The ascent of money
The financial sector in Singapore is not yet as big as that in Britain or America. Fortunately, one may think, or the downturn may have been worse.
The Ministry of Trade and Industry’s fourth quarter survey shows financial services accounted for just over eight billion Singapore dollars out of a total gross domestic product of 64.3 billion Singapore dollars ($42.6 billion). Manufacturing contributed 16.6 billion Singapore dollars and construction more than 11 billion. Business services contributed more than nine billion, wholesale and retail more than six billion and information technology more than two billion.
In other words, manufacturing and construction remain Singapore’s biggest industries. While there were more than 593,000 jobs in manufacturing as of September 2008, the financial sector employed more than 160,000 people – more than 135,000 worked in financial institutions and the rest in insurance. And they were the best paid of all the workers in Singapore, earning more than 6,000 Singapore dollars a month on average, while IT workers made more than 5,000 Singapore dollars, factory workers just over 3,600 Singapore dollars and construction workers just over 2,600 Singapore dollars a month, according to the Manpower Ministry’s 2008 third quarter labour market survey.
Financial workers are the highest paid for the same reason that the government wants Singapore to be a financial hub – for that’s where the big money is.
Read The Ascent of Money by Niall Ferguson to get an idea of the incredible amount of money in the stock markets and the banks. The financial sector dwarfs all other industries. Here’s a clip from The Ascent of Money, which was shown on Channel Four.
http://www.youtube.com/watch?v=o3C-OaWTB_U
Ferguson, a British economic historian, writes in The Ascent of Money, published last year:
In 2006 the measured economic output of the entire world was around $47 trillion. The total market capitalization of the world’s stock markets was $51 trillion, 10 per cent larger. The total value of domestic and international bonds was $68 trillion, 50 per cent larger. The amount of derivatives outstanding was $473 trillion, more than 10 times larger.
Planet Finance is beginning to dwarf Planet Earth. And Planet Finance seems to spin faster too. Every month seven trillion dollars change hands on global stock markets. And all the time new financial life forms are evolving… An explosion of “securitization”, whereby individual debts like mortgages are “tranched”, then bundled together and repackaged for sale, pushed the total annual issuance of mortgage-backed securities, asset-backed securities and collaterized debt obligations above $3 trillion. The volume of derivatives – contracts derived from securities, such as interest rate swaps or credit default swaps – has grown even faster, so that by the end of 2007 the notional value of all “over-the-counter” derivatives (excluding those traded on public exchanges) was just under $600 trillion. Before the 1980s, such things were virtually unknown.
Ferguson writes how the financial sector has grown in importance.
In 1947 the total value added by the financial sector to the US gross domestic product was 2.3 per cent; by 2005 its contribution had risen to 7.7 per cent of GDP. In other words, approximately $1 out of every $13 paid to employees in the United States now goes to people working in finance. Finance is even more important in Britain, where it accounted for 9.4 per cent of GDP in 2006.
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Showing posts with label Money. Show all posts
Showing posts with label Money. Show all posts
Tuesday, March 24, 2009
Monday, March 23, 2009
The Ascent of Money and Chiamerica
The Ascent of Money by Niall Ferguson
The next time anyone blames Wall Street and the US Federal Reserve for the global economic downturn, throw the book at him. Not just any book but Niall Ferguson’s The Ascent of Money.
This excellent, immensely readable history of banking and finance published last year not only saw the crisis coming but was quick to pin the blame – not on America but on Chiamerica. Ferguson, an eminent British economic historian, describes how American consumers binged on cheap Chinese goods until the US economy went bust, dragging the rest of the world into a recession.
Here’s a televised part of the book dealing with Chiamerica.
http://www.youtube.com/watch?v=QmLNV8WYAO0
Ferguson writes:
In effect, the People’s Republic of China has become banker to the United States of America.
At first sight, it may seem bizarre.Today the average American earns more than $34,000 a year… the average Chinese lives on less than $2,000. Why would the latter want to lend to the former?
The answer is that, until recently, the best way for China to employ its vast population was through exporting manufactures to the insatiably spendthrift US consumer.
To ensure that those exports were irresistibly cheap, China had to fight the tendency for the Chinese currency to strengthen against the dollar by buying literally billions of dollars on world markets…
From America’s point of view, meanwhile, the best way of keeping the good times rolling in recent years has been to import cheap Chinese goods. Moreover, by outsourcing manufacturing to China, US corporations have been able to reap the benefits of cheap labour too. And, crucially, by selling billions of dollars of bonds to the People’s Bank of China, the United States has been able to enjoy significantly lower rates of interest than would otherwise have been the case.
Welcome to the wonderful dual country of “Chiamerica” – China plus America – which accounts for just over a tenth of the world’s land surface, a quarter of its population, a third of its economic output and more than half of global economic growth in the past eight years.
For a time it seemed like a marriage made in heaven. The East Chiamericans did the saving. The West Chiamericans did the spending. Chinese imports kept down on US inflation. Chinese savings kept down US interest rates. Chinese labour kept down US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chiamerica, global real interest rates – the cost of borrowing, after inflation – sank by more than a third below their average over the past fifteen years…
But there was a catch. The more China was willing to lend to the United States, the more Americans were willing to borrow. Chiamerica, in other words, was the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000… And Chiamerica – or the Asian “savings glut” as Ben Bernanke called it – was the underlying reason why the US mortgage market was so awash with cash in 2000 that you could get a 100 per cent mortgage with no income, no job or assets.
So Chiamerica has been both a boon and a bane. Both China and America – and the rest of the world – benefited from globalization and are now suffering the consequences. But the world has become so interdependent that governments are desperate to revive global trade.
However, globalization is no guarantee of peace. Ferguson recalls:
Britain and Germany enjoyed the same close economic relationship as China and America today when the First World War broke out in 1914.
He does not say conflict is inevitable, nor does he rule it out. Ominously instead, he notes:
Some may even be tempted to say that the surge in commodity prices in the period from 2003 until 2008 reflected some unconscious market anticipation of the coming conflict.
http://forums.delphiforums.com/sunkopitiam/messages?msg=24866.1
The next time anyone blames Wall Street and the US Federal Reserve for the global economic downturn, throw the book at him. Not just any book but Niall Ferguson’s The Ascent of Money.
This excellent, immensely readable history of banking and finance published last year not only saw the crisis coming but was quick to pin the blame – not on America but on Chiamerica. Ferguson, an eminent British economic historian, describes how American consumers binged on cheap Chinese goods until the US economy went bust, dragging the rest of the world into a recession.
Here’s a televised part of the book dealing with Chiamerica.
http://www.youtube.com/watch?v=QmLNV8WYAO0
Ferguson writes:
In effect, the People’s Republic of China has become banker to the United States of America.
At first sight, it may seem bizarre.Today the average American earns more than $34,000 a year… the average Chinese lives on less than $2,000. Why would the latter want to lend to the former?
The answer is that, until recently, the best way for China to employ its vast population was through exporting manufactures to the insatiably spendthrift US consumer.
To ensure that those exports were irresistibly cheap, China had to fight the tendency for the Chinese currency to strengthen against the dollar by buying literally billions of dollars on world markets…
From America’s point of view, meanwhile, the best way of keeping the good times rolling in recent years has been to import cheap Chinese goods. Moreover, by outsourcing manufacturing to China, US corporations have been able to reap the benefits of cheap labour too. And, crucially, by selling billions of dollars of bonds to the People’s Bank of China, the United States has been able to enjoy significantly lower rates of interest than would otherwise have been the case.
Welcome to the wonderful dual country of “Chiamerica” – China plus America – which accounts for just over a tenth of the world’s land surface, a quarter of its population, a third of its economic output and more than half of global economic growth in the past eight years.
For a time it seemed like a marriage made in heaven. The East Chiamericans did the saving. The West Chiamericans did the spending. Chinese imports kept down on US inflation. Chinese savings kept down US interest rates. Chinese labour kept down US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chiamerica, global real interest rates – the cost of borrowing, after inflation – sank by more than a third below their average over the past fifteen years…
But there was a catch. The more China was willing to lend to the United States, the more Americans were willing to borrow. Chiamerica, in other words, was the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000… And Chiamerica – or the Asian “savings glut” as Ben Bernanke called it – was the underlying reason why the US mortgage market was so awash with cash in 2000 that you could get a 100 per cent mortgage with no income, no job or assets.
So Chiamerica has been both a boon and a bane. Both China and America – and the rest of the world – benefited from globalization and are now suffering the consequences. But the world has become so interdependent that governments are desperate to revive global trade.
However, globalization is no guarantee of peace. Ferguson recalls:
Britain and Germany enjoyed the same close economic relationship as China and America today when the First World War broke out in 1914.
He does not say conflict is inevitable, nor does he rule it out. Ominously instead, he notes:
Some may even be tempted to say that the surge in commodity prices in the period from 2003 until 2008 reflected some unconscious market anticipation of the coming conflict.
http://forums.delphiforums.com/sunkopitiam/messages?msg=24866.1
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