Are you feeling repressed 2 september 2012 e

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Transcript of Are you feeling repressed 2 september 2012 e

Presentation to:

August 2012

Are you feeling repressed?

US public debt

Source: IMFGreat DepressionWorld War II


Indeed growth in DM has been sliding for decades

Source: HSBC

US new home sales index

Source: Bloomberg

US median house price existing home sales

Source: Bloomberg

US long-term unemployment

Source: Bureau of Labor Statistics, USA

Fiscal cliff!!Do we need a helicopter drop?

Why governments need growth

Debt dynamics

Change in debt/GDP =(D (t-1) ) x (r-g) primary balance

Primary surplus required to keep debt level stable:

Primary balance = Debt (t-1) x (r-g)

Euro area is running lower budget deficits than rest of DM

Source: IMF, January 2012

In aggregate Europes govt. debt ratio is lower than the US

Source: IMF, January 2012

Why the fiscal maths did not add up in Greece

Source: BloombergGreece real GDP

Lack of competitiveness requires economic restructuringSource: Bloomberg


Debt in the UK and Spain

Source: Bloomberg

Spains austerity plans no less stringent than the UK

Source: Bloomberg

10yr bond yields UK and Spain

Source: Bloomberg

The difference between Spain and UKSterling less likely to break up

Bank of England is the gilts buyer of last resort

Spain waits on the ECB

The UK and US can tax companies and householdsIts harder to make this argument when it comes to Europes periphery

What did the French monarchs do in the 16th -19th centuries when they could not pay their debts?

1. Reduce excessive debt

BUT, growth is weak

2. Default

3. Live with it!

The choice for governments today

Living with high government debt levels

Divert supply of funds to public sector


Keep borrowing rates low

Its not different this time. its the same

Anchoring policy rates at extraordinarily low levels

Source: IMF

Central bank claims on gross debt (% GDP)Close interaction of central banks and the state in a repression scenario

Source: NBER

What can go wrong?

Source: BloombergGreece 10yr bond yield

Primary budget balance and gross govt. debtSource: South African National Treasury

Consumer price inflation

Source: SA Reserve Bank

Corporate tax rate

Source: JP Morgan, National Treasury

Investment boom mid-1990s to mid-2000s

Source: SA Reserve Bank

August 2012



Terms of trade highest in decades, but peakingSource: Reserve Bank

BOP file34

Mining and quarrying profits boomGross operating surplus

Current account adjustment to larger deficit in 2011 mainly reflected savings declineSource: Reserve Bank

36LIVE bitmap. To update, right click on chart and update link

Household wealth and debt

Source: Reserve Bank


Household net wealth versus savings

Source: Reserve Bank


GFCF lags FCE householdsSource: Reserve Bank

39LIVE bitmap to update, right click and update linkGFCF live file

Marginal rate of return on capital relative to real interest rate Consistent with moderate growth onlySource: Reserve Bank

40LIVE bitmap to update, right click and update linkGFCF live file

SA GDP and global growth

Source: IMF, Reserve Bank, SIM

August 2012

SAVERWhat about SAin a low real interest rateworld?


Bond yieldsSource: Bloomberg, INet

Rand underpins domestic final demand recovery


Rand actual and fair value

Source: I Net, SIM PPP calculation

Food inflation

Source: Statistics SA

Global and domestic food prices

Source: Statistics SA

Fertilizer and diesel - PPI

Source: Statistics SA

Electricity prices - CPI

Source: Statistics SA

Rents CPI

Source: Statistics SA

Inflation back to the 60sSource: SA Reserve Bank

Recessions and subsequent recoveries: PSCENot your run of the mill credit cycle

Source: Reserve Bank

Residential mortgages / total household credit

Source: SA Reserve Bank

Is housing affordable? Probably not

Source: I Net, SIM

Unsecured lending

Source: National Credit Regulator

Households unsecured credit

Source: National Credit Regulator

SA real long bond yield

Source: I NetCredit ceilings 1965-721976-801980 Interest rate controls removed Credit ceilings removedReserve requirements loweredForeign exchange and investmentcontrolled by government in 1970sCapital controlstightened in 1985Registrar of Co-operation(limited bank competition)removed in 19831990sTrade liberalisation, lower inflation and removal of controls on FDI Forex controls easing Capital account liberalised from 1991Exchange controls on non-residents eliminated in 1995

Financial Crisis

Bank crisis




This time its differentTHANK-YOU!!