Tag Archive for finance

Scotland and the Debt Problem

It may be a moot point, in a couple of days time depending on the result of the Scottish referendum, however it represents one of the biggest decisions if they vote yes to independence. The basic premise is that Scotland want to maintain the pound as it’s currency, the UK Government have rejected this. In response Alex Salmond has said that Scotland will renege on it’s share of the UK National debt if they stick to this line.

It’s an interesting gambit, whatever happens a Nation needs to be trusted in order to succeed. Without trust in the financial markets borrowing costs can sky rocket. The National Institute of Economic and Social Research (NIESR) suggested that if Scotland did not honour it’s debt obligations it could cause huge economic problems for them.

The first likely result would be a plummet in the credit rating that Scotland enjoys. This is almost certain to happen simply because it would be one of the first decisions that the new country would take and so it’s trust would be severely affected. This would leave the country unable to raise funds for a decade or more, at a time when the country would desperately need funds to build up it’s own infrastructure.

Whether this situation actually occurs or whether it’s brinkmanship is difficult to say. But most economic predictions suggest that Scotland would be a lot more expensive place to live at least for a few decades. The issue is that smaller economies have to pay higher costs simply due to economies of scale plus the huge rise in uncertainty in almost every area of life. Where do Scots get a passport, how do they pay their taxes, how do they tax their cars are just a small selection of the challenges that will be faced.

This will also be combined with reduced investment due to this uncertainty, higher costs in association with credit cards, food bills, and things like insurance and pension costs. There are probably thousands of other small challenges that will need to be faced, things like replacing the national broadcaster – the BBC and you won’t even be able to watch online without using a Smart DNS service or something similar.

The situation will be very similar to that of the Canadian and US border where you cannot access the other TV channels online when you happen to drift across a few mile. They are two different countries and although there’s no real physical barrier, if you connect from an independent Scotland you will need to change your IP address if you want to access any UK resources.

Canada’s Economy Restrained by Consumer Debt Levels

Consumer spending is restrained by a cooling housing marketplace and under performs the USA mainly due to large household debt amounts and Canada’s economic system will develop only modestly over the following two years, a Reuters survey found.

Those forecasting are virtually unchanged from January’s survey and lower than outlooks for the USA, which will be anticipated to increase 2.7% in 2014 and 3% in 2015.

Economists decreased their outlook for annualized increase in the 1st quarter of the year to 1.7% from 2.2% in January’s survey. Predictions for the remaining quarters of the year and the 1st half of next yr were virtually unchanged.

National demand, and in change, consumer outlay, has been among the significant reasons why Canada’s market recovered more rapidly in the monetary disaster than the USA.

That need was mainly a result of a housing boom, that has been fuelled by record-low borrowing expenses. Unlike in the USA, which endured a punishing house market crash, Canada’s home market has moved in a straight-line up for a long time.

But the home marketplace is now cooling-down, and a couple of market watchers remain worried about threats of an US-fashion crash. Along with high-flown home debt degrees, that’s created the Canadian customer more careful about disbursement.

Truly, Canada’s disposable home debt-to-earnings ratio reaches a close-record-high of 164.0%. By comparison, U.S. families reduced their indebtedness in the aftermath of the crash.

Economists in Wednesday’s survey anticipate Canada’s home market to continue to great.

Prognosticators anticipate that amount to fall farther to 172,000 houses next yr, compared with the 180,200 forecast three months past.

Canadian housing starts reached a yearly pace of over 200,000 in the price-fueled growth that adopted the monetary disaster.

Nevertheless, the majority are perhaps not worried about an out right crash.

“We nevertheless view that as a low chance threat now.

A substantial increase in the Bank of Canada’s key interest in the present 1.00% and a surprising fall in job would be two causes, Issa included. He does not anticipate either to occur.

Rising prices will climb up to 1.9% next yr, a contact away from the reserve bank’s 2 percent goal, the survey revealed. Nevertheless, another survey taken before this month discovered the banking isn’t likely to raise its key interest rate until the 3rd quarter of next yr.

Obviously this is just a basic economic summary and for up to date information on the Canadian economy, it’s best to check out the local TV and media sites.  To watch the main TV stations if you’re based outside Canada will require a proxy server to access them – you can find one here.

The greatest prospect for the Canadian market is an exporter resurrection, which will be anticipated to happen over the following two years as more powerful U.S. economic growth prospects to increased need for Canadian products – including electricity, automotive and mineral exports.

New governor of the Bank of England Mark Carney

A poorer Canadian dollar may also help by fostering exporters’ revenue in local currency periods. A Reuters survey ran early this month identified foreign trade strategists anticipate the money to weaken over the next 1 2 or even 3 months.

HIPC – Heavily Indebted Poor Countries Initiative

Way back in 1996 the IMF launched an initiative together with the World Bank. It’s aim was to ensure that no country faced a debt burden that it would be unable to manage.  Since that date it has worked with  the financial community on a global level to reduce debts in poor countries to sustainable levels.  Some may think it is unfortunate  that the rich countries were not included in this initiative of debt reduction.

The whole initiative was reviewed in 1999 and improvements were made based on experience.  This was then supplemented in 2005 when the HIPC was supplemented by more acronyms – the MDRI (Multilateral Debt Relief Initiative).  This actually allowed a country to get relief of 100% of it’s debts from funds controlled by the IMF, the World Bank and the African Development Fund.

The conditions for eligibility were as follows –

  1.  be eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at subsidized rates.
  2. face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms.
  3. have established a track record of reform and sound policies through IMF- and World Bank supported programs
  4. have developed a poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country.

It’s good news really as out of the 39 countries eligible or close for HIPC aid currently 34 are receiving full debt relief. Several are coming close to achieving their debt relief criteria and decisions are pending. There are still many issues in some of these countries regarding human rights but poverty is likely to act as a barrier to solving these.  It is advised in many of these countries to use a fake IP address ( check here for some advice – http://www.theninjaproxy.org/tv/a-fake-uk-ip-address/ ) when visiting as their ISPs are often heavily logged or filtered.

This is particularly one area that developing countries should focus on as the internet offers employment and entrepreneurial opportunities for lots of the population when the infrastructure is improved.

Latest on the Greek Debt Crisis

If you want decent, impartial advice regarding the European Debt crisis then you won’t go far wrong with the BBC.  I was able to catch Robert Pestons excellent documentary last week – “The Great Euro Crash’.  Incidentally other people have asked how I am able to watch BBC shows online when I’m in Turkey and the answer is that I use one of these security proxies to hide my location – the one I use is here.

ipad VPN

The crux of the problem seemed to be not specifically the Greece leaving  the Euro, but rather what would follow it.  Once one country has left an Exit sign is displayed to the others who are being crippled by sovereign debt.  Also the idea that debts can be avoided like this will lead to instability in the banking sector especially when individuals start to withdraw huge amounts of cash from their accounts.

If Greece renaged on it’s debts, then people would start to look expectantly at other countries in crisis like Spain, Italy and Portugal. Individuals and companies would get nervous and start to withdraw their money and transfer to safer banks in different countries.  A perception of financial weakness will soon become very real and the banks in these countries would come under enormous pressure.  These of course are financial institutions who are already under severe stress from billions in bad debts.

Without some serious lending by the European Central Bank, any Greek departure from the Euro would likely see the very existence of several large European banks put into question.  Anyway if you want you can still pick up this fascinating documentary on the BBC Iplayer.  It should be available for another week or so and the ’Great Euro Crash’ is certainly worth a viewing.