Perspectives on the global economic meltdown- (Nov 28 2010)

abhischekcc · Post by **abhischekcc** » 19 Dec 2011 21:00

Western society and morals are based on material success, and that is based on an imperial financial system that sucks the surplus of other industries. Keynes' system allowed the west to continue to plunder by imposing a fiat currency on the rest of the world. For 4-5 generation, the west's parasitic system has used Keynes as a justification. Do you really think they are going to change now? Doraiswamy's works must be studied for criticism the western systems and morals (or rather, the lack of it), otherwise thhis real impact will be lost.

svinayak · Post by **svinayak** » 19 Dec 2011 23:55

Indians are stupid to read the west when Indians have not read their own Indian experts who have argument against the western policy

abhischekcc · Post by **abhischekcc** » 20 Dec 2011 01:00

Does anybody have Doraiswamy's books in digital format? I feel my company wants to donate some time to my education.

Prem · Post by **Prem** » 20 Dec 2011 04:04

Ravi Batra is/was the recent Doraiswamy.
http://blogs.ft.com/the-a-list/2011/12/ ... z1h1SFeIFG

A weak euro is the way forward

The large current account deficits of Italy, Spain and France can be reduced without lowering their incomes or requiring Germany to accept inflationary increases in its domestic demand. The key is to expand the net exports of those trade deficit countries to the world outside the eurozone.Those current account imbalances are the result of imposing a single currency on 17 eurozone countries. If their exchange rates were free to vary, normal market pressures would cause the currencies of Italy, Spain and France to decline relative to Germany’s, stimulating exports and reducing their imports while also shrinking Germany’s trade surplus.High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. An alternative proposal might be to reduce consumer spending in countries with trade deficits, since each nation’s current account balance is the difference between its national saving and investment. But reduced consumer spending would just cause GDP to decline unless there was also a fall in the exchange rate to stimulate exports – something precluded within the eurozone.So this brings me to the action that can shrink the current account deficits of Italy, Spain and France without austerity, internal devaluations, or German expansionary policies. It is not clear how much further the euro would have to fall to eliminate existing current account deficits but it might take a trade-weighted decline of 20 per cent or more. That could imply a euro-dollar exchange rate below its initial value of $1.18 per euro

vera_k · Post by **vera_k** » 21 Dec 2011 05:30

VikramS wrote:In general what is happening in the Eurozone is deflationary which is negative for gold. There is also the property bubble in China which is bursting.

The affordability of gold in India is declining and is expected to decline for some time due to economic conditions at home. That is also a drag on gold prices.

kumarn · Post by **kumarn** » 23 Dec 2011 01:09

Gurus, US employment situation is improving, some sort of deal in the europe...Have we turned the corner?

shyam · Post by **shyam** » 26 Dec 2011 13:29

Posting this news just to show that when it becomes obvious that USD is being manipulated, countries will explore ways to bypass it. There is no TINA.

World's Second And Third Largest Economies To Bypass Dollar, Engage In Direct Currency Trade

Hari Seldon · Post by **Hari Seldon** » 26 Dec 2011 14:43

Yup. Does seem like a corner has been turned (cut?).

I do think the situ has been managed quite well, beyond my meagre expectations by the US Fed. An all out disorderly collapse has been averted and life will rather slowly continue to move on.

Whew.

Austin · Post by **Austin** » 26 Dec 2011 15:11

What happens to the significant US Debt which now stands at more then $ 15 trillion will that impact the economic growth ?

Christopher Sidor · Post by **Christopher Sidor** » 26 Dec 2011 15:33

kumarn wrote:Gurus, US employment situation is improving, some sort of deal in the europe...Have we turned the corner?

US Employment has improved, and has touched 8.6%. Source is over here

And there are claims that US growth in the Q4-2011 may touch about 3%. If this is true then this growth will not be carried forward in Q1-2012. Q4 is the holiday season in US and people do tend to spend a lot.

But let us add the figures, the US unemployment is still over 6%. Wall street journal is reporting that banks have started making contingency plans for exit of few countries from the EURO. Source of the Story. And if that happens now, then it will undo all the encouraging news coming out of US.

And Finally we have to see whether any of the EURO-Zone banks or EU banks fails. That would be a deal killer and would lead us right back to the black days of Sept-2008 with possibly of a very deep recession or worse still a full blown World Depression.

The path out of the mess that we are in, has been laid, but the road has many holes which might derail our journey. In India Solar power will meet grid-parity in 2018-20. In certain other countries that will happen earlier. That would be a game changer for India, due to India having
1) Thar Desert
2) Andhra/Telengana arid region
3) Northern Maharahtra's semi-arid region.
4) Saurashtra-Kutch Region.
It is not that the encouraging news coming out of US is enough, it is just that EU has to sort itself out. Can we grow without EU sorting itself out or with EU/EURO-Zone muddling along? Probably. But then growth will not be spectacular.

Austin · Post by **Austin** » 26 Dec 2011 16:37

Christopher Sidor wrote:That would be a deal killer and would lead us right back to the black days of Sept-2008 with possibly of a very deep recession or worse still a full blown World Depression.

I read if the recession comes in 2012 and bets are it would , then it wont be as bad at the 2008 ones but it will last for long.

svinayak · Post by **svinayak** » 26 Dec 2011 23:55

This current situation will continue till 2019 with slow economy and on-off recession. Get used to the situation and adapt.

svinayak · Post by **svinayak** » 27 Dec 2011 00:14

shyam wrote:Posting this news just to show that when it becomes obvious that USD is being manipulated, countries will explore ways to bypass it. There is no TINA.

World's Second And Third Largest Economies To Bypass Dollar, Engage In Direct Currency Trade

BRICS-China's preferred plan is failing, which is to offer the IMF a large contribution in exchange for a higher quota. http://i42.tinypic.com/23gy77n.png Clearly America doesn't want to give up its veto power—the result—no BRICS' loans, more printing and huge price swings in USD/EUR, which is what 'really' caused the 2008 crises to spill over into emerging economies.

The BRICS (China) has had enough—Plan-B is to stabilize the yuan and gold as an anchor (peg) for currencies within the OCR (Optimum Currency Region). They will not unpeg the yuan unless there are major currency swings that emerging economies can not handle, but are betting that the Fed and ECB will flinch first (via FX intervention) if the USD goes above 82.

China is ready to purge its bubbles in order to restore equilibrium within the OCR. This is a political move that is not possible in America because you have gridlock amongst dems and reps. China doesn't have any political theater, rather a dozen men sit a table and impose monetary policy just like that.

Things will get so bad that investors will gravitate towards a monetary system (even ruled by communism) that still has integrity, rules and authoritative control. This isn't America's choice anymore, the world is ditchin' the dollar so prepare accordingly.

RamaY · Post by **RamaY** » 27 Dec 2011 02:17

abhischekcc wrote:Does anybody have Doraiswamy's books in digital format? I feel my company wants to donate some time to my education.

http://books.google.com/books/reader?id ... pg=GBS.PP1

Singha · Post by **Singha** » 27 Dec 2011 08:42

yesterday I think china and japan signed some agreeement that allows direct conversion between the two currencies without dollar involved and also allows japan to guy yuan bonds directly.
http://www.nytimes.com/2011/12/27/busin ... ement.html

as already reported they are also doing a 'currency swap' deal with India soon..I dont understand how it works
http://www.bloomberg.com/news/2011-12-2 ... -deal.html

Christopher Sidor · Post by **Christopher Sidor** » 27 Dec 2011 11:21

^^^^
China recently bought a lot of Japanese bonds. The exact quantity was not disclosed. This unnerved the Japs. It seems that they wanted to buy a counter-leaving hedge. Hence they are buying Chinese bonds. Moreover makes sense. The bilateral trade between China and Japan is massive. It may in the future dwarf their trade with US. So why should they have an unnatural triangle in JPY-USD-CNY ?

The problem is that Japanese currency is practically freely convertible based on market. The Chinese currency is still pegged/tied to the USD. This creates all sort of issues. So basically the JPY-USD-CNY peg still exists. It has not been removed entirely.

Christopher Sidor · Post by **Christopher Sidor** » 27 Dec 2011 13:27

Italy's 10-year bond yield crossed 7% today. Source

On 28-Dec-2011 Italy will sell 9 billion euros Bonds maturing in 179-day and 2.5 billion euros zero-coupon-bonds maturing in 2013. On 29-Dec-2011, Italy plans to sell Bonds of 10-year maturity. Exact quantity of the auction, slated for 29-Dec-2011 is not available.
Source

wrdos · Post by **wrdos** » 27 Dec 2011 14:10

Christopher Sidor wrote:^^^^
China recently bought a lot of Japanese bonds. The exact quantity was not disclosed. This unnerved the Japs. It seems that they wanted to buy a counter-leaving hedge. Hence they are buying Chinese bonds. Moreover makes sense. The bilateral trade between China and Japan is massive. It may in the future dwarf their trade with US. So why should they have an unnatural triangle in JPY-USD-CNY ?

The problem is that Japanese currency is practically freely convertible based on market. The Chinese currency is still pegged/tied to the USD. This creates all sort of issues. So basically the JPY-USD-CNY peg still exists. It has not been removed entirely.

China-America Trade > China-Japan Trade > Japan-America Trade

kmkraoind · Post by **kmkraoind** » 28 Dec 2011 10:27

US says China not currency manipulator; chides Japan

It seems US will use "slow boiling of frog" technique on China.

member_21708 · Post by **member_21708** » 28 Dec 2011 11:47

abhischekcc wrote:Does anybody have Doraiswamy's books in digital format? I feel my company wants to donate some time to my education.

Indian Finance, Currency and Banking
PDF file link - 15MB - http://www.archive.org/download/indianf ... rauoft.pdf

abhischekcc · Post by **abhischekcc** » 28 Dec 2011 14:21

Thanks Vikramd.

Yesterdin, I started copy pasting the text from another website

Your link has saved my company a lot of time, which they have decided to replace with printing of this ebook.

Christopher Sidor · Post by **Christopher Sidor** » 28 Dec 2011 22:16

BRIC Decade Ends as Growth Peaked: Goldman

What does BRIC stand for "Bloody Ridiculous Investment Concept".

One noteworthy point

The number of people aged 15 to 64 in Russia has already started to drop, while Chinese workers may peak at around 1 billion and begin falling by 2020, according to estimates by the United Nations. Brazil’s peak may come by 2040, with India’s topping out by 2060, the New York-based United Nations said.

Please allow me to go completely digress. If the above two points are true, then it means that post 2020 China will not be able to field the most massive standing army. That honor will belong to India. So the day is coming closer where in the Himalayas we can have a 1:2 and possibly 1:3 advantage over the PLA/PLAAF.

Further in this decade, if not in the next few years, China's Urban population would cross its rural population. What this implies is that the Chinese civilians can be more effectively held hostage under the nuclear threat. If there are a few mega cities, i.e. population in excess of 10 million, then we will need fewer bombs to wipe out the Chinese population. If the same Chinese population were to be dispersed and live in rural setting, to achieve the same level of extermination, would require bigger and more numerous bombs.
Now here is the beauty, in case of India, this will happen only sometime later than 2025. i.e. our Urban population will cross the rural population some 15 years from now. So India will not be held to the same level of hostage.
In a nut shell the damage that we can inflict on China will be immense compared to what China will be able to inflict on us.

The tables are turning, slowly and steadily in favor of India. We can play the waiting game as far as PRC/CPC is concerned.

svinayak · Post by **svinayak** » 28 Dec 2011 22:59

Christopher Sidor wrote:
Please allow me to go completely digress. If the above two points are true, then it means that post 2020 China will not be able to field the most massive standing army. That honor will belong to India. So the day is coming closer where in the Himalayas we can have a 1:2 and possibly 1:3 advantage over the PLA/PLAAF.

This will be about Tibet Independence

Theo_Fidel · Post by **Theo_Fidel** » 29 Dec 2011 02:41

Odd. Armageddon delayed.

http://www.nytimes.com/2011/12/29/world ... acute.html

On Wednesday, the day his cabinet met to discuss growth-boosting measures, Mr. Monti appeared to receive some breathing room when interest rates on six-month treasury bills, a barometer of investor worry about Italy’s creditworthiness, dropped in half to 3.2 percent and rates on 10-year treasury bills dropped to 6.91 percent from above 7 percent, nearing the levels at which other euro-zone countries such as Ireland and Greece needed bailouts.

Analysts said that a bigger test for Italy would come in a larger bond auction on Thursday. Italy, the euro zone’s third-largest economy, must refinance almost 200 billion euros in government debt by April, and if borrowing rates remain high, the country could face a solvency crisis and potential default that could threaten the stability of the euro currency.

In many ways, Italy’s borrowing rate fluctuations only compound its political complexities. Analysts doubted that the lower rates seen on Wednesday would buy Mr. Monti more time. Moreover, they said, his government needs a certain amount of market pressure in order to help push through politically unpopular structural changes in the economy that the parties nominally backing him in Parliament are not eager to carry out.

rsingh · Post by **rsingh** » 29 Dec 2011 02:43

Christopher Sidor wrote:BRIC Decade Ends as Growth Peaked: Goldman

What does BRIC stand for "Bloody Ridiculous Investment Concept".

One noteworthy point
The number of people aged 15 to 64 in Russia has already started to drop, while Chinese workers may peak at around 1 billion and begin falling by 2020, according to estimates by the United Nations. Brazil’s peak may come by 2040, with India’s topping out by 2060, the New York-based United Nations said.
Please allow me to go completely digress. If the above two points are true, then it means that post 2020 China will not be able to field the most massive standing army. That honor will belong to India. So the day is coming closer where in the Himalayas we can have a 1:2 and possibly 1:3 advantage over the PLA/PLAAF.

Further in this decade, if not in the next few years, China's Urban population would cross its rural population. What this implies is that the Chinese civilians can be more effectively held hostage under the nuclear threat. If there are a few mega cities, i.e. population in excess of 10 million, then we will need fewer bombs to wipe out the Chinese population. If the same Chinese population were to be dispersed and live in rural setting, to achieve the same level of extermination, would require bigger and more numerous bombs.
Now here is the beauty, in case of India, this will happen only sometime later than 2025. i.e. our Urban population will cross the rural population some 15 years from now. So India will not be held to the same level of hostage.
In a nut shell the damage that we can inflict on China will be immense compared to what China will be able to inflict on us.

The tables are turning, slowly and steadily in favor of India. We can play the waiting game as far as PRC/CPC is concerned.

No need to get carried away by Chinese population problem. They can implement 3 child policy from 2012......and wallah 2.5billion Chinese by 2030. It is not wise to predict one year ahead ( read Arab Spring) let alone 30 years.

Hari Seldon · Post by **Hari Seldon** » 29 Dec 2011 06:48

rsingh wrote:No need to get carried away by Chinese population problem. They can implement 3 child policy from 2012......and wallah 2.5billion Chinese by 2030. It is not wise to predict one year ahead ( read Arab Spring) let alone 30 years.

Bingo.
However, popn stats are a wee bit predictable. If the cheenis are short some 200 million working age people in 2015, there's no way they can magically mass-produce that number of chinese that I know of (unless you are privy to inside info). One option would be to invade Pak and declare the pakis are chinese now. The second is massive immigration in a time-frame that's unprecedented and likely infeasible.

Sure the 3-child policy starting tomorrow will produce working-age demographic results. But only a generation down the ;line. Not, like, tomorrow, is my limited point. Only.

However, lets not discount cheeni ingenuity, vision, ruthlessness and greatness. They may yet go for option 1, who knows. Tomorrow's another day after all....Jai Hu, Jai hu..

Singha · Post by **Singha** » 29 Dec 2011 07:59

> One option would be to invade Pak and declare the pakis are chinese now.

we can extend strong moral and diplomatic support for it. the pakis will take the work and money and still indulge in terrorism though unlike the obedient 'real' chinese.

Christopher Sidor · Post by **Christopher Sidor** » 29 Dec 2011 11:19

rsingh wrote:
Christopher Sidor wrote:BRIC Decade Ends as Growth Peaked: Goldman

What does BRIC stand for "Bloody Ridiculous Investment Concept".
....
....
....
Please allow me to go completely digress. If the above two points are true, then it means that post 2020 China will not be able to field the most massive standing army. That honor will belong to India. So the day is coming closer where in the Himalayas we can have a 1:2 and possibly 1:3 advantage over the PLA/PLAAF.

Further in this decade, if not in the next few years, China's Urban population would cross its rural population. What this implies is that the Chinese civilians can be more effectively held hostage under the nuclear threat. If there are a few mega cities, i.e. population in excess of 10 million, then we will need fewer bombs to wipe out the Chinese population. If the same Chinese population were to be dispersed and live in rural setting, to achieve the same level of extermination, would require bigger and more numerous bombs.
Now here is the beauty, in case of India, this will happen only sometime later than 2025. i.e. our Urban population will cross the rural population some 15 years from now. So India will not be held to the same level of hostage.
In a nut shell the damage that we can inflict on China will be immense compared to what China will be able to inflict on us.

The tables are turning, slowly and steadily in favor of India. We can play the waiting game as far as PRC/CPC is concerned.
No need to get carried away by Chinese population problem. They can implement 3 child policy from 2012......and wallah 2.5billion Chinese by 2030. It is not wise to predict one year ahead ( read Arab Spring) let alone 30 years.

Implementing 3 child policy is not like implementing a increase in production quota. The latter can be easily done by diktat issued from Peking. The Former cannot be easily done. In spite of being a dictatorial system, the CPC, cannot dictate to the Chinese females to start producing 3 babies.

Christopher Sidor · Post by **Christopher Sidor** » 29 Dec 2011 22:24

Interbanking lending has for practically purpose frozen in the EURO-Zone.

Banks Bunker Hundreds of Billions in Deposits at ECB --- Der Spiegel Dated 27-Dec-2011
From the article

The sum of overnight deposits at the European Central Bank (ECB) is often considered to be an indicator of the level of fear brewing within the financial sector. The greater the degree of distrust between banks, the more money banks tend to deposit on a daily basis with the ECB, where interest rates are low, but deposits more secure. This week has seen the level of deposits at the ECB's overnight facility rise to close to €412 billion ($538.4 billion) -- the greatest amount seen since the euro's introduction.
....
....
Normally banks tend to lend any excess funds to each other. By doing so, they can make more money -- especially given that interest rates at banks are currently twice as high as those offered by the ECB. But the interbank market has been disrupted for weeks now, prompting concerns that the credit crunch last seen after the collapse of Lehman Brothers has returned. European banks no longer trust each other because it is unclear to what extent individual banks are exposed to government bonds from countries hit by the debt crisis, and whether those institutions are in jeopardy

This looks like a rerun of the Lehman crisis and the AIG fiasco which followed it. Let me again recap. It was not the bankruptcy of Lehman which caused the financial markets to freeze in the dark days of Sept-2008. Rather it was the AIG's failure to honor its CDS, which caused the whole pack of cards to unravel. The predictable result was that US banks and many other Financial institutions would not lend to each other, but would keep the money in overnight US Fed. That is what is meant when financial experts say "The financial pipes are clogged." And for credit to start flowing once again, would require dramatic actions by the central banker. In this case ECB.

While the Italian bond sale went off okie-dokie, with the yields of 10 Year Gross Yield staying at around 7%. The problem is that Italy had planned on selling 9 billion EUROs of Bonds on 28-Dec-2011. Out of these it could sell only 8.5 billion EURO bonds. For the 2.5 billion EURO 10-year Italians bonds which were sold today, i.e. 29-Dec-2011, yield was at 6.98 %. Let us hope that it does not rise. Source is Bloomberg
But all said and done, we are still not out of this.

Christopher Sidor · Post by **Christopher Sidor** » 30 Dec 2011 12:33

Start Saving or Get Ready for U.S. Decline: Laurence Kotlikoff -- Bloomberg Dated 30-Dec-2011

This article makes some very valid points. Americans have to save. But the consequence of their savings will be felt across the pacific, with reduced demand. Further it has been estimated that US Economy in Q4-2011 will grow at 2-3%. The reason for this is the payroll-tax cut which was introduced sometime back. This payroll tax cut will last till Feb-2012, unless the US Elected representatives decide to extend it. That is the reason the economist are saying that US economy may have a great Q4, but whether it will be able to carry forward that momentum to Q1-2012 will have to be seen.

The problem with this article is given below

Because of transfer programs. In 1960, Medicare and Medicaid didn’t exist and Social Security benefits per oldster were small.
....
....
The bottom line is, we’re taking from young savers and giving to old spenders. We need to reverse course and raise national saving and, thus, domestic investment with generationally fair policies. The alternative is an early economic grave.

Basically the US elected representatives made a compact with the US people. You spend and we will take care of your old age/retirement (Social Security) and health care (Medicare/Medicaid). The US population fulfilled its end of the bargain. It saved very little and spent a lot. The problem is that US government did not keep its end of the bargain.

US underfunded Social Security to a massive degree. To draw an analogy, this is similar to what happens in India's EPFO/PF fiasco. Many companies do not pay their part of 12% contribution. Or worse they abuse the system, for example by raising the last month's, i.e. month before retirement, salary dramatically. Both of these burdens are then carried by other members of EPFO/PF. Add to this EPFO/PF are restricted to government or ultra safe avenues, which results them in not being able to beat inflation. Off course Social Security is applicable for US government employees, but they are a significant number.

In case of the Medicare/Medicaid, the situation is worse. It is claimed that there is a lot of pork, i.e. wastage. Costs have not been under control. Add to this the tendency of malpractice suits against the medical profession, which causes the doctors to order numerous tests, just to cover one's ass. The entities which benefit the most are companies like GE, which manufacture medical equipment. In a way it is good, because it helps to eliminate a lot of false positives. For example misdiagnosis, etc. But there is a dark side to this.
People who are poor, and US has poor people, are able to only go to medical emergency rooms. For example watch the movie, "As Good as It Gets" starring Jack Nicholson and Helen Hunt. In this movie Helen has a son, who is asthmatic. But all that she can do is that take him to the emergency room in case of an attack or emergency. In the emergency room, no long term treatment can be done. Rather they stabilize him and then discharge him. Unfortunately this is true for a lot of Americans. I remember viewing a debate in 2002-3, just before Iraq was invaded by US. There they discussed this point along with the war. There also there was some democratic/left leaning people were saying that many Americans do not have access to good health care. On the conservative/republican side, there was this guy who was saying that they can always go the emergency room to get treated. This was despite the fact that going to emergency room will not solve their medical condition. And the conservative were vehemently insisting, "these people can go to emergency room."

So the US government did not keep their end of the bargain and now there are calls to cut down the benefits which were promised. This aspect this article does not discuss or explore.

Singha · Post by **Singha** » 01 Jan 2012 14:51

how exactly will urban dual income parents already spending heavy for raising their one child afford 3 kids - the burden of school, food, college and day care would increase manifold unless the CCP took care of that tab too.

how will it affect the womans career. many tend to stop at one itself and get back into career.

its not a easy on-off switch. each kid is 2.5 decades of commitment.

Prem · Post by **Prem** » 02 Jan 2012 11:24

Manufacturing in China Grows Only Slightly in December
http://www.nytimes.com/2012/01/02/busin ... uan02.html

The official purchasing managers’ index, which is compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, rose to 50.3 in December from 49 in November. That indicated a slight expansion in business activity in the vast Chinese factory sector, but the reading was barely above 50, which separates expansion from contraction. The index fell below 50 in November for the first time since early 2009. Analysts had expected the official purchasing index to be at 49.1 in December. “The rebound in the December P.M.I. shows that there will be no big slowdown in the Chinese economy,” Zhang Liqun, a researcher with the Development Research Center of the State Council, wrote in a statement accompanying the survey. The economy faces downward pressure, but there are positive elements that could underpin growth, the researcher said. Despite the rise in the official survey, it is stuck near its weakest levels since early 2009. Economists at Citibank said China was more likely to take policy steps to combat what the bank saw as a tangible slowing of economic activity. “Accumulating evidence of economic weakness would herald more policy easing in the months ahead, starting with another” required reserve ratio cut by the Chinese New Year, Citibank said in a note to clients. “Although domestic consumption held up steadily, its contribution may have been more than offset by weakened investment activity and deteriorating foreign trade conditions,” the note said.

svinayak · Post by **svinayak** » 04 Jan 2012 05:13

( Soverign bonds, Govt bonds, Large cap stocks, and essential infrastructure which is part of major world economy( only 10 - 15 % knowledge and IT economy, is going to grow and there is a great market and career for the same.)

http://finance.yahoo.com/news/World-Lar ... 1.html?x=0

World’s Largest Economies Face $7.6 Trillion of Maturing Government Debt in 2012

Wall St. Cheat Sheet – 6 hours ago
The world’s leading economies are facing more than $7.6 trillion of maturing government debt this year as borrowing costs rise for most.

Group of Seven nations, as well as Brazil, Russia, India, and China — collectively known as BRIC — will see $7.6 trillion in government debt maturing in 2012, up from $7.4 trillion at this time last year.
Ten-year bond yields are forecast to be higher by year-end for at least seven of the countries, as investors demand higher compensation to lend to countries that struggle to finance increasing debt burdens as their economies slow.
As Europe’s debt crisis continues to spread, the U.S. struggles to reduce a budget deficit in excess of $1 trillion, and China’s property market cools, the International Monetary Fund has cut its global growth forecast this year to 4 percent from a prior estimate of 4.5 percent.
The total amount needing to be refinanced is more than $8 trillion when interest payments are included. Though most of the world’s biggest debtors had little trouble financing their debt load in 2011, that may change in 2012.
Italy auctioned just 7 billion euros of debt on December 29, falling short of the 8.5 billion euros targeted, as the economy continued to sink into its fourth recession since 2001. The country must refinance about $428 billion of securities coming due this year, with another $70 billion in interest payments.
Italy’s maturing debt load comes in third among the world’s major economies, behind Japan with $3 trillion and the U.S. with $2.8 trillion.
Borrowing costs for G-7 nations — the U.K., France, Germany, Canada, Japan, Italy, and the U.S. — will rise as much as 39 percent for 2011, according to Bloomberg surveys, while the yields on China’s benchmark 10-year notes will likely remain little changed, and India’s will fall from 8.39 percent to 8.02 percent.
After Italy, France has the most debt coming due, at $367 billion, followed by Germany at $285 billion, Canada at $221 billion, Brazil at $169 billion, the U.K. at $165 billion, China at $121 billion, and India at $57 billion. Russia has the least amount of debt maturing at $13 billion.
While the two biggest debtors, Japan and the U.S., have had little trouble attracting demand, such is not the case for most of Europe, where the buyer base has shrunk at the same time that the supply coming to the market is increasing.
The U.S. benefits from the dollar’s role as the world’s primary reserve currency, while Japan benefits by having a surplus in its current account, which means the nation doesn’t have to rely on foreign investors to finance its budget deficits.
Japan’s benchmark yields are the second-lower in the world after Switzerland at less than 1 percent, even though its debt is about twice the size of its economy.
The U.S. drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills auctioned on the Tuesday before Christmas, even though they pay zero percent interest. The U.S. attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds it sold last year.
However, yields on 10-year Treasuries are below 2 percent, while the U.S. pays an average rate of about 2.18 percent on its outstanding debt, which has investors skeptical that bond will be able to stage another rise like last year’s 9.79 percent gain.
Central banks have been bolstering demand by either keeping down interest rates or purchasing bonds.
The U.S. Federal Reserve has pledged to keep the target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of short-term bonds, the proceeds from which it will invest in longer-term Treasuries.
The Bank of Japan has kept its key interest rate at or below 0.5 percent since 1995, and last year expanded its asset-purchase program to 20 trillion yen. The Bank of England kept its rate at a record 0.5 percent last month, and left its asset-buying target at 275 pounds. The European Central Bank reduced its main refinancing rate twice last quarter, from 1.5 percent to 1 percent, and allotted 489 billion euros of three-year loans to euro-area lenders that could use the money to buy government bonds.
“The market is now flush with liquidity after measures taken by central banks, particularly the ECB, and that’s great news for risky assets,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA in Milan. “The market will have no problem taking down supply from countries like Spain and Italy in the first quarter. In fact, they should be able to raise money at lower borrowing costs than what we saw in recent months.”

ramana · Post by **ramana** » 05 Jan 2012 00:27

Nightwatch on Greece

3 jan 2012

Greece: The Athens government warned Tuesday that the country will have to abandon the euro if it fails to finalize the details of a second, euro130 billion ($169 billion) international bailout and that more austerity measures will need to be implemented.

A key component of the package, which was agreed last October, is that Greece has to persuade its private creditors like banks and investment firms to take a 50% cut in the value of their holdings of Greek sovereign debt. Some analysts now expect they might have to take a 75% loss in order for Greece to have any chance of stabilizing its condition of insolvency.

Greece's debt will expand to almost twice the size of its economy this year unless its creditors accept at least 50% losses on their investments, according to the IMF. Even then, a second bailout would only be a temporary reprieve to postpone default.

During this Watch, The top lobbyists representing Greek bondholders said Tuesday that progress has been made in negotiations over an agreement to cut the nation's debt. It is "essential" that a voluntary agreement between the Greek government and its creditors be reached "in the days ahead," said top officials from the Institute of International Finance.

Comment: In light of German Chancellor Merkel's comments over the weekend that Germany will do whatever is necessary to preserve the euro, the Greek government's warning rings hollow. Greece appears to be undergoing something like a bankruptcy proceeding in which losses are spread among all of the claimants, at least theoretically. On the other hand, investors have good grounds for skepticism and resistance because Greek authorities have failed to deliver on past promises of austerity and prudent fiscal management.

Greece will not leave the eurozone because the costs of and the investment losses associated with leaving would exceed the costs of joining, which several experts assert should never have occurred in the first place.

Plus Germany wants it to remain a member, even in a second tier status, to save face. Perhaps more important is that a Greek withdrawal would threaten a chain reaction of bankruptcies and capital flight to safety.

A Greek default within the eurozone system would be less damaging to the European economy than a Greek return to the drachma, which would signify a significant loss of confidence in the euro and its managers. Every interested party expects and has had time to prepare for Greece to default on its obligations.

The best assessments are that it will take a generation - 20 years - for Greece's GDP to equal or exceed its obligations. That means the undertaker is Greece's best fiscal friend, meaning a generation of pensioners must die before the economy can right itself, barring an economic miracle. Meanwhile, Greece holds its investors and its fellow eurozone countries hostage, one way or the other, if Mrs. Merkel's assertions are serious.

pankajs · Post by **pankajs** » 05 Jan 2012 00:29

The beginning of the End for the Euro?

Prem · Post by **Prem** » 05 Jan 2012 01:59

http://www.businessweek.com/news/2012-0 ... brics.html
Global Growth Slows to 3.9% as O’Neill Sees Aging Labor in BRICs

Jan. 3 (Bloomberg) -- A year ago, Catherine Liu employed more than 2,000 people at her five Shanghai luggage-making factories. Now, as the dwindling supply of low-paid young workers forces wages and costs higher, she has 1,200 left.“Local workers are getting much older,” said Liu, owner of Shanghai Worldwide Trading Co. “If you want to train them, they must be young. It’s very difficult to survive.”Aging and shrinking labor pools are also poised to curb expansion across the other so-called BRIC nations that contributed almost half of global growth in the past decade. With fewer youths keeping factories going and more pensioners to support in those markets, the world economy is set to slow, Goldman Sachs Group Inc. says.The number of people older than 65 in Brazil, Russia, India and China will rise 46 percent to 295 million by 2020 and to 412 million by 2030, according to United Nations projections. The pool of 15 to 24-year-olds, the mainstay for factories like Liu’s that drove China’s boom for three decades, will fall by 61 million by 2030, about the population of Italy.As the BRICs slow down, global growth probably will peak at about 4.3 percent this decade and fall to 3.9 percent in the 2020s, according a Dec. 7 report by Goldman analysts. That’s prompting fund managers including Mark Mobius to invest in so- called frontier markets such as Nigeria, Vietnam and Argentina, where average annual growth is set to rise to 5.1 percent this decade, from about 4.3 percent in the previous 10 years

Prem · Post by **Prem** » 05 Jan 2012 04:31

http://online.wsj.com/article/SB1000142 ... lenews_wsj
Kodak Preparing for Chapter 11 Filing

Eastman Kodak Co. is preparing for a Chapter 11 bankruptcy-protection filing in the coming weeks should efforts to sell a trove of digital patents fall through, people familiar with the matter said.
The struggling photography icon, which employs about 19,000 people, is in discussions with potential lenders for around $1 billion in so-called debtor-in possession financing that would keep it afloat during bankruptcy proceedings, the people said. A filing could occur as soon as this month or early February, one of the people said.A Kodak spokesman said the company "does not comment on market rumor or speculation."Should Kodak seek Chapter 11 protection from creditors, the company would then try to sell its portfolio of 1,100 patents through a court-supervised bankruptcy auction, the people said. Kodak would continue to pay its bills and operate normally while under bankruptcy protection, the people said.

ramana · Post by **ramana** » 05 Jan 2012 04:36

So digital technology kills them just like Polaroid?

Prem · Post by **Prem** » 05 Jan 2012 04:54

ramana wrote:So digital technology kills them just like Polaroid?

They bought one of my clients's medical software/hardware company in mid 90s. Could not run it and shut it down after paying the big bucks.They had management issue as the old guys have no idea about the new world. For every darn isssue , decison was bame back Eeast. They lost their direction decade ago and never recovered even after spending more than 4 bilions. Its sad to see them in trouble.

abhischekcc · Post by **abhischekcc** » 05 Jan 2012 13:10

Kodak made some digital cameras also, my first was a Kodak. But the quality was average. I think they have not understood the difference between digital camera market and their tradiational market structure.