UK's credit rating at risk as Fitch gives negative forecast

Thursday, March 15, 2012

By JOE CHURCHER 

Britain's triple-A credit rating is increasingly at risk, a leading agency has indicated. 

Fitch has downgraded the economy's outlook from stable to negative ahead of the budget. 

Chief Secretary to the Treasury Danny Alexander said the move by Fitch was a "salutary reminder" of the debt problems facing the country and the need for continued austerity measures. 

Fitch indicated that it felt it was more likely than not that Britain would lose its coveted top rating given its highly limited ability to absorb any further shocks from the EU crisis. 

It is the second of the major agencies to issue such a caution, following Moody's last month. 

Mr Alexander said: "This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficits we inherited, and why we have got to stick to those plans. 

"It should be a wake-up call to anyone who thinks we can afford, as a country, to loosen the purse strings. We can't afford to do that and that's why there will be no unfunded giveaways in next week's Budget." 

Fitch said it considered the Government's deficit-reduction plans to be "credible" and on track and that it expected them to be sustained in the Budget. 

But it said that current projected levels of future debt were "at the limit of the level consistent with the UK retaining its 'AAA' status". 

Although eurozone markets had calmed over recent weeks, there was still a risk that the crisis could re-emerge, the analysis concluded, spelling potential problems for the UK. 

The agency stated: "The revision of the rating outlook to negative from stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery." 

If there are no major financial shocks the rating will be returned to stable in 2014, Fitch said. 

(c) 2012 Belfast Telegraph. Provided by ProQuest LLC. All rights Reserved.

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PR--Chambers, Associations Should Stop Giving Budget Proposals to Govt.

*Budget proposals a futile practice*
*Shifting economic priorities stressed*
*Unjust taxation keeping country backward*
*Private sector should stop presenting budget proposals *

Islamabad: [March 18]

The Pakistan Economy Watch (PEW) on Sunday termed budget proposals by different business chambers, and associations a futile ritual with no positive impact.

Budget proposals have never been accepted for the welfare of masses or the business community which is making country a bad place to live and a risky destination for investors, it said.

Enhancing tax revenues and protecting evaders seems to be the major concerns of the collectors despite knowing its disastrous impact on the society and country, said Dr. Murtaza Mughal, President PEW.

Taxation helps growth in developed nations while it has been chocking development in Pakistan since decades, he said.

Dr. Murtaza Mughal said that the trend of oppressive policies continues in absence of any sincere effort or serious study on its impact, he said. Challenging targets are fixed every year without measures to boost collections which lead to complaints by tax payers, delayed refunds, non-payments, defaults, corruption and frequent revision of the targets, he added.

He said that frequent deception by the tax authorities including fudging the figures is taken normally by those who matters, which scares investors and donors alike.

Stressing a shift in the economic priorities, he said that methods employed by the authorities are promoting poverty and instability in Pakistan.

He said that inequitable tax burden has not only created a shortage of cash for the productive sectors but it has diverted resources to sectors that matter least in the economy.

Banks also feel comfortable to invest in government securities while ignoring trade, commerce and industry, he said.

Trade and professional bodies can consider stopping forwarding budget proposals as they always fall on deaf years.

Dr. Murtaza Mughal said that government should make an acceptable taxation system and impose it after taking all stakeholders on board otherwise country will remain dependent of foreign loans.



--

Dr. Murtaza Mughal
Cell:  0321-5157671
President Pakistan Economy Watch
www.pakistaneconomywatch.com 

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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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