Below is an informative video by CNBC which covers the history of debt waves and brings us up to date with regard to government spending and Covid-19. The have been 3 previous debt waves since the 1970’s
1970s and
Below is an informative video by CNBC which covers the history of debt waves and brings us up to date with regard to government spending and Covid-19. The have been 3 previous debt waves since the 1970’s
1970s and 1980s, with borrowing by governments in Latin America and in low-income countries in sub-Saharan Africa. This wave saw a series of financial crises in the early 1980s.
Ran from 1990 until the early 2000s as banks and corporations in East Asia and the Pacific and governments in Europe and Central Asia borrowed heavily, and ended with a series of crises in these regions in 1997-2001.
Private sector borrowing in Europe and Central Asia, which ended when the global financial crisis disrupted bank financing in 2007-09 and tipped several economies into sharp recessions.
Today The latest wave of debt accumulation began in 2010 and has already seen the largest, fastest, and most broad-based increase in debt. Add in Covid-19 and these are very worrying times for government budgets. Global debt has topped $US250 trillion, or 322% of global GDP – a record level. But more debt has been used to acquire expensive assets, rather than on developing productive capacity with capital investment. Lower interest rates, have also made it possible to borrow more, leading to more debt and less equity being deployed to buy these assets. Furtermore Covid-19 will only increase this debt by a significant amount.
The Tutor2u Covid-19 presentations had a very good circular flow diagram by Richard Baldwin from VoxEU.org. I have used it in my teaching this week – great for NCEA Level 2 Growth standard and A2 Unit 4.
With the demand for oil dropping over covid-19 and the over supply in the market, oil prices have collapsed. Brent crude fell by more than half in March to below $23 per barrel. For many years OPEC – Organisation of the Petroleum Exporting Countries – has manipulated supply to maintain higher prices. Since 2017 both Saudi Arabia and Russia have been working together to prop up oil prices but have had a falling out over Saudi Arabia’s insistence on cutting oil supplies by 1.5 million barrels per day.
Cost of extraction v Price of a barrel
Like any business you need to consider costs relative to the price of your good or service. Some shale oil wells in the US may have a break-even point of $40 a barrel despite the high fracking costs. However some sources say that it is above $60 a barrel with the higher-cost wells coming in at over $90 a barrel. These industries cannot survive in this environment of such low oil prices. Also the Canadian tar sands are another costly method of extracting oil and this could lead to a shut down of production.
By contrast in Saudi Arabia the extraction cost is around $9/barrel with Russia coming slightly higher at $15/barrel. The Middle East and North Africa are also very efficient, producing oil as cheaply as $20 per barrel. Worldwide, conventional oil production typically costs between $30 to $40 a barrel.
Nevertheless countries like Venezuela and Nigeria depend hugely on oil revenue for their spending. Although Russia and Saudi Arabia have significant foreign reserves the more the virus persists and demand keeps falling the greater the damage. Useful video from Al Jazeera below.
Game theory refers to the decision that a firm/individual makes depends on its assumptions about other firms/individuals. Ultimately this means that individuals will try and calculate the best course of action depending on how others behave. When we were in a Level 2 situation the advise was no mass gatherings, physical distance on public transport, limit non-essential travel etc. Although the announcements of the four levels were made clear on the Saturday it was inevitable that we would be moving to Le