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Good morning. World Bank’s latest economic OutlookSince yesterday, global growth dropped up to 2.3 percent and down – the weakest performance in 17 years, the most intensity in developing economies with pain. Major reasons: trade disruption, especially Donald Trump’s tariffs. Disagree? email us: unhedged@ft.com,
Razor’s lead deficit
I wrote back in 2021 Couple Of pieces Global savings about glute and slow growth, low interest rates and link between inequality. Many of my comments were based on this Discussion Atif Mian of Economists, Ludwig Stub and Amir Sufi.
The story of Mian-Stub-Safi almost goes into this way. Global rich have become very rich in recent decades, leaving them with a pile of savings that have to go somewhere; For those reasons that are not clear, surpluses have not been converted into productive investment, but instead loans have been given to support consumption by less rich; This supply of the lendable capital has kept the interest rates low, and therefore put the assessment of the property at a higher risk, making rich rich and has still been left with more savings to lend them; But the increasing burden of interest payment demands.
This is a compelling thesis. But I recently wondered whether the argument was held after 2022, when the interest rates took a big step, and stayed there. So I called Mian and asked him if his views had changed. This excludes the significant joints for their idea, which worrys about the government’s role in absorbing and promoting savings glute.
At a macro level, an important thing to understand about the dominated economy on a savings glut is that consumers’ income growth rate (call it) should be above the rate they are borrowing (call it R). If this does not happen, consumers get bust. But in recent years, Mian says:
The borrowing rate on consumers is definitely above the growth rate for their income. , , No economy is durable with permanent lapse, so the economy adjusts to prevent default. When rising above RG, the rates will be pushed down. People borrowed in the first place. The reason is that there is additional savings in the finance system. So the system sees people to borrow at a new, low rate.
But as the rates become zero, this adjustment stops working. You cannot reduce rates and maintain profits for lenders. At this point, the debt-aid economy struggles to generate sufficient demand to stay out of the recession. The economy is in a liquidity trap. But there is a borrower who can borrow at the rate below its growth rate – the government. This is why the US primary deficit has to increase continuously as a percentage of GDP, and has been exploded after 2008.
However, there is a problem. The government will have to increase its deficit to protect the economy from stalling, but if it increases the deficit a lot, interest costs increase and the increase slows down. Mian and her co-writer call it Goldillox theory Of fiscal deficit.
The private sector cannot lend more and gets stuck in permanent recession until the government comes with less than Ji, the government, by running a permanent deficit, you can get out of the liquidity trap – but you need a completely engineer government that becomes quite large to avoid the trap of liquidity, but not so big that start crying.
I would suggest the word “Razor’s Edge Defisit”, as it gives a sense of bets to the area of unhealthy interest – the market. If the Mian-Sturb-Sowy model of the economy is correct, we should plan more volatility in loans and equity markets. As the governments move on the razor’s lead that separates an insufficient fiscal impulse from high inflation and rates, they will often slip to one side or the other.
Permanent Reorganization Machine of Heritage Media
Heritage media companies are struggling. The cable network, once a cash flow machine, is in decline. In streaming business – replacement of cable – is difficult to compete with Netflix and earn profit. Shares of Warner Brothers Discovery and Paramount have lost half of their value in the last five years. Coccomant is about 10 percent below, and Disney is less than 3 percent during this period:
Therefore, it is no surprise that Warner Bros. Discovery and Comcast are planning to launch their cable network. Companies say it will allow them to focus on their strength. And for decades the media industry has a preferred solution to any problem, or lack of problem, to make a deal. WBD is distinguishing its streaming and studio business (“streamco”, which includes HBO Max from its cable network (“Global Network”) Costly 2022 merger. Similarly, Spinco, Versent, NBCUNIVs of Comcast breaks almost all cable networks from the rest of the NBCUNIVARS, which holds theme parks, broadcasting television and movie studios.
Separation does not solve fundamental problems, however: strengthening of streaming and difficulties in achieving a decline in cable network. Streaming business instability means high-development capacity also Streaming companies Kannan Venkateswara of Barclays notes, cannot obtain too much evaluation. The high debt level will only add to instability. Warner Bros. Discovery is about $ 37 billion of GDP in Discovery. According to Venkateswara, “Neither the unit will have enough Ebitda to absorb it on a standalone basis without significant increase in benefits”.
So what is the next step?
Private equity cable can take the spin-off private and give them milk for cash-from which they still generate a good deal (it is difficult to tell how much, in fact, the Warner only “adjusted ebitda”, a metric reports the best ignored section). But Laurent Yun in Bernstein told UNNGED that many media companies have gone through cost cuts in recent years, which led to less savings to capture PE. However, the new standalone network companies would have more savings to capture to combine, he said. Therefore, if the global network combines with verses, they will become the Jusier PE target. And if the streaming operations of Warner and Comnerful had to merge, they could have more depth of the material to compete with Netflix.
Infection in streaming from old cable distribution was always a grinding; This is reminiscent of a painful newspaper-to-online infection for print media. There may be some pain in reorganization. But not much.
,Kim,
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