Thursday, January 7, 2016
Cost to the U.S. economy of second great depression
The
great depression of 2007/8 is not because of decline in the output, it was
result of the downturn of all economic indicators. The National Bureau of
Economic research has identified of the last boom cycle in December 2007, the
U.S. economy has been in decline ever since. The crisis has caused the
recession of 2008, which reached bottom in summer 2009. As hundreds of billions
of dollar transfer into the U.S. economy from the abroad to make high profit.
These all turned into to the real estate. Every one invests with hoping ‘Buy
high-sell higher”, they think that higher price paid to the house the higher
profit would be made. The financial crisis of 2008 is the one of the worst
disaster since great depression in the year of 1929 in the world economy especially
to the U.S. economy.
Due
to multiple crises which force to pulling down major financial players, Almost
20% of American mortgages in 2006, collapsed as well as brought by the Bank of
America. One of the largest banks named Bear Stearns went to the government
arranged a sale to JPMorgan Chase. Due to that incident, stock holder lost
almost 90% of their investment. On 7th
September 2008, the government took control of the two largest mortgage holders;
one is Frannie Mai and Freddie Mac. These two lost almost $ 20.40 trillion in
mortgage. Looking about that scenario, people even started to think if the
American treasury market can collapse then why can’t other? It might be reason
that stock market in China and Russia plunged 50%.
In
September, the major banks were no longer lending money and losses of the banks
were increased by huge number. Most of the short seller sold large amounts of
stock which causes panic as driving down share prices. The largest bank named
Lehman Brothers went bankrupt on 15th September, nobody there to
enhance finance standard of bank. The collapse of Lehman with its $639 billion
in assets had a multiplier effect worldwide.
When the value of the collateral decreased the lenders demanded for the
security, as a result borrower has to sold their assets no matter how much they
would be suffer which creates depressed prices.
Apart from the above, the biggest
effect, Merrill Lynch was sold to Bank of America for $50 billion around almost
about half of their full value before some months ago and on the other hand,
AIG could not no longer honor the insurance policies it wrote therefore, share
price dropped by 95% and lost $13 billion which was biggest blow for the AIG.
Now the debt of the U.S. government
is reached $18 trillion, still the economy is in the deficit situation which
may be cause to start climbing in the near future. For that, U.S. needs to
consider how its uses borrowed funds. As many circumstance shows that, while
borrowing to finance consumption is not sustainable. If debt is used to expand
output, the debt to GDP can remain stable even though there is large number of
borrowing. In the near future, there will be rivals to the U.S. treasury market
in terms of market dept as well as liquidity. To remain the world’s reserve
currency, U.S. government must provide the world with stable currency.
After
the crisis, the economic condition of the U.S. is not as it requires and world
market is shifting towards to the Chinese market. During the crisis, U.S.
government issued the government bond to enhance the economy. People of the
world are so much confident regarding the U.S. economy; even the U.S. economy
facing the problem, all wants to buy that.
All most all bond bought by the Chinese. Hence, this shows that, U.S.
economy is dominating by the Chinese people.
The U.S. government knows, if the U.S. government stand strongly against
with Chinese then definitely they would be in trouble.
Wednesday, January 6, 2016
Euro Zone Crisis in PIGS
Greece
·
The
government spent heavily to keep the economy functioning and the country's debt
increased accordingly.
·
By
April 2010 it was apparent that the country was becoming unable to borrow from
the markets
·
By
April 2010 it was apparent that the country was becoming unable to borrow from
the markets
·
All
the implemented austerity measures have helped Greece bring down its fiscal deficit 10.6% of GDP in 2009 to just
2.4% of GDP in 2011, but as a side-effect they also contributed to a worsening
of the Greek recession, which began in October 2008 and only became worse in
2010 and 2011.
·
As
a result, seasonal adjusted unemployment rate grew from 7.5% in September 2008
to a record high of 27.9% in June 2013, while the youth unemployment rate rose
from 22.0% to as high as 62%.
Ireland
·
The
Irish sovereign debt crisis was not based on government over-spending, but from
the state guaranteeing the six main Irish-based banks who had financed a
property bubble
·
Irish
banks had lost an estimated 100 billion euros, much of it related to defaulted
loans to property developers and homeowners made in the midst of the property
bubble, which burst around 2007.
·
The
economy collapsed during 2008.
·
Unemployment
rose from 4% in 2006 to 14% by 2010, while the national budget went from a
surplus in 2007 to a deficit of 32% GDP in 2010, the highest in the history of
the eurozone.
Portugal
·
Portugal had allowed considerable slippage in
state-managed public works and inflated top management and head officer bonuses
and wages.
·
Persistent and lasting recruitment policies
boosted the number of redundant public servants.
·
When the global crisis disrupted the markets and
the world economy, together with the US credit crunch and the eurozone crisis,
Portugal was one of the first and most affected economies to succumb.
·
In the summer of 2010, Moody's Investors Service
cut Portugal's sovereign bond rating, which led to an increased pressure on
Portuguese government bonds.
Spain
·
Spain had a comparatively low debt level among
advanced economies prior to the crisis.
·
Its public debt relative to GDP in 2010 was only
60%,
·
Debt was largely avoided by the ballooning tax
revenue from the housing bubble, which helped accommodate a decade of increased
government spending without debt accumulation.
·
When the bubble burst, Spain spent large amounts
of money on bank bailouts.
·
Questionable accounting methods disguised bank
losses.
·
During September 2012, regulators indicated that
Spanish banks required €59 billion (USD $77 billion) in additional capital to
offset losses from real estate investments.
·
The bank bailouts and the economic downturn
increased the country's deficit and debt levels and led to a substantial
downgrading of its credit rating.
·
To build up trust in the financial markets, the
government began to introduce austerity measures.
·
Spain is suffering with 27% unemployment and
economy shrank by 1.4% in 2013.
Inflation Rate, not going as expected by Nepal Rastra Bank
Due to the obstruction in the distribution system of consumer idem & hording of those items by consumer owing to the unrest in Tarai and Indian blockade, Inflatin has been increased to over 10 percent. From the last fiscal policy we have seen that Government had aimed to limit inflation to 8 percent. But actual rate is not going as expected by the government and authorized central department, Nepal Rastra Bank Ltd.
Here, there were different tools that Rastra Bank brought to the market to control inflation. Stating that inflation cannot be controlled through monetary tools alone unless supply eases. The authorized body already warned of serious consequences of the increasing rate. Especially, rate of inflation has been increased on most important consumer item like, Ghee, Cloths, and Oil according the data provided by the Central Authorized body.
It’s been almost five months of Indian blockade, but there is no any positive sign, every politician are much more conscious of their individual benefit and directly affected foreign trade, Import fell by 38.8 percent whereas export by 29.10 during the months. Nepal exported goods worth Rs. 20.96 billion during the period and imported goods worth Rs. 160.99 billion with foreign trade. Remittance has been increase by 19 percent to Rs. 215.29 billion in the first four months as per the latest data published by the Central Authorized Body.
Here, there were different tools that Rastra Bank brought to the market to control inflation. Stating that inflation cannot be controlled through monetary tools alone unless supply eases. The authorized body already warned of serious consequences of the increasing rate. Especially, rate of inflation has been increased on most important consumer item like, Ghee, Cloths, and Oil according the data provided by the Central Authorized body.
It’s been almost five months of Indian blockade, but there is no any positive sign, every politician are much more conscious of their individual benefit and directly affected foreign trade, Import fell by 38.8 percent whereas export by 29.10 during the months. Nepal exported goods worth Rs. 20.96 billion during the period and imported goods worth Rs. 160.99 billion with foreign trade. Remittance has been increase by 19 percent to Rs. 215.29 billion in the first four months as per the latest data published by the Central Authorized Body.
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