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The Dismal State Of The World Economy In 4 Charts And A Table


Governments around the world are running large deficits.

While there are inflationary signs in the consumer markets, producers have deflationary price pressures.

Industrial production is decreasing worldwide.

G7 governments have borrowed nearly as much as the wealth they produce in a year; Japan more than twice as much.

The world economy is in a precarious state. The chart below shows the budget surplus/deficit of nations around the world as a percentage of GDP.

The map is clear: governments of the world's biggest economies must borrow money in order to keep the lights on.

While the consumer price index (CPI)has mostly grown year over year,

the finished goods producer's price index (PPI)which measures the prices received by producers at the first sale shows that most producers are seeing their prices decrease.

The picture gets grimmer when you consider industrial production.

The picture gets grimmer when you consider industrial production.

These last two maps explain the reluctance many businesses have had to invest in production capital, despite many government stimulus packages.

But as the table below shows, governments in industrialized economies are now heavily indebted. It is unlikely that anyone can say how much more G7 countries can borrow to fund their budget deficits. Japan already owes more than twice its GDP; Italy, France, Canada, the Eurozone and the UK have more or nearly as much public debt as their economies produce in a year.

What should you, the astute investor be doing? You must be mindful of the precarious state of the world economy. One shock can have drastic effects on your portfolio.

Where should you place your wealth?

The answer depends and your beliefs on the likelihood and severity of a future shock. It also depends where you are living. If, for example, you live in Egypt, the newly adopted IMF stabilization program is a significant shock from your perspective whereas a resident in the USA may be less affected. Here, then, are some ideas of where you could place your wealth, which by no means, are exhaustive.

The simplest is to review your asset allocation. In this other article, I showed how different ETFs would react to war, to revolution, to a major terrorist attack, or to a...