The problem ,apart from financial solutions, needs political Will of the EU as the economies of the EU countries are interlinked and the fact is that some Nations like France, Germany have to bear the cost of PIIGS(Potugal,Italy,Ireland,Greece,and Spain).Let’s see how artificial Union stands up?
Story:
Governments in Athens, Madrid and Lisbon struggled on Friday to quell fears of a looming debt crisis in Europe that is pummeling the euro and rippling across global markets, as authorities vowed to impose fiscal austerity and plug their yawning budget deficits. The problem, however, is that investors don’t appear to believe them.
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/05/AR2010020504411.html?hpid=topnews
Category: Economy
-
Debt crisis unsettles European economy.
-
After Dubai
It is not a question of rich nations going to the aid of troubled nations.It may be their turn tomorrow unless they cut down deficit financing, free sops,conspicuous consumption, encourage savings and make people live within their means.All other steps are temporary.
When it looked as if Dubai would go bust last month, making global financial markets swoon, its wealthy neighboring emirate stepped in and bailed it out with a $10 billion loan. Unfortunately Dubai isn’t the only one teetering on the brink. Greece is also in trouble; so is Ireland. Others could follow. Unless the world’s richest nations come to the rescue of weakened states, the global financial crisis might sprout another leg and stop the nascent recovery in its tracks.Dubai created its problems. The oil-poor emirate borrowed lavishly to pay for a construction binge, and went bust when its housing bubble imploded. Other countries, like Greece and Ireland, are also suffering a hard landing from a decade of debt-fueled profligacy. But there are also innocent bystanders who could be swept away by the financial tide. Government budgets have been battered across the board by the global recession — reducing tax revenues as unemployment insurance and fiscal stimulus measures have increased expenditures. This has reduced governments’ options to fight the continued economic weakness.
The most immediately vulnerable countries are in the European Union. Greece’s budget deficit exploded as recession took its toll, leading to a downgrade of its credit rating and a collapse in the price of its bonds. Ireland’s economy is expected to contract 7.5 percent in 2009, Italy’s 5.1 percent and Spain’s 3.8 percent.
This is a compelling case for the sounder European economies to come to the rescue of their poor neighbors. Statements like the German finance minister’s suggestion that Greece sink or swim alone amount to a shot in the European foot. If Greece were to default on its debts, investors would run from other European countries with low growth and big debts — pushing some of the weaker ones into a crisis of their own.
Growth in these countries is hindered severely by the remarkably strong euro, which has sapped their international competitiveness. With overstretched budgets taking further fiscal stimulus off the table, financial analysts have suggested that nations may be tempted to abandon the euro to achieve growth. Pain is also spreading outside Europe. Rating agencies have downgraded the credit of Mexico, whose budget deficit opened sharply as the economy contracted 7.3 percent last year.
These strains could have deep and lasting repercussions. A breakdown of the euro would be disastrous — sending a potent shock through already jittery financial markets — deepening and extending this worldwide recession. Some observers worry about the secularly tolerant Dubai being driven into the arms of the much more conservative Abu Dhabi. And the world economy is too fragile to withstand another round of careening markets.
We understand that voters in the rich, industrial world might be feeling deep bailout fatigue. Still, bailouts will be necessary. To begin with, the more powerful countries of the European Union — like Germany — must come to the rescue of their weaker neighbors. But other countries, including the United States and China, must stand ready to provide help. It might be expensive. But it would be cheaper than another round of crisis.
http://www.nytimes.com/2010/01/18/opinion/18mon1.html -
Japan’s capsule hotels now coffin-sized homes
Japan-Model of Economic Power house?
Satoshi Miura crawled into his rented room, dropping his bag in the corner. It didn’t take long to get settled — home tonight is a capsule. The rooms are boxes in this capsule hotel about the size of a coffin.
But no matter, says 45-year-old Miura. He’s only there to sleep before looking for work.
For Miura, it has everything he needs for the night: a bed, a TV and radio. At the ground floor there’s a shared bath and sauna.
Most importantly, it’s cheap. The capsules cost about $30 a night. If he had to stay for a month, it would cost $700 to $1000, a housing bargain in Tokyo, ranked by Mercer as the world’s most expensive city.
The cost is why capsule hotels are finding a new resident: the working poor. Once a symbol of Japan’s prosperity, the capsules were built for the businessman who worked too late to catch the train or stayed out drinking all night. At Miura’s capsule hotel this night, there are no successful businessmen renting capsules. Only men like him, people looking for work.
Miura snapped his mobile phone shut, saying he’d just gotten some good news. His temp agency has set him up with a book binding job the next day, which will pay him about $70. That’s enough, Miura says, to buy him another night indoors and a fast food dinner. It’s a cycle Miura has been on for some time. He’s been working steadily since he was 18, primarily in construction jobs.
Despite that, he can’t afford the deposit on an apartment, which is usually thousands of dollars upfront. Japan’s recession last year made finding work even tougher. Japan’s corporations laid off thousands of temporary, part-time workers. These workers, who make up a third of Japan’s workforce, have fewer legal protections than full-time employees. When those temporary workers got fired, says Makoto Kawazoe of the Young Worker’s Union, they lost their homes.
“When people lose their jobs in Japan, they fall into poverty immediately,” says Kawazoe. “Rents are extremely expensive. Due to the lack of affordable housing, underpaid laborers can’t rent a room. They end up homeless, even if they’re working.”
Japan’s new Prime Minister, Yukio Hatoyama, went to visit a government run shelter in the New Year. The shelter opened for a week, to help laborers who can’t find a place to stay during the holidays.
“I want everyone in Japan to have basic living rights guaranteed by our Constitution,” the Prime Minister said in his New Year’s address to the nation. “People want a place to live, they wish to work, but there’s no where to work. I want to build a government this year that supports workers and protects their lives.”
The emergence of the working poor in the world’s second largest economy has shocked a public used to the image of a rich and egalitarian nation with lifetime employment for its workers. The latest figures from the government reports a 15.7 percent poverty rate. Compared to other industrialized nations, the Organisation for Economic Co-operation and Development says Japan ranks fourth, behind Mexico, Turkey and the United States.
“Japan is not a rich country,” says Miura. “There are rich and poor and a great gap between.” -
Avoiding a Japanese Decade-New York Times Edit.
Many points have been left out.
Risk is taken by Banks for large corporations , not for small/individual borrower.If you analyse bad debts , you will find maximum percentage shall be from large/corporate borrowers.Most of the time large corporations are financed based on non economic or financial considerations.
Banks must take reasonable risk in lending to small companies and individuals for it shall generate demand and propel economy.
Cap on income or tax on income beyond a certain ceiling shall prevent social unrest and morally being paid enormous sums as in Banks/corporations is obscene
While lending care also should be taken, whether it be for small or big corporations, in determinig the repayment capacity..
Non Performing Assets should be disposed after 5 years.Story:
Thankfully, 2009 ended better than it began. Economists talk about green shoots of recovery taking hold. Consumer confidence has improved. Equity markets have soared. But for all the progress, the American economy remains extremely vulnerable.To understand those economic risks, it is worth considering Japan’s experience in the 1990s. A bursting housing bubble there sparked a banking crisis that was followed by a decade of economic stagnation.
The Japanese government lacked the resolve to do what was necessary. It failed to fix its banks and stopped its early fiscal stimulus before recovery had taken hold, leaving the economy all too vulnerable to outside shocks, including the Asian currency crisis and the dot-com collapse in 2001. Japan’s annual growth rate — which had averaged 4 percent since 1973 — slowed to less than 1 percent, on average, from 1992 to 2003.
President Obama’s economic advisers have learned from Japan’s experience. But they may not have learned enough. (Certainly Congress has not been paying attention.) If they are not careful, they could end up repeating some of the big mistakes that condemned Japan’s economy to a lost decade.
The green shoots are barely out of the ground and Republicans and conservative Democrats in Congress are already demanding that the administration “do something” to cut the budget gap. We worry that the political drumbeat may be too hard to resist. In 1997, after three years of tepid growth, the Japanese government stopped its stimulus: it raised a consumption tax, ended a temporary income tax cut, increased social security premiums and nipped recovery in the bud.
Japan’s other blunder was its unwillingness to fix its banks. Regulators did not force banks and indebted firms to recognize trillions of yen worth of bad loans. Banks trundled along like zombies, squandering credit to keep insolvent firms on their feet. When the Asian currency crisis hit, many undercapitalized banks toppled over.
The Obama administration has not been quite as forgiving with the banks, but it still has been nowhere near aggressive enough. The regulatory reform meant to curb bankers’ destructive risk-taking is moving at a snail’s pace through Congress. While the Treasury has forced banks to raise capital, many — including some of the largest — remain thinly capitalized and weak.
Banks have been unwilling to sell bad assets and take a loss. They remain stuffed with risky commercial and residential mortgages and consumer debt. Bankers, meanwhile, have made things worse by insisting on paying themselves huge bonuses after profiting so handsomely from the taxpayers’ tolerance and largess.
There are two big problems with that. The bankers’ taste for risk has not been in any way quenched. And the American public is, justifiably, fed up. That means if there is another bank crisis — say when the Federal Reserve takes away the punch bowl of low interest rates — it will be a lot harder to get Congress to approve another bailout, no matter how necessary.
The Obama administration has still done a far better job — up to now — in addressing the crisis than Japan’s governments did. As dismal as 2009 was, it pales when compared with what would have happened without the fiscal stimulus and the Fed’s enormous monetary boost.
The White House is now pushing another mini-stimulus plan for next year. Chances are it will need to do a lot more to push reform and boost the economy. If there is an overarching lesson from Japan’s lost decade, it is that half measures don’t pay.
-
America’s decade of dread
Financial decline of US in this decade is not a sudden one.It is the result of years of faulty planning and lopsided priorities.There used to be a time when middle class moved up the ladder and additional people from middle order still moved up because they had room and Govt. policies stimulated this phenomenon.Now middle class ,having moved up did not pull additional people from the same group nor does the Govt. of any help.;Govt. is busy pampering the already settled neo rich, with an eye only on the stock market, forgetting that stock market participants form only a minuscule of population.Stimulating other sectors more, if not equal to financial sector is called for.
Conspicuous consumption is to be reduced.Use of plastic money is to be discouraged.
Savings is to be promoted by offering incentives.Luxury items are to be taxed.Cap on individual income in Corporate sector is necessary.
Import is to be reduced.Above all live within means and do not live to day as if there is no tomorrow.
Infrastructure outlay must be increased.
This decade began and ended in dread. It began with Wall Street — the World Trade Center — targeted for mass murder. It ends with Main Street fearful and reeling from economic reverses that Wall Street helped create.It was the decade of distraction. While the U.S. economy bubbled and then crumbled, the president for eight of the decade’s 10 years embroiled us in a grudge match with Saddam Hussein and then persisted in throwing lives and money into the chaotic conflict that (as many predicted would happen) ensued. The decline of the American middle class was nowhere on his radar screen.
The stocks bubble of the late 1990s was succeeded by a bubble in housing; these were the engines of our economic growth. America’s production of goods no longer received the level of investment that had made it the engine of our economic growth from the mid-19th century through the 1970s. The change began at the outset of the Reagan years, when the percentage of corporate profits retained for new investment dropped sharply. A report from the International Labor Organization published last week shows where the money went: to shareholder dividends, disproportionately benefiting the wealthy. In the prosperity years of 1946 to 1979, dividends constituted 23 percent of profits. From 1980 to 2008, they constituted 46 percent.
Finance boomed. The gap in annual wages between workers at financial companies and workers at non-financial companies, the ILO reports, grew from $11,000 in 1989 to $40,000 in 2007. The financial sector defended this shift by arguing that it had created many innovative financial products — the very financial products that managed to turn downturn into Great Recession. In an interview in Monday’s Wall Street Journal, former Fed chief Paul Volcker said that he has “found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy.” He went on to say: “All I know is that the economy was rising very nicely in the 1950s and 1960s without all of these innovations.”
The dread in the land today isn’t just a fear of losing your job — or of your spouse, sister, father or child losing his or hers. It’s a fear that America has been hollowed out, that we don’t have a sustainable path back to mass prosperity, let alone to economic preeminence. A poll taken last month for the Council on Foreign Relations (CFR) shows that 44 percent of Americans considered China to be the world’s leading economic power, while just 27 percent thought the United States still held that throne. Such fears can only be intensified by public policies that fail to champion America’s national interests by fostering the flight of investment abroad.
Overcoming some of our national phobia about having an industrial policy, the Obama administration has rightly targeted the renewable energy sector for investment — a long overdue shift back to real, rather than financial, production. But we don’t yet have policies to ensure that the real production we’re fostering is done at home. As Joan Fitzgerald, director of the Law, Policy and Society program at Northeastern University, notes in a recent article, 84 percent of the $1.05 billion in federal clean-energy grants distributed since September has gone to foreign wind turbine manufacturers. Unionized, high-wage Germany and non-unionized, low-wage China both have thriving wind-power industries that profitably export their products to us. We have shunned policies that bolster domestic production, which is why more Americans are betting on China’s economy than on our own.
The problem is that America’s economic elites have thrived on the financialization and globalization of the economy that have caused the incomes of the vast majority of their fellow Americans to stagnate or decline. The insecurity that haunts their compatriots is alien to them. Fully 85 percent of Americans in that CFR-sponsored poll said that protecting U.S. jobs should be a top foreign policy priority, but when the pollsters asked that question of the council’s own members, just 21 percent said that protecting American jobs should be a top concern.
The moral world that we see in that poll is the moral world of Charles Dickens. Of the elite of his day, he wrote in “Bleak House,” “there is much good in it. . . .” But, he continued, “it is a world wrapped up in too much jeweller’s cotton and fine wool, and cannot hear the rushing of the larger worlds, and cannot see them as they circle round the sun. It is a deadened world, and its growth is sometimes unhealthy for want of air.”
America, at the end of this dreadful decade.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121503382.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter
You must be logged in to post a comment.