Sunday, November 16, 2008

Crystal Ball

A brief gist of a seminar at the Stern School of Business last week - 'On advising the next president on global finance' :

*China’s stimulus package has set the tone for other emerging economies where there is a realization that they cannot export their way out of the problem. External deficits for some of these countries have stopped growing. The issue is that some economies are net borrowers that worsens the situation. So there is a dire need to ensure liquidity to these economies particularly Eastern European ones.

*It was pointed out that we are not living in an era of free floats of currencies after all, lets stop deluding ourselves – the yuan is pegged to the dollar, Russia’s currency is pegged to the euro and the dollar, the Japanese Yen is not a free float currency, nor is the Indian Rupee.

*An interesting observation was that 75% of the total banking assets in the country are across six bank-holding companies. Economists did not agree with each that it was a good thing. Some suggested that such is the situation that GMAC may become a bank soon!

*The International Accounting Standards Board (IASB) is being persuaded to give greater discretion to banks on how they must account for the value of the assets on their books.

* Pace of new regulations - Technically the Fed is not supposed to do unsecured lending, it is precisely doing that by stepping in for institutions it does not regulate. Will these widespread changes in regulatory policies prove to be costly mistakes in future?

*Can IMF help? With $200 billion to spare to ‘help’ out economies, that’s a pittance, panelists felt.

*A member of the Roubini camp – painted a worst case scenario –
1. Oil at $30 a barrel
2. Commodity exports contract further
3. Eastern European economies do worse
4. China’s stimulus does not work
5. Current account surpluses go up
6. Deflation feeds into the U.S.

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