Posts Tagged ‘economic crisis’

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Did Asia learn the lessons of its financial crisis?

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Hot and sour

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Free exchange

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Trump’s Washington is paralysed

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MUSEUM SIAM in Bangkok is dedicated to exploring all things Thai. Until July 2nd, that includes an exhibition on the Asian financial crisis, which began on that date 20 years ago, when the Thai baht lost its peg with the dollar. The exhibition features two seesaws, showing how many baht were required to balance one dollar, both before the crisis (25) and after (over 50 at one point). Visitors can also read the testimony of some of the victims, including a high-flying stockbroker who was reduced to selling sandwiches, and a businesswoman whose boss told her to “take care of the work for me” before hanging himself. (In Hong Kong, Japan and South Korea, 10,400 people killed themselves as a result …

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Borrowers have the whip hand in the credit markets

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Easy money

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WHEN the financial crisis was at its height in 2008, being a debtor was a dreadful experience. Banks and companies scrambled desperately to get the financing they needed.
But the balance of power in the financial markets can easily shift. In 2005 and 2006, credit had been easy to get on generous terms. Not only were loans cheap and plentiful; they also suffered from fewer restrictions. Until then, corporate loans had many covenants offering safeguards for lenders if the debtor’s financial position were to deteriorate. But 2005-06 saw the emergence of “covenant-lite” loans in which such restrictions were virtually non-existent.

The cycle has turned again. Analysis by Moody’s, a ratings agency, shows …

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THE Swedish economy is, by all accounts, booming. Output, adjusted for inflation, has grown by 2.8% on average since 2009 and rose by a robust 3.2% last year. In April Swedish inflation nearly hit the target of 2% aimed at by the Riksbank, Sweden’s central bank. Yet the Riksbank has chosen to leave interest rates at an extraordinarily low level: below zero, in fact, at -0.50%. In addition, it is increasing stimulative asset purchases, known as quantitative easing (QE). What is the Riksbank up to?Sweden’s central bank is not alone in erring on the side of dovishness. Even as post-crisis doldrums give way to steady growth, central banks worldwide tend to remain cautious, because often faster growth has not yet led to high inflation. American economic growth has been chirpy for years, and unemployment in America has just fallen to a 16-year low of 4.3%, yet the Federal Reserve’s target range is still only at 0.75-1%. The Fed is tightening—it has ended its own QE programme and begun lifting rates—but at a slower pace than it aimed to achieve two years ago. In the euro area, the European Central Bank (ECB) is still buying bonds by the barrel in an effort to keep inflation moving towards its target. Small, open economies face the additional complication that capital flows from abroad can …

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UK politicsRead more British election coverageTHERE is plenty of evidence that incumbent governments do better in elections when the economy is strong. In the last year or so, the British economy has not looked too bad. In 2016 average earnings rose by 2.2%, the joint-highest growth seen since the economic downturn in 2008. Unemployment is around 4.5% and the employment rate is at its highest since records began. Theresa May will reap the rewards of decent growth at the election—just as things start to turn sour. Economists, of course, had believed at the time of the Brexit referendum last June that a vote to Leave would push the economy into recession almost immediately. In the event, they were proved spectacularly wrong. Consumer confidence was barely affected: those who voted Leave had little reason to feel concerned about the future (after all, they had got what they wanted), whereas for Remain voters, Brexit seems vague and a long way off. GDP grew by 0.5% in the third quarter of 2016 and 0.7% in the fourth, leaving Britain with the fastest growth of any G7 economy for 2016 as a whole. Yet something related to the Brexit referendum—the tumble in the value of sterling—is now causing the economy to slow. The British economy is highly dependent on consumer spending. With …

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STEPHEN POLOZ, the governor of the Bank of Canada, has been warning Canadians about piling up debt to buy overpriced houses since he took office four years ago. At first he used bankerly language, pointing to the risk of a “disorderly unwinding of household-sector imbalances”. Lately, with household debt at record levels and house prices in Toronto and Vancouver continuing to rise, he has started to speak clearly. “It’s time to remind folks that prices of houses can go down as well as up,” he said on April 12th.
Various levels of government have been trying to restrain house prices (which Mr Poloz has encouraged to rise by keeping interest rates low). The federal government has tightened conditions for the mortgage-insurance policies it sells to lenders, which cover more than half of mortgages by value. Last year the government of British Columbia, Vancouver’s province, slapped a tax of 15% on foreign buyers. Ontario, whose capital is …

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Worries mount that it is too easy to borrow to buy a car

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Subprime, anyone?

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Car finance in America and Britain

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The data economy demands a new approach to antitrust

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Subprime, anyone?

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LONDON AND NEW YORK

THOUSANDS of second-hand cars, ranging from dented clunkers to Bentleys, glisten under the evening floodlights at Major World, a car dealership in Queens, a borough of New York. “Business has been good,” says a crisply-dressed salesman, scurrying between prospective customers. Almost everyone who wants to buy a car at Major World can get approved for a loan, he explains, regardless of their credit score, or lack of one: when banks turn buyers down, the dealership offers them its own in-house financing.
In both America and Britain new-car sales …

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Investors are simultaneously bullish and skittish about valuations

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Cape Fear

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TEN years ago this month investors were pretty confident. True, there were signs that problems in the American housing market would mean trouble for mortgage lenders. But most people agreed with Ben Bernanke, the Federal Reserve chairman, that “the impact on the broader economy…seems likely to be contained.” The IMF had just reported that “overall risks to the outlook seem less threatening than six months ago.”
That was reflected in market valuations. In May 2007 the cyclically-adjusted price-earnings ratio (CAPE), a measure that averages profits over ten years, was 27.6 for American equities (see chart). That ratio turned out to be the peak for the cycle. As the …

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