"It's the economy, stupid." - James Carville, 1992


its the economy stupid spread1


When George Bush Senior was President (1989-1993), it occurred to the Democratic Party that he was intent on talking about anything but the economy. James Carville, a Democratic aid to Bill Clinton said, “It the economy, stupid” on national TV and the phrase has resonated ever since.

Carville may have been blunt, but he was also right. Without a strong economy we do not have anything else. It is the locomotive that pulls the world along. The world economy has been undermined by uncertainty since 2008, when we witnessed the financial meltdown crisis that first erupted in the US and slowly took hold like a spreading cancer across Europe and beyond.  And this has indeed affected our industry as well.

Money, before 2008, was easy to get. Loans for businesses, loans for houses, loans for cars, loans for investments, etc., were given readily. If you had a job, filled out some forms and, with shabby income verification, approval was more or less guaranteed. House prices soared and everyone joined the game.  Problems started when loan books were consolidated and sold on to other banks who wanted bigger loan books, who then eventually sold them on to bigger banks and financial institutions who readily bought them so their loan books where the biggest.

Before you knew it, European banks where buying the loan books and then the bubble burst.  Properties were not worth the money loaned, the collateral in the houses evaporated and negative equity meant the loan was defaulted. Suddenly, those loan books were worth a lot less than was on the balance sheet.  Many banks around the world collapsed and needed to be bailed out by governments to keep them afloat, as they were too big to go under. The knock-on effect and repercussions of large companies, large banks, and mortgage institutions going under would have been a calamity not seen since the great depression of 1930’s.

Black Tuesday 1929 was the day the stock market crashed and pinpoints the day that the great depression started. Investors lost $40 billion as the stock market plummeted with no hope of recovery. Panic ensued as masses of investors tried to sell their stock, but no one was buying.  The great depression lasted until the United States entered WWII. Once the U.S. was involved everyone focused on the war effort, putting millions of the unemployed back to work.

Parallels to the 1930 great depression were made in 2008, among them fears that countries would go into bankruptcy; and some did. Europe teetered with fears the Euro would be abandoned. Compounded fears were that major companies, like many U.S. car makers, would fail and that unemployment would rise worldwide. A very bleak picture was painted.  More unemployed means more welfare payouts, less taxes coming in, and less consumers buying. Nine thousand U.S. banks failed in the great depression. 492 banks have failed since the 2008 crisis. So, a repeat of the great depression was avoided, but the repercussions of the 2008 crisis still prevail.

For a strong world economy you need optimism. The great depression saw optimism evaporate after the roaring 20’s. Optimism also evaporated in 2008, as uncertainty became the dominant factor overriding every decision.

It took until the end of WW II in 1945 for real optimism to return to Europe and the U.S.A., a full sixteen years after Black Tuesday of 1929.  2014 will be only 6 years after the 2008 collapse but the measure of optimism or uncertainty will impact all our lives and business next year and probably beyond.

2013 saw Europe steady at last. It had been wobbling uncontrollably in 2009, 2010 2011, with Iceland defaulting and Italy, Spain and France having to take severe and urgent actions to stop further defaults on country loans. The UK entered into an austerity program, as did most others, cutting costs and waste, services and benefits. Many governments bailed out the biggest employers and mortgage institutions. Uncertainty in 2008 and 2009 was at it height.

Since then slowly and painfully the world economy is stabilizing with a cautious increase in optimism.

Winston Churchill once said, “ A pessimist sees the difficulty in every opportunity: an optimist sees the opportunity in every difficulty”.

In 2014 the world is more optimistic certainly that it was in 2008 and 2009.

The indicators for optimism are the stock markets that saw record highs at the end of 2013.  The Dow Jones Industrials hit the highest level since 2000 and currently sits above 16,000. The U.S. economy grew 4.1% in 2013, better than the expected 3.6 percent forecast. Unemployment levels started to drop and are forecasted to continue dropping in 2014.

The global economy showed signs of improvement continuing in 2014. Dow, Nasdaq, FTSE are seeing new records as investor confidence improves and optimism returns. Europe too is rebounding after Standard and Poor’s removed their triple-A rating.

Another indicator of a strengthening economy can be seen in gold. Gold has always been the safe haven for people with money to save and protect in a crisis.  In December 2008, before the impact was really understood, Gold stood at $850 an ounce but reached $1900 an ounce in 2011. As optimism improves, the demand for gold typically declines. At the start of 2013 Gold was $1200 an ounce and by end of 2013 it had lost 28 percent of its value.  

Additionally, as another indicator of a healing global economy, many countries are returning to growth, albeit some quicker than others. Gross Domestic Product (GDP) for the top 10 countries is still led by the U.S. and China.

GLOBAL GDP: Measured in $trillions:

infographic gdp

With some caution, optimism is returning. Investors are going back to the stock markets to create their wealth by taking risks. Gold is losing its appeal but many made out like bandits when the price soared.

Lending institutions will be the last to warm to optimism from the frigid state of uncertainty. Loan officers are stuck in a position that it is better not to grant the loan at all than to make a judgment error. Fearful of reprisals if they get it wrong, they take the safe, let’s-not-make-a-decision route as a type of self-protectionism. This situation still means it is almost impossible to get business loans for expansion. I feel it is going to take more than one year, 2014, to return to better times in this regard.

Currency rates in our industry are critical and are one criterion used to increase prices when necessary by the OEMs. We are fortunately, however, returning to some stability. I will give a brief overview here of pertinent currencies. The U.S. dollar is strong against the euro, or at least the dollar is the stronger of two weak currencies, The British pound has been steady for most of 2013. The Japanese yen depreciated significantly against the U.S. dollar, allowing Japanese companies with U.S. dollar sales to start repatriating yen back to parent companies at pre-crisis levels, good for all the Japanese OEMs.  As the U.S. economy recovers, Japan expects exports to grow and the yen to further depreciate.  India, however, has also seen its currency depreciate against the dollar, which makes all their imports much more expensive. That has hit the Indian remanufacturing industry in 2013. Now, fears of growing inflation to 6.5% in 2014 add to India’s woes. The euro has stabilized and talk of abandoning the currency has all but disappeared. 2014 should be another year that the euro heads further in the right direction as countries start to see some positive effects from the political programs employed since the crisis took hold. The appreciating value of the Chinese yuan is slowly making Chinese products more expensive. It is all relative of course, as Chinese products are still a lot cheaper than goods made in the West and the quality standards have improved immensely.

2014 is already here. If the world economy continues to improve, and the signs are there that it will, we, in our industry, should also see an optimistic year ahead.

Politically, the world has settled a bit. Its major leaders are in strong positions, which result in greater stability and a reduction of uncertainty. When uncertainty is reduced, it is replaced by optimism and that is fueling the recovery.

President Obama will be in the White House until 2016; Premier Li Keqiang of China only took office in March 2013; Chancellor Angela Merkel of Germany won a convincing election in 2013; Francois Hollande will be the French President at least until 2017; and U.K. Prime Minister David Cameron will not have to defend his position until May of 2015. So we can expect some political stability in 2014 at least.

So 2014 could turn out to be the year that optimism triumphs. We indeed have much to feel optimistic about. While printed pages may be peaking at 3 trillion or so, it is still 3 trillion. While the OEM has the lion’s share on both mono and color machines, HP, Canon and Ricoh have entered the 3D printing arena, and that may present opportunities for us. Sometime in 2014, it is projected that there will be more subscribed smartphones in use than there are people on the planet and they all have the print-enable button. Tablets will continue to outpace PCs and customers will still want to print what they want where they want when they want. The OEMs will continue to focus on controlling the paper coming out of the imaging device, using ever more sophisticated MPS type programs.

There is certainly a wealth of opportunity out there if we want to see it.



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