Sunday, January 27, 2013

Technological Advancement - Backbone of Banking Industry

Technological advancement, newer financial strategies, customer demands, rising industrial sector, faster breakthroughs has dramatically transformed the banking industry. Now banks are completely accessible by any one from anywhere. Banks are consistently offering value-added, fast, and customized services to its business customers as well as users. In fact, banks are embracing changing technological trends and offering every service at lightning fast speed. They are leveraging IT and developing their services around it. No doubt, rapid adoption of breakthrough technology by banks and financial institutions has successfully facilitated the communities. These services are highly responsive and help in successful development of business infrastructure for stimulating faster growth.

Another transparent advantage of technology is the lowering of service cost. It has attracted small-scale business owners and simultaneously encouraging banking bodies to introduce more enticing yet advanced offering by banks.

Currently, small percentage of people has access to banking technology and its advanced services. This is the reason banks are making their services online. They are growing their service-standard and improving efficiency & productivity at the same time. This will enhance the standards of living and resolve several business criticality. In addition, this help will help in smooth growing and ideal use of business resources. Banks are also expanding to deliver innovative and proper solutions for long-term business success.

Banks are also making large investments in IT filed to strengthen their overall infrastructure. They are looking for substantial improvements in service and product quality. They are making serious efforts to develop financial products that are helpful in business planning and investment. Banking executives and economists are busy in developing world-class analytical tools, fraud detection techniques, multi-channel environment, and adoption of mobile platforms, banking technology trends, and leading public cloud applications. This will help them in offering secured solutions and services that are capable of helping big business structures.

In addition to that, banks are also evolving faster and introducing core banking solutions and risk management solutions to help businesses and people to access services efficiently. In fact, they are extensively investing in software, hardware, geographic insights, foreign exchange solutions, emerging markets, and communication as well as other technological solutions for vivid support. For better identification, banks are resolving customer queries and responding to their concerns. Even, banking executives are developing tailored business-based solutions and services so that business people can have banking support every time. This will mitigate the potential business risks, improve productivity and bring prosperity in communities.

Sunday, January 20, 2013

Mexican Central Bank Cut Base Rates

Last week's news that the central bank of Mexico reduced base rates by 0.5% was initially seen as a sign of weakness with many experts predicting that investors would flee the country with concerns about the short to medium-term economic outlook. However, the situation could not be any different and the reduction in base rates to 4% has actually reinvigorated investor interest in Mexico and given the government a significant shot in the arm as deadlocked reform discussions continue.

Why did the central bank reduce base rates?

The Mexican economy is still performing relatively well, especially when compared to the rest of the world, but there are many experts who believe it could do an awful lot better. Indeed over the last couple of years the Mexican government has been attempting to combat inflation with relatively high base rates although the average inflation rate has fallen to around 3.7% over the last two years which is a full percentage point lower than the previous two years. As a consequence, the central bank now believes it can take its foot off the brake and breathe new life into the economy.

We must not forget that the Mexican economy grew by 4% in 2012 although there was a significant slowdown in retail spending and industrial production in the fourth quarter of the year. It now seems as though the reduction in base rates, to the lowest level on record, could prompt more significant changes within the Mexican economic framework.

Political deadlock

Political parties are currently at deadlock with regards to potential reforms to the business arena which many experts believe will breathe new life into the economy. The reduction of base rates towards the end of last week was something of a surprise to many people although renewed interest in the economy could prompt the deadlocked talks to move forward.

There is no doubt that Mexico has the potential to be more productive, increase its spread of exports (currently around 80% of Mexican exports go to the US) and while there was a short-term blip in the fourth quarter of 2012, it seems as though the economy may well be back on track. The pressure on the political elite in Mexico is now growing and investors, businesses and consumers are chomping at the bit to play their role in revitalising the economy and pushing it yet further forward.

Sunday, January 13, 2013

Economic Growth in Chile

When you look at Latin America it is the likes of Brazil, Mexico, Colombia, etc who grab the headlines with other countries such as Chile often left in the shadows. However, while economic growth in Brazil and Mexico continues to push forward at a slower rate it was interesting to see that earlier this week it was announced that economic growth in Chile was actually well above expectations.

This perfectly illustrates the reason why so many expats are now considering Chile as their home of the future. It is a country which has been in the doldrums for some time, it is a country rich in natural resources and finally it is one which is beginning to fulfil its potential.

Economic growth in Chile

Economic growth in Chile was reported at 6.7% for January 2013 compared to the same period in 2012. This is a very impressive result and continues the 19 month long trend of economic growth in excess of 6%. This is the kind of figure which European counterparts can only dream of and even the likes of Brazil and Mexico are nowhere near this kind of growth.

While it is unlikely that growth for the full year will match the 6.7% rise in January 2013, it is still expected to exceed 5.4% with potential for further upward revision. Even this figure of 5.4% is well in advance of the International Monetary Fund's prediction of 4.4% annual growth in 2013. If anything, the Chilean central bank is erring on the side of caution because there seems to be great momentum behind the upward curve in economic growth across the country.

What is behind the increase in economic activity?

While there is no doubt that retail sales, up 9.5%, and mining production, up 8.4%, during the last 12 months have had a major impact upon the overall growth figure, there is more to this than meets the eye. There is now a general feelgood factor throughout Chile which is likely to lead to more confidence from internal and international investors going forward. The fact that the country is finally beginning to fulfil potential income streams from its array of natural resources is a bonus which looking back has been replicated across many successful economies - most notably Australia in recent times.

Taking a step back from the situation, the Chilean government will need to ensure a balance between economic growth and sensible management of the economy. It would not take much to tip the economy one way or the other and overheating of the Chilean economy would be very difficult to cool down.

Benefiting from Latin America

Even though the likes of Brazil and Mexico continue to grab the lion share of both internal and external trade amongst Latin American countries, Chile is beginning to benefit from ongoing trading arrangements. Many of the Latin American governments have come together to speak as one voice on the international trading stage to gain more access and more business for the continent as a whole. While the vast majority of the new business is going the way of Brazil, Mexico, Colombia, etc there will be opportunities for the likes of Chile to build on recent economic growth and push ahead for the future.

Sunday, January 6, 2013

China Eclipsed the US As the Biggest Trading Nation - Questions to Ask From an Austrian Perspective

Last month one of the Bloomberg's headline news was titled "China Eclipses the U.S. as Biggest Trading Nation". There seems to be of concern China's 2012 reported trade of $3.87 trillion surpassing the U.S. report of $3.82 trillion. For the full article click on the link below, at the bottom of this article.

The concern arises with the fact that...

"China's growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.'s Jim O'Neill."

Why worry so much about an Olympic athlete that had worked hard for many years to win the gold medal? The benefits of twenty and some years of manufacturing and producing real capital in the world are evident and well deserved. As far as Germany increasing its exports to China there should be no big surprise. Germany, one of the few productive economies left in the EU, needs to find a strong trading partner with whom to exchange goods and services. The key word is "strong", financially strong. Who else should Germany trade with? France, Spain, Italy, Greece, countries which are literally economically insolvent?

O'Neill goes on saying that...

"For so many countries around the world, China is becoming rapidly the most important bilateral trade partner. At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe."

So, what's wrong with that? If I owned a company and found that my best consumers for my product are on another continent, I would not hesitate. In addition, knowing that my consumers are financially capable of buying my products gives me even more reasons to target that market. Why settle for local consumers heavily in debt who can't afford my products and/or would have to acquire more debt to afford it? Competition and free markets are key components of growth and success. At this point, those European countries should pay serious attention and do whatever it takes to become competitive in the market.

Then, under the chapter U.S. Leadership, we're finding out that...

"When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis. The U.S. recorded a surplus in services of $195.3 billion last year and a goods deficit of more than $700 billion, according to BEA figures released Feb. 8. China's 2012 trade surplus, measured in goods, totaled $231.1 billion.

The U.S. economy is also double the size of China's, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China's totaled $7.3 trillion. China's National Bureau of Statistics reported Jan. 18 that the country's nominal gross domestic product in 2012 totaled 51.93 trillion yuan ($8.3 trillion).

"It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume," Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. The increase isn't all the result of an undervalued yuan fueling an export boom, as Chinese imports have grown more rapidly than exports since 2007, he said."

As far as services versus goods provided this is a clear sign that the U.S. does not provide enough goods. Goods are of two kinds. Consumer goods (those items we shop for such as cars, furniture, toys, clothing, jewelry, etc) and capital goods (which are the machinery and equipment with which consumer goods are being produced). Maybe the U.S.'s protectionist agenda, taxation, heavy unionism in conjunction with a national trend of favoring a socialist, if not fascist, economic system did not help after all. Maybe the corporate bailouts and Quantitative Easing did not in the end help the private manufacturing sector.

If I were in a position of power I would wonder - and would want to find out - how come my country with a GDP of $15 trillion has a trade deficit higher than my competition, which has a GDP half of my country's GDP. Could it be that too much of our GDP is comprised of 1. the growing of the federal government, and 2. military exposure all over the world? Could it be that such a big economy has little to justify its big number considering its producing capacity is in a less than desirable stage? Mr. Lardy addresses such a question but he seems surprised. But the small businessman in America is hardly surprised. Why? Because it's become very hard for the small business owner to compete with the government subsidized corporations when he has to jump government imposed barriers in form of rules and regulations, when he's coerced with providing health insurance coverage to his employees, and when he's faced with minimum wage restrictions. Then Mr. Lardy brings up a good point. China's imports are now replacing its exports. The answer is: Think of the U.S. back during the 1980′s, when it was the largest manufacturer in the world and the largest creditor. There seems to be a role reversing going on.

The article goes on...

"Biggest Exporter

The U.S. emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture. Protectionist policies in the 1930s had exacerbated the global economic depression. At the same time the U.K., the leading trading nation of the 19th century, began to dismantle its colonial empire."

Wait a minute, did I read that right? It says that Protectionist policies in the 1930′s had exacerbated the Depression. Wasn't Goldman Sachs concerned with Germany not trading locally within the E.U. territory? What Germany is doing is simply trading in a free market exchange. Why use protectionism to stifle it?

If the article referred to the U.K. as a colonial empire what makes today's U.S.A. different than Great Britain during the beginning of the last century?

"China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong, who died in 1976. Economic growth averaged 9.9 percent a year from 1978 through 2012."

After a long period of central planning and economic regression under the communist system China recognized that hard work and free markets are the answer to economic prosperity.

"China became the world's biggest exporter in 2009, while the U.S. remains the biggest importer, taking in $2.28 trillion in goods last year compared with China's $1.82 trillion of imports. HSBC Holdings Plc forecast last year that China would overtake the U.S. as the top trading nation by 2016."

This begs the question: Is the U.S. consuming too much and producing too little?

The article continues with claims from a few banking institutions that China's export figures could be manipulated. Maybe or maybe not. What I know is that wherever I shop in the U.S., whether Walmart or JC Penney, I can't help noticing the "Made in China" tags.

Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University in Ithaca, New York, says...

"The U.S.'s bilateral trade deficit with China, which peaked in 2012, could remain a flashpoint of tension between the two countries."

Why tension? Is it mutual from both countries, or unilateral? The question of who benefits the most out of the trading partnership at this time has not been addressed enough. What would happen to American people if Chinese goods imports would stop over night? Has the American politician explained how the lifestyle of the average American would be impacted? Has it been argued that an unemployed American may suffer drastic changes? The typical comment out there is "let's build American". Sure, I am all for it but with what? There is no savings to produce the capital required to produce goods. Or should we borrow more and increase our debt? Should we allow unions to force manufacturers to keep wages up? If we do, it means that we should also expect to pay double, if not triple for a product that otherwise would have cost us less if it were imported from China.

On the other side would China and its people be affected as much? Do they need the U.S. to consume its products? Maybe. But what if the Chinese renminbi is allowed to freely float? If that happens, the Chinese people's purchasing power is increased. If their currency goes up it means their people would be able to afford more. With a population of more than 1.3 billion I would think there would be a large enough market to consume the locally manufactured products. Not to forget the rest of the countries in the region, some with affluent residents (such as Singapore) and some emerging countries with growing industries and growing wealth (Indonesia, Malaysia, Vietnam, etc).

Mr. Prasad continues...

"This trade imbalance is not representative of the amount of goods actually produced in China and exported to the U.S., but this perspective tends to get lost amidst the heated political rhetoric in the U.S."

If it's not indicative of the productive nature of China then what does it represent? The answer is just that. China: Large production and little consumption. U.S.A.: Little production and large consumption.

Goldman Sachs', O'Neill, is concerned with...

"the trade figures underscore the need to draw China further into the global financial and trading architecture that the U.S. helped create. One way or another we have to get China more involved in the global organizations of today and the future despite some of their own reluctance. To not have China more symbolically and more importantly actually central to all these things is just increasingly silly."

Why bring China to be part of the Wall Street game? So that it becomes part of the Debt web and contributes further to the global economic instability? No, it's not silly to be sovereign. No, it's not silly to be self-sufficient. And it's not silly to be rewarded for hard work leading to production of real goods. Better than Goldman Sachs' paper derivatives. Common sense, if applied, should lead us to think of this as an advance warning. Maybe it's time America starts producing real hard assets instead of Wall Street paper assets.

Tuesday, January 1, 2013

Brazilian Economy Is Building Momentum

Earlier this month we saw confirmation that the Brazilian economy grew by just 0.9% during 2012 which was well below initial expectations of 4.5% in early 2012. In many ways this was something of a hangover from growth of the previous year and the fact that the ongoing European debt debacle is still continuing. However, there do seem to be signs that the economy is building up yet more momentum although many experts are reluctant to issue forecasts for 2013 at such an early stage.

Economic momentum in 2012

At the start of 2012 there were high expectations for the Brazilian economy with growth of around 4.5% predicted. However, very quickly it became clear that this figure was unachievable due to a mixture of factors which came to the fore during the first half of 2012.

It is also worth noting that the final three months of 2012 saw economic growth of 0.6% which in many ways saved the day and boosted the annual figure to the published level of 0.9%. There is a feeling that momentum is again starting to build within the Brazilian economy, that government plans to cut taxes and lower interest rates will begin to kick in and perhaps the situation is not as dire as many had assumed?

Putting Brazilian economic performance in context

Brazil, along with Russia, India and China, makes up the so-called BRIC Group of emerging economies which have become powerful as one unit over the last few years. It is worth noting that the likes of Russia, India and China have all experienced a reduction in GDP growth over the last 12 months. Such is the influence of this relatively small group of countries that overall worldwide economic growth could be impacted by as much as 0.5% over the next five years due to the slowdown in these economies.

However, we must note that it is very difficult to look forward with any real confidence under the current economic clouds. The European debacle is very much alive, the American government is still to confirm details of its budget and while Latin America has performed admirably during this very difficult time, it could not continue forever at historic growth rates.

Debt burden in Brazil

One factor which has caught the attention of some economists is the fact that the average Brazilian householder is now spending around 20% of their income servicing existing debts. This figure is far in excess of that associated with US households prior to the 2008 economic collapse but it is a very different situation and should be looked at in a very different context.

The recent boom in Brazilian consumer spending was there for all to see and was fuelled by an improving employment market and economic growth. Many Brazilians took out credit cards, loans, etc in the knowledge that they would be able to finance these debts going forward due to improved employment prospects and improved income.

So while the 20% figure quoted above may seem excessive, the vast majority of Brazilians will be able to pay down their debts far quicker than their US counterparts. Indeed there have been reports of some Brazilian employees experiencing wage increases of 100% over the last 2 or 3 years which has obviously taken them to a different level with regards to income.