Dear SAP Banking community members.
This has been an interesting week in the long way to the new model in the Financial System.
Beginning of week the European Central Bank increased liquidity lines in USD, logic movement as the market speculates with the collapse of the Euro zone and US Treasury Bonds emerge as the traditional safe asset.
But assuming the US Bond is a safe asset means that we still can exit the crisis wasting solvency, and no, unfortunately this road is close to the end.
Let’s have a look to some ratios; available at the US debt clock website http://www.usdebtclock.org/ some of them, like the National Debt divided by GDP are really scary. In fact many of them are even worse than those during the Great Depression.
Nevertheless and for the moment the country is still capable of financing its deficit at relatively low interest rates. The question is if this is sustainable and for how long.
If we look at the US debt holders, the largest one is China, with 26 percent of all foreign-held U.S. Treasury securities. The US trade deficit with China is the largest in the world, and a symptom of global economic imbalance. Simplifying China exports manufactured goods to US that US pays with debt.
I cannot deny that the construction has worked very well for the last 15 years but in my opinion this is about to change.
Chinese economy has its own problems, amongst others.
- High inflation rates.
- Low productivity.
- Huge dependence in foreign natural resources.
- Real estate bubble.
This is a challenging scenario for sustaining fiscal problems of the U S for a long time.
The official statement from the World Bank is that Chinese economy is going to land softly http://www.bloomberg.com/news/2011-11-22/world-bank-says-sees-china-soft-landing-as-asia-withstands-europe-economy.html
Personally, I do have serious doubts about it.
Two weeks ago I was visiting Hong Kong and I had the opportunity of talking to some friends, working on investment departments of Hongkongese Banks.
Everybody that I talked to acknowledges that Chinese growth statistics are not realistic; rumors say that nonperforming loans in Chinese banks could be much more than estimated http://www.marketwatch.com/story/chinas-problem-loans-looks-bleaker-moodys-2011-07-05
Can we believe that China will be able of financing US deficit when the solvency problems of the Chinese banks start to be visible and liquidity tensions show up?
I don’t think so.
For the moment, we have to believe that business remains as usual; as markets get concerned about Euro stability, hedge funds and smart money move their assets to the US and everybody has to accept that speculation is the best method for capital allocation.
We still have a little more solvency to waste.
This is today, and tomorrow?
We'll see.
Kindest Regards.
Ferran.
This has been an interesting week in the long way to the new model in the Financial System.
Beginning of week the European Central Bank increased liquidity lines in USD, logic movement as the market speculates with the collapse of the Euro zone and US Treasury Bonds emerge as the traditional safe asset.
But assuming the US Bond is a safe asset means that we still can exit the crisis wasting solvency, and no, unfortunately this road is close to the end.
Let’s have a look to some ratios; available at the US debt clock website http://www.usdebtclock.org/ some of them, like the National Debt divided by GDP are really scary. In fact many of them are even worse than those during the Great Depression.
Nevertheless and for the moment the country is still capable of financing its deficit at relatively low interest rates. The question is if this is sustainable and for how long.
If we look at the US debt holders, the largest one is China, with 26 percent of all foreign-held U.S. Treasury securities. The US trade deficit with China is the largest in the world, and a symptom of global economic imbalance. Simplifying China exports manufactured goods to US that US pays with debt.
I cannot deny that the construction has worked very well for the last 15 years but in my opinion this is about to change.
Chinese economy has its own problems, amongst others.
- High inflation rates.
- Low productivity.
- Huge dependence in foreign natural resources.
- Real estate bubble.
This is a challenging scenario for sustaining fiscal problems of the U S for a long time.
The official statement from the World Bank is that Chinese economy is going to land softly http://www.bloomberg.com/news/2011-11-22/world-bank-says-sees-china-soft-landing-as-asia-withstands-europe-economy.html
Personally, I do have serious doubts about it.
Two weeks ago I was visiting Hong Kong and I had the opportunity of talking to some friends, working on investment departments of Hongkongese Banks.
Everybody that I talked to acknowledges that Chinese growth statistics are not realistic; rumors say that nonperforming loans in Chinese banks could be much more than estimated http://www.marketwatch.com/story/chinas-problem-loans-looks-bleaker-moodys-2011-07-05
Can we believe that China will be able of financing US deficit when the solvency problems of the Chinese banks start to be visible and liquidity tensions show up?
I don’t think so.
For the moment, we have to believe that business remains as usual; as markets get concerned about Euro stability, hedge funds and smart money move their assets to the US and everybody has to accept that speculation is the best method for capital allocation.
We still have a little more solvency to waste.
This is today, and tomorrow?
We'll see.
Kindest Regards.
Ferran.
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