2020 Savings Shortfall.

JulieW · Apr 12, 2016

Not hard to see the consequences of this.

"By 2020 we'll find ourselves with a global savings shortfall," Ms McNaughton said on Tuesday. "The implications of this shortfall are pretty significant. In conventional times you would say it would put upward pressure on interest rates. But certainly we're not in conventional times. In our view, quantitative easing is a temporary solution to what we believe is the wrong problem. The problem with the global economy at the moment is aggregate demand and in our view quantitative easing is not fixing that."

Central banks are "standing against the tide" in running massive bond-purchasing programs which have driven down interest rates. Market forces will take over.

"When quantitative easing ends, we will see upward pressure on interest rates because of this global savings shortfall. What we will see is an increase in competition to fund current account deficits."

Ms McNaughton recalled working in economics 20 years ago when the Australian current account surplus dominated thinking about policy.

"Today, despite the fact the current account deficit is exactly where it was back then, nobody really talks about the current account. It's not a big issue and a reason it's not a big issue is we don't have any problem funding it."

In conventional times, the only way to do this is to convince investors to invest in you "and the only way to do that is offering a higher yield or a cheaper currency".

Sovereign wealth funds selling assets is one of the warning signs the UBS strategist points to as supporting the 2020 savings "famine". What was regretful, in light of her forecasts, is that developing economies chiefly in Latin America squandered the boom years through rorts and policy errors.

Under a global savings shortfall, Ms McNaughton agrees inequality will worsen in line with deteriorating trade because globalisation is a tool that has historically helped narrow inequality.

The impulse for many governments and central banks will be to harden capital controls to stop the erosion of foreign exchange reserves. "You can't move towards an open economy and then close when it's not working for you."

Other policy missteps are likely.

"We are seeing warning signs of growing trade protection and an increased desire for national government to promote import substituting activities or domestic manufacturing over imports and that's a real risk and a real issue because import-substituting growth is horrendously inefficient," she said.

The collapse in the oil price has accelerated this savings shortfall scenario for oil-producing economies.

"In a world where we still had $US90 oil prices, this scenario wouldn't be a 2020 scenario. It would be more like a 2030 or 2035 scenario."

http://www.theage.com.au/business/u...global-savings-shortfall-20160412-go42eo.html
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2020 Savings Shortfall.

JulieW Well-Known Member Silver Stacker

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2020 Savings Shortfall.

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