Schlagwort-Archive: Brexit

Brexit isn’t the biggest economic problem our children will face

The exit of Great Britain from the EU has earned scare-mongering headlines worthy of a zombie attack. As we’ve written, Brexit is a step away from globalisation, and will hurt global economic growth. But the bigger threats to the global economy come from slow-burn challenges, like the ongoing slowdown in productivity.

But an even bigger challenge is this: There aren’t enough young people in the world. Right now we’re living through the biggest demographic change in history – which will hurt economic growth for generations.

For the first time in human history, we are arriving at “peak youth” – the number of people over the age of 30 outnumbers those who are under the age of 30. And the number of people who are 65 or older are likely going to outnumber children under 5 years of age by 2020.

Young Children and Older People as Percentage of Global PopulationTrueWealth Publishing

This global shift in age demographics will affect GDP growth in countries all over the world. That’s because the global workforce will shrink as a higher percentage of the population is past working age. Fewer workers is a major cause of lower productivity and slower GDP growth. And workers face a greater burden to support a rising aging population.

Longer lives + shrinking labour supply = trouble

Global life expectancy is expected to reach 77.1 years by 2050, compared with 48 years in 1950. That means over a period of 100 years, life expectancy will have climbed by 29 years, or 60 percent. The global population of those 60+ years is expected to grow to 2.1 billion, compared with 901 million today. Asia will account for two-thirds of the increase in old people. China will see the biggest increase in the world, with 21 percent of the world’s increase in 60+ year-olds.

That kind of extension in human longevity is an extraordinary achievement. It’s also an extraordinary burden.

One way to look at the impact this will have on global economies is through support ratios. A country’s support ratio is the ratio of its working age population (15-64 years) to its old-age population (65+ years). It reflects how many workers “support” – via an economy’s social support system – old people.

The global support ratio has steadily fallen, from 12:1 in 1950, to 8:1 in 2013. In developed economies it stood at 4:1 in 2013. Meanwhile, fewer new workers are entering the workforce. The support ratio in developed economies is expected to fall to 2:1 by 2050.

Some economies are hitting a critical point this year when for the first time since 1950, the number of people aged 15-64 will decline in absolute terms. The workforces in Japan, Italy, and Germany have already started to shrink. Japan may see its labour supply shrink by 1/3 by 2050. Since doubling in size over the 45 years ended last year, China’s labour supply likely began to shrink in 2015.

What happens to growth?

From 1964 to 2014, global GDP grew by about 500 percent. That growth was fueled by major increases in productivity and rapid growth in the workforce.

But global GDP growth will struggle as the labour pool starts to shrink, and as productivity growth declines.

Management consultants McKinsey & Company suggest that average global economic growth will fall to 2.1 percent over the next 50 years, compared to 3.5 percent in the previous 50 years. During that time, growth in productivity and labour contributed roughly equally to economic growth. But they forecast that labour growth will nearly vanish as a source of economic growth, as shown in the figure below. And given current trends, predicting that productivity growth will make up the difference is very optimistic.

Annual GDP Growth Due to Productivity and LabourTrueWealth Publishing

Is there anything good in this huge demographic shift? Although the labour force will be increasingly burdened by supporting a larger number of old people, it will also support fewer children. In addition, savings may build up leading to more possibilities for investment.

Also, slowing labour and productivity growth may force companies and governments to search for innovative new ways to drive economic growth. New policies and approaches – particularly focused on technological changes, robotics and artificial intelligence – may further improve the quality of life as the global economy finds its way.

But it’s hard to find a silver lining. And lower growth will become a new normal in coming years.

http://www.businessinsider.de/brexit-isnt-the-biggest-economic-problem-our-children-will-face-2016-7

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Bitcoin is soaring due to China and Brexit

Bitcoin is on a tear.

The price of bitcoin has jumped 42 percent since the beginning of June. It hasn’t been this high since early 2014. It’s moved from a total market capitalization of US$8.3 billion, to nearly US$12 billion. It’s unheard of for a currency – digital or otherwise – to skyrocket this quickly.

Bitcoin Price Indextruewealthpublishing.asia

China has played a big part in this rally. As The Wall Street Journalrecently reported, two Chinese exchanges, Huobi and OKCoin, now collectively account for 92 percent of global trading in bitcoin.

In February, we explained that bitcoin is “cryptocurreny,” or a form of digital money. It’s created and stored electronically through a blockchain database.

Like dollars or yen, you can use bitcoin to buy goods and services. But, unlike paper currencies, which governments can create and print at will, no single entity controls the bitcoin network. Its mathematical rules limit the maximum number of bitcoin units to 21 million.

A network of “miners” digitally secures bitcoin transactions. When a miner completes the complex process of mining a block, he’s paid a fee – in bitcoin.

Every time 210,000 bitcoin blocks are mined, the value of mining new bitcoins is cut in half. There’s only been one “halving” since bitcoin was created eight years ago. It happened in November 2012.

Miners expect the next halving to happen in July. This is one explanation for the recent price surge. Some investors see the imminent halving – which will cut the mining fee from 25 to 12.5 bitcoins – as a reduction in supply. That’s why they’re bullish on bitcoin.

Another explanation is that blockchain, the technology at the heart of bitcoin, is gaining traction in a growing number of commercial applications, stoking investor interest.

Also, concerns over “Brexit” are adding to bitcoin demand. Some investors are worried about the financial fallout if the U.K. leaves the European Union. So they’re turning to bitcoin as a safe haven asset – treating it like a digital alternative to gold.

Yuan, china currencyReuters/StringerDamaged 100 yuan banknotes are seen on a table at a branch of China Bank in Foshan, Guangdong province, June 5, 2013. A woman brought about 400,000 yuan ($65,200), which she had kept at home, to the bank for replacement after most of the notes were bitten by white ants. Her notes were exchanged for new ones but for 60,000 yuan ($9,780) which the bank assessed and declared to be unchangeable. Picture taken June 5, 2013.

That said, the yuan is a much bigger player in this bitcoin rally.
China’s currency has been weak in recent months. It’s down 6.1 percent against the dollar since August.

Investors in China are selling yuan-denominated assets in favour of other currencies, particularly the U.S. dollar. In 2015, Chinese citizens and corporations moved an estimated US$1 trillion in capital out of China. The capital flight has slowed this year. But renewed weakness in the yuan may reaccelerate it.

China’s government wants this to stop. This is part of the reason why it prohibits individual citizens from moving more than US$50,000 per year out of the country. Even so, Chinese citizens have a variety of ways to bypass these capital controls – including bitcoin.

Bitcoin is gaining popularity as a method to quietly and anonymously move money out of China. Basically, a Chinese investor can deposit yuan in a bitcoin account and exchange the bitcoin overseas for some other currency. Fees range from one to two percent.

The price of bitcoin is volatile. So there’s a risk it might change while the transaction is being processed, causing the investor to lose money. Otherwise, it’s a relatively simple way to skirt the rules.

Still, the main reason for bitcoin’s price surge is even simpler: Good old-fashioned speculation.

In recent months, speculation driven by Chinese money has resulted in short-lived bubbles in assets as diverse as iron ore, steel rebar, cotton, and eggs – as well as in bitcoin.

All of these Chinese-driven speculations have the same basic lifeline. Whatever the explanation – lack of alternative investments, a deep-rooted gambling culture, investing naiveté, easy-money loans – each of these market booms played out the same way. Prices shot up in a speculative frenzy, and crashed once the mania faded.

Bitcoin shows all the signs of another Chinese-driven financial bubble.
That’s not to say the price of bitcoin won’t go higher. Bitcoin’s 2013 price surge, as shown above, is the stuff of legend. At the start of 2013, you could purchase a single bitcoin for around US$12. On November 29, you could sell that same single bitcoin for US$1,100.

That’s more than a 9,000 percent gain.

If the yuan starts to freefall, it’s certainly plausible that bitcoin could blast as high as it did in 2013, which would be about a 50 percent gain from current levels.

Keep in mind that China’s economy dwarfs the bitcoin market. Chinese financial deposits total over US$22 trillion. The country experienced capital outflows of US$45 billion in April alone, according to RBS (Royal Bank of Scotland). And by recent standards that’s considered moderate.

If the yuan starts a correction in earnest, and just a portion of the fleeing capital flows into bitcoin, it’s anyone’s guess how high the price of bitcoin might fly.

Nevertheless, buyer beware. When this bubble pops (as they all do), many speculators will wish they had never heard of bitcoin.

This is why China’s investors are crazy about bitcoin