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2014-11-27 22:30:00
Dark Shadows Over American Families
For American families, they are more and more signs of growing difficulties.

Data analysis suggests that the 2007 crisis is the consequence of these difficulties and not the other way round. For example, median US household income started decreasing as early as the year 2000 - well before the crisis hit the country economy during the summer of 2007. Compared to the peak of the year 1999, the real median household income has decreased by 9% and has come back to its level reach 25 years ago at the end of the eighties.


However, for some time, rapid increase in household debt neutralized the impact of this situation, supporting construction and growing house ownership as well as household consumption. But this was temporarily dealing with the consequences of the problem not with the underlying cause that is at the root of them.

Between the beginning of the year 2000 and April 2008 the total amount of mortgage debt, helped by a lethal combination of government credit support and complacent banking regulation and behaviour, increased by +138% moving from USD 6,200 billion (63% of GDP) to USD 14,800 billion (100% of GDP) generating rapid increase in house prices.



And this policy did not helped families to own their home. It is true that home ownership reached a peak of 69% in 2004 and after that the % of owner has started to decrease back to currently 65% (which is about its historical level). But the increase in home ownership, when it happened, was only benefitting people more than 50 years old. People below 50, who are the most in need of affordable housing for their family, have been the one impacted, with a reduction in home ownership of -5.4 million units since the year 2000, while people more than 50 years old added 10.8 million units (including +7 million for people above 60 years of age). And this situation is unlikely to improve. The strong monetary policy in place to combat the 2007-08 crisis has resulted more in recovery in prices of assets like houses (as well as stock market) than in an increase in construction which has remained close to its all time low.




Another element of concern, is the soaring costs of schooling on the long run. Since 1980 the overall prices have been multiplied by 3, but schooling and child care costs have been multiplied by almost 10. For more and more American, financing of studies, even at college level, has become a challenge. Like for houses, government is attempting to compensate by making access to education loan easier through Federal Stafford Loan program, only succeeding in making possible further increase in tuition fees and piling up of debt. These have been multiplied by 2.6 since the beginning of 2006, moving up from about USD 500 billion to USD 1,300 billion in April 2014, an amount equivalent to the total government debt of Spain.



Two elements are showing how strongly these trends are impacting families in the United-States:
- The number of people per household started to increase moving from 2.64 in 2002 to 2.73 in 2008 and 2.76 in 2013 breaking a continuous decreasing trend. This is also confirmed by a reduction in geographical mobility in the United-States. according to the U.S. Census Bureau, the percentage of people who changed of residence in 2011 versus 2010 dropped to 11.6% - the lowest level since this statistic started to be computed in 1948 ;
- A constant drop in fertility rate, from a high 2.12 in 2007 (and an average of 2.02 over the previous 20 years) to 1.86 in 2013, driven by a reduction in fertility of women below 30. Within the developed world, the United-States, which used to lead all countries but Israel, are now passed by France (2.01) and most of Northern Europe countries (Iceland - 2.04, Ireland - 2.01, Sweden - 1.91 and the UK - 1.90).



These demographic changes are too short to know whether they reflect a change in family structure.

However, it clearly appears that, taken between a reduction in their income and growing costs of raising kids (housing, education) more and more young American seems to be now delaying family projects. They stay longer at their parent place, need years to repay their education loan, and struggle more than even before to buy their home. Today, there are no sign that things are getting better for them.
2014-11-12 12:30:00
China - A reduction in investment efficiency
Looking at China investment ratio (investment as a % of GDP) and annual GDP growth it appears that for the past 7 years China has been investing more and more (48% of its GDP since 2012 up from 42% in 2007) for a GDP growth down to 7% in 2014 (down from a peak of 14% in 2007 and about 10% over past 3 decades).

Even if the growth level is still very high - one of the highest in the world - this means that more and more investments are likely to not be profitable and may result in significant financial issue in near future.


Go to China graphs
2014-11-10 12:30:00
Highest 10 year growth rates by country
The table below presents the max 10 year average growth rate by country (GDP data series are starting in 1960).

Some interesting facts:
- Countries are from all part of the World.
- Maximum growth level (except in case oil & mineral bonanza) reach a limit at about 10%.
- No link with the size of the country: Rwanda, Jordan, Singapore, Armenia Malta and Belize are small sized countries but China, Ethiopia or Burma are among the 25 most populous countries in the world

2014-11-07 12:30:00
France as number one !Français
By the early 2040s, France should become the most populous European countries ahead of Germany, and at the same time, also become the leading economic power (GDP per capita being relatively close).



Since 2013, the population of France aged 0-24 years (22.2 million people) exceeded that of Germany for the same age group (22.1 million) and the gap is widening every year. Indeed, that same year, France recorded 810,000 births against 682.100 only in Germany - a difference of nearly 20% in favor of France. This is explained by a strong gap in fertility. German fertility rate, 1.38 in 2012, is among the lowest in the world. France, with a fertility rate of around 2 children per woman (2.01 in 2012) recorded the highest level in developed countries after Israel (3.04). Reinforced by positive net migration, population continues to grow at a fairly steady pace (+ 0.4% per year in the 2010s).

The German population is on a downward trend. Since 1972, Germany has been registering natural decrease (more deaths than births). Since then, accumulated excess of deaths over births nearly 5 million. And it continues to grow. In the single year 2013 it exceeded 200,000. So far, Germany has more or less offset this natural decline by immigration - mainly from former Eastern European countries and Turkey, and most recently from Italy and Spain. But this dynamic is erratic: in 2008 and 2009 net migration was negative. Even more surprising, Germany has 4.3 million domestic residents abroad (i.e. 5.3% of the population) against 1.8 million for France (2.9%).


This demographic movement leads to economic consequences. Since Germany's domestic demand is not enough, it is on the external markets that the German economy, in the first place its powerful industry equipment (automobiles, machine tools ...), must find the opportunities it lacks in its domestic market. The surplus in its trade balance now reach 7% of GDP.

But Germany is investing less and less at home. In the 80s and 90s Germany was the European champion for investment. But they have been constantly falling since then. Certainly, this trend does not only affect Germany, all developed countries are concerned, but it affects Germany in much stronger proportions. Germany invested only 18.7% of GDP in the 2000s and 17.5% in the 2010s, less than Italy or even Spain, two countries particularly affected by the crisis., against 27.3% in the 80s and 22.6% in the 90s, France continues to invest at a steady rate, 22.5% in the 2010s after 22.4% in the years 2000s and 21% in the 1990s.

On the long range, it is the renewal of German's productive system, and therefore industry, which is threatened.

Yet Germany is increasingly savings. Reflex caution from a country that is ageing? But this money is investing abroad. As if gradually the country becomes aware that the economic decline is engraved in its demographics.

The road seems drawn for France to become the first European economic power within 25 years.

Still, to take full advantage of its demographic dynamism, France will need to liberate private initiative from heavy bureaucracy and norms, and excessive tax burden.
2014-11-03 18:45:00
Inflation - Evolution since 1800 (US & UK)
A look at long term inflation evolution tells us that from 1800 (1830 for the United-Kingdom) the stability or slight decrease in prices is the norm - except in case of major conflicts (American Civil War, WW1 and WW2 for the United-States ; WW1 and WW2 for the United-Kingdom).

Starting the post second world war, inflation start being the norm at around 2% for the US and 3% for the UK with even a 15 year period from 1967 to 1982 (end of Bretton Woods monetary system and oil chocks) with a strong acceleration in inflation levels.

Today, inflation pressures are coming down with even some countries already experiencing price decreases (e.g. Italy, Japan if we exclude VAT impact).

A very interesting point is that, on the long run, there does not seem to be a link between inflation level and real GDP growth. The US growth is above 4% during the XIX century until the civil war and prices decrease by 0.3% per annum. But after WW2, United-States registered again a growth of 4.1% per annum but with an inflation of +2% per annum.
UK numbers are showing the same evolution. The expansion during industrial revolution was done without inflation. But again the expansion after WW2, which was about of the same magnitude, was done with a significant inflation of 3.7% per annum.



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