closed three stores in January 2019. J C Penny will be closing 24 more stores in 2020. Victoria secret will close 53 stores. GAP will be closing 230 in the next two years. Payless Shoe store has declared bankruptcy and is closing all 2 100 stores. Tesla is closing all of their physical location and will sell vehicles online. Pesicola has started to lay off workers and will continue up until 2023. The Baltic dry index has drop to its lowest level in more than two years. The worst slump in core US factory orders in three years has occurred. The Philly Fed Business Index fell to its lowest level in seven years. January sales of existing home fell 8.5% when compared to last year. Pending home sales in the US have decline when compared year over year basis for 13 consecutive months more than $166 billion dollars in student loan debts is seriously delinquent which is a new record. Seven millions American are 90 days delinquent on their car loan which is a new record according to the New York Fed. The US national debt is $22.2 trillion dollars. This debt will likely never be paid back – only interest on the debt is paid. US has an annual deficit of $1.2 trillion.

Global debt is US $250 trillion. The global financial architecture is showing signs of recession. China have been stimulating her economy through borrowing. From a growth rate of 6.9 % 2017 to 6.6% in 2018 and expected growth rate of. 6.2% according to the IMF. Profit from Chinese Industrial company fell 2018. Germany, Europe largest economy registered no growth for the 4th quarter of 2018 and had a 0.2% contraction for the previous quarter; Germany grew 1.5% in 2018 and is expected to grow 1% in 2019. Italy, Europe’s 3rd largest economy is in recession.

China will end up being better off than its competitors. Debt in China is US $20 000 per capita compared to $ US 245 300 in the US and US $ 134 000 in Japan. China household debt is 44% of GDP compared to 80% in US and 74% in advance economies. China’s high saving ratio ( 36% of disposable income) set it apart from its competitor. Only in the US is the value of residential real estate less than three times the value of household debt. China’s residential real estate value is more than eight times its household debt. Household debt is $14.8 trillion in US and $4.7 trillion in China.

The Bahamas’ largest trading partner is the United States so if the US economy slows down so will the Bahamas’s economy. A substantial part of the Bahamas tourism and remittance are US related.

The US economy grew at 1.5 % for the first quarter of 2019 while it was 2.0 in the first quarter of 2018. The fact that the Federal Reserve have signalled it won’t raise rate in 2019 indicates that the US economy is not in great shape. I am confident the Federal Reserve will start to cut rates by the end the year and engage in quantitative easing (Q4). The advantage the US has is the US dollar is the world reserve currency but the world is gradually moving away from the greenback. China’s gold reserve rose by 0.38 million ounces or about 12 tonnes in January alone to 59.94 million ounces which has a value of US $ 79.31 9 billion. The amount of gold added by global central banks hit the second highest annual amount. Countries bought 615.5 metric tons last year and now hold about 34 000 tons. Russia was the largest buyer of gold in order to reduce its reliance on US dollar followed by Turkey, Kazakhstan, India, Iraq, Poland and Hungary. China is trying “ to diversify its reserve” away from the greenback, according to Jeffery Haley, senior market analysts at currency broker OANDA. The process of moving away from the greenback is evident and gold as a supranational reserve gold plays an important role. In 2 1/2 years Saudi Arabia has sold 60 billion in US bonds (7.5 billion in January). Saudi Arabia is the main supporter of the petrodollar.

The world is changing. In June 2018 the European Central Bank declared it had exchanged €500 million (611 million) worth of US dollar reserve for Yuan securities.The first shipments of oil from the Middle East to China paid for in petroyuan contract occurred in August 2018. Now an alternative to the petrodollar exist. The US dollar based SWIFT (Society for Worldwide Interbank Financial Telecommunication) is being challenged. The IMF seek to centralise monetary authority under a single world structure. Also, to undermine US sanctions on Iranian oil, the EU has started a programme to make a new SWIFT outside the sphere of US influence. Russia, China and Iran have agreed to at last participate in the construction of this new SWIFT. Nothing lasts forever.

BRIAN ELLIS PLUMMER

Nassau

April 7, 2019