The outlook for 2013 and beyond – Philip Coggan at the LBS Investing Strategy event
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Transcript of The outlook for 2013 and beyond – Philip Coggan at the LBS Investing Strategy event
The outlook for 2013 and beyond
Philip Coggan, Buttonwood columnist
Europe: four problems
Too much debtToo much owed to foreignersToo big a deficitToo uncompetitive
Too much debt
Too big deficits
Too much owed to foreigners
Not competitive, part 1
Not competitive part 2
Adding the totals
Combined ranking (low is bad, high is good)
Greece 10Italy 21Portugal 21Ireland 23Spain 24France 26Germany 46
The long-term cycle
Money has two main functionsMedium of exchangeStore of valueDebtors emphasise the former,
creditors the latterIf creditors “fix” the value of money, via
gold standard or exchange rate, debtors are overwhelmed
Expunging debt
Debt can be written off, inflated away or devalued away
SOMEONE MUST LOSEProblem with euro crisis is that they
have been slow to recognise thisDebt passed round system, like Queen
of spades in Old MaidGermans must choose their poison
Here is the bill, Angela
Extend and pretend
Costs of exit are so large that forbearance will keep being tried
New ECB programme; Britannia rules the waves and the ECB waives the rules
Money won’t be paid back but debt will be endlessly extended
Not great for eurozone economy but not catastrophic either
Long-term
Too much debtUS might grow its way out of itBut Europe has demographic problemNumber of workers per pensionerBritain: 1970 4.3, 2010 3.6, 2050 2.4Germany: 1970 4.1, 2010 3, 2050 1.6Spain; 1970 5.6, 2010 3.7, 2050 1.5Japan: 1970 8.6, 2010 2.6, 2050 1.2
So we must retire later
70 or bustPeople in DC schemes already retire
one year later than DBBut two problems; DC not saving
enoughPublic sector in DBBattle between rich and poor, old and
young, taxpayers and public sector workers, one country and another
Final thought
All pensions are claims on future workers; can’t get round it
Catch two-and-twenty; May be some niche sources of excess return but everyone can’t get them
Basic return – economic growth and risk-free rate. No inherent source of return in, say, volatility