Skip to comments.WEF 2009: Global crisis 'has destroyed 40pc of world wealth'
Posted on 01/31/2009 4:04:24 AM PST by TigerLikesRooster
WEF 2009: Global crisis 'has destroyed 40pc of world wealth'
The past five quarters have seen 40pc of the world's wealth destroyed and business leaders expect the global economic crisis can only get worse.
By Edmund Conway in Davos
Last Updated: 5:42AM GMT 29 Jan 2009
Steve Schwarzman, chairman of private equity giant Blackstone, said an "almost incomprehensible" amount of cash had evaporated since the financial crisis took hold.
"Business will be very different," he added.
His comments came on a day of the World Economic Forum characterised by the gloom of its participants and warnings that the crisis will endure for some time. News Corp chief executive Rupert Murdoch kicked off the meetings by warning that the atmosphere was worsening despite global economic confidence plumbing the lowest depths on record.
(Excerpt) Read more at telegraph.co.uk ...
Has it destroyed wealth, or was the wealth never really there to begin with?
It did not destroy wealth. It just forced us to lower our valuation of it.
[Lots of fat is destroyed last year along with some meat. Much more fat still remain. It would be to be destroyed along with huge chunk of meat in coming days and months.]
It could go on for a very long time. Nothing Bush did, and especially everything Obama is doing, is meant to correct the underlying problems. Gonvernments can’t print their way to wealth. Ponzi on top of Ponzi.
Accountants can’t destroy wealth. There is more stuff now than last year and stuff is what wealth is. The amount someone is willing to pay for my stock has changed, but the stuff that is the company has not. Was the stock ever ‘worth’ $40? Is it really worth $12 now? I don’t know, but I still like the company and still own a lot of stock. We got a PS3 and a 50” plasma this year — THAT is wealth ;-)
One hopes the US will return to the days of basing wealth on tangible items.
But I don't hold out high hopes.
Those post-nationalist traitors mean to subvert national sovereignty -- if they couldn't do it by "well, we're all interdependent by trade, so why have borders at all" then they will try it by "these financial crises demonstrate the need for a trans-national, supra-national economic governing body...like US." (How conveeeeeeeenient.)
Anti Davos Sarcasm Torpedo ARMED. FIRE!!
A real president would rescind executive orders on assassinations and launch a strike on Davos.
...unfortunately, that president is Ahmadinejad.
So, Euroweenies, how's that "negotiation for non-proliferation" working out for you...?
NO cheers, unfortunately.
No it hasn’t. Real wealth can’t be destroyed. It can only be TRANSFERRED.
Which is equivalent to the exchange value of money increasing, and to long term interest rates increasing.
Some portion of the reduction in long dated claims reflects actually lower future cash flows now expected, than expected previously. But the largest portion of it, by far, simply reflects a lower value being put on any future anything, compared to ready money, available this instant.
The first portion - actual reduction in nominal future cash flows - is in turn composed of two elements. A big part of it is simply lower future inflation expectations. The same real values earned and paid 5 or 10 years from now, let alone 20 or more, are expected to cost fewer nominal dollars.
Only a residual left after both of those adjustments, reflects a *true* reduction in the real value of actual future cash flows.
And only that residual is any actual reduction in anything that should meaningfully be called "wealth".
A mere rise in interest rates that adjusts the "terms of trade" between present and future goods is not a reduction in real wealth. The same present goods exist as before, and the same future goods, and their utility. And mere decline in inflation expectations likewise is not a reduction in real wealth. It may involve a net transfer from holders of equity to holders of debt forms of financing, but it isn't a change in the future real value being divided between them.
The residual of real losses basically just reflects the pause in economic growth. If a world economy normally growing 2.5% a year in real terms, instead declines 2.5% a year in real terms for one year, and then instantly gets back on its normal 2.5% a year growth track, there are two ways of looking at the cost or damage. One is that two years of effort leave the world as wealth as before and then normalcy returns. The other is to see the permanent track of income growth as 5% lower than one imagines it might have been. For good. To the extent that asset values capitalize expectations of the latter sort, that can and will be the permanent effect on real capital-wealth.
But the world is not remotely 40% poorer. Income has fallen about 2%, and with lost growth maybe that rises to 4%. 4 isn't 40. Most of the rest is changes in interest rates and inflation expectations, and maybe a portion is also overshoot in capital markets. (Certainly the corporate bond market, for instance, it seriously undervalued at present levels).
yeah ok, but not by changing a few numbers on some computer screens - which is the thrust of the article
real wealth is lost when people sit on their backsides or break stuff sure, and there has been a bit of that, but 40% is just lies
How does 'cash' evaporate? This is sounding like voodoo magic.
Wealth isn’t destroyed; it’s all paper money, folks. That home you bought is still there; it’s just not worth what you though it was.
Things are only worth what the next person is willing to pay for them.
They have been revalued, not destroyed.
>> If it is worth less relative to other goods and services, part of its value destroyed and that much of your wealth is gone. <<
But that’s just it; the article describes the entire system, and it is a closed system. If it said, “Global crisis has destroyed 40pc of the UNITED STATES’ wealth,” we could discuss how our wealth changed relative to, say, China. But China’s been just as badly hurt.
If the value of your house drops in half, or $200,000, you’re out $200,000... but I can now purchase your home for $200,000 less, so I gain.
The loss in the world’s wealth is that the economic output of the world did shrink considerably in the fourth quarter. I think I read S. Korea’s shrank by 22 percent! ( at an annual rate, so even that’s only 5.5%) That loss is real; we produced less than we had been producing, and we kept on consuming. And the disruption to our fiscal systems may certainly mean a drag on our future production for years to come... but we did not lose much of our current wealth.