FT.com / Comment / Analysis - Global economy: In a tight spot

FT.com / Comment / Analysis - Global economy: In a tight spot

The Financial Times provides an excellent overview of what it calls the end the of the global post-crisis policy consensus. This is in the aftermath of the European Central Bank (ECB) interest rate rise from 1% to 1.25% that took place last week.

The ECB decision to raise rates last week was the first time since its founding that it has taken a lead over the Federal Reserve, the US equivalent.

The primary mandate of the ECB is to 'focus on combating inflation risks, this was the argument used by ECB. This is on the back of soaring commodity prices i.e. grain, wheat and oil to name but a few. Inflationary pressures from rising food prices and petrol prices have now forces the hand of the ECB.

To continue to read the after effects of this rate rise click on the above link from the FT

8:30 Could Get a Whole Lot Quieter Next Week — Swing Trading Daily

8:30 Could Get a Whole Lot Quieter Next Week — Swing Trading Daily

Traders and investors will be left virtually in the dark next week as the government approaches 0 hour to shutdown. The US government is as I write this blog piece is only 9hours and 45mins to shutdown.

This will prevent the release of key economic data week, the vast majority of which is scheduled for 8:30am.

Crucial economic data, specifically related to inflation ref: PPI & CPI figures will not be released if the government fails to make a negotiated settlement in the next 9 and a bit hours.

These two data points are of vital importance for central bankers, specifically the Federal Reserve who use the CPI & PPI data to gauge potential inflationary effects on the overall economy i.e. food prices.

For a tick by tick update on events surrounding the government shutdown & countdown clock click

> http://www.guardian.co.uk/world/2011/apr/08/government-shutdown-2011-live-updates

US Government Shutdown - Boehner vs. Obama [A Preview]

The West Wing Provides a Glimpse of What a Meeting Between Speaker Boehner & Obama Could Look Like

Re: Government Shutdown

Congress is currently mired in a squabble over the current-year federal budget. It essentially boils down to Tea Party Republicans wanting cuts of $60bn in short term spending, most Democrats and most likely the House GOP leadership, according to the FT would settle spending cuts of $30bn.

Also the FT paints a bleak picture of the potential side-effects of these 'meaningless' cuts in the short-term, saying that a government shutdown has the potential to derail the current economic recovery. Adding it could be the difference between stagnation on one hand and recovery on the other. 

May wiser heads prevail.

Do Economists Even LOOK At the Data They Claim Supports a “Recovery”? | zero hedge

Do Economists Even LOOK At the Data They Claim Supports a “Recovery”? | zero hedge

A brief but excellent overview of what is portrayed versus the actual reality in regards to the economic recovery in the US.

Has China Overtaken America....? Yes & No

Source: http://news.boisestate.edu/update/2010/10/25/china-u-s-relations-is-topic-of-27th-annual-frank-church-conference-oct-28/

According to a report published on April 1st by the Economist Simulation Unit three quarters of Americans wish that China "would just hurry and overtake America, already". This is a source of anxiety in America, as worries persist about when exactly America's most important bi-lateral partner China will overtake them.


A report published by the Economist highlights that in some important areas China already has (see diagram below)

American anxiety wont be eased at the statistical graph below which shows the health or lack of the US economy and its over-reliance on China (especially in so far as purchasing its debt) is concerned.

Source: http://topforeignstocks.com/2010/02/16/china-vs-usa-a-comparison-of-government-finances-and-the-economy/


>Some other statistical comparisons<


Also the Chinese economy would appear to more balanced in contrast to the US

Also the dominance of the US military in the Pacific region is been threatened by China as its military capability continues to grow

Source: http://www.theaustralian.com.au/news/features/as-the-us-wanes-china-gains/story-e6frg6z6-1225901301983

China's global reach is also expanding as its military arsenal increases in numbers

Source: http://www.bbc.co.uk/news/world-asia-pacific-12158678

A wider statistical overview comparing China and the US

Source: http://www.guardian.co.uk/world/2011/jan/18/china-equal-us-hu-jintao

A couple of images for Americans (and the world) to ponder

Source: http://lonelibertarian.blogspot.com/

Source: http://seekingalpha.com/article/125017-america-to-china-stop-buying-our-dollars-and-another-thing-please-buy-our-dollars

And finally the all important question, on a GDP basis, when will the Chinese economy become larger than America? 

On that question The Economist has projected based upon economic forecasts that China will overtake the US in 2019

Thoughts/comments?

Federal Reserve's Discount Window Literally Saved the Global Banking System - Data Shows (Bloomberg)

What links the Arab Bank Corp, Dexia SA, Societe General and the Bank of China?


At first the only similarity would appear to be they are financial institutions, however they all share the misfortune of benefiting from the Federal Reserve discount window lending facility. 


This was put in place to provide emergency overnight funding to banking and financial institutions globally at the height of the financial in 2008. As a result of these institutions been unable to secure financing privately.


The list below provides example of financial institutions that used the Feds discount window.

1. Dexia SA (Belgium, France) borrowed as much as $33.5bn
2. Depfa Bank Plc (Dublin) took $24.5bn
3. Wachovia Corp (Charlotte, NC) $29bn in the week the company almost collapsed
4. Societe General (France) drew $5bn
5. Bank of China was the second largest borrower from the Feds discount window in 2007 as the sub-prime mortgage took hold over the global financial system.
6. Deutsche Bank AG (Germany) borrowed $1bn via two of its divisions
7. Arab Banking Corp, than 29% owned by the Libyan Central Bank used the discount facility 73 times in an 18 month period following the collapse of Lehman Brothers which totalled $2bn

Source: http://blogs.ft.com/money-supply/2011/03/31/who-used-the-feds-discount-window/

This data was released under a Freedom of Information Request by Bloomberg LP and contains approximately 29,000 pages of documents covering the Feds discount window and several other of the US Central Banks emergency lending programs established between 2008-2010

Ben Benanke, the Chairman of the US Federal Reserve objected to the release of the data saying that revealing the names of these institutions"might lead market participants to infer weakness".

Bloomberg reporter Bob Ivry discusses the release of the Federal Reserve's discount-window lending records and Goldman Sachs Group Inc.'s borrowing history. He speaks with Matt Miller on Bloomberg Television's "Street Smart."

The Federal Reserve's discount window has been in effect for 97 years, but was used most frequently during the apex of the financial crisis in October 2008. This period represents nearly 70% of the discount windows lending activity and totals $110.7bn in borrowing.

Source: http://www.american.com/archive/2008/march-03-08/the-fed2019s-new-alphabet-soup

The disclosure of the information and the scale of the borrowing by predominately foreign financial institutions will provoke a possible re-examination of the role of the Federal Reserve within the Global Financial System, particularly the risks poised to the US taxpayer.

Source: http://blogs.ft.com/money-supply/2011/03/31/who-used-the-feds-discount-window/

For a broader overview click 
> http://www.bloomberg.com/news/2011-04-01/foreign-banks-tapped-fed-s-lifeline-most-as-bernanke-kept-borrowers-secret.html

Nigeria Elections 2011

On April 2nd, Nigeria begins a two week process of national elections concluding on April 16th. 


The elections take place in three stages. 

1. The first stage begins with the election of a National Assembly
2. Secondly, a week later the president is then chosen
3. thirdly, a week after this the election process concludes with the election of 36 national governors.

Source: http://www.ezilon.com/maps/africa/nigeria-maps.html

Nigeria Elections by the numbers (courtesy of the BBC)

• 74 million registered voters
• 360 national assemblies
• 109 senators
• 54 parties contesting the elections
• 36 governors
• 20 presidential candidates

Source: http://www.bbc.co.uk/news/world-africa-12941582

"The People's Democratic Party (PDP) has won all elections since the end of military rule in 1999. It won two-thirds of Nigeria's 36 states last time. But having a southerner - President Goodluck Jonathan - as its candidate in the presidential elections may lose it some votes in the north."

These elections will be dominated by several key issues

• Security will remain the dominant issue as deadly outbreaks of violence have continued to ravish the country since the country returned to a democracy in 1999
• Oil - a significant source of the countries wealth has remained a point of dispute as local people, especially in the Niger Delta want a greater say over how the revenues generated from its natural resources are spent

Source: http://www.bbc.co.uk/news/world-africa-12941582

• Jobs and living standards which has risen up the political agenda as infrastructural development spending as all but disappeared
• Corruption - despite the fact the country is the worlds 6th largest oil producer, selling around 2m barrels a day to the world markets, very little filters down to the wider public
• Despite the country vast natural resources, Nigeria suffers from frequent blackouts eventhough there has been $16bn investment in the countries infrastructure to improve supply. There is still a 96,000MW capacity shortfall.

Hopeful Candidates

• President Goodluck Jonathan of the Ruling People's Democratic Party - Favourite candidate 
• Former military ruler Mahummadu Buhari of the Congress for Progressive Change - previously contested the elections in 2003 and 2007
• Nuhu Ribadu, Former head of the Economic & Financial Crimes Commission is the leader of Action Congress of Nigeria - largest opposition party
• The fourth candidate that realistically stands a chance of winning is Ibrahim Shekarau of the All Peoples Party

[for a detailed analysis of the four candidates mentioned above click on their names for direct link to their campaign websites]

For a complete list of all 20 presidential candidates 

> http://www.inecnigeria.org/candidates-for-presidential-election-2011/ 

For election news updates from the Independent National Electoral Commission click 

> http://www.inecnigeria.org/category/news/elections/

Source: http://www.emnnews.com/2011/03/30/election-2011-updates-nigeria-land-borders-closed-to-curtail-movements/

The entire country has now been put on election footing as the national assembly has now closed all land borders, additionally restrictions have also been put on road traffic movements. The national assembly commented on these measures saying "this is ensure a peaceful and hitch free conduct of the 2011 national assembly elections".