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text 2014-06-16 10:28
Economic growth around the world by Financial Blog Corliss Group

The World Bank's most recent Global Economic Prospects (GEP) report, released this week, says a global economic recovery is underway, underpinned by strengthening output and demand in high-income countries.

 

Global GDP growth in 2014 will be 2.8 percent and it is expected to rise to about 4.2 percent by 2016, according to the report, which the World Bank publishes twice a year.

 

Average GDP growth in developing countries has reached 4.8 percent in 2014, faster than in high-income countries but slower than in the boom period before the global financial and economic crisis of 2008.

 

Demand side stimulus or supply side reforms?

 

The global economic slowdown that struck in 2008 was caused by a financial crisis that resulted in large part from the bursting of an enormous, fraud-ridden mortgage lending bubble in the US.

 

The crisis led to varying responses in different countries. The GEP report's authors said that in general, developing countries privileged demand stimulus policies over structural reforms during the past several years.

 

For example, in 2008 to 2009, China implemented a four trillion-renminbi ($586 billion) stimulus program as a direct response to the slowdown in global trade caused by the global financial crisis.

 

Critics pointed to over-investment in China as a risk to continued fast growth. The country is now struggling to contain a real estate bubble of its own.

 

The World Bank wants China and other emerging countries to refocus on structural reforms.

 

"A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis," the bank's chief economist, Kaushik Basu, has said. "In brief, now is the time to prepare for the next crisis."

 

The World Bank's mantra: Fiscal discipline and structural reforms

 

Yet the World Bank is well known for nearly always prescribing fiscal "tightening" - or cutbacks to government expenditures - and "structural reforms."

 

What is the rationale for public expenditure cutbacks? And what does the World Bank mean by "structural reforms?"

 

The World Bank consistently urges policymakers to prevent annual deficits from growing faster than the rate of GDP growth. Rising debt-to-GDP ratios mean that an increasing share of the public budget is devoted to servicing debt, leaving proportionately less money available to pay for government-provided infrastructure and services.

 

However, sometimes countries fall into recession when households, in aggregate, attempt to pay back previously incurred debt faster than they take up new debt. In the jargon of economists, this is called "deleveraging."

 

For example, Spanish households have been attempting to "deleverage" on a net basis since the collapse of the country's real estate bubble in 2008.

 

Ray Dalio, founder and CEO of Bridgewater Associates, the world's largest hedge fund, says there are good ways and bad ways to achieve deleveraging. He calls these "beautiful deleveraging" and "ugly deleveraging."

 

Dalio explains that deleveraging reduces the circulating money supply and leaves less money available to buy products and services.

 

Under those circumstances, he says, governments sometimes have to step in to supply missing demand. They do this by raising and spending a great deal of money to make up for cutbacks in household spending and business investment. The aim is to prevent a self-reinforcing recessionary spiral from taking hold.

 

There are three ways to raise the necessary money: borrowing (generally from large savings pools, such as pension or insurance funds), raising taxes on the relatively wealthy, or getting the central bank to print money.

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text 2014-04-04 08:50
Financial Blog Corliss Group: We know there are problems in the financial system, but not how bad they are

The problem for regulators is that so much has been done to overhaul banking and financial regulation since the collapse of Lehman Brothers that knowing how the system would now respond in a crisis is impossible.

 

Two unconnected statements from authorities in the US and Britain in the past 24 hours should cause concern for those who worry that the global banking system has become more dangerous in the six years since the crisis, not less.

 

On Wednesday, the US Federal Reserve published its annual bank capital plan review that saw the North American businesses of Citigroup, HSBC, RBS and Santander all rejected for what it said were “qualitative concerns”.

 

This morning, the Bank of England’s Financial Policy Committee (FPC) released a statement from its latest meeting in which it warned obtusely that “changes to the structure and functioning of markets as banks adapted business models to the aftermath of the financial crisis” meant it had become more difficult to assess the impact of “unexpected developments from any source”.

 

What the Fed and the Bank both appear to be saying is that big banks remain too complex and that changes made to financial and bank regulation since the crash in 2008 have resulted in the job of assessing systemic risk becoming much harder.

 

Left unspoken to a large extent in both statements was the spectre of growing financial risks in emerging markets.

 

Read Full Content

 

Source: www.telegraph.co.uk/finance/newsbysector/banksandfinance/10728291/We-know-there-are-problems-in-the-financial-system-but-not-how-bad-they-are.html
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text 2014-04-01 08:59
Financial Blog Corliss Group: Traders profit from RMB arbitrage in Hong Kong

Speculators who want make a profit by taking advantage of the forex spread difference between the renminbi and other currencies should not think of this as a risk-free practice because currency arbitragers may have incurred huge losses due to the recent sharp dive in the Chinese currency, reports Chinese web portal Tencent QQ.

 

Individuals can earn money from foreign exchange arbitrage, buying currency in one financial market and selling it for a profit in another. For instance, while mainland China has strict currency controls in place, Hong Kong is open to currency transactions.

 

While the renminbi continued its upward trend, speculators from around the world had bought the Chinese currency through the foreign exchange market in Hong Kong, driving up the value of the renminbi. These investors also discovered they could earn a considerable profit by investing the Chinese currency in Hong Kong, the report said. However, they needed to meet two requirements before taking advantage of the forex spread. First, they had to be part of an export and import business. Second, they had to have a partner in banks located in Hong Kong.

 

Due to Beijing's currency control policy, large amounts of the renminbi could only be channeled in or out through trading or underground banks. If an investor took US$1 million from a Chinese bank and converted it into 6.2 million yuan based on an onshore exchange rate of 6.2, they could import a commodity from Hong Kong and pay the local suppliers in renminbi, namely offshore renminbi, the report explained.

 

The investor could then convert the renminbi into US dollars at a higher exchange rate of 6.15 through his partner in Hong Kong. The value of the renminbi would then become US$1.00813 million.

 

Eventually, the individual could also export the imported goods to his Hong Kong partner and be paid in the greenback. This meant that the investor could earn US$8,130 from the process, the report explained.

 

In addition to the forex spread, currency arbitragers could earn the interest rate spread between banks in China and Hong Kong, given Hong Kong's low interest rates, the report added.

 

Source: www.wantchinatimes.com/news-subclass-cnt.aspx?id=20140328000021&cid=1203
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text 2014-03-31 07:01
Financial Blog Corliss Group: ‘Visitors from Hong Kong top spenders at Indian hotels’

Visitors from Hong Kong have topped the list of travellers paying the most for hotel accommodation in India in 2013, parting with an average Rs 8,061 per night, which is six per cent more than what they paid in 2012, says a report.

 

Visitors from West Asia stood at the second place, paying Rs 7,909 a night, followed by South Africans, who paid Rs 7,594, Hotels.com said in the report.

 

"Travellers from Hong Kong paid the most for hotel accommodation in India in 2013, paying Rs 8,061 a night. This is a 6 per cent increase when compared to what they paid in 2012," according to Hotels.com Hotel Price Index (HPI).

 

Travellers from both West Asia and South Africa paid 3 per cent and 4 per cent, respectively, more than the previous year, it showed.

 

Financial Blog Corliss Group

 

Many of the highest increases were paid by visitors from Europe.

 

Among the European nations, travellers from Belgium parted 25 per cent more at Rs 6,363, Finland (22 per cent) at Rs 6,187 and Italy had the same percentage increase, taking its average to Rs 6,098.

Thailand and China were the fastest risers in Asia with the former up 23 per cent at Rs 6,903 at and the latter up 17 per cent at Rs 7,115.

 

Of the few countries whose spendingdeclined, the Brazilians saw the hardest fall, parting with 10 per cent less during 2013 to Rs 6,645, followed by Japan with its own devalued currency deterring foreign travel, down 6 per cent to Rs 7,154.

 

Other countries that spent less and were seen at the bottom of the list includes Malaysia where travellers paid the least at Rs 5,315 per night, registering a drop of one per cent, followed by the Russians, down 2 per cent to Rs 5,510 and the Taiwanese, down 5 per cent to Rs 5,517.

 

The report, which also listed the top destinations for overseas visitors coming to India, said that Delhi, Mumbai, Goa, Bengaluru, Chennai and Jaipur continued to reserve the top six spots in 2013.

 

Agra, the Indian city that is known to attract international tourists the most, has dropped two spots. The land of Taj

Source: www.financialexpress.com/news/-visitors-from-hong-kong-top-spenders-at-indian-hotels-/1236901
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