Friday, 25 January 2013

USA, Europe and China in 2013

Here are some thoughts on the year ahead. It is impossible to make predictions but we can at least look at the facts and forces. So, concentrating on the major power groups some observations are listed below.

 One general point about public debt, a problem throughout much of the western world. Why is it always assumed that cutting government expenditure means rendering public sector workers redundant and damaging both infrastructure and social fabric? There is an obvious alternative: slightly reduce wages and benefits until the books are balanced. Am I being too simple? There must by now be a general acceptance that we are in pay back time; so while this solution would have evoked widespread indignation 5 years ago it could, with honest leadership, be made acceptable today.

USA (population 314 million)

  •  Public debt is now $11.5 trillion. On top of this there is a mountain of private debt by individuals and commercial debt by private companies. Welfare, health and education cannot be provided from present funds. Democrats must accept spending cuts; Republicans must accept widespread tax rises.

  • President Obama has less to lose in taking unpopular measures, since he is constitutionally denied a third term. Also, Republicans and Democrats will be under more pressure to reach agreement.  Over the last term only 2.8% of bills introduced in Congress were passed in the Senate. Ten times this percentage were passed in the 1950s.

  • Hispanic Immigration means the USA (median age 37.1 compared to 45.3 for Germany) has the youngest workforce in the industrialised world. If this population can be put to work productively it would raise a lot of tax revenue and combined with the USA’s characteristic innovation allow the economy to grow faster.

  •  Shale gas has reduced greenhouse emissions by 8% (1st quarter 2012 vs 1st quarter 2011) and drastically reduced the reliance on oil imports. The USA could be energy self-sufficient within 10 years if shale gas exploitation is combined with alternative energy development and uptake.

  • Defence spending will have to be cut while Islamic fundamentalist terrorism in Afghanistan, Pakistan, the Middle East, Africa, and even Europe, is a constant threat. This is going to be a tough circle to square since, like it or not, the western world relies to a considerable extent on the US for security, along with significant inputs from the UK and France. Other countries will have to step in – perhaps the better-trained ones in Africa.


European Union (population 504 million in 27 countries)

  • The euro is now comparable in value to what it was before the Greek debt crisis and confidence in Greece’s economy is growing. The government now has to offer yields of around 10% to raise money through issuing 10 year bonds. This compares with 29% a year or so back and with Germany’s present 1.6%.   Chancellor Angela Merkel has strong popular support in Germany despite having to rescue Greece and Spain.

  • Economic growth in Europe, including the UK, is slowing. Can this be stopped? Maybe it depends on new markets growing up in the USA and China, as well as economic growth by Poland (population 38 million), which is keen to integrate more fully with Europe as the UK talks about disengaging.

  • Germany seems keen on Turkey (population 80 million) joining as its economy grows fast (GDP growth 8.5% p.a. in 2011). It could be seen as a bridge to the Middle East and a boost to the EU. There is however a danger of it acting as a gateway for jihad to invade the west.

  •  Population is aging – another reason for letting Turkey into the EC, since its median age is only 28.8 years (cf Germany’s 45.3).
  • As with the US shale deposits could help it become less dependent on other regions for energy and reduce its greenhouse emissions while switching to alternative energy technology.

  • The UK's referendum announcement (January2013) could lead to other non-euro countries (10 out of the 27) re-negotiating terms.

China (population 1.3 billion)

  •  Xi Jinping, the new president is thought to be ready for reforms. He has a reduced span of control within the Politburo Standing Committee, 7 instead of 9, so this should give him more power.

  • The economy continues to grow at over 8% p.a.  (although its per capita GDP is much less than the US: $8,400 per head vs $48,000) but its balance is changing as workers get higher wages.  Innovation is growing, often through copying western technology, and infrastructure investment is high. Attempts to emulate the western R&D model continue.

  • Income differentials are steep socially and geographically. The population is aging fast, there is no state-run health or elderly care and no state pension. Savers have little choice but to put most of their savings into property which, together with business investment, is causing a bubble. Western financial instability must presumably be disconcerting since China has large reserves abroad.

  • Social instability and corruption are major concerns to the government, and could come to a head if the property bubble bursts since many would lose their savings. No doubt the Chinese Communist Party is thinking hard about this and may be forced to come up with innovative solutions (e.g. Christianity?)

  • Disputes with an increasingly bellicose Japan over the Spratly Islands  in the South China Sea could be used as an excuse for conflict, by which to divert social unrest from domestic problems. Or could China take on Afghanistan, rich in resources, is some way?

  • Pollution is visibly serious in the cities and this is forcing government measures to finance alternative technology.

This is how I see things as a layman with access to the web and a few magazines and newspapers. I hope you find it interesting in any case.


Author 2077 AD

Reach me at or use comments box below.