Growing Global Economic Drought, For Real
Recent economic outlooks from both the International Monetary Fund (IMF) and World Bank, global reports on water, farmers’ testimonies before Congress, and the growing world debt — both private and public – all point to an international economy approaching a breaking point.
Simon Johnson, a former chief economist of the IMF, summarized the IMF and World Bank spring meetings with a shade of gloom in an article last week. He noted that the IMF had revised downward (again) its global growth forecast for only 3 percent for 2016 and 2017. He recalled that, before the 2008 global meltdown, annual growth consistently stayed in the 4.5-5 percent range.
He cited problems worldwide which are affecting the economy:
Now the US faces the uncertainty of a presidential election, weaker parts of the eurozone continue to struggle, and Japan is teetering on the edge of outright economic contraction. Brazil is in the midst of a political crisis, China is dealing with the aftereffects of prolonged fiscal expansion and explosive growth in its shadow banking system, and lower commodity prices are undermining economic performance in many other emerging markets. On top of all this, the British may vote in June to leave the European Union.
We’ve written over the past couple of years about the growing global public and private debt, which are beginning to come back and haunt banks, yet banks continue to push for further debt. This includes, over the past year in the U.S., growing credit debt through subprime loans – which they bundle with derivative securities — for homes, autos, credit cards and even the $1 trillion student loan market. Yes: a la the subprime loans leading to the 2008 global meltdown.
In the US, officials hold out hope that the largest financial firms will eventually be forced to comply with a provision of the 2010 Dodd-Frank financial reform legislation requiring that they draw up credible “living wills.” Yet most big banks have repeatedly failed to produce plausible plans explaining how they could fail in bankruptcy without any government assistance and without damaging the world economy, and none has faced meaningful consequences for noncompliance…
…It’s the big banks that continue to prefer being highly leveraged. And too many policymakers are deferring to them. Like it or not, that means we are in line for another stomach-turning round on the global economy’s wild ride.
Without the Taste of Water
We’ve also written a number of columns over the last couple of years about the specific vital importance of water supply, ranging from its use as a weapon of war, the pollution problems in China, to its growing scarcity globally. We’ve called it the 2nd most vital issue in the 2016 election campaigns, behind climate change.
In late March, Reuters also took a look at the global issue of water supply in an article headlined “No water, no jobs: How water shortages threaten jobs and growth”. The article cited a United Nations report revealing:
An estimated three out of four jobs globally are dependent on water, meaning that shortages and lack of access are likely to limit economic growth in the coming decades…
About 1.5 billion people – half the world’s workers – are employed in industries heavily dependent on water, most of them in farming, fisheries and forestry, the U.N. World Water Development Report 2016 said.
The article noted how increased populations will place extra stress on both water and food supply:
Demand for water is expected to increase by 2050 as the world’s population is forecast to grow by one-third to more than 9 billion, according to the United Nations.
This in turn will lead to a 70 percent increase in demand for food, putting more pressure on water through farming, which is already the biggest consumer of water.
As climate change contributes to rising sea levels and extreme weather, at least one in four people will live in a country with chronic or recurring shortages of fresh water by 2050, the United Nations estimates, making it more important to focus on expanding rainwater harvesting and recycling wastewater.
We are already seeing the detrimental effects of evaporating water supply in large South American countries like Brazil and Venezuela, where extreme droughts along with destructively low oil prices have wrecked their national economies. We’ve seen drought problems too in the U.S., particularly in the Western states.
The World Bank, in fact, today (Tuesday, May 4) issued a warning of global economies shrinking by as much as 14 percent by 2050 due to water shortages. You can read the Business Insider report on that here.
U.S. Farmers Appeal to Congress
Testimonies given at the House Committee on Agriculture’s “Focus on the Farm Economy” hearings were sobering and vividly framed just how bad the current farm economic crisis is in the country.
The report quoted, among others, Zippy Duvall, president of the American Farm Bureau Federation:
Of particular concern is the rise in operating debt since 2012. Over those last few years, this category has risen from $124 billion to over $165 billion, a 33 percent increase. At the same time, as farmers and ranchers are adding debt, they have also been drawing down financial assets, such as cash or equity. Looking again at 2012— which was admittedly a record year — farmers held nearly $134 billion in financial assets. For 2016, USDA estimates that figure will drop to less than $80 billion. Boosting debt by a third at the same time as one is chewing through a third of one’s savings is not a long-term survival strategy, and puts substantial pressure on both the short and intermediate terms for farmers and ranchers in managing their operations.
Negotiations for the next farm bill will begin next year, obviously following the November elections.