My experience after visiting Bloomberg

Dears readers,

My experience in Bloomberg was very interesting and attracted my curiosity due to the link between designs of the office creating a very specific transparent atmosphere. Also, inside City Gate House, 39-45 Finsbury Square, the office is very impressive due to is size to imagine this fact, Bloomberg, due to specific taste about fish with the CEO’s wife owns the biggest aquarium of Europe inside an office. The personal was also saying that aquarium inside the office created a more relaxing atmosphere and unforgivable atmosphere inside a stressful situation. Like I told you from my professional experience inside trading banks, I was very impress about the effectiveness of creating a positive atmosphere generating better enjoyment and working value on a positive ambience. The lobbies was also very impressive due to the fact that decision and meeting was usually looking very informal in a good way due to this specific creation leading to shaped on the creativity of the staff, inside the decisions making.

Issues created by the crisis within Sino-US Conflicts:

Dear Readers,

(Sources: theoldspeakjournal)

According to an unofficial interview made with a deputy of city group based in Shanghai, since the subprime crisis and the crash of Lehman Brother, the Chinese government and PBOC (People Bank Of China) has bought T-bills, treasure Bills in order to consolidate his reserve, inside the capital account, therefore china has become the owner of the biggest reserve of the world (Kolesnikov-Jessop and Foroohar, Newsweek, 2010). According to an economist blog (economicshelp.org), China, without his actual GDP growth, could dramatically depreciate US dollar and therefore decrease the USA balance of Payment, by making his spending inside imports increasing, according to a deputy of city group based in Shanghai and over the world by related effect due his liquidity’s power, needed inside a shortage of liquidity by others riches countries. However, china also has a huge link within interdependency because the actual growth of Chinese is held by his external export; Chinese became at the end of 2009 the biggest exporting country after dethroning Germany, according to the BBC, “the exports value of china in 2009 was around 1 trillion of dollars”.(BBC website) In paradox the China is hold the pressure from outside more specifically with the Europe and United States of America pressure because the actual growth inside china due to low expansion on the weak part of china in the non coastal zone such as Tibet (China.org.cn).

The actual pressure, which is the main concern of the present, and analyse actually by all economist and professionals of the world, is about the exchanges rates of the RMB and the value which is about 1USD equals 6.6645 Yuan, (according to Forex website), and within a theory principle, “the currency of the country has to be based on the quota of the reserve hold by country, is the value of the invisible balance inside balance of payment, in other word the (deficit or)surplus of the exports and imports, is  positive the money has to be appreciate”, that why western countries push the PBOC to revaluate the Yuan (P. Tadaro, Smith, 2008).

The reason on the western size will be to push the exports inside China by making the price of foreign products cheaper and push the competitiveness of those companies, and also inside the western countries making the Chinese products more expensive. On this other hand the Chinese government has mentioned before by the BBC want to improve the internal competitiveness by push the price at the same level (hold back hyper inflation) in order to against three majors’ points, according to my opinion: (Sino-US Relation)

- “Possible lost of competitiveness of Chinese companies

- Destabilized the invisible balance

- Possible increasing of the unemployment rate, leads to increasing huge amount of investment by the government” (“such as creation of organisation like “man power”) (“Le point” magazine)

The Newsweek magazine pinpoints and emphasis those facts mentioned before by using “intensive protectionism policy”. The terms protectionism, according to a website is a “The doctrine or practice of restricting international trade to favour home producers, by tariffs, quotas, or (most frequently in modern times) by non-tariff barriers such as requiring and example, all Japanese video-recorders imported to France to be cleared through a small customs shed in Poitiers.”(Foreign policy website) In the same connotation, the Chinese government is using tariffs, taxation on imports making the price of the foreign goods more expensive. However the meanings of those techniques have others reasons, which do not need to be shown on this paper.

Secondly, china is using mass investments in order to maintain the equilibrium balance on the balance of payment (in this case in surplus), again in the purpose of controlling the value of the RMB, or Yuan over the dollars. Then those historical and recent facts lead to show the negative size of making international fair in danger, by using protectionism against the Adam smith theory, “invisible hand”. In order to appease the situation the actual administration of Obama and European leaders with the actual Chinese government try to find out better options. More intensively, due to a pick of conflicts between them, internationals leaders met, for example the European leaders Sarkozy and Merkel visit the Chinese government, in 16^th and 17^th of June 2010. Also, in terms of protecting the international atmosphere the WTO and the IMF are working independently to conciliate those international biggest economies. Nevertheless, the issue again is those two internationals organizations “controlling economic conflicts are very westernizes”, and may not be accurate. (James Gerber, 2010) The other point, the paper need to clarify is the term international relation is according to Kornberg and Faust, in 2005 say that: “Study of the relations of states with each other and with international organizations and certain sub national entities (e.g., bureaucracies and political parties). It is related to a number of other academic disciplines, including political science, geography, history, economics, law, sociology, psychology, and philosophy. The field emerged at the beginning of the 20th century largely in the West and particularly in the U.S. as that country grew in power and influence. The study of international relations has always been heavily influenced by normative considerations, such as the goal of reducing armed conflict and increasing international cooperation. At the beginning of the 21st century, research focused on issues such as terrorism, religious and ethnic conflict, the emergence of substrate and non-starter entities, the spread of weapons of mass destruction and efforts to counter nuclear proliferation, and the development of international institutions.”

Therefore what will be the issues of the conflicts in the future?

The future according to my opinion will need to tend for a reform of the Regional Agreement and the other institutes, such as WTO and IMF to give a better balanced position. Due to the fact that the protectionism and all economic conflict will need to increase the influence of those international in order to effectively solve all entry barriers (in MNE’s) destroy the relation between firms and the competitiveness of those, also in order to solve the actual financial and economic current situation.

United States of America

Dear Readers,

(Source: fundcn.org)

For the last century, US has become the largest powerful due to the Bretton woods period when US = 1 once of gold leading to building the largest gold reserve of the world and also gradually increase the value during the boom of the pre-subprime period (Indranarain Ramlall, 2010).

However, according to steps of the “subprime crisis USA has weaker his holding reserve and moreover the capacity of investment of the country” was affecting his economic power (Herman, M. Scwartz, 2009). The second fact, due to high unemployment rates and small liquidity the fed (Federal Reserve Bank) and the government has lost the internal dynamism causing a gradual increasing of the deficit of the currents account due to the increasing of imports and within smaller investment also emphasis the deficit with gap X / M (exp/imp) because, domestics firms are loosing competitiveness advantages from the world and moreover, the BRIC’s (emerging countries, Brazil, Russia, India, and China)

Furthermore, the weak dollar permits, the country to gain external investments shown by the increasing (W. Kolb, 2010) of the Fed stock value (Bloomberg in appendix).

Those facts pinpoint a discordance of US and China needs in terms of currency value and interne growth.

Pre and post subprime for US and China

Dear Readers,

China expansion

Chinese average GDP growth at 10 percent, for more 20 years attract in average 600 000 investments companies over interest on the opportunities to gain low labour cost and special tax treatment, involving 1billions dollars per week on the FDI. Due to this huge attraction employment rates is very high and the middle class (over 250- 350millions of people) and logically consuming power increasing by a huge amount, like since 30 years, the numbers mobile phone users is around 500 millions, or largest auto market in the world etc… (Data from Shiqiang GU, Timothy Weckesser, interview).

A past focus on manufacturing is increasing as keep going up due to cheap labour, technology and management learned from aboard increasing the competitiveness factors, strong tax incentives, emphasize export policy (Data from Shiqiang GU, Weckesser interview). This leads to create positive balance of visible trade inside Balance of payment, in other word the ratio of Exports and imports is positive and leads to explain one of the reasons of the GDP expansion. From “world’s work shop” in order to add value and shift the dominate feature of foreign trade from quantitative and qualitative the government is pushing exports from domestic Chinese firms in order to” gain more comparative advantage”. (Michael E. Brown, Owen R. Cote, Jr Sean m. Lynn-Jones and Steven E. Miller, 1991, Preface)

Therefore, the meaning of this policy based from politic focusing has the impact of maintaining manufacturing base,” in order to enhancement of independent innovation capability as the central link and will promote market-oriented & enterprise-led innovation”: (from Shiqiang GU, Weckesser interview)

Increase R&D spending from 1.3% of GDP in 2005 to 2% by 2010 and2.5% by 2020

Emphasize Support for S&T, Education, Entrepreneurship, and Shift in “Encouraged” foreign investment categories:

Ø       Targets include biotechnology, nanotechnology, renewable energy, etc.

Ø       IC research –Nano circuits and smaller

Ø       Biomedicine ‐Major biotech centers in Beijing and Tianjin, etc.

Ø       Civil aircraft

Ø       Satellite applications

Ø       New materials

Ø       Tax equalization between FIEs and domestic firms, but

Ø       150% deduction for qualified R&D expenditures

Ø       4% of GDP on education

The problem according to china will be an increasing of the RMB and lead to decrease the profit of the competitiveness and the profit made from his past investment inside the capital account. Therefore, by reversal effect US want to increase Chinese currency in order to decrease the amount paid related to the 3^rd part of the paper, also from the paper currencies manipulation by china accused by US (blog Sinous 2010).

The Subprime crisis

Dear readers,

First step

The origin of the subprime was cause by “a number of borrowers took out loans, in order to gain cash on buying house due to very good expectation of the house market price”. (W. Kolb, 2010, p558) However, the speculation was going in the wrong way due to a spill-over “ten years of ballooning properties prices in the united States les to excessive optimism by lenders and borrowers emphasis by the growth of investments made by business and governments” (W. Kolb, 2010, p106) and therefore increasing the mortgages lending, mortgage lending to contribute to rising houses price, “the average US house prices roses 86 percent between 1995 to 2006, and mortgages origination  rose by five times.” (W. Kolb, 2010, p558)   This created and result, a “property bubble deflated in 2006 to 2007, rising subprime defaults spurred a re-evaluation of the credit spread and credit market conditions that reflected boarder and more fundamental issues” (W. Kolb, 2010, p558). And therefore, people thought making money, were actually loosing cash and borrowers were not necessarily sure to get payback, and the all financial system was in panic, creating inside the bubble huge fears reinvestments and refunding risk, and a shortage of liquidity (increase of interest rates) (L. H. Janseng, K. Linsmann, Beulig N., 2008, p26)

The second step

After the property bubble, the banks were in difficulties, due to horrific future perspective. Therefore, the all financial system was in shock and the flow of investments decreased by a huge amount. This event will pinpoint the problems of reorganization and refunding the crisis due to higher risk on the interest rates and loosing money. (L. H. Janseng, K. Linsmann, Beulig N., 2008, p26). The reason of the financial system fears was amplified by the fact that all borrower are in petrifying by increasing the risk of loosing money “the all financial according to the rates of financial quota, such as AAA, AA, A, B etc were downgraded due to maximum risk of lost” (appendix).

In summary, the all investments created by firms and governments is going down and causing unemployment increasing and therefore the consumption decreasing.

The third step

The crisis becoming as a world mate due to decreasing of the balance of payment (imports increasing causing disequilibrium of the invisible balance of trade) of the riches countries and capital account in danger (financial system crash) create the subprime as terrible affect of the world economy.

A small review of the terms currrencies crisis

Dear readers,

 

According to a following post talking about currency crisis, I would like to explain through the police develop by the Chinese government and the past danger of establishing a fixed exchanges rates of the RMB.

Starting at this end of the 90’s, the Chinese government develops a fixed exchanges rate. However I would like to talk about others emerging countries starting the exact same policy in the exact same time.

In Asia, such as Taiwan, Singapore or in Russia and Argentine, due to potential growth inside the phenomena of seeing in the world the start of BRIC and emerging countries due to high develop of richer countries and also due to the cost of investments and labor force, the GDP of those countries start to increasing by a huge amount and therefore causing in a longer terms some hyperinflation and create discordance inside.From the website (PDF) following, the reasons is : "Indicators such as inflation and unemployment, or inflation and tax rates are the arguments of the social welfare functions usually applied to the analysis of stabilization policies in economies suffering from an “Inflationary bias”." In order to against those risk the emerging countries starting within a fashion policy to establish a fixed exchanges rates policy: what do it mean!

The meaning of establishing this policy is to create an invariable domestic currency value inside the FX market. The tools in order to follow this policy will part, inside expansionary (pinpointed by central bank) of controlling the visible balance of trade or in other world the ratio of the imports and exports and therefore the currents account inside balance of payment. By, in negative visible balance or in other term the country imports more goods than selling it, adding liquidity inside different part of the balance of payment (capital and financial accounts) and more logically my adding value of the reserve of the specific country. But the risk will be, proportionally within the deficit ratio, to increase the cost of maintaining the fixed exchanges rates policies.
in order to have an idea of the structure of the balance of payment, I decided to shown the japenese balance of payment from 2006 to 2009 (http://www.stat.go.jp/english/data/handbook/img/tab11_4.gif)

In the case of china power through population, demographic, population age, cost of investment, and cost of activities after investment… the government had a ratio of visible balance with a huge percentage more than positive. In other word the Chinese government has to make other investments aboard like buying gold and T-bills. Which doesn’t need to be focused on, due to the actual week concerne?

However, due to negative ratio, told before the article, governments in this case had to use investments inside their own capital account (more frequently). There is 3 different types of the currencies crisis which are 1^st, 2^nd, 3^rd generations, defined by:

1^st generation:

The 'first generation' of models of currency crises began with argues that a sudden speculative attack on a fixed exchange rate, even though it appears to be an irrational change in expectations, can result from rational behavior by investors. This happens if investors foresee that a government is running an excessive deficit, causing it to run short of liquid assets or "harder" foreign currency which it can sell to support its currency at the fixed rate. Investors are willing to continue holding the currency as long as they expect the exchange rate to remain fixed, but they flee the currency “en masse” when they anticipate that the peg is about to end.

2^nd generation:

            The 'second generation' of models of currency crises starts with the paper of Obstfeld (1986).^. In these models, doubts about whether the government is willing to maintain its exchange rate peg lead to multiple equilibrium, suggesting that self-fulfilling prophecies may be possible, in which the reason investors attack the currency is that they expect other investors to attack the currency.

3^rd generation:

'Third generation' models of currency crises have explored how problems in the banking and financial system interact with currency crises, and how crises can have real effects on the rest of the economy.
McKinnon & Pill (1996), Krugman (1998), Corsetti, Pesenti, & Roubini (1998) suggested that "over borrowing" by banks to fund moral hazard lending was a form of hidden government debts (to the extent that governments would bail out failing banks).
Radelet & Sachs (1998) suggested that self-fulfilling panics that hit the financial intermediaries, force liquidation of long run assets, which then "confirms" the panics.
Chang and Velasco (2000) argue that a currency crisis may cause a banking crisis if local banks have debts denominated in foreign currency.
Burnside, Eichenbaum, and Rebelo (2001 and 2004) argue that a government guarantee of the banking system may give banks an incentive to take on foreign debt, making both the currency and the banking system vulnerable to attack.
Krugman(1999) suggested another two factors, in an attempt to explain the Asian financial crisis: (1) firms' balance sheets affect their ability to spend, and (2) capital flows affect the real exchange rate. (He proposed his model as "yet another candidate for third generation crisis modeling". However, in his model, banking system plays no role. His model led to the policy prescription: impose a curfew on capital flight which was implemented by Malaysia during the Asian financial crisis.

In conclusion, the specific objective is to understand “why China had the opportunity for the past 20 years to maintain this fixed policy and the risk taken by the government in such a bad time” and to pinpoint “what is the historically and actually the power of this country based on huge investments, demographic, people age, etc establish is power through years!” and more theatrically the macroeconomic terms of currencies crisis”, due to nowadays people think about subprime “a crisis” but don’t understand the actual meaning of the past crisis which is based on the failure of financial system in USA after becoming a global crisis.

picture about the german post-war currency crisis destroying the value of the german currencies at this time deutsche Mark

marketoracle.co.uk

sources of the article is: "international economics theory & policy, pearson 8th edition , Krugman and Obstfeld"

Avialable URL: http://www.eui.eu/Personal/corsetti/research/adr.PDF

my personal experience in china

Dear readers,

I decided this week to argue with you the paradox between a country pretending to be open to be world and the nationalism with Chinese people and political aspect.

First, I loved the paradox when Chinese are very uninterested to foreign and do not pay attention of outside, which is increase by the propaganda hold by the government within total control of all resources such as internet. There is in china thousands of Chinese persons working for the government which only looks inside internet in order to control information and facts regarding china and all facts which could create a negative influence in the image. Also, the Chinese education is very  control in order to establish a pro Chinese opinion, a bite like in USA where in general people thinks there in their country and nothing around, a friends use to live in Seattle and when I was saying in origin in this case France people where like “where is that!!”. If you go to weak economic zone the level of study is so low! While I was leaving in Nanjing a city of 10 million people where actually so uneducated about the outside china and could not actual talk to you because there were xenophobe. That why my experience in Nanjing was quite bad.

The policy in china is a paradox while I was interviewing a deputy of BNP Paribas, the person told me that 3the biggest paradox, in the world is the policed orientation of China!”

This point is very interesting in terms of “who the government manage this discordance”. As again a personal experience internet café in china is very control (for example the foreigners and Chinese people have to give their passport and a person control the research people made!!!!)  The main points are education and control of the Chinese people viewed before. However, there is many methods use in china in terms of global polices inside MNE and  of Chinese always keep control and avoiding globalization in the case of the sharing savoir faire and many more ….

Another term which is interesting to follow is the volatility in macroeconomic within same logical way to analyse the derivative market, in the hedges fund. The volatility in China Daily a newspaper based in Shanghai decided to analyse the economy of china, the terms is use to shown the possible trend (see the graph below) in the case of an unspecified example within :http://www.onlinetradingconcepts.com/images/technicalanalysis/VolatilityZIsilvertop.gif

The Shanghai Daily that the fluctuation on the macroeconomic theory is not very reliable because the term does not consider economic globalization and polices aspects with expansionary (control by the central bank in this case the CBOC) or fiscal control b the government within speculation of the stocks market:

China's stock market fluctuations do not reflect any macroeconomic problems, the country's chief banker said Monday.

World stocks have recovered some of the ground lost in the drastic sell-off of global equities that began February 27 when China's Shanghai Composite, the country's main stock index, plunged nearly 9 percent.

"I personally believe that there are no problems at the macroeconomic level and stock market price fluctuations will not lead to any substantial change in trends," Zhou Xiaochuan told a press conference on China's monetary policy.

At the same time, Xiaochuan declined to answer directly whether the global sell-off was triggered by a sharp fall in China's stocks.

"Initially China believed that its share market was comparatively small and at a nascent stage in its development. But economic globalization has created a close relationship between fluctuations on various stocks markets. This is a testament that we must accelerate the development of China's market," the chief banker said.

Xiaochuan also said China should make more effort to better integrate its capital market into the global system.

the article shown the paradox of the economy within actual situation in the case of chinese huge growth could lead to weak in the future by making hyperinflation and disparty between rich and poor people. Following by the example of Argentina with in 2001 when the governement did the same as china nowdays by controlling his value of his currency (fixed exchange rates) by mainting a positive balance of payment therefore by putting liquidy inside the economy,not printing any money but by consolidate his reserve. the bulle was declare when the goverment could not anymore face his past visible balance (the ratio of imports/exports being negative). this fact will be pinpointed by the 1st generation of the currency crisis, however there is 3 currencies crisis which will be follow in a recents future in order to pinpoint the battle between US EU and China due to a politic of maiting RMB at a fixed exchange rates.
In the case of china, and managing his reserve for the past 20 years inside Fixed exchanges  rates policy has built the biggest of the world with 1.054 tonnes of gold and 800 billions $ of Treasury bills.

the concerne of internal developpement

The idea is to understand the issue faced by the government recently:  the decrease in rates of internal dynamics and job creation.

During the followed ten year, china has known a dramatic increasing of his GDP and became the second most powerful country in the world. (according to is dramatic incresing of external and internat exports leading to pass germany: in terms of analysing is invisible balance of payment) Within this growth, china had the advantages of his cheap labour force and polices decisions pushing external investments. This leads to attract huge amount of foreign investments, especially when the economic situation in the rich countries has known a decreasing, within recession.

So, this fact has covert his actual situation through his own bases (Chinese companies and public zone; like government subsidies weaker than the previous needs) also, within taxes pressure pushing back external dynamism, follow the example (within smaller porportion) of France after political change.(le figaro)

In order to against the situation, china central bank has privatized the 4 mains banks (Agricultural Bank of China, Bank of China, CBNC and China Merchant Bank) before owned by the government and establish to solved specific issues inside the country and created internal investment in order to push national growth base on competitiveness dynamic, like France did recently as well. (SNCF, EDF suez...)

As well as privatisation, Chinese government is pushing government expenditures supported by his sovereign funds in dollars, to achieved bases (principles of making security dynamism through longer term). In comparaison, the USA govermenent has establish the Marshall plan and the Bretton woods conference to create more stable and protected growth before the “ les 30 glorieuses” (Post-war boom or baby boom) in the 50’s.

In a logical conclusion, the government by pushing external pressure want to mainted his foreign funds. (If the RMB his going up like EU and USA, his amount of dollars (soreign funds) will depreciate, and therefore in an other word, China is controlling his interest rates in order to secure his reserve, and against any losses.

Secondly, the wage concerning his labour force remains the same (however, there is much more facts that could be pinpointed like the RMB making Chinese product much more expensive and leading to downward exports and push imports, or and in relation the inflation within downward cycle increasing gap between rich and poor people, also by making price of households peeking and destablising consuming behaviour in China, howeever, this is a much more dramatic approach.

http://www.gla.ac.uk/media/media_113311_en.pdf

Introduction

Dear readers,

Aim of this blog are discussed and analyse the fluctuations of the RMB in relation to the reserve of the US dollar (the largest in the world) through macroeconomic and political data. Additionally, I will structure this blog in a logical and dissuasive aspect that explains why the Chinese government is able to stand their position on the value of their currency despite pressures from both the US and European governments i.e. the government is pushing development in weaker economic zones (analysis of unemployment in those zones) in order to push internal and external investment in those zones.

In order to complete a full understanding of this blog, I will analyse data from China’s GDP i.e. Government expenditure, consumer expenditure, import, exports and investments.