Global Crisis/ Innovation Blog

Key Results of the Global Crisis: Martin Wolf’s Midstream Analysis

By Shlomo Maital

 

 

 Martin Wolf, FT

 Financial Times columnist Martin Wolf * runs the FT Economists’ Forum (www.ft.com/econforum), and his regular FT column is worth tracking carefully.  In his latest column, Wolf reviews the key results of the global crisis 2007-9.  Here is a brief summary.

1. Financial regulation has tightened. At last, the trend direction is toward tightened regulation, rather than loosened, for the first time in 30 years.

2. Private leverage declines. In America, private gross debt, as a per cent of GDP, rose from 123 per cent in 1981 to a peak of 293 per cent in 2009. (Why did we economists not treat this as a signal of looming crisis?).  That ratio has now fallen to 263 percent, a shedding of some $5 trillion in private debt in just a year. The financial sector also deleveraged debt worth 20 per cent of GDP in just a year. 

3. Global imbalance (saving in Asia, dissaving in mainly the U.S.) is being reversed, though very slowly.

4. Euro zone deleveraging is occurring, but slowly, imperfectly and bodes ill for the future.

5. G7 nations have taken on huge debt owing to fiscal deficits, their net govt. debt will soar from 52 percent of GDP in 2007 to 90 per cent in 2015.  So basically, private debt has become public debt, partly as governments bailed out failed banks and presented the bill to the public.

6. Global power shift from the West to the East, toward China and India, and toward Brazil. The IMF says the share of advanced countries in global GDP was 63 per cent in 2000, but will be less than 50 per cent in 2013; China and India account for 80 per cent of the rising share of the developing world.

   These six key trends all present major opportunities for investors, entrepreneurs and managers who are able to spot such opportunities, when others see only crisis and uncertainty.

* Martin Wolf, “How the crisis catapulted us into the future”.  FT, Feb. 2, 2011, p. 11.