China's Economic Growth Could Be Halved If Euro Woes Deepen: IMF

HONG KONG, Feb 7 Asia Pulse

China's economic growth could be halved this year if ongoing European woes deepen, due to their certain impact on trade and domestic demand of the world's No. 2 economy, the International Monetary Fund (IMF) said Tuesday. 

The IMF's Beijing office said China's growth would fall by around 4 percentage points from the expected 8.25 per cent gross domestic growth (GDP) for 2012 if the global GDP falls by 1.75 percentage points from the expected 3.25 per cent. 

It stressed that the risks to China from Europe are therefore both large and tangible. 

"The global economy is at a precarious stage and downside risks have risen sharply. The most salient risk is from an intensification of feedback loops between sovereign and bank funding pressures in the euro area, resulting in more protracted bank deleveraging and sizable contractions in credit and output in both Europe and elsewhere," the IMF Resident Representative Office in China said in an outlook report. 

"Should such a tail risk of financial volatility emanating from Europe be realized, it would drag China's growth lower. The channels of contagion would be felt mainly through trade, with knock-on effects to domestic demand." 

China will have to respond with a significant fiscal package, executed through central and local government budgets, if such a downside scenario becomes, reality, the global lender said. 

"A fiscal package -- of around 3 per cent of GDP -- should be the principal line of defense," it said. 

It suggested that China's stimulative measures could include further reductions in social contributions or consumption taxes, direct subsidies to the purchase of consumer durables, corporate incentives to expand investments that reduce pollution and energy use, fiscal support for smaller enterprises, advancing plans for social housing, and scaling up investments in the social safety net. 

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Gold falls as Greek debt crisis back in spotlight

By The Associated Press

Gold prices are falling as the Greek debt crisis returns to the spotlight. That's renewing concerns about the potential impact that Europe's financial troubles may have on the global economy. 

Gold fell nearly 1 percent Monday to settle at $1,724.90 an ounce. 

France and Germany are warning Greece's leaders that they need to approve new reforms or risk bankruptcy. Greece could default on a bond repayment next month without another installment of bailout loans. 

Separately, the International Monetary Fund says a sharp downturn in Europe could cut China's economic growth rate nearly in half. China, the world's second-largest economy, is a huge importer of commodities. 

In other trading, copper, oil and corn are lower. Silver, other energy products and wheat are higher.

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MPC keeps base rate and quantitative easing on hold again

The Monetary Policy Committee voted unanimously to keep the base rate on hold and maintain the quantitative easing programme at Pounds 275bn earlier this month, minutes of the meeting have revealed. 

All nine members opted to keep the base rate at its historic low of 0.5% and voted for no more QE at their January meeting, as they have for the last two months. 

The minutes show that the MPC judged the majority of large banks have not yet passed on higher funding costs to their lending rates fully, meaning there is a risk of tightening credit conditions in the near term. 

They also reveal that there has been little change in inflation expectations, with MPC members believing that inflation will continue to fall sharply in the coming months. 

The MPC says considerable downside risks from the global economy remain, but notes that there have been positive developments over the past month, with actions by the European Central Bank helping reduce the immediate risk of severe difficulties in the European banking sector. 

(c) 2012 Mortgage Strategy. Provided by ProQuest LLC. All rights Reserved.

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The Coming Collapse of the U.S. Dollar and Federal Reserve?

By T.S. Phillips

Here’s another newsflash you may have read about before. About one hundred years ago, just before the Federal Reserve act of 1913, our nation was the most prosperous in the world. The U.S. had virtually no national debt. We had the largest middle class in the world and Mom stayed home to raise the kids!

What many Americans are still clueless about is that there is nothing “Federal” about the Federal Reserve and they have no reserves. They are a private corporation owned by private bankers. To illustrate how this monetary system operates. Let’s assume the U.S. government needs 10 billion dollars. The FRB (Federal Reserve Bank) prints 10 billion from their printing press and loans it to the government in exchange for a 10 billion bond. The government now owes 10 billion to the FRB, and to add insult to injury, owes interest on top of it. In fact, most of our taxes presently go towards paying only the interest from the debt we owe! In my opinion, the Federal Reserve system of banking is simply a monetary system designed to control and enslave the U.S. government and its citizens.

The Federal Reserve Act of 1913 came into law on Dec. 23rd, 1913 at 06:02PM, in Washington, DC. To quote former President Woodrow Wilson:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

-Woodrow Wilson, after signing the Federal Reserve into existence.

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CHINA: Not Dollar, Not Euro, But Gold

By Becker, Antoaneta 

Yu Yongding, a former adviser to the Central Bank of China and strong critic of U.S. treasury bonds, an asset in which about 1.2 trillion dollars of China's foreign reserves are invested, has been calling on Chinese rulers to diversify as much as possible of China's holdings to guard against a weaker dollar. Speaking at a global economic forum in Beijing this month Yu said the U.S. debt and its ratio against the country GDP were rising, and predicted trouble for all U.S. assets and the global economy. 

Yu is in company of big banks like Goldman Sachs predicting a slow and steady decline of the dollar. Yu believes that from 1929 to 2009 the purchasing power of the greenback has declined by 94 percent. Goldman Sachs forecasts it will lose 15 percent of its value against the British pound over the next 12 months alone. 

Investors all over the world have begun moving their cash reserves into other currencies to cut exposure to the U.S. dollar in the belief it will continue losing in value. 

U.S. President Barack Obama had to step out last week and defend the debt-ridden U.S. economy, insisting the country was not in the same dire straits as 'Greece or Portugal.' With Standard & Poor's and Moody's, two major ratings agencies, threatening to downgrade U.S. top credit status, fears are growing whether the country can continue paying interest to its creditors, principally the Chinese. 

With the dollar slowly going out of fashion, China has in the last three years turned its attention to the euro - another beleaguered pillar of the international monetary system. Last year Beijing helped stave off a full-blown euro debt crisis by buying Greek bonds in return for a 35-year lease on Piraeus harbour in Athens. It later bought 1.4 billion dollars of Spanish bonds, giving a boost to market sentiment about Spain. 

During Chinese premier Wen Jiabao's visit to three European countries last month, reports emerged that Beijing has shown keen interest in buying a stake in the EU's euro bail-out fund. China's largesse towards Europe has prompted the European Council on Foreign Relations, an influential think tank, to warn that China's 'scramble for Europe is damaging the EU's interests', threatening to compromise EU values in return for investments. 

Some Chinese experts, though, see investing in European government debt as a necessary risk. 'Saving Europe with money is not at all a bad thing,' Ming Jinwei, a financial affairs commentator wrote in the Economic Observer. 

'America's credit ratings and the depreciation of the dollar can no longer be ignored. By getting closer to Europe China is taking a step forward in liberating itself and the global financial system from dependency on the U.S. and the U.S. dollar,' Ming argued. 

While Beijing has never been shy about its desire to have the Chinese yuan eventually replace the greenback as the global currency for trade, its efforts to expand the yuan's sphere of influence have actually been producing the opposite effect of late. 

China's efforts to make the yuan the international currency have continued apace with Beijing signing more and more members into the renminbi trading club. 

Over the past two years Brazil and China have organised several currency swaps between their central banks to allow trade to be conducted without the dollar. Similar deals have been agreed with India, Argentina, Russia, South Africa and a host of other countries. In the first quarter of this year about 7 percent of China's trade was settled in its own currency, a 20-fold rise from a year earlier. 

But rather than reduce China's dependence on the dollar, the rapid yuan internationalisation is actually having an opposite impact, according to Yu Yongding. In their belief that the yuan is set to appreciate, people outside of China are keen to accept yuan payments while at the same time being reluctant to pay for goods with yuan. The process is causing China to pay for more and more imports in yuan, leaving it saddled with a growing pile of foreign currency. 

In June Xia Bin, an adviser to China's Central Bank said the country's reserve strategy needed an 'urgent' overhaul. Instead of buying government debt from the West, China should invest in strategic assets and accumulate gold by 'buying the dips', he was quoted as saying. So far Beijing has admitted to have doubled its gold reserves to 1,054 tonnes or 54 billion dollars, and said it has plans to raise it to 8,000 tonnes.

(c) NoticiasFinancieras - Inter Press Services - All rights reserved 

Copyright (c) 2011 IPS 

(c) 2011 IPS - Inter Press Service. Provided by ProQuest LLC. All rights Reserved.

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Europe moving towards recession says expert

By Arthur Macdonald, Gulf Daily News, Manama, Bahrain 

Nov. 30--MANAMA -- The world economy has clearly lost momentum with inflation slowing in emerging countries, while growth in Europe is likely to be zero next year and possibly the following year too. 

That is the view of Dexia Asset Management chief economist Anton Brender. 

Mr Brender was in Bahrain yesterday as part of his company's Middle East road show. 

"The euro sovereign debt crisis -- which has now clearly spread beyond the periphery -- is continuing to shake financial markets and while we do not expect the euro to collapse or disappear there is definitely a possibility that it could," he said. 

"It is now up to European governments to put the policies in place that will ensure the continuation of the euro but I believe that there is no country in the euro zone that wants to give up the single currency. 

"While trade spill-overs from the euro crisis are manageable, financial ones could be much larger especially if stress spreads to core euro countries. 

"Fortunately, emerging countries do have some leeway to stimulate their economies if needed." 

He said the euro zone was clearly moving towards a recession. 

"Activity has clearly lost momentum and a mild recession is now likely," he said. 

"To put an end to the sovereign debt crisis and avoid a deeper contraction, a political turnaround has to take place. 

"We believe it will take place in the coming month, but in the meantime, volatility will remain high." 

He forecast the US economy should avoid a double dip, but growth will remain subpar. 

"The fiscal debate will remain a source of uncertainty and could possibly trigger a new confidence shock in the US," he said. 

"The unemployment rate will stay elevated and the Federal Reserve should keep its accommodative policy, possibly launching more quantitative easing if the recovery seems at risk.

"In this environment, US 10-year interest rates will remain at their depressed levels for a while." 

He added that in spite of the global slowdown in the economy unless geopolitical risks materialise, oil prices have no reason to jump... but should not fall much either!" 

Global head of asset management Koen Maes said that equity valuation were extremely attractive to long-term levels but that volatile markets required active management. "Our preferred investment themes are high dividends, convertible bonds and alternative investment strategies." 

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UK body warns of risk of EU defaults

By MARK HENNESSY

DEFAULT BY a number of European Union states on hundreds of billions of euro in sovereign debt is now a "significant" risk, according to the UK's top official economic forecaster, the Office for Budget Responsibility. 

Describing "a disorderly outcome" to the euro crisis as "clearly possible", the office said a "serious escalation" could put the global financial system under strain, leading to tighter credit conditions and further depressing global output and trade. 

The risk of a euro collapse could not "be quantified in a meaningful way", it said, adding: "Suffice to say, the probability of an outcome much worse than our central forecast is greater than the probability of an outcome much better than our central forecast." 

The office, set up by British chancellor of the exchequer George Osborne, is highly influential, since it delivers verdicts on whether the UK treasury can meet its own targets. In the opening words of his autumn statement in the House of Commons, Mr Osborne said "much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts". 

He insisted he would not budge from cutting public spending: "We will do whatever it takes to protect Britain from this debt storm, while doing all we can to build the foundations of future growth." 

Quoting the office - that there could be "a much worse outcome for the UK" if the euro crisis were to deepen - he said: "I believe they are right. We hope this can be averted." 

The office said the situation had "deteriorated significantly" since March. Euro area growth would be no more than 0.5 per cent next year, it predicted, adding that fears of sovereign debt default had intensified and led to British banks having to pay higher interest. 

Originally published by MARK HENNESSY, London Editor. 

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