Friday, July 9, 2010
Thursday, July 8, 2010
Will the austerity measures in the EU eliminate it as a meaningful exporter to world markets, consequently impacting growth within the European block?
- Where do the boundaries of the government's responsibility towards the unemployed end?
- What was Keynes' view on government spending in times of a recession?
Take a look at how some key risk-o-meters in Europe have performed since the start of the month.
Europe’s common currency, the euro, has been one of the biggest victims of Greece’s debt crisis and its fallout on other struggling Southern European economies. These days, however, analysts and investors are scratching their heads over the currency’s recent run against the U.S. dollar: The euro, which is down today, is nevertheless trading at $1.2574 compared with $1.2229 at the end of June. On May 4, one euro bought $1.1917.
The euro’s bounce suggests Europe’s political leaders have made some headway in warding off worries about a break-up of the euro currency area.
Indeed, investors kicked off the second half of 2010 by giving European governments a rest and worrying about the global economic recovery instead. A batch of disappointing reports on the U.S. economy even helped push the beleaguered euro higher. Meanwhile, the European Union’s decision to “stress-test” banks has given investors hope that market fears about banks may soon lessen. Spain, the market’s latest punching bag after Greece, successfully raised cash from the bond markets both this week and last, easing concerns about a big debt repayment due at the end of this month.
Like the euro, the British pound has risen in value against the dollar to $1.5110 from $1.4939 on June 30. It was as low as $1.4336 on May 18. Britain has surprised naysayers by forming an effective ruling coalition government that has made progress on the country’s big budget deficit. The U.K.’s important “triple-A” credit rating looks safe for now. So much for the idea that Britain is the next Greece.
The result: Some analysts are talking about the sovereign-debt story moving away from Europe in the next few months and hitting the U.S., which also has a massive budget deficit.
But it’s unclear whether Europe’s troubles can really go away that fast. Despite the euro’s gains, most currency analysts remain bearish, with some still expecting the currency to hit parity against the dollar. Analysts at Dutch bank ING put out a report today saying a euro-zone break-up remains a possible scenario.
And while Europe’s bond markets are in better shape than they were a few months ago, they’re still under considerable pressure.
As the first half of the year wound down, even stronger economies like France were starting to worry investors. Banks were growing very wary of lending to each other. Some of the pressures in European money markets are now easing. The cost to insure the debts of Greece, Spain, Portugal, Italy and Ireland is lower than it was at the end of June, according to data provider CMA DataVision. Investors are talking about the possibility of buying bonds of highly-indebted European countries.
“People are probably feeling a little bit more comfortable,” says Huw Worthington, an analyst at Barclays Capital in London. “The spreads are becoming attractive now.”
But there are still not enough signs that investor worries are actually going away. Worries about Europe are “going to stay,” Mr. Worthington says, though the news-flow may improve.
For one thing, the borrowing costs of countries along Europe’s aouthern fringe remain painfully high. The cost to insure their debts using derivatives suggests investor concern remains elevated. People seem to be waiting for a Greek government default.
What could turn things around? The results of Europe’s bank stress tests at the end of this month could help draw a line under Europe’s problems – as happened in the U.S. Stronger-than-expected readings of economic growth in Asia and the U.S. could dispel fears of a “double-dip” and make investors more confident that austerity measures taken in Europe won’t push economies into reverse. But without good news on these fronts, it’s still very possible that another market flare-up could bring fears of rolling European defaults back to the fore.
Sunday, June 27, 2010
Wednesday, June 16, 2010
- Prior to 2007, as Head of the U.S. Government Accountability Office (GAO) David Walker said that the U.S. economy was unsustainable and made some remarkable claims regarding fiscal irresponsibility
- David Walker runs investigative arm of congress
- Walker believed that the biggest peril facing the nation was being ignored
- Walker argued that current standard of living was unsustainable
- Walker called it the dirty little secret that in Washington everyone knew
- He concluded that politicians were guilty of fiscal irresponsible
- After trying to argue his case, he gave up on elected officials and took to the streets to present the facts
- He embarked on what he called a "Fiscal Wake Up Tour"
- Walkers compares the fiscal irresponsibility to charging expenditure to a credit card and expecting our grandchildren to pay for it
- Argues that we are living in fiscal denial
- The Government has committed itself to massive entitlement programs that we cannot afford
- 78 million baby boomers reached sixty-two and started retiring in 2008
- Walkers maintains that the status quo was a tsunami ready to swamp the republic
- Biggest challenges are social care and Medicare
- Heath care problem is much more significant than social security
- When Medicare was expanded in 2005 by including prescription drug coverage, Walker regarded the move as fiscally irresponsibe
- The new legislation would extend debt to over eight trillion dollars in the near future
- The country cannot afford the promises that it has made
- The system is unsustainable
- Can expect people to disagree, but hardly anyone does except for a small group of economists that say that problem overstated
- Fed Reserve Chairman Ben Bernanke stated that growth alone is unlikely to solve the country's fiscal challenges
- Walker calls the behavior fiscally immoral
- European Parliament committee has approved the European Union’s controversial hedge fund regulations in the form of a new bill
- European Parliament will seek to impose strict new reporting and custody rules on hedge funds and private equity funds, as well as possible leverage and borrowing limits
- The bill includes the so-called “passport” that would give foreign hedge funds that meet certain requirements access to all 27 EU countries
- Members of the British Conservative Party voted against the measure.
- Hedge funds accused of exacerbating the Greek debt crisis by betting on its default
- Private-equity firms accused by politicians in Germany of stripping the assets of the firms they bought.
- Measure could constrain European pension fund returns and bring about retaliatory measures against the EU from other countries
- European Union trends
- Euro crisis in Greece
- Monetary union constraints in high inflation or deflation
- Role of European Central Bank in balancing needs of high growth and low growth economies
- Contrasts between Ireland, Greece, Portugal, Spain, Germany, France, Italy and countries which more recently joined
- Loss of sovereignty to Brussels
- Political issues in controlling budget deficits or imposing budget cuts on an unwilling nation
- Political unrest and threat of strikes or instability
- Challenges for the future
Monday, June 14, 2010
The Credit Crunch or the Great Recession is the most profound and significant economic event to affect global markets since the Great Depression of the 1930s. While the Great Recession was not a cause for the widespread poverty that marked the Great Depression, its impact significantly affected the wealthy. Literally billions of dollars were wiped off stock exchange boards. Victims of the Credit Crunch included the rich and famous and extended to leading investment banks on Wall Street, two of which collapsed.
- How did the sub-prime industry contribute to the Credit Crunch?
- What were the mechanics within the economy that contributed towards the Credit Crunch and which specific factors caused the housing bubble?
- Could the Credit Crunch have been avoided?
- Do the lessons of the Credit Crunch warrant increased regulation, as is the current trend?
- To what extent did the Federal Reserve contribute to the recession, if at all?
- What steps should Central Governments play in reducing the impact of a recession?
- What role should derivatives be allowed to play in financial markets?