Debt, all debt
Posted by Tim Mazanec in Forex Regulations, Forex Trading, Market Analysis, tags: gdp, germany, greece, short selling
Reminiscent of when China used to announce their monetary policy decisions during the North American trading session Germany indicated on Tuesday afternoon that they are looking into banning short-selling on certain securities. Yet another reason to trade foreign exchange. If you want to short the Euro then just find your preferred FX broker and short the Euro against any currency that you want. If you want to discuss which currency that you should have shorted the Euro against then hop on Currensee and discuss it with the community or your team members.
Why is Germany making such a decision in the first place? Debt. It has been all about debt since the credit crisis began in 2007 and right now the worry is over European debt and one can only guess when it will end. At the moment countries with large fiscal deficits and debt to GDP ratios are being punished or should I say that these countries are hampering the global markets right now. This begs the question on why the US Dollar is doing so well when we all know that the US is laden with debt itself. Furthermore why is it so important for these countries to rectify their debt problems now and not leave this pile of debt for the generation behind them?
Lets first take a look at the US population. The reason will be evident later. In 2001 the UN projected that the US would have 321m people at the end of 2015. Per the US Census the US already has 309m thus it is well ahead of the forecasted pace. In 2050 the US is projected to have 397m, so a 28% growth rate from current day. The fact that the US has doubled its population since 1950 I’d guess that the forecast of 397m is well on the conservative side. More likely to be 425m – 450m by then for many well known reasons.
Compare that population growth to the well known European countries that are having trouble with their debts right now. Greece currently has just over 10m people living there. That is expected to decline by 16% in 2050. Italy has close to 60m people and that is expected to fall to nearly 40m. Talk about needing tourism. Portugal and Spain have similar UN forecasts in terms of declining population although they should each receive a bit of assistance from those that that bought 2nd dwellings in their countries over the past decade and with the proliferation of cheap airfares to these locals. Ireland is the only country where growth is expected and that is at a whopping 39% for the tiny country of 4m.
How about the country that seems to be paying for Greece’s miscues, Germany? Their population growth is expected to decline in the future. These are forecasts so they are doomed for error but unless the current trends change the respective tax bases in Europe will be declining. The US has a chronically high debt to GDP level as well but as mentioned its tax base is expected to grow quite substantially. As long as these trends remain in place and markets are worrying about debt then the US will remain a safe-haven and parts of Europe will be in need of assistance.
This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.
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