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KEY ISSUES FOR PROGRESS TOWARDS MORE STABLE GLOBAL FINANCIAL MARKETS


NEW Real time blog post –

KEY ISSUES FOR PROGRESS TOWARDS MORE STABLE GLOBAL FINANCIAL MARKETS

ALL RIGHT !! Domestically, we are well on the road towards economic recovery. We are not out of the woods yet however. Some big issues that remain unresolved include: the U.S. economy’s response to inevitable B A S I C financial reform legislation ( It will not be overly restrictive financial reform. See the last paragraph of this blog for yet another reason why this will be so. ), as well as how the continuing onslaught of domestic ( and some foreign … perhaps Spain as well as other countries.. ) residential mortgage defaults. I believe the EU is currently seriously discussing some structural reform issues, but it is very early to tell how things may turn out. It is a very encouraging sign however. Lastly, I will touch on the issue of the valuation of the Chinese currency. The above mentioned issues are just some of the many important global issues that I have decided to address in this blog today.

Let’s start with the global residential housing market. Domestic first. Our domestic economy may well continue to have some trouble dealing with continued residential mortgage defaults for some time yet. I’m not sure how financial institutions, especially some of the bigger banks that hold a great majority of these mortgages will manage this situation. I’m not even sure these institutional themselves know for sure. That’s OK though. Economically, things are still tricky, even for the experts at the top of the ‘food chain’ in finance, banking as well as government. Leaving some room to maneuver is likely a wise decision by all the players involved. The onus may likely fall on the Obama Administration to collaborate with the banks to find an amicable solution to manage continuing rate of voluntary and involuntary mortgage defaults.

Let’s look at the E.U. as well. The housing market and economy of Spain are a concern. Spain makes up a considerably larger proportion of the E.U.’s GDP.As a result, it’s sovereign debt issues and economy are a major concern for the E.U.

What about China?! They have experienced quite a ‘building BOOM’ , both commercially and residentially. It’s the residential housing market that causes many people concern. If I am not mistaken, many residential apartments in Shanghai that are being built ( have been built ) are charging monthly rent that is equal to an average Shanghai resident’s income FOR THE ENTIRE YEAR. That may be a little bit of a problem. On the other hand, China’s centralized, economic decision making structure seems to be pretty good about exerting control and making quick and necessary changes ( when it is in their domestic economic interest ). I am not sure that China’s housing market is a huge concern. We will see. 

What about the valuation of the Chinese currency? I believe that China will slowly let it’s currency appreciate. This is in the best interest of China as well as the rest of the world. But it likely happen slowly; on a time table that is economically comfortable and viable for China and it’s interests. China realizes that it must increase domestic economic demand. China’s economic role on the world stage in slowly changing, as China is currently dealing with economically healthy, but sometimes turbulent domestic worker wage increases that are already causing concern to multi-nationals that outsource labor to China. Some of these multinationals are looking to Vietnam and other developing countries as havens of low cost labor; as a medium to longer term alternative to rising Chinese wages. We will see how all of this plays out on the world economic stage and it’s short and medium term effects on global financial markets.

According to the New York Times today, the U.S. Treasury Secretary is attending a G-20 Summit in South Korea and is said to be pushing for G20 bank rules, especially pushing for the tightening and coordinating of capital and liquidity standards among larger G20 economies. This tightenign and coordination likely eventually happen, because there is no better way to initially stabailize the global financial markets in the medium term. I think most countries realize this on a fundamental level ( maybe not publicly on the international stage though. ) This is also another reason why U.S. financial reform will be relatively basic and not overly restrictive … it must have the capacity to blend with other large G-20 countries in some regards to bank rules in the short and medium term.

We will see what happens.

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About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.

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