European Union: On Stranger Tides

With the climate getting even bleaker and the Greece moving forward to an evident default, it becomes even more important, to assess the situation and see how it is going to change the world. The entire European Union stands on solid tectonic plates, where small ripples have started to appear. Recent outburst of Dexia is a mere upstart of what the entire banking system is going to unleash. The story is not from another world but looks so much similar, of how it began when the subprime mortgages refused to payback any returns back in 2008.

It is evident that the liquidity in Greece is going to dry up in November. An evident default has been predicted. What we are left with is how the exposure would spread into the other Eurozone economies. Even after the second round of bailouts through France and Germany the situations have not showed any form of improvement. Today the lenders are demanding a premium of nearly 22 percent on the Greek bonds of the same nature as those of Germanic origin. There is no way possible to pump in more capital into the system. The outcome of the lack of liquidity is what is very much visible at Dexia.

Dexia is Belgium- French based financial institution. Post a government bailout in 2008 due to the subprime crisis, Dexia came to be owned primarily by the French and the Belgium government. However the contagion in the European Union, over the banking crisis has forced Dexia to ask the government for help. The crisis and the fear over a total default in Greece, has forced people to pull out assets and driven the short term lending of the banks to the ground. The short term lending in Dexia was used to finance long term bonds to match both ends. However the evaporating liquidity has turned the tables.

Bailing out the bank was a good option; however currently there are a string of infected lenders, thus it seems quite evident that the decisions would have to be more unbiased. Dexia owns around 520 billion Euros in assets out of which 200 billion are supposed to turn out bad. The size of the bank is nearly twice the size of Greek economy no less. As the decision was taken to restructure the bank a number of implications could be drawn out of it judging by the mindset of the board. The lenders board has decided to tear up the entire bank and create a troubled section that would default. Its 200 billion of bad debt has been decided to put under an entity which they called a ‘bad bank’. These measures rhetorically speak of the confusion afloat.

The French and the Belgium based units rushed into claim their own working units. It may look like a relief to prevent contagion but the exposure of all entities is so much embedded into each other that at one point the bubble is going to burst. On the larger scale, the eyes are however, fixed on the decision made by the Sarkozy and Merkel duo to solve the ongoing problem. Merkel is no longer a favourite player in German politics. Due to the repetitive bailout sessions the Germans are getting indifferent over the issue that why are they overtaxed to bailout the Greek economy. The bailout may sound quite reasonable; however in reality it is very difficult to make a commoner digest the fact.

On the other hand the French economy not very sound still commands a lot of voice in the European Union. Both of the members have to decide how they are going to take the future of the crisis forward. European Union Financial Stability was a SPV created last year. The EUFS was supposed to derive its liquidity through the financed capital from the member countries. There is a clause that states that it could loan out cash to the tune of 440 billion Euros in case of crisis to AAA credited bonds. Though the Greek bonds may no longer be high on Moody’s opinion however en-cashing this facility may be a way to go. However the system still has several constraints.

Due to the constricted market the Germans are sceptical whether they would ever be able to redeem the bailout because after all they would be the chief financiers. The French on the contrary are quite forceful on the matter to use the money right now. A bailout seems a more favourable outcome that facing austerity measures for them. The English riots are a visual example of how bad the backbone crush of the West over which the Sun supposedly smiled.

The only king maker left in market is none other than the China itself. It has foreign reserves to the tune of trillions of dollars and everyone knows in secret it is buying up bonds. China today fashions the name of the key market player not because it wants it but rather because it needs it. The survival of the West and East is so much entwined into each other that a collapse might send every other economy to the dogs. The entire buyer seller chain depends whether the China would be able sell enough to the West when they get the money that it has used to loan out to them. Thus all eyes are on this player whether it would actually be able to make it or let it fall.

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Brazil On Elections

Democracy sometimes takes people by surprise how is surpasses its own principles and converts a people led government into a totalitarian anarchy. The power is democracy is seldom heard without the onset and control of corruption, unemployment, nepotism and many similar shortcomings. However the Lula da Lula government in Brazil is a staggering example of a sufficient and a successful democratic government. Eight years hence he is stepping down from his thrown not because the people have chosen so but because there is no clause within the constitution that can help his stay elected any further. With the first week of October gearing up Brazil one of biggest economies, a part of the BRIC goes to polls on 3rd October.

On the table we have a Lula’s Representative Dilma Rousseff contesting and on the stake is the government of Brazil. Brazil has become one of the most talked about nation in the past decade. Apart from being called as part of the most promising economy of the future it was one of the last to have gone in to recession and one of the first to come out. With the recent finding of the coast of Brazil large amount of oil reserves it seems soon the country can become the power house of the world. However recent claims regarding the faulty Macondo British petroleum disaster all eyes are right now pinned how would this country fair in the future.

Till now the prospects of the country has been beautiful. Lula had run an efficient government when the entire economy was plagued with corruption and mal practices. His entire eight year period composed of tightening of the government control over the life of poor individual. He tried to provide them with a standard living and pull them out of the vicious circle of poverty. Today there are more than twenty million people who have emerged making Brazil more of middle class economy. People today have high self esteem, global recognition, strong financial policies, an apt export driven economy and education facilities. But following the change of power people are speculating on what would be the new.

The current sentiments of the people completely lie with Dilma Rousseff who was selected by Lula himself. She was his Secretary of State. There have been many negative reports doing round regarding her association with some influence peddling scams but most of it has not been proved or dismantled over Lula’s credibility. She on the hand faces an interesting term if she will be elected. Lula had controlled much of the poverty that has attracted a lot of foreign investors into the country. As a result today Dilma faces much different challenges than her guardian. There is an outburst of foreign money in Brazil and scope of multi faceted development.

For the start she has to get off Lula’s cover. People today in Brazil relate to her through Lula. Hence it would be important for her to take to create her own image before taking a stand. Apart from that as said corruption is an important part of a democratic economy. Brazil is no different. Lula has devised a number of measures which strengthened the grip of the government on the corruption but in his absence how much liable the measures would be no one knows. With the current trend of the over dependence of Dilma on Lula things may not go correct.

It is not in my saying that Dilma may be inefficient but circumstantially she has to come out with Lula and speak. Recent trend in the foreign policy of Brazil has been quiet complicated. Brazil does not see an eye to the United States on several issues. The seat at Brazil hold a firm government in the Western Hemisphere but its recent support to the Honduras President who was removed with American intervention does not take Brazil to the America’s good books. Added to this Lula was also accused of having a particular dangerous inclination towards Mahmoud Ahmadinejad the Iranian president. It was only a few months back when a cover over a secret meeting was blown off where in the domestic nuclear capability and support of Iran was discussed between Brazil, turkey and Iran. Following the coup in Ecuador there is going to be lot of heated discussion on how would Brazil react. It may not be in the direct league of Chavez but definitely does not believe in American strategies as well.

Thus we come to conclude by asking whether Dilma would fare the situation or not. The recent findings of the oil have been put to an investment of 67 USD with a company called Petrobars. Post the oil spill in the Gulf of Mexico the government has decided to take care of most of the activities by their out. Public share were recently released. However with democracy comes corruption. With huge amount of money on stake how would the government be liable to all this is a question the future will tell? Before the election we can only judge by the sentiments. With so much public money, foreign investment and a proposed oil power house of the world involved we need measures and a public opinion that could take the legacy that has been going in Brazil for the past eight years. It worked before, it might work again.

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Sudan in for split up.

If more or less the bearings move fine we might end up with a new nation next year as the Sudanese Empire would split up into a northern and a southern part. The news comes into light post a referendum that was released after a peace agreement was reached to end the bloody civil war that ate up the country from 1983 to 2005. Signed in 2005 between Omar al- Bashir the dictatorial ruler of the North Sudan and Sudan People’s Liberation Movement/ Army (SPLM/A) it was decided by the Northern government to give up the control of the Southern part if a majority of the southern origin opt out to .

The history of Sudan has been written more or less in blood with a civil war going on right since it got itself independence from an Egyptian rule in 1956. Two simultaneous civil wars have since then plagued the country and left the public in much of scarce. Added to this the country has also sought much pains in territorial conflicts with neighbouring countries of Kenya and Uganda. International perception of Sudan has deteriorated more or less because of President Omar al- Bashir who has been Sudanese head since 1989 and practiced the worst kind of atrocities over there. He is famously known to have negotiated the referendum of whose outcome would the world is eagerly waiting for.

Omar al-Bashir led a blood fight military coup in 1989 when the government was severed and he rose to power. Following the coup the Sudan has participated in repetitive genocides and rampant atrocities due to which it has been named as a troubled state by the United States. Sudan was declared meanwhile a totalitarian Arabic Islam state irrespective of a Christian minority which are a part of Southern Sudan. Interesting Omar al- Bashir is supposed to be the first state head to have ever been issued a warrant in the International Court of Justice for crimes against humanity and war crimes in Darfur, another troubled region in West Sudan. However his negotiation over the referendum seems a little out of place. As the deadly civil war swept through eating most of what was Southern Sudan al- Bashir negotiated an agreement according to which an election in 2011 January would decide if the Southern Sudan would accede its independence.

The agreement was between the President and SPLM, a separatist rebel group which was given a part after 2005 to run the Southern Sudan under the reign of al- Bashir before till it reaches independence. The referendum was an intelligent step at that time but today with the international media it poses a huge threat to the division of the state. In speech it might be a lot easier to scrap of a piece of land and divide a map into two but in reality there are a number of factors attached to it. Southern Sudan was more or less a provincial Christian dominated region. However constant wars and refugee resettlements over decade has dissolved the old definition of the south. The area has transformed more or less in to a nomadic region of refugees with no proper financial, cultural and situational control. Out of the eight million people who go for voting including the southern settlers in the north five million people are parts of the nomadic tribes. Economically Sudan speaks for itself. Its per capita income lies somewhere close to 1.24 USD per day. In the south some 85% of the people cannot write and it has the world’s largest mortality rates. Most of the population is still dependent on American dropped refugee food packages for survival.

The referendum has seriously opened a number of opportunities for the Southern Sudanese to develop but is simultaneously posing a number of excruciating problems. The division would mean division of debt and all standing assets. Being in the backyard till now, it would be an outstanding moment for the South Sudanese but not for long. The weakness in education is surely going to show signs. However the North part is going to lose more. The Northern Sudan thrived over the oil assets of Sudan and the division would mean a division of all assets. This would cut out the North from a substantial amount of financial assets.

Henceforth the referendum is fiction till a proper voting takes place. Post the independence years it was in 2010 when the first time an elected parliament of Omar al- Bashir formed. Even though it was charged with practicing fraudulent methods during elections, the outcome was accepted. Following continued pressure from US and UNO an election was announced in January with requirement initially 75% but later reduced to 60% for succession into a new state. The North is going to lose more once the division takes place. Sudanese government has already made a heap of enemies all around and ripping of its resources would increase its vulnerability. How the South would cope if ever it is minted into a new state the future would tell. Till that time everyone is wondering whether this is mere eyewash or al-Bashir has finally come to his senses.

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Sparking Yen

There have much of the sparks flowing between two of the biggest Asian economies recently. Owing to the financial hassle today more or less survival has become the basis to move on and all of the economies are struggling to do that. As most of the economies are keeping their currencies exceptionally undervalued to boost exports and make imports costly the question remain who ultimately will buy ? Since everyone is following the same, and is ready to sell, but no one is in, to buy it is difficult to predict the future.

Added to the situational paradox, there are financial hassles and problems where the economies are fighting with each other to survive. Chinese recently, started buying large chunks of yen from the market to push their values up. China and Japan both run an export driven economy and sustain it through artificial exchange rate manipulation. Recently as China released its grip over its currency by nearly 2% many of the international currencies like Yen have started threatening its market. This has led China to buy up large chunks of Japanese money to push their values up.

As the Japanese currency went up it might have benefited the Chinese, as the Americans now found it better to buy from China than Japan but it started hurting the Yen trade. For the past one month the value of the Japanese currency has been high and large amounts of its trade is being affected by it. Starting from a value close to 100 yen per dollar last year, it went down to a 15 year lowest value at 83. Japanese trade was literally wiped out as it continued to strengthen against the dollar.

As a result the Bank of Japan last week released a buffer package to cushion the deadly cycle that was troubling its trade. An amount to the tune of nearly 20 billion USD worth of Yen was released in the market last week to buy American treasury bonds to depreciate the value of Yen. Americans had till now been very concerned about the Chinese artificial manipulation but this is the first time a similar story related to Japan is coming out.

With such huge rate manipulations going around today, this does not seems to be a really big thing. But the question is would be a long term benefit? Obviously not. Likewise China, Japan will now have to keep buying American treasury bonds on a regular basis to keep the exchange rate fixed. Regarding benefitting this is just going to be a minute long story. Japan has used to artificially boost its exports for a very short period of time whose tunes are going to die very soon. It may affect Chinese sales to a certain limit but not to a larger extent. The main impact would be seen in a short while on how the Japanese government fairs in its own policies. On one side it is facing deflationary circumstances and huge unemployment and on the other hand a competent stage. The economics of the Japanese industries has still not left behind recession made bruises, and the country is diluting the currency to keep itself in a selling posture, but what will you give to your citizens when they are spending more to make something which you are deliberately trying to sell cheaply internationally.

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Decision Indecision

Much of banking supervision that is exercised today is what was decided by Basel Accord developed in 1988 by the Bank of International Settlements. The accord was announced to control the risky banking services that are heavily prevalent and some way or the other affects all the economies of the world.

The entire cycle of boom and burst is a near fourteen year cycle which if properly analysed could be predicted before occurrence. The cycle completely relies of the numbers of defaulters that grow year after year up to the point when their number actually leads the economies into recession. This theoretic assumption has no buffer to define the mercenary attitude of banks or any such financial activities that have been the prime causes of recession. There is no account given to the messy governmental policies or the new instruments that companies tend to launch each year which one way or the other affect everyone. Interestingly these instruments make the effects of the scenario even more ramified and insoluble.

On going by the book the next big market crash is delayed up till 2014 if all goes well, but this is usually not the case. There are still situational faults attached. Who would have though once so regal Mortgage Based Securities would hamper the world economy so much that giants like AIG would have to settle as a public owned body? The end point of the situation is what comes around goes around. As a result in light of the market crashes since 1988 the bank of international Settlements has been framing rules to contain what little it can the reckless nature of the banks. Baking institutions however have always found a way to get through the situation, thus it goes with the saying that every time the rules are going to be broken and more or less the public end up suffering.

Beginning with the latest Basel Committee meeting that was organised by BIS at Switzerland, there economist from the G20 nations decided over the future of banking regulations. There were some very interesting clauses that were added to the accord. The banks do not hold the practice of holding large chunks of cash with themselves because cash in circulation can only bring returns. Stagnant cash is like money in vain. The amount of money held in liquid form by the bank is defined by the capital adequacy ratio.

Capital adequacy ratio is supposed to be the amount of cash that the banks own at any point of time divided by the entire amount of the risky assets. The definition of the money that banks own is defined by the types of ownership rights the share owners have on the bank. There are some shares that have ownership rights (tier I) i.e. you literally own some part of the bank and some that only pays you dividends (tier 2). When the bank is being foreclosed it is this capital that banks own is used to pay out the public who had invested.

Previously the definition of the capital adequacy definition was somewhat faulty. The definition was tightened by keeping the numerator restricted to only tier I and increasing it to 4.5% by 2015 and another 2.5% later to bring a total of 7%. Previously the calculation the ratio was carried out by considering both tier I and tier 2 assets. So when Basel II had decided to keep the sum of tier I + tier II at 8% due to banking instruments the ratio was a mere 1.6%. The banks had brought up a new instrument called credit default swap where betting on the securities they were selling helped them achieve a capital ratio of 8% by a mere holdings of 1.6%.

Apart from tightening the cash held by the banks provisions for countercyclic buffers have been initiated. The main objective of the countercyclic buffers is to neutralise whatever peaks the wavy nature of economic boom and burst takes. How we are able to control any further financial earthquakes it is difficult to predict. The Basel Committee has definitely tried to fill the void which has been one of the chief reasons for the wipe out of all the assets that banks previously controlled. Previously banks did not keep to themselves any money but put all in circulation. This was a very risky mal practice and the result is very much evident. However how the future banking functionalities turn out, let us wait and see. Human mind has seldom learnt anything from mistakes and it usually finds repenting much better than to try effectuating caution beforehand. Control is decisive when the control is welcome and not when it is forced upon.

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Protectionism Eat Out

Even though the global meltdown has left us two years ago, steady growth rates in any of the major economies still seem like a bleak opportunity. Countries which previously boasted of their mercantilism and free trade today have shrunk to the levels of protectionism. Previously America used to blame China for the same but today even America is practicing more or less the same. Heavy tariffs and import substitution through indigenous growth is hurting severely many of the emerging economies. The list includes the likes of India, China, and Brazil etc who along with materials also export services. The IT industry in India is down, situation at Bangalore looks gloomy and it would continue if against a democratic stalemate in the US, Obama would trade Indian outsourced jobs.

Protectionism is word that was coined at the time of Adam Smith when communities started imposing additional tariffs on goods that were brought in from other places or imported. The basic objective of the polity was to keep indigenous industries moving and to prevent any form of competitive heat it might feel at the hands of imports. Before the 2008 financial earthquake there were very few names on the table that used such measures to grow. Fingers were always pointed out to China which manipulated the exchange rate mechanism to increase exports and control imports.

China had the problem to feed its ever increasing problem and presence of a competition in its own market would have led to two problems: it would have to fight to feed its own people and the standard of living of the people would increase which is a negative sign when the government is fascist or communist. This was why is resorted to protectionist measures. Coming to today, various economies have taken to protectionism post the global meltdown. The question that is to answer is who is going to be benefitted from all this. Protectionism more or less works like a vicious circle in which government bodies enter in to control the system stability.

Suppose a nation tries to stop any form of imports but keeps on increasing exports to increase income, as is the case of all nations practicing the same, what will be the end like. If everybody wants to sell, and no one wants to buy, ultimately prices will slide. It is universal truth that ultimately the controlling behaviour will lead the customers back to a meltdown. Today most scrutinised and world leaders are leading the way to protectionism. They are definitely going to eat their way into the plates of developing economies.

Nearly 17 out the G 20 nations are imposing heavy tariffs on the countries with which they previously had study trade relations. Much of the services sector in most of the companies is on the rocks. It is not that protectionism is not good or indigenous growth should not be provoked but the gap in the plan is that it constricts free trade. Trade is an option to a business when it is ripe of fit to trade. Cases are coming where the quality of services and goods are going down with the protectionist ideology due to lack of competition.

Analysts like Alan Greenspan and Paul Krugman have been world champions against the practices of protectionism. German Chancellor keeps arguing how the world has submerged into debt. She keeps on telling how the world should and revive through free trade and build up of policies that would benefit both indigenous and foreign entities. However in a way she never acknowledges how Germany has fuelled the latest European financial breakdown. The cheap tax free export oriented German methods have made the entire European Union depended much on whatever it produces.

This has led to what we call a one sided cycle where in countries like Greece and Spain are taking loans from German banks to pay off on good brought from Germany itself and when they spiral into a debt closure they eventually end up paying the loans through debt issued by Germany itself.

Playing politics on the propriety is Obama who is gliding himself through the situation. First the American government through repetitive global pressure has forced volatility in Yuan exchange rates and made Chinese made goods finally a little costly. Added to this he is advocating his own people before the November polls by putting on trade restrictions on many Indian exported services. Lots of BPOs are going to go under the axe ones America decides to do all of it itself. There is little what we can see about the future but artificial impregnations in to the financial build up has always triggered fiscal pandemonium and each time a more striking one.

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A current debate is going on regarding deregulation of the prices of petrol, diesel and other fuels. Our petroleum minister argues that this deregulation is best suited or the economy, our prime minister remarks that this policy is in the best interests of the people our country but is it only I or even you are alien to the benefits that our politicians claim to shower on us.

What exactly is deregulation? Deregulation is the euphemism for “I don’t give a shit to what happens to the economic situation of the common man”. It simply takes off subsidies from the spectrum of fuels. Many experts argue that deregulation is a strong statement towards building of a stronger economy and setting fuel prices free, that is they should depend openly on the crude oil price in the world.

Do you think this policy would ever work for us? The petroleum prices in India are heavily subsidized. The money spent by the government to control the prices is huge and without that support the entire working class would suffer like hell. The prices would rise exponentially and the automobile industry would spiral down as the petrol would become dearer. And in times when we are not even sure whether the recession has receded and we are out making policies that are trying to curb public spending. Are we ready to risk market destabilization at the cost of a better tomorrow when the tomorrow is still too bleak to appear?

I ask how the government dare even think to deregulate the petrol prices when it cannot assure stability and provide the people what seems to be their due. Every day our politician promise and proclaim that the food inflation would cool off soon, but could anybody explain me the mathematics which could justify these blatant lies. If you increase the price of petrol you directly increase the transportation cost, and when transportation costs increases the food prices go up as transportation is the only means to provide food to the consumer.

I think that now even a simple calculation could show that in the near future food inflation has a good possibility to go further up rather than going down. You see how all policies and benefits are entwined to make the system complex and people dependent on the government and then leaving them starving for more when they most require help. Policies help people but they should be controlled and withdrawn at time when the situation is ripe and not when the public is itself crying on the roadside for support.

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NOKIA - A Finnish Default

There is always an advantage attached to whoever enters the market first. Even if the beginning is great the rules do not end there, because the game does not end there. The main rule of the game always falls back upon who defends and play it well. Cases where in the market is mature and innovation is the basic perquisite but it becomes even more difficult to consolidate position when you know you can be outwitted any time. Mobile phone manufacturing today has become one of the most horrendous markets today. There is cutthroat competition with smaller brands entering day to day challenging propriety. Each brand has a charisma of its own. There is some new added addendums and stereotypical features and benefit in every set at much cheaper rates. Forget about brand differentiation, the mobility of the mobile industry has become more of a process and application based warfare. You got something new? The one who offers more gets more. In short what is important to the mobile market today is to innovate and stay up to dated with technology.

If it is only twitter it would not work. People want to tweet and facebooking side by side but they would love if you could YouTube along with. If we go by the tales Nokia is assumed to be the world power in the mobile manufacturing business. It was one of the companies that controlled the world by taking on the wireless network. What fun. The mere beauty of the mobile handsets is its sleek body that has been so dynamic since 1990s since it was first launched. The mobiles were first introduced by NOKIA which turned out to be one for the biggest global companies in 1990. With revenues increasing multifold in multiples of five in the first decade itself NOKIA was a promise to the future. With its 1100 it revolutionised of how people talk and look at communication. There were no lines no connection but people at opposite side of the world could actually talk. NOKIA did it all. In 2005 when it sold its 1 millionth customer a 1100 handset it proved itself to enjoy a Sun that would never set.

However time has reaped some added difficulties in NOKIA. This Finland based company is still number one in sales and manufacturing but the problem inherently lies in its inability to contain competition. By far entering a market is a lesson best learned from NOKIA but considering its current situation problems that have arose recently NOKIA seems to be in some trouble. It announced on its September 10th report its appointment of first non Finnish CEO that tells a lot about how desperately the company wants to get back on track.

NOKIA still has the tune of nearly one third global sales but today Korea based Samsung, Research In Motion made Blackberry and many other big and small brands in their area of operation are building huge performance concerns to NOKIA. Problem with NOKIA owe to the fact that, it has resumed nearing nil innovation in its initial decade of operation. This has incentivised many other manufacturers to enter. Consider the Apple’s iphone itself brought down the sales of NOKIA by nearly 49% in Western markets. NOKIA never tried to look after what was happening with headsets. From mere telephonic devices these phones were developing into computing and social networking devices. They were not merely devices that were used to communicate; they started becoming part of the human lives and this innovation NOKIA lacked. Its criteria to provide a telephonic base limited its growth and paved the way for intelligent competitor to question such a big giant.

How the situation intensified was even more interesting. With NOKIA fully aware of how computing and technology was merging through online operation on cell phones through camera, video, twitter facebook and YouTube NOKIA never tried to question its own beliefs. The problems of this disaster were evident with Sweden based Ericsson making big moves earlier in the sector but NOKIA too confident made no move to correct it. They were too sure of their own capability as a handset provider.

Furthermore another major drawback associated with NOKIA is cited to be its positioning. For banking if we go to Wall Street or Switzerland and for manufacturing France or Landon but we would never go to Finland for cell phones. Finland was definitely an odd choice for a cell phone manufacturer who wanted to make a global impact. When the market demands technology you need to make yourself in accordance with them push yourself to locations that might suit your users. It was in propriety of NOKIA to settle offshore as late as 2000. No innovation and wrong placement in its second decade eventually curtailed its growth. Even though it has brought in new features recently but its initial mistakes has let others enter the market which otherwise would not have been possible.
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Sickest Man of the Euro

The financial meltdown might have tumbled many of the largest Wall Streeters but has left a big mark on those who had no otherwise bailing out scheme.

There have been many positions that were left highly vulnerable to the slowdown and even after the collapse of the system the recovery is crippled. Even as we aggrandize the position of the Western colonial powers since the advent of the twentieth century and how they drove the making of the world map the real West can never be forgotten even if they stand in ashes. Past the world wars this great recession has nailed in the final jolt in the coffin of the likes of Portugal, Spain, Greece and Italy. PIGS as they are called are running high deficits and running a crunchy economic system which is bound to spread over the entire Euro area.

On an apt scale if the entire European Market is analysed it can be conferred that neither of the old financial monarch is stable enough to control market sentiments and countries like Italy are running huge deficit which control more than ten percent of the European market. Added to the fact is the sick man of Europe himself the illustrious United Kingdom that stands over a staggering 167 billion USD of deficit with no clear picture from the government side how is it going to undo it.

It is like a rain in the sunny shadows that country of the like Britain might turn up the de-accelerating machine of the European Union. With Germany adamant and still confused to handle the debt of Greece and the topic is in discussion since December what would be the case if Italy defaults or maybe United Kingdom. The financial meltdown has certainly brought in the descent of the West and the resurgence of the East but overlooked what has all went down in the process.

It has been nearly three years when the bubble has started appearing in the housing market that lead to the huge spat on the market but all this time since lots has changed around. The recession that came in Britain was by far less severe than what happened in Germany or Japan but its after effects and the its foothold there has definitely been steady. How do we account for a recovery if a 6.2 percent of negative growth still sustains in this region.

The main flaw in the British system is cited in its prolonged earmarked methods of moral descent. Its vulnerability is explained by its huge spending measures undertaken by the last Gordon regime which nobody has been able to curb or show any control on. Gordon Brown assumed the British economy worked more or less like a compressed rubber. It was bound to regain back its original stature once it lost its flow. This however was not the case.

Even since the European Stirling was brought out of the European Research Mechanism ( ERM ) in 1992 that curbed its control of Germanic money flow and made it an independent entity it suffered a downturn but has been growing ever since. The growth of the British currency has been such that the government has been taking debt on the counter. The only reason that can be figured out is that the high profligacy and over optimism of the Gordon regime has pulled the British economy deeper into the debt. The height of misleading financial growth and selling of bonds to control debt has led to a staggering deficit which the government is finding very difficult to contain.

The budget deficit amount is the highest in the G 20 nations and as elucidated that the recession was not severe in United Kingdom. The Sterling has fallen to one fourth of its value since it all began and has not regained its original strength. The economy has contracted by around 6 percent by the end of 2009 in six fiscal quarters so the path is more or less bleak for economic cauldron.

This British exuberance has led to an over indebted private sector, over extended investment banks and overweighed public sector. All three of them created more or less due to this over optimistic attitude of the government. They have extended the nation debt and brought in all the public sector companies under the scanner, the high investment activities curbed the fiscal flow after the recession leading to their bailout and the slumping consumption is affecting private growth. In short the British are spending more than what they are gaining and the gap is widening exponentially.

At the moment the gap is like for every four pieces spent three pieces are earned. The equation is nothing close to equality. The polls are getting closure and the economic position of England is showing no growth. As I said the Stirling has been continuing loosing value but it is not able to cash upon this loss. Due to the market slump and curbed spending people are not in a mood to eat.

Therefore even after being such a resourceful manufacturer, the world’s sixth largest manufacturer it is not able to spend able to earn a dime over its deficit. People are not ready to buy anything and hence the slump is continued. The inherent condition of the British economy is that its manufacturing is working recklessly taking money from the market but when it comes to sale the people are not ready to consume because of the meltdown. The recovery of Britain as explained has been the worst. The employment still hangs by a thread and there still not enough money in the system to drive a fruitful change. Even with the government subsidies and policies substantial change has not been able to bring into the system.

The housing subsidies and the stimulus might have reduced the deficit from 178 billion pound to 167 billion pound but still the number is monstrous. As a closing note it would be wrathful adding that Britain goes to polls on May 6 and this would be the first time Liberal Democrats are going to have a say in making of the system. The Gordon Brown has not been able to contain any of the problems put to them and on the contrary the problems have surpassed historic levels.

The situation has gone from bad to worse so the future has no clear mandate. The slogan is real change through hope optimism and tangibility but is not this same attitude that brought down the British economy??

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The Financial Jihad

What with all this bedlam over global slowdown, financial crunch, recession and inflationary trends. Do we have any financial system in place to circumvent such cataclysms? The Islamic banking or the interest free banking can be a serious alternative….

The Islamic Banking is a system of banking which is consistent with the principles of sharia, this branch of economics sprang up in the Islamic Golden Age from 8th-12th A.D. It was an early form of mercantilism. Some of the most innovative concepts of present day financial setup like bills of exchange, partnerships, trusts, startup companies, loaning and ledgers owe it’s origin to this period. Islamic banking made a comeback in Egypt in 1963.

The inimitable feature of Islamic Banking is the zero interest policy. The payment or acceptance of interest fees for the lending and accepting of money respectively (called Riba), is treated as noxious (haram) or against the principles of Sharia. Islamic Banking believes in sharing of profit and loss between the borrower and the investor. So how do they sustain and make profit………

Suppose I want to loan a vehicle then the bank would buy it for me from the seller and instead of charging me interest on that loan would resell it to me at a higher price, the payment of which I have to pay in installments. To bulwark itself against defaults the bank asks for strict collateral. This avoids irresponsible behavior on the part of banks and significantly reduces bad loans thus help in avoiding 2008 like recessions. Sounds simple….right….

What about housing? The Islamic banking forms an entity in partnership with the borrower who would both provide capital for financing the purpose. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank's share of the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party's current equity.

So where does Islamic banking score? When an Islamic bank provides an entrepreneur with venture capital it forms an entity in partnership with him and the capital is provided to the entity at a floating rate of interest. The floating rate of interest is pegged at a companies individual rate of return. The bank’s profit on the loan is equal to a certain percentage of the companies profit, so profit and risk are shared. Such participatory arrangements reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy.

Besides it solves the problem of hyper-inflation as no interest is paid. Let us understand how. In commercial banking procedure the deposit rate is always 5-6% lower than the lending rate which increases the cost of production and thus inflation, moreover these rates do not remain static and deposit rate tries to catch up with inflation which again results in an increase in the lending rate. Therefore in an interest based economy there is secular rise of prices which can be circumvented in the case of Islamic Banking. The Islamic banks have a 100% reserve ratio which avoids bank runs and thus reduces the risk of defaults.

Now let us do some number crunching. Islamic banking though in its embryonic stage is growing at a rate of 10-15% per year and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed and according to Standards & Poor's Ratings Services, the potential market is $4 trillion. A sharia compliant bank in India would have meant investments worth $300 billion from the Middle East and the huge potential of tapping the 150 million strong Indian Muslim population. In the wake of such exorbitant figures, why has the Kerela High Court decreed to stymie our tryst with sharia compliant Islamic bank……

But the High Court of Kerela thinks that having a community specific bank would tarnish India’s secularist credentials and would lead to similar demands by other communities. Besides Islamic banking violates the RBI guidelines set for the banks. Another issue is that Islamic banking does not support some economic activities as cigarette and liquor production, insurance firms, etc also they have limited number of financial instruments.

In spite of these shortcomings policies should be reviewed to incorporate Islamic banking because of the huge opportunities it opens and the alternative it provides to the ‘Casino-Banking’ system of the west.

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Trends keep on changing, whether they may be in clothes, accessories or be it hair styles. New and bizarre ones keep on pouring in everyday and night. The ‘tashan’ factor as we call it, which is the source factor on account of all these changes does not hold exception to it. Bikes, cellphones and a little bit of the smoke and booze add up to the factor. Amongst all these hyped prized possessions, there is another one which can’t be set aside when it comes to flaunting your sophisticated life nowadays.

It is a much more refined way of showing of glitterati in the life of individuals which has taken toll in the recent past few years. ‘The Hookah’ also known as ‘shisha’, an age old traditional possession for smoking tobacco, of our forefathers, which started in India and gained popularity in the middle east, travelled to the states and Europe and became a huge hit. The hookahs were fuelled with burnt cow dung cakes or charcoal, which was placed on top of a container having tobacco. The smoke came through the heating of the tobacco which was cooled and filtered by using water at the bottom.

The new age hookahs as used today in the urban scenario do not use tobacco for its filling but there is only the charcoal and the water which turns to being a flavoured one now. Lots of people think that it might be an answer to their tobacco habit, razing the myth, its very well known that ‘the hookah’ produces much more carbon monoxide as is produced by the cigarettes when consumed in equal proportions.

Moreover the hookah parlours provide a secluded place instead for activities like smoking or drinking, sometimes. Placing all things apart loads of hookah parlours are coming up in the city as the novelty of the rich and fun place for the moderates. These hookah parlours at a few places also provide gathering and celebration joints for students.

Being on the safe side, its also a kind of unidentified mean of preserving of our culture , even it be for smoke. This hookah may be fun and adventurous as it seems but trust me it is injurious to health. Whatever may be the reason ,either it be harmful or, well it can’t be useful for us , its one of the ways to represent the youth culture that our country has been preparing to get into for so many years in an authentic and indigenous style.

It’s a manner to show, as far as there own opinions are considered, that how much we’ve evolved culturally in the past 50 years still keeping it completely ‘desi’.

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Market Seizure.. Updated!!!

US versus China

When last we looked the United States was putting in unwanted pressure on the Chinese architecture and economy wise tightening their claws to curtail whatever money China was earning.

The reality of the truth well on the other side is that China holds such a huge population and pegging itself t the dollar at a constant value since 2008 it has not got many options to enjoy when price modulation is concerned. More or less whatever margin China gets on the goods that is sold is nothing but a meagre 2 percent. This means that in the United States if the bill is passed and the strong regulations are being applies on the Chinese economy then the exporters would be driven to the ground and the cushioning effect that the China had been downplaying since years would be devastated.

United States has a previous experience of such regulation when it has destroyed foreign economies to give boost to internal production. Something of this sort happened in 1990s around when goods that were imported from Japan were made very costly so that the simultaneous American goods can also become competitive.

As can be seen both the House Democrats and the Republicans are fixed on their point to pass the bill as according to them the curtailment of Chinese hands is an important agenda but time will tell what is bound to happen.

With the American economy completely broke and still waging war in Asia and the Middle East it becomes complicated to trust motives when things do tend to seem otherwise too and China vetoing whatever it can with the 54 African votes in the United Nation against any American imposed restrictions in Iran situation is pretty dim.

The situation however becomes even more gruesome with the sudden ascent of Chermany and not in the most positive way. Speaking of intentions some intentions have still not become clear as what the countries exactly want from the on going crisis that is pulling everyone into it.

This is the third time in a row when the fiscal tightening has forced the masses of the Greece on the streets while on the other side more sophisticated European nations are discussing how to do away with the need to sponsor a bailout for the bankrupt nations.

Germanic Intentions

Mr Schäuble, German finance minister addressed his critics by declaring Greece’s crisis had shown it was “obvious” that the 16-nation eurozone’s rules were “incomplete” and unable to deal with situations long thought “inconceivable”.

His argument comes after days of vigorous debate within Germany, and with other European Union partners, with some questioning the timing of the initiative and others the need for an alternative to the International Monetary Fund.

The Bundesbank, Germany’s national central bank, this week signalled its opposition to any proposal that might distract eurozone governments from the more immediate task of bringing Greece’s public finances under control.

Axel Weber, Bundesbank president, described as “not helpful” discussions about the “institutionalisation of emergency help”, which he said could prove “counterproductive” given that eurozone countries were currently helping Greece.

Greece even though being a paramount question need proper thought is saving it worth the cost for Germany.

If we go by the words of Mr Schäuble there can only be one thing that might come out clear and that would be that Germany is looking at options for a safe exit from Euro zone as far as the currency binding is considered while planning a bailout too.

The Boasters

Chermany as has the name been coined denoted the two of the world’s biggest exporters governing whatever the world eats. China and Germany are, of course, very different from each other. Yet, for all their differences, these countries share some characteristics: they are the largest exporters of manufactures, with China now ahead of Germany, they have massive surpluses of saving over investment; and they have huge trade surpluses.

Both also believe that their customers should keep buying, but stop irresponsible borrowing. Since their surpluses entail others’ deficits, this position is incoherent. Surplus countries have to finance those in deficit. If the stock of debt becomes too big, the debtors will default. If so, the vaunted “savings” of surplus countries will prove to have been illusory: vendor finance becomes, after the fact, open export subsidies.

China is already clawing the possibility of financing every spending of USA but considering the consumption of European Union is considered if Germany were to sponsor Greece bailout or for that matter any other bailout it would choose to leave the Union while doing that or force the weak nations to do so.

The situation is like Germany no longer wants to be associated with its weaker counterparts but seriously wants to help them. It is still playing with its cards till the time when the exact structure of European Union future would be decided for that would decide how the pegging of currencies would occur.

The time is like when financing counterparts is more like making them eat more and in doing so fuelling the market of the country itself. A kind of symbiotic foothold so that the eating and consuming cycle goes on, however this complicated cycle of Euro common currency is restraining countries as they are economically pegged to each other.

More to come.........
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