The reason why the recession of the late 1920s in the UD became the Great Depression is a combination of three factors. overly tight monetary policy, overly cautious fiscal policy (espcially under FDR in 1936, when tightening led to another sharp downturn in the US economy), and dramatic recourse to beggar-thy-neighbour policies, including competitive devaluations (as countries went off the gold standard in the 1930s) and increases in trade barriers.
Source: Arvind Subramanian, "How Disgraced Economists Managed to Make Amends" FT, 28/12/2009.
Monday, December 28, 2009
Thursday, December 17, 2009
Chimerica
"Today the average American earns more than $34,000 a year ... the average Chinese lives on less than $2,000. Why would the latter want, in effect, to lend money to the former, who is twenty-two times richer? The answer is that, until recently, the best way for China to employ its vast population was through exporting manufactures to the insatiably spendthrift US consumer. To ensure that those exports were irresistibly cheap, China had to fight the tendency for the Chinese currency to strengthen against the dollar by buying literally billions of dollars on world markets..."
Chimerica - China plus America - which accounts for just over a tenth of the world's land surface, a quarter of its population, a third of its economic output and more than half of global economic growth in the past eight years. For a time it seemed like a marriage made in heaven. The East Chimericans did the saving. The West Chimericans did the spending. Chinese imports kept down US inflation. Chinese savings kept down US interest rates. Chinese labour kept down the US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chimerica, global real interest rates - the cost of borrowing, after inflation - sank by more than a third below their average over the past fifteen years. Thanks to Chimerica, US corporate profits in 2006 rose by about the same proportion above their average share of GDP. But there was a catch. The more China was willing to lend to the United States, the more American were willing to borrow. Chimerica, in other words, was the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge fund population explosion. It was the underlying reason why private equity partnerships were able to borrow money left, right and centre to finance leveraged buyouts. And Chimeraca - or the Asian 'savings glut', as Ben Bernanke called it - was the underlying reason why the US mortgage market was so awash with casein 2006 that you could get a 100 per cent mortgage with no income, no job or assets.
Source, N Ferguson,The Ascent of Money, 332-336.
Chimerica - China plus America - which accounts for just over a tenth of the world's land surface, a quarter of its population, a third of its economic output and more than half of global economic growth in the past eight years. For a time it seemed like a marriage made in heaven. The East Chimericans did the saving. The West Chimericans did the spending. Chinese imports kept down US inflation. Chinese savings kept down US interest rates. Chinese labour kept down the US wage costs. As a result, it was remarkably cheap to borrow money and remarkably profitable to run a corporation. Thanks to Chimerica, global real interest rates - the cost of borrowing, after inflation - sank by more than a third below their average over the past fifteen years. Thanks to Chimerica, US corporate profits in 2006 rose by about the same proportion above their average share of GDP. But there was a catch. The more China was willing to lend to the United States, the more American were willing to borrow. Chimerica, in other words, was the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge fund population explosion. It was the underlying reason why private equity partnerships were able to borrow money left, right and centre to finance leveraged buyouts. And Chimeraca - or the Asian 'savings glut', as Ben Bernanke called it - was the underlying reason why the US mortgage market was so awash with casein 2006 that you could get a 100 per cent mortgage with no income, no job or assets.
Source, N Ferguson,The Ascent of Money, 332-336.
Tuesday, December 15, 2009
Greenshoe Option
A Green Shoe
Source:
A Green Shoe, also known by its legal title as an "over-allotment option" (the only way it can be referred to in a prospectus), gives underwriters the right to sell additional shares in a registered securities offering if demand for the securities is in excess of the original amount offered. The Green Shoe can vary in size up to 15% of the original number of shares offered.
The Green Shoe option is popular because it is the only SEC-permitted means for an underwriter to stabilize the price of a new issue post-pricing. Issuers will sometimes not permit a greenshoe on a transaction when they have a very specific objective for the offering, and do not want the possibility of raising more money than planned. The term "Green Shoe" comes from a company founded in 1919 as Green Shoe Manufacturing Company, who made Wellington boots, now called Stride Rite Corporation, which was the first company to permit this practice to be used in an offering.
Source:
Sunday, December 13, 2009
Negotiable Instrument, Discounting of Bill, Bill of Exchange, and Draft
Negotiable instrument is document of title or evidence of indebtedness that is freely (unconditionally) transferable in trading as a substitut for money. Negotiable instruments are unconditional orders or promise to pay, and include checks, drafts, bearer bonds, some certificates of deposits, promissory notes, and bank notes. A negotiable instrument has three principal attributes: (1) an asset or property (that is the subject matter of the instrument) passes from the transferor to the transferee by mere delivery and/or endorsement of the instrument, (2) a transferee accepting the instrument in good faith and for value (and who has no notice of any defect in the title of the transferor) obtains an indefeasible title and may sue on the instrument in his or her name, and (3) no notice of the transfer need to be given to the party liable in the instrument.
Source: <http://www.businessdictionary.com/definition/negotiable-instrument.html>
Discounting of Bill refers to cashing or trading a bill of exchange at less than its par value and before its maturity date. The cash thus realized varies according to the number of days until maturity and the risk involved.
Source: <http://www.businessdictionary.com/definition/discounting-of-bill.html>
Bill of Exchange is written and unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum either immediately (the sight bill) or on a fixed date (the term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract. It is also called a draft but, while all drafts are negotiable instruments, only "to order"bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (Geneva Convention), A Bill of Exchange contains: (1) The term "bill of exchange"inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) An unconditional order to pay a determinate sum of money. (3) The name of the person who is to pay (drawee) (4) A statement of the time of payment (5) A statement of the place where payment is to be made. (6) The name of the person to whom or to whose order payment is to be made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of the person who issues the bill (drawer). Bill of Exchange is the most often form of payment in local and international trade, and has a long history-as long as that of writing going back over 5000 years.
Source: <http://www.businessdictionary.com/definition/bill-of-exchange-BOE.html>
Draft is bill of exchange which is written payment order from one party (the drawer) to the another (the drawee) to pay a stated sum to a third party (the payee) either immediately (in case of a sight draft) or on or before a specified date (in case of a time draft). When presented with shipping and/or title documents, it is called a documentary draft; without them, a clean draft. Also called draft bill of exchange.
Source: <http://www.businessdictionary.com/definition/draft.html>
Source: <http://www.businessdictionary.com/definition/negotiable-instrument.html>
Discounting of Bill refers to cashing or trading a bill of exchange at less than its par value and before its maturity date. The cash thus realized varies according to the number of days until maturity and the risk involved.
Source: <http://www.businessdictionary.com/definition/discounting-of-bill.html>
Bill of Exchange is written and unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum either immediately (the sight bill) or on a fixed date (the term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract. It is also called a draft but, while all drafts are negotiable instruments, only "to order"bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (Geneva Convention), A Bill of Exchange contains: (1) The term "bill of exchange"inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) An unconditional order to pay a determinate sum of money. (3) The name of the person who is to pay (drawee) (4) A statement of the time of payment (5) A statement of the place where payment is to be made. (6) The name of the person to whom or to whose order payment is to be made. (7) A statement of the date and of the place where the bill is issued. (8) The signature of the person who issues the bill (drawer). Bill of Exchange is the most often form of payment in local and international trade, and has a long history-as long as that of writing going back over 5000 years.
Source: <http://www.businessdictionary.com/definition/bill-of-exchange-BOE.html>
Draft is bill of exchange which is written payment order from one party (the drawer) to the another (the drawee) to pay a stated sum to a third party (the payee) either immediately (in case of a sight draft) or on or before a specified date (in case of a time draft). When presented with shipping and/or title documents, it is called a documentary draft; without them, a clean draft. Also called draft bill of exchange.
Source: <http://www.businessdictionary.com/definition/draft.html>
Monday, December 7, 2009
The Hong Kong Market
The Hong Kong market can be loosely divided into four sectors: banking, insurance, MPF system, and securities and futures. In the banking sector, the Hong Kong Monetary Authority (HKMA) is the regulator of banks. It also aims to keep the Hong Kong dollar stable through management of the Exchange Fund and monetary policy. In insurance, the Office of the Commissioner of Insurance oversees matter relating to the insurance industry. In MPF, the Mandatory Provident Fund Schemes Authority regulates and supervises the operations of provident fund schemes. In securities and futures, the Securities and Futures Commission (SFC) is the regulator of the securities and futures market.
Sunday, December 6, 2009
No Fault Insurance
In its broadest sense, no-fault insurance is a term used to describe any type of insurance contract under which insureds are indemnified for losses by their own insurance company, regardless of fault in the incident generating losses. In this sense, it is no different from first-party coverage. However, the term no-fault is most commonly used in the context of state/provincial automobile insurance laws in the United States, Canada, and Australia, in which a policyholder (and his/her passengers) are not only reimbursed by the policyholder’s own insurance company without proof of fault, but also restricted in the right to seek recovery through the civil-justice system for losses caused by other parties.
Monday, November 30, 2009
The US Treasury
The Department of Treasury is an executive department and the treasury of the US federal government. It was established by an Act of Congress in 1789 to manage government revenue. The Department is administered by the Secretary of the Treasury, who is a member of the Cabinet.
Besides the Secretary, one of the best-know Treasury officials is the Treasurer of the US, who receives and keeps the money the US, Facsimile signatures of the Secretary and the Treasurer appear on all modern US currency.
The basic functions of the Department of the Treasury include:
The basic functions of the Department of the Treasury include:
(1) Managing federal finances,
(2) Collecting taxes, duties, and monies paid to and due to the US and paying all bills of the US
(3) Producing all postage stamps, currency, and coinage,
(4)Supervising national banks and thrift institutions,
(5)Advising on domestic and internatonal financial, monetary, economic, trade and tax policy (fiscal policy being the sum of these, and the ultimate responsibility of Congress.
(6) Enforcing Federal finance and tax laws,
(7) Investigating and prosecuting tax evaders, counterfeiters, forgers, smugglers, illicit spirits distillers, and gun law violators.
With respect to the estimation of revenues for the exexutive branch, Treasury serves a purpose parallel to that of the Office of Management and Budget for the estimation of spending for the executive branch, the Joint Committee on Taxation for the estimation of revenues for Congress, and the Congressional Budget Office for the estimation of spending for Congress.
The term Treasury reform usually refers narrowly to reform of monetary policy and related economic policy and accounting reform. The broader term monetary reform usually refers to reform of policy of institutions such as the International Monetary Fund.
The term Treasury reform usually refers narrowly to reform of monetary policy and related economic policy and accounting reform. The broader term monetary reform usually refers to reform of policy of institutions such as the International Monetary Fund.
Subscribe to:
Posts (Atom)
