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Sunday, July 6, 2014

The 2014 Economic World Cup: Who Wins...

We're posting Monday's blog a day early (Sunday) but will resume as normal on Tuesday the 8th

So we're down to eight nations in our tournament and the match-ups are as follows:

Chile v Uruguay
Mexico v Costa Rica
Nigeria v South Korea
Ecuador v Russia

As we've stated many times, in this competition has nothing to do with geographical size, populations, total GDP or such..
Its about which nation at this very moment in time is the strongest based on the 32 nations who participated in the World Cup for real..

Here we look at things like GDP growth, trade, unemployment, wages, etc to see which nation is growing vs which is stagnant or taking steps backward toward recession or worse..

So let's get to it..   First, the 'Great Eight':
Chile v. Uruguay

Both nations have had GDP growth consistently over 4% the last few years though in the case of Uruguay, they were actually growing at a rate of 7.5 to 8% rate prior to 2011..

Both nations also hold similar unemployment rates and a similar debt load but Chile's debt averages out to $1,800 per person while Uruguay's debt is $8,760 per individual..

So in this match, Chile squeezes by into the Final Four
Mexico v Costa Rica

Here's another example of two nations with similar unemployment and debt load figures but whereas Costa Rica's GDP has consistently grown by at least 3% annually since 2009, recently Mexico's as taken a tumble..

Plus as we wrote last week, the minimum wage in pesos is equivalent to 62 cents in US dollars per hour..

So no way can wages that horrific be rewarded.. You don't hear of Costa Rican people desperately trying to cross borders into Panama and Nicaragua for a better life..

Costa Rica wins..
Nigeria v South Korea

You'd think this should be an easy victory for South Korea but its actually not..

The economic disparity in key indicators is quite amazing.. For instance, South Korea has over $395 billion in debt which averages out to a little over $7,900 per person..

In Nigeria, their total debt is $48 billion which comes out to merely $293 per individual.

Only 18% of Nigeria's GDP is needed to pay down their debt vs 34% for South Korea and S.K's GDP has grown at about 3% annually which is nice but weak compared to 7.5% annual growth for Nigeria..

Africa's representative is in the Final Four..
Ecuador v Russia

Both nations have very small debt per capital and similar unemployment rates but Russia is carrying almost 16x more debt than Ecuador and Yet its still a smaller overall percentage of their GDP in comparison..

Russia's economy is not as strong as it should be and their battle with Ukraine even though its justified will be a bit of a financial burden but its strong enough to move into the Final Four

So now its down to Chile v Costa Rica  and Nigeria v Russia

Who will advance to the Finals?  Let's see..
Chile v Costa Rica

Because the US is still the reserve currency, we're going to use among other factors the currency rates between the US and each of the four remaining competitors as another means to determine economic strength..

Chile uses the Chilean Peso as its currency.. 1 peso equals 0.0018 US Dollar meaning for a penny, you get about 6 pesos..

Costa Rica uses the Colon and 1 of them equals 0.0019 US Dollars..
The hourly rate for a worker in Costa Rica based on US Dollars is $2.38.. In Chile its about the same ($2.37/hr)

Its these low wages that allow a lot of these nations to keep growing economically because businesses salivate at the depreciated wages and not having to provide benefits.   This is why their GDP grows while nations like the US and UK contract..

Anyways, this is a very very close battle, and in every category of importance Chile edges out Costa Rica..  they enter the Finals..
Nigeria v Russia

The currency of Nigeria is called the Naira and one equals 0.0061 US Dollars.. The Russian Rouble is worth 0.03 US Dollars..

This means $10 buys 304 Roubles and 1627 Naira..  In other words, Russia is the far stronger economy.

Nigeria's minimum wage is 18,000 Naira/month which is $110 US dollars..  Divide per hour and it equals about 69 cents per hour..
Once again remember that the cheaper the labor and more you attract corporations, the greater the GDP jump even if all the populace isn't benefiting..

Russia's minimum wage is 10,900 roubles monthly which equals $316 or $1.97 per hour..

Its still a pathetic wage but it beats Nigeria handily in terms of fairness.

Russia enters the Finals..

So now we're down to the last match... Who will win?
Chile v Russia

This is really a 'David v Goliath' match if we look at sheer size, global influence, etc

When we look at all the facts n' figures of debt, trade, unemployment, the numbers are similar and go back and forth, and we've established that even though Chile's $2.38/hr is a poor minimum wage, it is still better than Russia's..

Chile spends more as a percentage on Education and Health than does Russia while nearly 2x as much as a percentage is spent by Russia on defense/military..
Chile also possesses a much higher Moody's and S&P rating than Russia allowing it better interest rate terms on future loans and bond sales..

Lastly, the stupidly idiotic sanctions imposed by Obama and the European Union on Russia could push it ultimately to another recession..

Chile's economy is allowed to grow unfettered..

Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America.

They Win the 2014 Economic World Cup!