The European Sovereign Debt Crisis!

The financial crisis of 2007 caused a wide deleveraging among private agents developed and pushed the savings rate to rise, tipping the global economy into recession. Governments and central banks then intervened to prevent the collapse of the banking system and relaxed their cyclical policies to restore aggregate demand. The economic slowdown and the reaction of the public authorities have widened sharply public deficits, even though levels of public debt in the developed countries were already considered excessively high. This further deterioration of public finances has raised serious concerns about the ability of states to maintain their debt on a sustainable path. This is especially the countries of the euro zone that have crystallized concerns. Greece between the budget crisis in autumn 2009, and the sovereign bond yields rise sharply in Spain, Italy and Portugal in late 2010. Thus, interest rates, which had been a convergence in the past ten years with the European integration, begin to diverge, market making clear the distinction between state-member groups: on the one hand, those the "periphery" undergoing unsustainable increase in sovereign risk and on the other, those "core" that benefit from historically low interest rates. Countries experiencing the strongest market turmoil in sovereign debt have increased the fiscal austerity measures to restore confidence and reduce sovereign spreads.

 Other Member States have also adopted fiscal consolidation efforts to contain the contagion and prevent their own solvency are in doubt. In some countries, the change in sovereign risk premiums can however hardly be explained by changes in economic. If the debt and the deficit actually reached unsustainable levels in Greece, the fiscal situation in other countries threatened by the debt crisis was not more disastrous than that of the United States or the United Kingdom. In 2009, Spain respected the main Maastricht criteria for fiscal policy, since its public debt represented less than 60% of GDP. Italy certainly requires a budget adjustment to service its debt, but it should make the effort appeared modest as interest rates remained at a low level. Several authors have developed the idea that the sovereign debt crises, particularly the European countries could result from self-fulfilling expectations. In other words, the sustainability of public debt does not only depend on fundamentals (including the amount of the debt, the primary balance, etc. When investors fear for one reason or another the state has difficulties to cope with the burden of debt, they divest their sovereign bonds. These sales push interest rates higher and then the government could more be able to refinance its debt other than prohibitive rates. The liquidity crisis can then quickly degenerate into a solvency crisis. Indeed, the states will try to consolidate their public finances to restore market confidence. If the economy were initially in recession, austerity measures further depress activity, so they are likely to lead to a further increase in the debt to GDP ratio. With rising interest rates and contraction, states are finally forced to default on their debt. Thus, a State may become insolvent simply because investors fear default. They act indeed in such a way that the probability of default rises, even if their concerns were initially unfounded. If it happens, the default validates initial fears: expectations are proven "self-fulfilling." Ultimately, public debt is sustainable as creditors consider it as such. The economic literature formalizes this idea by emphasizing the existence of multiple equilibrium. These are particularly unstable in the presence of self-fulfilling expectations: a simple reversal of expectations is likely to tip the economy a good balance bad. However, a State may in principle difficult to use the central bank to reduce the risk of a liquidity crisis.

 Therefore, the member countries of the euro area, in essence, a greater chance to experience a crisis of sovereign debt that countries into debt in their own currency, even if they have more degraded public finances. The member states of the monetary union can indeed rely on a central bank to provide liquidity if it is missing. As such, they share the same vulnerability to crises of sovereign debt that developing countries that emit denominated in a foreign currency usually the U.S. dollar debt. When a liquidity crisis occurs in a monetary union, countries that lose market confidence the peripheral euro area countries meet in a bad equilibrium characterized by high interest rates and capital flight, as investors seek safer investments in the world. These countries are then capable of falling into recession as the high interest rates encourage their government to implement austerity plans. Conversely, countries that retain the confidence of the bond the core countries are maintained in a good balance: they receive cash flows from the periphery. These inflows exert a downward pressure on their interest rates and thus stimulate the economy. They find that increases in risk premiums that were observed in 2010 and 2011 occurred independently of changes in the ratio of public debt to GDP. Greece, however, is an exception, since the increase in the spread on its debt actually due to the deterioration of public finances. By cons, countries that do not belong to a currency area and that borrow in their own currency appear immunized against liquidity crises. They have indeed crossed the Great Recession without knowing a significant increase in their spread, even though some of them had ratios of public debt to GDP higher than in the euro area. .

So finally endorsing its role as lender of last resort to the States, the ECB seems to have managed to "break" the expectations and bring savings to a good balance. The announcement also seems to have been credible enough that the central bank did not have far to intervene in bond markets to stabilize interest rates. Since the crisis of sovereign debt in the euro zone is mainly due to the self-fulfilling expectations, the reaction of fiscal authorities appear absurd, dictated only by the emergency. The turmoil in the bond markets led all governments of the euro area to focus on fiscal consolidation at the expense of supporting the activity. While the public sector should continue spending to allow private agents to reduce debt, otherwise he immediately sought to consolidate its own balance sheet, which was subjected to powerful euro zone recessionary pressures.

Countries that have experienced the largest increases in spreads have implemented the most severe austerity measures. They then switched to a vicious spiral where the contraction and deterioration of the fiscal balance are mutually maintained. However, if there is a disconnection between risk premiums and the fundamentals, a policy aimed exclusively at improving fundamentals that is to reduce the burden of public debt may not be sufficient to contain the spread. The intervention of the ECB is against proved crucial in stabilizing the bond markets. Thus, not only the macroeconomic shock therapy that have inflicted the peripheral countries is very vain, but it has mostly contributed to the deterioration in public finances deteriorate the growth potential of their economies. However, economic growth is a key factor in the sustainability of public finances. The ECB intervention has certainly reduced the risk of self-fulfilling expectations, but the fundamentals are perhaps now sufficiently weakened that fears about the solvency of public finances are now justified.

Liquidity Trap

During the Great Recession, many central banks reduced their interest rates to historically low levels. However, the interest rate was good to be its zero point, it remained higher than the natural rate, that is to say, the nominal interest rate which closes the output gap and ensure price stability. However, once the zero lower bound is reached, the central bank may further cut its key interest rate, which exposes the economy to deflationary pressures and an increase in its unemployment rate. In such a situation called liquidity trap, where monetary policy is proving excessively restrictive fiscal authorities must necessarily intervene to counteract deflationary pressures. The finance managers adopt their next steps "unconventional" to make them more effective monetary policy. However, the Great Recession is different from previous episodes of liquidity trap, including the lost decade in Japan, that the phenomenon of liquidity trap this time has a global dimension. The United States, UK and the other Euro countries are the countries most closely linked by trade and financial linkages that have experienced the largest slowdown in crisis, bringing their monetary authorities to fix the interest rate to the nearest zero.
According to famous Economist, the appearance of liquidity traps in a context where markets for goods, services and capital are integrated internationally gives a new dimension to the dilemma highlighted by the literature in finance International (also called "impossible trinity" or "impossible trinity"). The traditional interpretation of this phenomenon, a country cannot simultaneously ensure the opening of capital markets, fixed exchange rates and monetary policy autonomy. If achieved two goals, the third becomes unattainable. However, even if the exchange rate is flexible and fully opens capital markets, monetary policy loses its effectiveness in a liquidity trap. If the domestic economy is a powerful external shock depressing domestic demand, the zero lower bound is likely to constrain its own monetary policy. Financial markets play a key role in the spread of the phenomenon of liquidity trap a country to another.
The economic literature have suggested that the introduction of capital controls to reduce the risk that a country will suffer destabilizing capital inflows: inflows are indeed likely to fuel an unsustainable credit expansion, the formation of bubbles assets and excessive currency appreciation, especially in emerging countries. The introduction of capital controls makes monetary policy more effective in reducing the risk that the economy switches into a liquidity trap.

Aggressive stimulus efforts by Abe given strong boost to Japan

The expected increase of 3.6% after 4.1% annualized GDP and the private consumption expected to have risen 0.5% Reversal expected business investment. The growth of the Japanese economy is expected to reach 3.6% annualized in April-June, a Reuters survey showed a third consecutive quarter of expansion that would reflect the impact of increasing net policies "reflationary" Prime Minister Shinzo Abe. The figure released on Monday morning in Tokyo should also strengthen the government's desire to raise the VAT next year, even if the implementation of this project politically sensitive involves many other factors, economists note. The second quarter should certainly have marked a slight slowdown in growth after the 4.1% annualized from January to March, driven mainly by household consumption, but the April-June statistics should show a recovery in exports and business investment, they add. "The growth is balanced with a strong domestic demand and external demand. This is a sign that the impact of political Abe is becoming wider," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo. Compared to the first quarter, gross domestic product (GDP) is expected to have risen 0.9% in April-June, foreign demand are contributing 0.2 shows the Reuters survey.

Private consumption is expected to grow by 0.5% a quarter to the next, which would mark a slowdown after growth of 0.9% in January-March. But business investment, which fell by 0.3% in the first three months of the year, is expected to rebound by 0.7%. Abe's government plans to raise the VAT rate of 5% to 8% in April and 10% in October 2015, as part of efforts to try to contain the public debt, which exceeds 200% of GDP, the highest ratio of the major industrialized countries. This doubling in a year and a half, which is the most ambitious reform of the Japanese taxation engaged for decades, obviously poses risks to the consumer and more broadly for the recovery, as it may curb spending. Abe said he would adopt in the fall a final decision on the matter, in particular according to the changing conditions. Until then, it will be especially aware of the revised second quarter GDP, which is scheduled for publication on September 9. A Reuters survey shows that most private sector economists are in favor of raising the VAT according to the original schedule, considering that the economy can now absorb the impact.

On Monday, the International Monetary Fund (IMF) has called Tokyo to implement the project, considering it was a "necessary first step" to solve the fiscal problems of Japan. But even if GDP figures are as strong as expected and confirmed next month, Shinzo Abe will take a decision after studying the findings of several studies it has commissioned on the expected impact of the reform explain several sources. Careful, the prime minister also asked his staff to consider alternatives to this reform. "A good GDP figures could reinforce the scenario of a VAT increase in the initial project. But the final decision rests with Abe and he alone, “said Yoshiki Shinke. "It will be more important than past GDP figures is how the economy will react if VAT increases indeed. At this stage, it is very difficult to predict."

The Future Economic Rebalancing Of The World

In 2017, no European country will be included in the top ten contributors to global economic growth. The emerging economies will account for fifty percent of global production of goods and services. According to IMF, in the year 2018 the proportion will increase to 55%. And this is only the continuation of a trend that began there more than thirty years and represents a consolidation in the global economic consequences. As noted by the chief economist of Goldman Sachs who invented the concept and acronym BRIC's in the 1980s when the growth of the Chinese economy was even more important today, a growth rate of China's economy 10% was less important to the world that U.S. growth by 1%. In 2013, the rates of equivalence are 8% and 4%. Today, financial markets are equally concerned of China slowdown as the U.S. recovery. No wonder that, as growth in emerging was much stronger than the rest of the world, and that their standard of living per capita has steadily catching up with the seven most industrialized countries. By the mid-1990s, countries such as Germany and Italy had dropped from the list of top ten countries with the highest growth rates. While in the 1980s, the United States accounted for 30% of global growth and Europe 20%; in 2017 no European country will included in the top ten contributors to global growth. Europe as a whole no longer and will contribute only 6% of it, while India and China will contribute to almost 50%. Even more surprising is the speed at which occurs rebalancing and this because of the masses in. The economic transformation and urbanization of China occur at a scale with the population is one hundred times greater than that of Great Britain at its early industrialization and a speed ten times. Thus the Chinese momentum is 1000 times that of Britain 200 years ago. This rebalancing is a return to the state of the world that existed in the early nineteenth century. But this is only small consolation because it is perceived as a stall and undoubtedly contributes to the gloom in US, as in the rest of Europe.

The Corporate Bankruptcies and The Crisis

The real crisis, the corporate bankruptcies are the real crisis and it is the creative destruction. Like it or not, the real victims of the crisis in Europe are definitely businesses. The loss of business in the Euro zone increase indeed 21% in 2013, to return to a growth rate moderate 7% in 2014. These bankruptcies are concerned and unfortunately synonymous with soaring unemployment and a real deindustrialization. Since the record figures of 2009, the waves of loss, of the United States to China, passing throughout the Europe, concentrated in areas with erratic tax incentives, such as construction and services. Once the boost is flown, numbers of companies were no longer profitable. Today, the shock wave is more fundamental: the sharp slowdown in consumer spending in Europe, or at half the exports for Asia. In Europe, the areas of distribution, furniture, consumer electronics, and automotive, and are strongly affected. This industrial Darwinism seems to be the swell of the year 2013, still marked by the credit crunch. But the induced effects are numerous: for example in Asia, companies see their market melt like snow in the sun and the overcapacity problem. This economic turbulence with a number of businesses created which also increases in many countries could it is a synonym for renewal? Economic entropy can be conducive to a new beginning, if we are to believe the evolutionary hypothesis of Schumpeter. The undertakings least well adapted and especially the least innovative way to let those who are reinventing themselves and meet new needs. "The perennial gale" Schumpeter, after the storm of 2009 and the economic winter it starts to make a lot. And yet ... The needs are there, in sectors with high added value, intensive skills, human capital and social capital, driven by research and innovation and entrepreneurship. So, of course the news is bad with soaring business failures and accelerated payment risk, while margins are already weakened. But, is it better to jump back? The answer is “Maybe”. It is also necessary that the guidelines are taken on supporting innovation, the business environment, or incentives to take care of seedlings, otherwise incubators will also be decimated.

Europe needs long-term financing!

The urgency for Europe to reconnect with smart, sustainable and inclusive growth, which allows Europe to create jobs and, based on the areas in which it has a competitive advantage, gain market competitiveness world. To achieve this, it must meet investment needs large-scale and long-term. To finance these investments in the long term, governments and businesses, regardless of size, should have access to a long-term, predictable funding. The ability of the economy to make available such long-term funding also depends on the financial sector's ability to effectively provide users and relevant investment, effectively and efficiently, saving governments, businesses and households. This provision may be indirect, such as through banks, insurers and pension funds, either directly, via the capital markets. The long-term funding must be secured in such a way that supports structural reforms and help get the economy back on a path of sustainable growth. The financial crisis has reduced the capacity of the European financial sector to channel savings into investment long-term needs. It is important to ask whether in Europe, traditionally high dependence with regard to banking intermediation to finance long-term investments could be replaced by a more diversified system leaving more room for direct funding by capital markets and the involvement of institutional investors and alternative financial markets.

The task of ensuring the existence of an effective and efficient intermediation for long-term financing is complex and multidimensional. Recently, the Commission adopted a Green Paper on the financing of the European economy that includes public consultation. Its purpose is to launch a wide debate on how to increase the supply of long-term funding and diversify the financial intermediation system for long-term investment in Europe. The answers to the questions will enable the Commission to deepen the analysis of barriers to long-term financing to determine what policy measures could help to overcome them. The whole process could lead to different results and, in some areas it may be necessary to introduce new rules or modify existing ones, while in others, the role of the EU would to foster better coordination and promotion of best practices, or to provide specific measures to certain Member States in the framework of the European community.

The Real Estate Bubble Bursts Netherlands!

The Netherlands saw their housing bubble burst. For years the country's banks have granted mortgages without sufficient guarantees coupled with tax breaks from the government. The German newspaper Der Spiegel highlights the weaknesses of the Dutch economy, rising unemployment, reduced consumption and GDP that was stalled. Der Spiegel believes that these are the consequences of the bursting of the housing bubble in Netherlands. In addition, institutions financed more than 100% of the value of the property and tax breaks could go up to 52% of mortgage interest paid. The chart below are the property price increase:

The Battle for the control of Silver!

Most of the countries more particularly US and China wants to control over the precious metals market. U.S want to keep the price of white metal as low as possible where as China tries to keep it in uptrend. Now days obviously gold is money but silver was the universal monetary standard for more than 7000 years. The countries have stopped minting silver coins in 1960s because of the deficit between the mining and the industrial demand. The deficit on the market has been filled for many years by selling their old reserves held by countries themselves. Those reserves were completely destroyed by the industries even though the mining production in the recent years had increased tremendously and it failed to meet the demands. To control over silver the banking oligarchy launched ETF. Investors wishing to invest in physical silver without having to carry pounds of metal ingots bought shares traded, they could easily sell. These ETFs are a huge success. In theory, the issuing banks hold hundreds of millions of ounces in stock, but only in theory. As for gold, cash investors have been diverted. Instead of buying silver bullion, and thus weigh on the rise in metal prices, banks guardians of these treasures, HSBC and JP Morgan, have manipulated the prices down. They sold the paper money, the silver-virtual, on the Comex and the London market, to lower the price of this rare and precious metal. These banksters sold five years of production in the form of derivatives in a very short term; they are absolutely unable to deliver.

When China began to open up to the outside world after the meeting Mao and Nixon, the bankers of the world have invested in China, creating new ports, equipped with the most modern refineries which enabled China to carve the lion's share in refining. The industrialization of China has enabled him to become the workshop of the world, so much so that the Middle Kingdom is poised to become the first world power. Since 1971, China sold to Westerners finished products against the dollar, the international currency. But since Nixon's visit, the currency has continued to devalue. Expressed in gold, today's dollar is worth 45 times less than that of 1971, the Chinese have been paid in funny money. China still exported 4800 tons of silver in 2006 will become a net importer in the following year to import 3500 tons in 2010.


 In March 2009, before the G20 meeting, the governor of China's central bank, the COPD, published an essay on the wishes of China's international monetary system, denouncing the failure of the current system and regretting that the new banking system proposed already by Bretton Woods has not been explored since. This rejection of the U.S. monetary hegemony will quickly turn into currency war between BRIC and Washington. In August 2009, China announced that it authorizes to default on Western derivatives, it is considered fraudulent. The silver is at the heart of the problem. In September 2009, the Chinese governments allowed its citizens to stock precious metals and launched a communication campaign pushing the silver the price is extremely low compared to gold. China then banned the export of silver which will cause a few months later the explosion at the rise in silver, putting JP Morgan in trouble. China, which had announced that it wanted to have a say about the price of raw materials, has achieved one of its objectives.


 For the record, in January 2011, Xia Bin, then a member of the Monetary Committee of the Chinese Central Bank, in an interview quoted by Bloomberg, said: "China should increase its gold and silver reserves." It seems important to reconcile this statement with the wishes of China's monetary system, especially as it was the last power to abandon the standard money in terms of silver. The U.S. policy of Roosevelt on money in 1934 caused a monetary crash in China, leading to a dictatorship then the first communism.

Ecology, carbon Emission and Economy

Sustainable development: Sustainable development takes into account all aspects related to the business (i.e.) raw materials, human and economic system. Sustainable development can produce products and services that meet the desires and human needs while preserving the environment for future generations. We can then say that sustainable development is linked with ethics. The World Commission on Environment and Development United Nations defines sustainable development in 1987 this way: "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." The ecological footprint is a tool to evaluate the quantity of energy used for the production of a product or service. Can then be compared with this tool the difference between what natures provides us and what we consume.

It is used to make predictions but also to measure human actions on the environment. It measures not only for human consumption but also of a country, or even the planet nature necessary for the production of an object. E. Williams REES one of the two creators of the term suggests the following definition: "The ecological footprint is the corresponding area of productive land and aquatic ecosystems required to produce the resources consumed and to assimilate the wastes produced by a defined population at a specified material life. ' The carbon balance: The carbon footprint is a tool to quantify the greenhouse gas effect greenhouse (GHG) emissions of a company or an administration. These emissions can be direct or indirect. Carbon footprint to become much more important than the ecological footprint as international governments based GHG limits on companies that are based on the calculation methods.

 The great strength of the carbon footprint that is compatible with the ISO 14064 and 14065 with the theme here is the official definition proposed by ADEME: "A method of accounting for emissions of greenhouse gases from readily available data to arrive at a proper assessment of direct or indirect emissions from your business or territory." These definitions related to the various international meetings and scientific reports have led to the emergence of these themes in world governments. The Kyoto Protocol in 1997 was the first meeting has taken quantified commitments. It aims to reduce emissions of greenhouse gases (GHGs).

The European debt crisis going to end soon!!!

Europe emerging from a period to improve its financial situation that began in August last year, when the President of the European Central Bank (ECB), Mario Draghi announced that it would needed to support countries that are deficient in the Euro zone. This intention is then translated by a specific program for Italy and Spain, to limit the level of interest rates on their debt.

 However the optimism is reversed because of the accumulation of issues such as political scandal in Spain, financial conditions of Ireland. Hence the international markets react accordingly. Indebtedness of most European countries in relation to Gross Domestic Product is rising despite the efforts of Member States. With an average debt of the Euro zone (8000 billion Euros) over 90%, the smallest increase in interest rates impact the refinancing. The Euro zone should refinance more than 1,000 billion Euros in 2013.

 Reforms of the costs and revenues of government continue to impose. Economic lethargy does not seem to decrease. The European GDP growth is almost nil. Hence it is still in recession phase. Without growth, tax revenues are also lethargic and financial costs of states continue to be excessive. In this context, most European economies saw their unemployment rates are increasing. The question that remains is whether this or will improve? Basically, this is the strength of the U.S. economic recovery we can expect an early growth at the end of 2013. And the creation of 157,000 jobs in January 2013 is really good news. But the weakness of Europe is the situation of its banks. Without going into a pessimism that has no purpose, it should not diminish the vigilance that the Euro zone needs to restructure.

Growth of Asian Market

Since from the middle of 2011, Asia was the front and foremost region in the world that have many number of millionaires (3.37 million millionaires, representing 30.4% of the number of millionaires in the world) with a growth of more than 20% in four or five years. They have a total wealth of 10 700 billion that is 25.5% of the overall wealth of millionaires in the world.

 In a market asset management generally quite gloomy figure of Asia is essential for growth for the major international private banks. In the longer term, the Asian continent is undoubtedly the one that produces the most wealth and hence the most millionaires. According to industry professionals, the rapid growth of wealth is expected to continue at a rate of more than 12 to 15% over the next 5 years. To successfully lead the conquest of this Eldorado gold, banks need to understand the specificity of this market.

 They must also define a profitable business model focused on customer segmentation adapted. Finally, they must analyze their strengths and weaknesses in the region to determine how to implement cost. On the one hand the onshore market, with millionaires Asian (Chinese, Indians) who made their fortune because of the considerable economic development in the region in recent past. This market is doubly exciting because at the growing number of millionaires adds their current low supported by private banks (only 20% of Asian millionaires are entrusted to private banks). To conquer the market is considerable. On the other hand the offshore market, with a clientele composed of customers in Europe, America and the Middle East who wish to outsource all or part of their holdings to access attractive Asian markets or to enjoy banking regulations and tax more conciliatory in this part of the world. For this reason Singapore is poised to dethrone Switzerland in her role as a global financial center offshore.

Management of collateral received: an effective lever to reduce operational and financial risks

Since the financial crisis, banks are facing a major phenomenon: the rise of non-payment of their customers. These faults are both on home loans granted to individuals and businesses as the credits distributed through credit cards for individuals.

In this context, the management process guarantees received has become a key process, acting at the heart of risk management for banks.

MEPs adjust taxation of real estate gains

MEPs adopted the amendment proposed by Gilles Carrez (UMP, Val de Marne), as amended, by the government, which is developing the new tax regime for real estate gains. He recovers, according to the general reporter the owners selling a principal residence and tenants selling their principal residence for the first time a property.

The amendment exempts from taxation of capital gains to the first transfer of a dwelling that is not a principal residence where the vendor is tenant's principal residence, as was the case before the 2004 reform. It aims in particular, according to Mr. Carr, to avoid the criminalization of young households, the Paris region or in dense urban areas, can not afford their homes because of the explosion in property prices.

Officials face unequal "one of two"

Staffing, the state officials are far from being housed in the same boat. A Defence and the Ministry of Agriculture, the rate of non-replacement of retiring workers should reach 79% and 73% in 2012. It would be only 31% for culture and bordered by an average 55%, the highest rate ever considered since 2008.

This is reflected in the general report of Gilles Carrez (UMP, Val de Marne) on the draft budget law for 2012. "The effort required to national education should be further emphasized: with 14,000 FTE (full time equivalent) less in 2012, after 16 000 FTE under the initial budget act for 2011, this ministry reaches The objective of non-replacement of an officer retiring on two "set by President Nicolas Sarkozy, to observe the general rapporteur.

New measures to support the American economy

The U.S. Federal Reserve, Central Bank of the United States (EDF) announced Wednesday that it would take further measures to support the U.S. economy, saying the resumption of the latter remained "slow". Among the measures: the sale by the end of June 2012 the equivalent of $ 400 billion in Treasury bills.


Subsequently, the Fed plans to buy an equivalent amount with a longer maturity in an attempt to lower interest rates and long-term power purchase real estate securities without increasing the size of its portfolio, the objective to support the mortgage market. The Fed also said it would keep its key interest rate near zero until mid-2013 if necessary.

On Tuesday, investors had taken for granted that the U.S. Federal Reserve (Fed) announced shortly measures to resume, background likely to increase demand for raw materials. While opening the meeting of the Monetary Policy Committee of the Fed, investors are already betting on a new "Operation Twist", which is to lower interest rates in the long term to boost the activity without act on interest rates in the short term.

In fact, such an operation is to extend the maturity of securities held in the balance sheet, ten years and over, to reduce rates, evidence to boost business investment and household on the housing market. Such a measure Devit also have an immediate impact on prices by devaluing the dollar and increasing demand in emerging markets.

Great Recession - 1930

The Great Depression of the 1930s is probably the most studied topic in American economic history. Contrary to some persistent myths conveyed by the opponents of the market economy, there is not yet consensus on its causes and its exceptional duration. So today begins our collaborator in the first two columns, to present another vision of the crisis as it was developed by Friedrich Hayek, Murray Rothbard, Milton Friedman, Robert Higgs and other liberal authors.

The Depression of the 1930s is invariably presented as the logical outcome of capitalism. Victim of its own contradictions that led to a crisis of overproduction and concentration of wealth in the hands of some exploiters, the market economy would have been saved by judicious intervention of the New Deal of Franklin Delano Roosevelt. This scenario, however, one big problem: it is supported by no historical data. We will therefore examine in this column a different view of the Great Depression, arguing that its severity can be explained largely by the policies of the U.S. Federal Reserve Board and the subsequent actions of Republican President Herbert Hoover, a man who is usually presents as an uncompromising liberal.

Still bad news for U.S. economy

The U.S. economy suffered further bad news. First, the Commerce Department left unchanged its estimate for growth in the fourth quarter, to 0.6% only. However, analysts expected a 0.8% enhancement.

These figures are 2.2% growth over the whole year, from 2.9% in 2006, which is the lowest rate since 2002. Household consumption fell sharply in the last quarter (+1.9% instead of 2% estimated earlier, and after 2.8% in the third quarter) and investment in the stone has indeed fallen by 25, 2% (instead of -23.9%), the largest decline recorded since 1981. Business investment grew by only 6.9% (instead of 7.5%).

Inflation is well above normal

The index measuring prices related to consumption expenditures (PCE) increased 4.1% (instead of 3.9%), and the PCE core index (excluding food and energy) increased 2.7 %, as in the first estimate. Now the Fed wants to keep it normally from 1% to 2%.
Finally, the weekly claims for unemployment benefits rose 19,000 to 373,000 in the United States during the week ended Feb. 23. Analysts had forecast 350,000 jobless.

The Private Equity, a market with strong growth driver - part IV

This dynamic cache, however, concerns related to the evolution of the activity. One of the first consequences of market development of private equity buyout is the generalization of so-called secondary, tertiary and even quaternary view, consisting of leveraged acquisitions of companies already owned by one or more other funds. In 2006, the third type of LBO acquisitions was made through these resale between funds. This type of assembly raises serious concerns particularly related to the high level of debt in these successive operations, which raised fears of a bubble bursting. Indeed, the succession of holding recovery strengthens the total weight of debt in financing the acquisition. But a classic LBO average 70% funded by debt. We can now understand the anxieties expressed about the level of debt when several successive LBOs are made on the same entity.

On the other hand, in a context of rising interest rates, the sector should experience difficulties, but still far from an economic downturn. Indeed, this market should continue to grow in the coming years, particularly in France where many companies are to sell, LBO funds have gained credibility recognized, will no doubt key players in the market.

The number of mega deals (ie acquisitions exceeding the one billion Euros) is more important, the private equity funds have no choice but to raise more funds. This requires, of course, on the one hand by increasing the resources collected from traditional capital providers. But also, for the sake of being less dependent on suppliers of capital and at the same time less sensitive to changes (particularly increased) interest rates on financial markets, the alternative "fund raising" on the stock market seems obvious. The money, usually so discrete and whose activity is based on the original financing of non hand, may now be found in the coast!

The Private Equity, a market with strong growth driver - part III

Then, the low cost of debt, due to low interest rates, gives montages leveraged a significant advantage over other types of acquisition financing transactions. They are based mainly on debt financing of target companies, the current environment when they are particularly favorable to more easily identify a margin between the cost of debt and the return on assets under management. However, this cannot alone suffice to explain the strong growth in activity. Private equity has above all recognition in the governance model in place in companies come under LBO financing. These companies are generally better managed and better valued, and even if some failures can be reported (ten more than 200 annual operations in France), we must recognize that the default rate of the sector is quite low and few are examples of clashes in the area of corporate governance.

Governance is indeed one of the key parameters of a company came under LBO financing. To repay debt must quickly generate cash flow. However, it is recognized that improving the economic value of a target company depends, in large part by the optimization model that will be applied. Therefore, LBO funds agree, from acquisition, to establish a mode of corporate governance more efficient and take the form of a greater focus, accountability of management (generally a shareholder as a result of the operation) and optimization of financial assets.

Country Risk Part.III

During the introduction of the Cooke ratio, depending on whether the country was a member of the OECD or not, the commitments to residents of foreign countries were weighted at 0% or 100%. A debt security issued by a government could therefore not return in the calculation of the Cooke ratio, which consequently gave an advantage to OECD countries until 1994 and the opening of the more "modest”.

As part of the Basel II regulations, the IRB approach (Internal Rating Based) implies the existence of a probability of default for counterparties. But is it really possible to speak of "default" for the country? The S & P introduced the notion moreover SD (Default Selected) to report that states do not honor their debts, since technically they cannot be made bankrupt and businesses. Of default of a country therefore requires analysis of the creditworthiness of the state. It is thus necessary to understand properly the impact of the fiscal capacity of the State concerned on its ability to repay and to define an acceptable level of debt for sovereign debt. However, these problems are more related to the concept of sovereign risk than that of country risk as a whole; demonstrate once again that the concepts are very similar.

Investing in emerging high growth is an important trend as evidenced by the proliferation of funds BRIC (Brazil, Russia, India and China). However, although the results are quite encouraging, these investments are not safe because these countries are not immune to political tensions, as their market is very volatile at times and finally as a big part of the investment is located in the energy. That's why the rating agencies are requested by the fund managers to reassure investors, the country risk analysis and must rest.