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Globalisation and Connectivity Globalisation is nothing if it is not about connections: Economic, social, cultural. People, things, ideas. Tangible and.

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Presentation on theme: "Globalisation and Connectivity Globalisation is nothing if it is not about connections: Economic, social, cultural. People, things, ideas. Tangible and."— Presentation transcript:

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2 Globalisation and Connectivity Globalisation is nothing if it is not about connections: Economic, social, cultural. People, things, ideas. Tangible and intangible. Known and unknown. One of its defining attributes is the predominance of trade and trading: In things. In people. In capital. And one of its greatest challenges is whether this trade leads to social and economic development.

3 Financial capital: money, in all its forms. Economic capital: what gets bought with the money. Social (overhead) capital: society’s infrastructure. Human capital: people and their potential. Natural capital: Everything not produced by humans. TODAY ONLY! Who’s worth what, where, when, how and why?

4 Who’s Worth What? Global GDP in Millions of Current Dollars 2012 Where?How much?In words… World$72,440,448($ trillion) United States (1 st )$16,244,600($ trillion) Canada (10 th )$1,821,424($1.821 trillion) Sub-Saharan Africa$1,307,585($1.307 trillion) Low income$504,431($0.504 trillion) Lower middle income$4,823,542($4.823 trillion) Middle income$22,249,908($ trillion) High income$49,717,633($ trillion)

5 GDP Per Capita 1961 to 2012 Constant Dollars Income inequality grows Canada High Income World Middle Income Low Income

6 GDP Growth Rates 1961 to 2012 (based on 2005 constant U.S. dollars) Oil Crisis Latin American debt crisis U.S. Savings & Loan crisis Global financial crisis

7 GDP Percentage Shares 1961 to 2012 (based on 2005 constant U.S. dollars) High income nations 2012 = 75.0% Middle income nations 2012 = 24.5% Low income nations 2012 = 0.7% United States 2012 = 26.1%

8 International dollars are U.S. dollars at PPP. That is, what a U.S. dollar would be worth in that country if the cost of living were taken into account. If U.S. dollars were used values would increase or decrease according to local cost of living.

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10 Capital Flows, Trade & Development 10

11 Globalisation and Connectivity Globalisation is about connections. It is about how national economies are woven into a global economy. This happens in large part through flows of capital: From nation to nation. From person to person. Through and between TNCs.

12 Global Capital & Development Components of capital flows: Foreign Direct Investment (FDI) Exports and Imports Worker Remittances Trade, and Financial flows Capital flows: Weave a web of development or dependency. Drive the global economy, like it or not. Creates connectivity, possibly more than anything else. Does globalisation, through capital flows, improve people’s lives?

13 Some Definitions Development refers to the qualitative aspect of the growth in a nation – how is wealth translated into quality of life? Not all economic growth leads to economic development (as when the benefit of growth – money – gets filtered into the profits of TNCs, the pockets of a very few wealthy nationals, corruption, or into military spending). And not all development requires western style economic growth, though in the complete absence of wealth not much can be achieved except exquisite levels of misery.

14 Dependency refers to the situation in which a nation/region loses control of its economic, political, and often, national/regional, autonomy due to external demands from other nations or IGOs to follow their policies in order to meet externally determined goals. Like living at your parents’ home as an adult, you are dependent on your parent’s largesse and governed by their rules. Living With Parents - Dependency

15 Usually coupled with this is the dependency that arises from one or more of: Facing a monopsony or oligopsony. Facing a product value-added differential. Facing an already well developed global market place. The bottom line is that, by definition, being dependent means losing independence, which all nations have to do to a point but some must do to a fault – usually through no fault of their own. All nations must trade to survive, and even careful ones can find themselves overtaken by circumstances that at first may appear for the best. Foreign direct investment is one of these two edged swords.

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17 Foreign Direct Investment (FDI) FDI is one of the most important roads to development but often to dependency as well. FDI is the capital (money and/or infrastructure) that one nation invests in another nation. Globalisation is about the integration and homogenisation of global economies and two things indicate this most strongly: Has there been increasing FDI between economies, especially in the developing world? Has there been increasing trade? 17

18 Types of Foreign Direct Investment PRIVATE SOURCES: Investment made by transnational corporations (TNCs) investing in companies in a foreign nation, and… Worker’s remittances, or the money that individuals send back to their families in their home countries from the countries in which they work. PUBLIC: Comes from predominantly GOs, IGOs, INGOs and may be direct investment, aid, or loans, debt relief. Shares have changed dramatically since 1970 when private and public were about equal. Now they are about 95% private with 28% as worker remittances. 18

19 FDI Summary Flows 2012 (millions of dollars) INFLOWSOUTFLOWSNET World$1,376,628.76$1,395,985.74$19, Developed economies$560,718.10$909,383.26$348, Developing economies$702,825.60$426, $276, Least developed countries$25,703.03$5, $20, Transition economies$87,382.04$55, $31, SHARE INSHARE OUTNET SHARE World100.00% 0.00% Developed economies40.73%65.14%24.41% Developing economies51.05%30.52%-20.53% Least developed countries1.87%0.36%-1.51% Transition economies6.35%3.98%-2.37% Source: Calculated from UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx) Amounts of Foreign Direct Investment Flows are large – about $1.3 trillion each direction in Developed economies are doing the most foreign investing. Developing economies are getting the most investment.

20 Developed nations have the highest inflows and outflows, but levels are declining. Developing nations have the lower flows, but levels are increasing.

21 FDI Inflows as a Percent of GDP, Indicates the integration of global economies as FDI weaves developed and developing economies together. UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx) Flows may be higher to and from developed nations, but the proportion of GDP affected is about the same.

22 PRICE TO PAY? Overall steady increase in # of policies favorable to FDI (such as free trade, reduced health and safety regulations). Policy Changes Related to FDI UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)

23 23 Private FDI has increased from about 50% to almost 70% since 1970, with worker remittances accounting for about 28%. Public capital flows have decreased substantially to less than 10% Capital Flows to Developing Countries UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)

24 Summary: Foreign Direct Investment (FDI) Globalisation is about the integration and homogenisation of global economies and two things indicate this most strongly: Has there been increasing FDI flows between economies, especially in the developing world? Answer: Yes, substantially so. Now we will look at the next question: Has there been increasing trade? 24

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26 Trade If economies have been integrating through foreign investment, as globalisation suggests that it has, then one of the things they must also do is trade – otherwise dependency ensues. Trade is measured by looking at imports, exports and the net balance between them. Questions would be: Have imports and exports grown as a medium of integration? Are imports a growing share of GDP? Are exports correlated with FDI? 26

27 Obvious increase in merchandise trade for all economies in relation to production – 17% to 49% of GDP.

28 Exports as a Percentage of GDP (based on constant 2005 US Dollars) Upward trend in ratio of exports to GDP indicates growing importance of trade in relation to production.

29 Value of Exports and FDI Inflows UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx) and Relationship between FDI and exports is very strong (r=0.904). Both have been growing but the magnitude of FDI much lower than that of exports.

30 TOP 20 EXPORTERS AND IMPORTERS (net loss) 2012 CountryMillionsCountryMillions United States$1,847,433.71United States$2,234, Germany$1,603,560.68Germany$1,375, China$1,362,350.34China$1,101, Japan$743,939.28United Kingdom$723, United Kingdom$704,466.29Japan$662, France$627,482.41France$660, Netherlands$572,211.86South Asia$522, Korea, Rep.$571,399.93Netherlands$506, Italy$514,817.61Korea, Rep.$470, Hong Kong SAR, China$475,867.09Canada$465, Singapore$408,803.79Italy$464, Canada$405,509.91Hong Kong SAR, China$463, South Asia$372,571.30India$443, Spain$361,309.16Singapore$357, Belgium$354,106.14Belgium$340, Russian Federation$321,314.79Spain$336, India$318,368.12Mexico$335, Mexico$303,769.67Russian Federation$330, Switzerland$240,721.38Australia$241, Sweden$215,658.58Brazil$229,818.45

31 Trade Summary Questions would be: Have imports and exports grown as a medium of integration? Yes, to a significant degree. Are imports a growing share of GDP? Yes, almost doubling as a share of GDP Are exports correlated with FDI? Very high correlations exist between exports and FDI, illustrating that FDI and increased trade are integrating the economies of many parts of the world. But not all. 31

32 Courtesy of The Onion

33 What it is and what is does Corporations: Are legal persons with your rights and privileges. Have immunities and limited liability (you don’t). Can access huge amounts of resources. Have far reaching international territories. Control lobby groups and hence politicians and parties. Control media. Own legal firms. Create think tanks. Create research institutes.

34 Dartmouth College against Woodward, 4 Wheat. Rep. 626, 1819, Chief Justice Marshall: [A corporation is] “…an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, [emphasis added] either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created.” Landmark case that set the stage for the rise of corporations in the United States. The Legal Case

35 "They have no soul to save, and they have no body to incarcerate.“ Baron Thurlow. “Corporation: An ingenious device for obtaining profit without individual responsibility.” Ambrose Bierce. The Legal Case

36 Who’s Who Shareholders: Own the company by owning shares. Vote according to how many shares they own. Seek to maximise their returns on their investment. Are protected against liability. Managers: Must run the company according to the wishes of the shareholders and terms of the company charter. Are required by law to maximise returns to the shareholders, which usually means profits. Break the law if they pursue any action contrary to the ROI principle. Are protected against liability.

37 Externalities The cost or benefit incurred by a party who did not choose to incur that cost or benefit. Externalities can be positive or negative but negative externalities are the single most significant corporate social impact on society. Corporations exist to maximise profits by maximising sales and minimising cost per unit. ‘Externalising’ costs minimises them to zero, and some costs are easier to externalise than others. Even costs as basic as waste disposal, health and safety can be externalised.

38 How it all works… Corporations seek to externalize costs, but… Externalities impact society, so… Regulation controls externalities and … Government controls regulation and … Democracy elects government, therefore… People regulate externalities. However by… Partnering, lobbying, moving, threatening, persuading, bribing, corporations seek to control government and … Thus seek to control regulation, thereby… Increasing impact of externalities on people. The larger the corporation and the wider its reach, the better it can externalise costs. Enter the transnational…

39 The Nature of the Transnational Corporation (TNC) Corporations require free flows of the factors of production to optimise their profits and externalise their costs. The transnational corporation has managed to externalise many of its costs by internalising its flows. For example, taxes (a cost) on earnings that are reinvested can be externalised because they are not paid by the corporation. Pollution that is not regulated is a cost that is not paid by the corporation. In both cases they do eventually get paid – by people.

40 Defining Transnationalism “Reaching beyond or transcending national boundaries.” First used in the early part of the 20 th century. Internationalism deals with relationships between nations where territorial boundaries are respected because they have to be. Transnationalism deals with the interrelationships between and through entities regardless of territorial boundaries. Concept is most useful in regard to the actions of the corporation who can: Internalise control and earnings; Reallocate resources within the TNC; Influence domestic political decision making; Guide foreign policy in the TNCs ‘ best interests.

41 Regional Market A Regional Market D Regional Market E Regional Market B Regional Market C National boundary Regional Production Facilities Changing Structure of the Firm - The Single Unit Firm Family owned, individual single product, single function, self contained firms located in exclusive regional markets. Simply flows of things and information, money. Typical of 1 st and 2 nd industrial revolutions and small industries.

42 Regional Market A Regional Market D Regional Market E Regional Market B Regional Market C HEAD OFFICE FUNCTIONS National boundary Regional Production Facilities Changing Structure of the Firm - The Multidivisional Tight central control over regional markets, few decentralised regional production facilities based on internal scale economies, two way flow of information and things – one way flow of control. Typical of 2 nd and 3 rd industrial revolutions and large national industries.

43 Regional Market A Regional Market D Regional Market E Regional Market B Regional Market C HEAD OFFICE FUNCTIONS Changing Structure of the Firm - The Multinational National boundary Regional Production Facilities Tight central control over regional and international markets, a few decentralised regional production facilities and subsidiaries based on internal scale economies, two way flow of information and things – one way flow of control, limited national autonomy. Typical of 3 rd industrial revolution onwards. National Subsidiary Production Facilities “Head Office” role

44 Changing Structure of the Firm - The Transnational Loose central control over international markets, many decentralised international subsidiaries/affiliates based on internal scale economies, free flow of real time corporate and financial information through units allows high level strategic control. Flows intangible (money decisions) and tangible (things). Typical of 5 th and 6th industrial revolutions. National boundaries IGO structures (e.g. WTO) Corporate ‘cloud’

45 How Many and Where? The following data explores how many companies exist and where they are, as well as some of their effects on the global economy. Much of this information is extremely difficult to obtain with any accuracy. We’ll look at: Mergers and acquisitions (M&A) data (related to FDI). Trends in ISO rated companies Size of TNCs and their connections to nations.

46 The ISO 150 national standards organizations from around the world. Oversees 15,000+ national standards regulations. Grants the right to certify companies with the 9001:2000, 14000, 16949:2002, and 13485:2003 certificates. Certificates verify that the companies bearing them are safe to deal with. Growth in nations seeking ISO membership and companies wanting certification has grown very quickly.

47 Growth in Europe and the Far East highest while growth in the Americas, Australasia, Africa has been slower Number of ISO Rated Companies

48 Share is increasing in Far East Share of ISO Rated Companies

49 How TNCs Control Affiliates Mergers & Acquisitions (M&A) Size in relation to GDP (Power)

50 9/11 Global financial crisis Cross Border Mergers and Acquisitions Sales Sales of companies in the host economy to foreign TNCs (-) Sales of foreign affiliates in the host economy. I.E. Who was doing the selling? UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

51 Cross Border Mergers and Acquisitions Purchases Purchases of companies abroad by home-based TNCs (-) Sales of foreign affiliates of home- based TNCs. Steady net gain by developing countries in acquiring developed world assets. I.E. Who was doing the buying? UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

52 Numbers of Cross Border Mergers and Acquisitions by Economic Sector What’s being sold? UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx 9/11

53 What’s being bought? Numbers of Cross Border Mergers and Acquisition Purchases by Economic Sector UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

54 Net of Sales Over Purchases of Cross Border Mergers and Acquisitions More foreign control over economy Less foreign control over economy UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

55 TNCs by the Numbers

56 VariableValue (millions) Value (words) Foreign as a Share of Total Foreign Assets $7,698, ($7.698 trillion) 59.95% Total Assets $12,841, ($ trillion) Foreign Sales $5,661, ($5.611 trillion) 64.88% Total Sales $8,726, ($8.726 trillion) Foreign Employment9,845, % Total Employment16,875,084 Top 100 Non-Financial TNC Assets, Sales, Employment 2012 UNCTAD, World Investment Report 2013 (http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

57 TOP TEN NON-FINANCIAL TNCs RANKED BY FOREIGN ASSETS, 2013 (Millions US Dollars) CompanyForeign AssetsTotal AssetsForeign as a % of Total General Electric Co $338,156.58$685, % Royal Dutch Shell plc $307,937.82$360, % Toyota Motor Corporation $233,193.41$376, % BP plc $270,247.26$300, % Total SA $214,506.64$227, % Exxon Mobil Corporation $214,348.67$333, % Vodafone Group Plc $199,003.42$217, % Chevron Corporation $158,864.91$232, % Volkswagen Group $158,045.77$409, % Eni SpA $141,021$190, % GE has more value in assets ($685.3 bn) than 91% of nations have GDP. It amounts to about 37% of Canada’s GDP Source: UNCTAD

58 TOP TEN NON-FINANCIAL TNCs RANKED BY FOREIGN SALES, 2013 (Millions US Dollars) CompanyForeign SalesTotal SalesForeign as % of Total Exxon Mobil Corporation $301,840.00$420, % BP plc $300,216.00$375, % Royal Dutch Shell plc $282,930.00$467, % Volkswagen Group $199,128.90$247, % Samsung Electronics $188,833.00$209, % Total SA $180,439.95$234, % Toyota Motor Corporation $170,485.86$265, % Glencore Xtrata PLC $153,912.00$232, % Chevron Corporation $132,743.00$222, % Hon Hai Precision Industries $131,557.00$133, % Wal-Mart Stores Inc $126,751.00$446, % Exxon has more value in sales ($301.8 bn) than 88% of nations have GDP It amounts to about 23% of Canada’s GDP Source: UNCTAD

59 TOP TEN NON-FINANCIAL TNCs RANKED BY FOREIGN EMPLOYMENT, 2013 CompanyForeign Employment Total Employment Foreign as % of Total Hon Hai Precision Industries % Wal-Mart Stores Inc % Nestlé SA % IBM % Volkswagen Group % Carrefour SA % Deutsche Post AG % Siemens AG % Tesco PLC % Hutchinson Whampoa Limited 215,265260, Wal-Mart has more employees than 41% of nations have population. It amounts to about 6% of Canada’s population, 17% of Ontario, about 15 times that of PEI, AND about the same as Toronto and about half that of the GTA. Source: UNCTAD

60 And now for the BIG TNCs… The Financials

61 TOP TEN FINANCIAL TNCs RANKED BY ASSETS, 2012 CompanyAssets (millions) Employment# of Foreign Affiliates HSBC Holdings PLC$2,692, , Deutsche Bank AG$2,653, ,996 1,031 BNP Paribas$2,514, , Mitsubishi UFJ Financial Group$2,494, , Credit Agricole SA$2,428, , Barclays PLC$2,422, , JPMorgan Chase & Company$2,359, , Bank of America Corporation$2,209, , Citigroup Inc$1,864, , Banco Santander SA$1,673, , That’s $2.692 trillion. HSBC Holdings has more assets than the GDP of all but three countries in the world: U.S.A. (15.2%) China (30%) Japan (41.5%) It is 3.7% of the 2012 global GDP. It is 1.4 times Canada’s 2012 GDP. And it has 3.6 times the assets of G.E.

62 Top 20 Most Transnationalised Nations by TNI, 2012 Refers to the home economy of the TNC, as found in the top 100 TNCs list. TNI, the Transnationality Index, is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment. Country Ave TNI Belgium92.8 Luxembourg91.1 Canada87.9 Switzerland85.9 Hong Kong80.9 United Kingdom78.9 Sweden75.4 Austria73.9 Mexico69.0 Italy66.6 Australia66.4 France65.3 Germany64.8 Spain61.1 Russian Federation59.6 United States57.0 Japan49.3 Malaysia35.1 China34.0 Norway28.6

63 Top 100 TNCs by Product 2012 Oil - 11Chemicals – 3 Utilities - 11Nonmetallic Minerals – 3 Motor Vehicles - 11Retail – 3 Pharmaceuticals – 10Transportation – 3 Telecoms - 9Aircraft – 2 Electrical/Electronics - 7Metal & Metal Products – 2 Food/Beverage – 7Business services – 1 Mining – 6Construction - 1 Wholesale - 4Engineering – 1 Diversified – 4Other consumer products - 1 Source: UNCTAD Comprise over 50% of all TNCs.

64 Hi! My name is U.S. Hi! My name is Japan Hi! My name is E.U.

65 Advanced Economies EU G7 Emerging Asia Source: International Monetary Fund, World Economic Outlook Database, October forecasts

66 COUNTRY DEBT AS % OF GDP DEBT PER CAPITA GDP PER CAPITA Luxembourg %$5,636,946.10$81, Ireland %$447,776.79$39, Iceland 778.0%$321,410.68$41, Malta 455.3%$123,783.79$27, Cyprus 440.7%$81,265.17$18, Switzerland 415.9%$191,527.25$46, United Kingdom 401.2%$150,244.00$37, Singapore 346.3%$210,874.17$60, Belgium 337.7%$136,276.28$40, Netherlands 335.4%$139,702.38$41, Top Ten Debtor Nations, 2013 There are currently 30 countries with a greater than 90% debt load to GDP. Canada is #32 at 87.7% Source: Calculated from IMF data.

67 Gross Government Debt Position, 2012

68 Net Government Debt Position, 2012

69 The slides that follow outline the global debt position after the financial crisis of I have left the slides there for your further education and entertainment. These slides will not be on any course exams.

70 OVERALL DEBT AS A% OF GDP EU & Japan, Korea most indebted With China & India holding that debt

71 HOUSEHOLD DEBT AS A % OF GDP

72 GOVERNMENT DEBT AS A % OF GDP The prevailing economic wisdom states that a nation whose government debt load is greater than 90% of its earnings (GDP) will suffer a decrease of 1% per annum in economic growth.

73 FINANCIAL DEBT AS A % OF GDP Debt being carried by financial sector; the only products they have to sell are more financial instruments.

74 NON-FINANCIAL DEBT AS A % OF GDP Debt being carried by all other economic sectors such as retailing and manufacturing; these sectors produce goods and services – their debt is in inventory and machinery.

75 Canadian Overall Debt As A % Of GDP 259% On all slides, look at levels of debt.

76 U.S. DEBT AS A % OF GDP 296%

77 U.K. DEBT AS A % OF GDP 466%

78 JAPANESE DEBT AS A % OF GDP 471%

79 CHINESE DEBT AS A % OF GDP 158%

80 INDIAN DEBT AS A % OF GDP 129%

81 RUSSIAN DEBT AS A % OF GDP 71%

82 Country External debt US dollars Per capita US dollars % of GDP World56,900,000,000,0008,42298% United States13,450,000,000,00043,75894% United Kingdom9,088,000,000,000147,060416% Germany5,208,000,000,00063,493155% France5,021,000,000,00080,209188% Netherlands3,733,000,000,000226,503470% Spain2,410,000,000,00052,588165% Italy2,328,000,000,00039,234101% Ireland2,287,000,000,000515, % Japan2,132,000,000,000702,714205% Luxembourg1,994,000,000,0004,028, % Top Ten Debtor Countries by Value Canada 13 th $833.8 Billion That is, US$13.45 Trillion

83 Country External debt US dollars Per capita US dollars % of GDP Luxembourg1,994,000,000,0004,028, % Japan2,132,000,000,000702,714205% Monaco18,000,000,000565,043N/A Ireland2,287,000,000,000515, % Netherlands3,733,000,000,000226,503470% Switzerland1,339,000,000,000182,899271% United Kingdom9,088,000,000,000147,060416% Belgium1,354,000,000,000126,188267% Norway548,100,000,000113,174143% Denmark607,400,000,000110,216196% Top Ten Debtor Countries by Per Capita U.S. 20 th $52,170. Canada 26 th $24,799

84 Country External debt US dollars Per capita US dollars % of GDP Luxembourg1,994,000,000,0004,028, % Ireland2,287,000,000,000515, % Liberia3,200,000, % Netherlands3,733,000,000,000226,503470% United Kingdom9,088,000,000,000147,060416% Sao Tome and Principe318,000,0002,193349% Hong Kong655,100,000,00092,725311% Switzerland1,339,000,000,000182,899271% Belgium1,354,000,000,000126,188267% Portugal507,000,000,00047,632223% Top Ten Debtor Countries by % of GDP U.S. 33 rd, 106%. Canada 61 st, 62% The World Bank states that a nation whose external debt load is greater than 250% of its earnings (GDP) will suffer poor economic growth and is likely to default.

85 And if you didn’t catch it on the last slide… … it’s the developed world that is facing a debt crisis. So who will bail them out? And why? Good questions, and here’s one answer…

86 MAJOR FOREIGN HOLDERS OF U.S. TREASURY SECURITIES (in billions of dollars and % share) China, Mainland$1, % Japan$1, % Oil Exporters$ % Brazil$ % Carib Bnkng Ctrs$ % Taiwan$ % Switzerland$ % Russia$ % Belgium$ % United Kingdom$ % Hong Kong$ % All Others$1, % GRAND TOTAL$5, % Who Owns U.S. Debt?

87 Who owes what to whom in Europe? U.S.A.

88 Who owes what to whom in Europe? U.K.

89 Who owes what to whom in Europe? Germany

90 Who owes what to whom in Europe? Japan

91 Who owes what to whom in Europe? France

92 Who owes what to whom in Europe? Spain

93 Who owes what to whom in Europe? Portugal

94 Who owes what to whom in Europe? Italy

95 Who owes what to whom in Europe? Greece

96 Canada and U.S. Public Debt Comparisons as a % of GDPas Annual % Changeas Per Capita CanadaU.S.CanadaU.S.CanadaU.S $18,849.00$12, $22,759.00$13, $24,400.00$14, $26,177.00$15, $26,873.00$16, $31,191.00$16, $28,023.00$19, $36,235.00$24, $40,596.00$29, $42,826.00$35, $44,348.00$36, * $45,866.00$41, * $47,384.00$45, Source: The Economist Intelligence Unit * Projections

97 Source: The Economist Intelligence Unit. *forecasts

98

99

100 Global Debt Clock

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102 Progress of a Global Crisis – the US In the US, the government: - Nationalized Fannie Mae and Freddie Mac - Took over AIG, biggest insurance company in the world - Extended deposit insurance liability to $3.4 trillion - Temporarily banned short selling in over 900 financial stocks - Spent $750 billion on toxic mortgages - In just over 3 weeks increased liabilities to over $1 trillion - House prices down by 28% and still not bottomed out - Household indebtedness at unprecedented levels On Wall Street, the status of independent investment banks: - Lehman Bros bankrupt - Bear Stearns and Merrill Lynch taken over by commercial banks - Goldman Sachs and Morgan Stanley become commercial banks - Whole “shadow banking system” reorganized

103 Progress of a Global Crisis - Globally Globally: - Money markets seized up as banks refused to lend to banks - Five European Banks failed, including Iceland’s national bank - House prices decreased by 34% - Household indebtedness reached unprecedented levels - IMF $1.9 trillion in losses on SPM caper - Bank losses on credit about $760 billion - Losses on demise of investment banks at about $13 trillion - Credit growth slowed down from post war high of 9% - This means about a 1.5% decrease in economic growth - IMF believes that credit could shrink by 7.3% in US≈ 11% decrease in economic growth 6.3% in UK≈ 9.5% decrease in economic growth 4.5% in EU≈ 6.75% decrease in economic growth Most remarkable, the derivatives paper bubble that precipitated the worst global economic crisis since the Great Depression is estimated to have been valued at about $400 trillion in 2008 some 13 times the global GNP

104 By Dec 2008 global banking crisis reached same levels as those of the Great Depression. Household indebtedness in US and UK rose to unprecedented levels, averaging a non- mortgage value of $23K per household.

105 Between 2005 and Dec 2008 global commodity prices increased significantly, partly due to speculation and futures trading… … and between 2007 and May 2009 global inflation rates around the world also increased.

106 Dow Jones Industrial Average

107 S & P 500 Index

108 NASDAQ Composite Index

109 NYSE Composite Index New

110 Dow Jones Industrial Average Price 1 year Dow Jones Industrial Average Price 5 years

111 TSX, Dow, S&P NYSE, Dow, S&P, NASDAQ North American Stock Markets Sept 2008-May 2010 Mexico, Dow, S&P Canada Mexico U.S.A.

112 Switzerland, Dow, S&PLondon, Dow, S&P Netherlands, Dow, S&P Madrid, Dow, S&P

113 Hang Seng, Dow, S&P Nikkei, Dow, S&P Seoul, Dow, S&PBombay, Dow, S&P

114 Israel, Dow, S&P Brazil, Dow, S&P Argentina, Dow, S&P NZ, Dow, S&P


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