Janet Yellen

Interest Rate and Currency War: What Are They?

Interest rates are a fee that a debtor pays on the amount of money they want to borrow from a creditor. Essentially it is the premium or cost to borrow money. The interest rate, perhaps one of the most significant tools in the monetary arsenal of central banks, can help combat inflation, unemployment, and a weak economy. Since the Great Recession, the Federal Reserve, the closest thing to a central bank in the US, has been cutting interest rates to basically zero. It is essentially free to borrow money in the US. Thursday’s announcement by Chairwoman Yellen signaled that the US will continue to intervene in its markets to ensure it can help stimulate it back to a stronger level. As a result of the government’s inaction with respect to interest rates, the dollar hit its lowest value against other major currencies in weeks. But such intervention will send a reverberation across global markets. Other countries will react accordingly.

Central banks across the globe will attempt to retaliate with similar actions of economic stimulation. This tit for tat in economic retaliation, which has been going on since 2008, is what already sparked the currency war we are mired in. A currency war is an international condition when countries contest with one another to achieve the lowest exchange rate for their currency.

So What Does it Mean?

By achieving the lowest exchange rate, a nation can ensure they can boost their exports and reduce their imports. This does not only help boost the economy but reduce reliance on foreign goods while increasing employment domestically. This is the ideal situation, but almost always it does not end up that way. Instead the goal of devaluation is a very risky strategy and nearly every time backfires. The currency wars typically end up reducing the standard of living and making it much more expensive to travel abroad.

Caught in the Crossfire: Emerging Markets

Typically with all wars, there are losers and winners. In currency wars, almost everyone, voluntary or involuntarily, becomes a participant. Unfortunately, emerging markets typically lack the wherewithal to stand a strong economic defense in such wars. Emerging markets become the unintended causalities that get caught up in the middle of the crossfire by the larger economies waging the war. The exporting industries of these nations will come to a halt since it will be relatively more expensive than the domestic products of the larger economies engaging in the “war”. Typically emerging markets have a large segment of their economy focused on manufacturing and shipping. As a result, the growths of these developing economies become stagnant and reverse into recession.

What’s Next?

CNBC believed that it might start a currency war. In reality, we have had an ongoing currency war since the Great Recession in 2008. There has been continuous devaluation by different governments in order to prop up their economies that nearly collapsed after that fiasco.

In the US, the favorite tools have been the interest rate and quantitative easing. Following in step, many nations in Europe and Japan have followed suit. Unlike nations with a free floating currency, China has directly devalued its currency by pegging the value of the Yuan (also known as the Reminbi) lower to the dollar.

With this latest US move in the ongoing currency war, the ball is now in China’s court to take action. What the future holds nobody knows but most likely another set of government intervention by the Chinese government will come to further devalue their currency. The result will be further destabilization to emerging markets and a bleak future for all.

The post This Means Currency War: Interest Rates and Emerging Markets appeared first on BRIC Plus News.

America’s trade deals

[via Occupy]

America’s trade agreements should be at the forefront of any discussions. Upcoming deals are already extremely controversial among a large section of the American (and European) populace. It would be of little surprise if Xi Jinping was eager to discuss it. The Trans-Pacific Partnership (TPP) is a free trade agreement between the United States and 11 other countries. These countries are in Asia, Oceania, and Latin America, and crucially include Vietnam, Malaysia, Brunei, and Singapore. These countries are extremely close to China, which is a conspicuous absence from the list. As the world’s factory, China is essentially being targeted by the United States, who wishes to win more export deals, and to challenge this dominance. A similar deal, signed with the European Union, the Transatlantic Trade and Investment Partnership (TTIP), seeks to challenge China’s dominance in Europe. With these deals, the two giants move another step closer towards economic warfare.

Africa

[via Railway Technology]

Africa is another potential battleground for China and the United States. China has become very involved in the continent over the past few years, with trade in 2014 estimated to have reached $222bn in value. China is involved in intensive infrastructure projects throughout the African continent. In his visit to Kenya earlier this year, President Obama announced that the United States, in association with the World Bank and a number of private businesses, would invest $33bn into African economies. Though this is significantly less than China, it is the beginning of an attempted to unseat the country’s status in Africa. But trade and investment are not all China is exploring. China’s international arms exports increased 143% within 5 years, displacing Germany as the world’s third largest arms dealer. Crucially, China sells to 18 different African countries, including Sudan. Given the long civil war (which ended only when South Sudan seceded), this is certainly a contentious issue.

Syria

[via CFR]

The issue of Syria is always at the forefront. China and the United States have strongly opposing views. China and Russia were two countries to block a motion tabled at the United Nations for arming the Free Syrian Army. Russia, a close ally of China, has deployed groundtroops in Syria, in support of the Assad regime. China has repeated that Assad’s legitimacy cannot be questioned. The United States has remained a staunch opponent of Assad, and is involved in both fighting ISIS in airstrikes, and beginning to train ‘moderate’ rebels to topple Assad. The complex nature of the Syrian conflict has brought much international tensions. With it once again hitting the headlines, Xi Jinping and Barack Obama can not avoid discussing it.

The post Xi’s US Visit: Three Things China’s President Should Discuss appeared first on BRIC Plus News.

The world’s biggest oil consumers have already started to adopt measures as if OPEC’s worst dreams will soon come to fruition. The coal industry has already gone into free fall. In 2009, there were 523 coal plants in operation in the United States. More than 200 have shut down since, mostly replaced by natural gas plants, which emit half as much carbon dioxide.

The rise of solar power has been a major success, and let to the price of solar energy plummeting. This energy revolution has rippled through the advanced economies. In a few years, even in countries with average sunlight, the cost of building a new solar power plant will be far lower than that of coal or natural gas. The price of solar power has fallen by $7 a watt in just two decades. In light of this, it was predicted that it would cost just 50 cents per watt by 2030 – this point has already been reached. By 2023, new wind power stations will cost less than natural gas. Tesla’s home battery, the ‘Powerwall’, could revolutionise the way homes and businesses are powered.

The Oil Age is slated to end by the year 2035, but the reserves will last another century. If the oil-exporting countries do not wish to see their economies utterly destroyed, they must diversify, invest in human capital, and make the private sector much more productive. The party is coming to an end – and these countries must be prepared.

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Yet awareness is everything. Thanks to increased exposure via the internet, we can’t avoid the horrifying stories about sex slaves from India, sweatshop workers from Bangladesh, early marriages in Africa. Harrowing as this can be, it is a good thing. These are real stories, real people who are desperate for help and support. And the people behind your T-Shirt are in a similar position.

‘Fast fashion’ may be enticing for consumers but it is characterised by cheap material, cheap labour, and poor quality. It may shrink in the wash but at those prices, why not buy another throw away garment tomorrow?  And not many of us know, or even care, that behind all of it are underpaid and undervalued workers, who get as little as $2 a day.

But it’s not just the low pay.  Factory management has become notorious for using violence against workers who stand up to them. The work place can be dangerous too. Who can forget the collapse of Rana Plaza in Bangladesh in 2013 and shocking numbers of deaths? It isn’t even a surprise anymore.

Despite fears surrounding safety, sweatshop employees are forced to go back to work in order to provide for their families. I will never forget the scene from The True Cost when one of the Indian workers has a small child by her, sitting workshop floor, as she works. Such women don’t have the option of sitting at home with their new-born. They can’t even leave their children at a nursery or with a babysitter – there is no such a thing.

The consequences of this situation are terrifying and will lead to a global tragedy. Yet only a few people and organisations are trying to tackle this issue. Safia Minney, founder of the Fair Trade fashion label People Tree, is one such person. As is Livia Firth, Creative Director of Eco-age, a sustainability brand consultancy and founder of Green Carpet Challenge (GCC). Lucy Siegle, author and journalist, is another prominent figure in the movement. They may come from different backgrounds and are working on different projects but they are all  dedicated to making the world a better place and to supporting those who need aid the most.

But what is the real crux of the problem, is it our love of fashion, our blindness to the troubles of the manufacturing industry or is it in fact an unstinting hunger for money on the part of fashion labels?

Let’s be honest, expensive clothing, accessories and lifestyle do make us feel better about ourselves and happier for a moment. We may be buying different things, in different shops but we all seem to share a desire to be accepted by society, to be loved and appreciated by friends, and somehow fashion gives us this. This is why we work harder, we get a job that is better, and we get a house that is bigger. Our natural desire to be noticed is making us spend more and more money on clothing, accessories, travel, education, nice houses and cars.

Big companies and brands know about this attention-mania and utilise it perfectly by presenting beautiful adverts and selling an irresistible dream. We want to be part of this dream therefore we can buy it. Narcissism and materialism have become epidemics within our generation and there seems to be no vaccination against it.

I’m not telling anyone to stop buying cheap clothing. But I feel that somehow we have got lost somewhere. We’ve lost something important and meaningful in our lives. By running around, trying to please and impress everyone, we forgot about who we really are and what we really need. It doesn’t matter where are you from and how much you earn: sweatshop workers from India and Bangladesh or bankers and CEO’s of a big companies, at the end of the day we all want to come back to a nice house with food on a table, surrounded by the people we love and care for.

If you can’t help these poor people in India or Bangladesh, help someone who is near you: that old gentleman who sat down by himself in the coffee shop or old lady who needed a sit in a tube. Being kind costs nothing but can make a difference in someone’s life. Just try it, the world needs more of it.

The post The Human Cost of Your Clothes Should Never Be Forgotten appeared first on BRIC Plus News.

Globally, 34 billion barrels of oil are consumed each year. When the barrel price of oil falls by a mere $10, this can result in a price shift of $340bn from producers to consumers. Following this, last August’s $60 price decline redistributed a staggering $2trn in savings back to oil consumers. Clearly, falling oil prices benefit net importers of oil. Any country that consumes more than it produces will gain from these changes.

The major global recessions of the past 50 years have been preceded by a sharp increase in oil prices. In 2007, in the year before the Global Financial Crisis, the price of oil almost tripled, from $50 to $140. When prices collapse, however, the story is different. Even the prices of other commodities and industrial metals increase after an oil price collapse. In 1986, after oil prices fell by 50%, the prices of metals doubled.

The income disparity between importers and exporters goes some way towards explaining these trends. Oil consuming countries spend extra income quickly, whereas oil exporters maintain public spending, and add significant funds to their sovereign reserves. One such example is Saudi Arabia. The effect of lower oil prices is positive for global growth. The IMF has projected that the recent fall in oil prices should boost 2016’s global GDP by 0.5-1%.

Many recent developments have helped to accelerate the decline in oil prices. The shale boom in the United States and its innovative extraction methods have made oil easier to obtain. Known as ‘octopus wells’, as many as 18 horizontal shafts can tap multiple separate pools from a single vertical hole. It is undeniable that the shale revolution has changed the oil industry irrevocably. As advances continue, more oil wells will become accessible, and production is set to increase further.

The post The Impact of Falling Oil Prices On The Global Economy appeared first on BRIC Plus News.

The lengthy speaker list includes both the Alassane Ouattara and Daniel Kablan Duncan, President and Vice President of the Cote D’Ivoire respectively, as well as many other key players in the country’s economic arena, such as Dr. Ahmad Mohamed Ali Al-Madani, the President of the Islamic Development Bank.  The first day of the forum will feature topics that range from “The Global Islamic Finance Market”, “Africa’s Blueprint for Islamic Finance Development”, and “The Africa Roundtable”, to “Developing Cote D’Ivoire as a Shariah Compliant Investment Destination” and “Global Transaction Roundtable”, among others.

During the second day of the forum, topics will include “Inward Islamic Investment Opportunities in Africa”, which will examine the scope for global equity, PE funds, i-ETFs and index-linked investments. Other topics include “Opportunities for Investments in SMEs in Africa,” the “African Islamic Asset Management Trade Industry”, and more.

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However, some of the island’s population wants to sever all ties with the United States, and reunify with Spain. Indeed, this notion has gained a lot of traction in Puerto Rico. A 2012 referendum found that 54% of the island’s population was in favour of changing the island’s current territorial status. Also, it has recently been reported that the current financial crisis has incentivized Puerto Ricans to push for independence. Some though, believe that the secessionist movement is indicative of a lazy desire to take the easy way out of the recession.

Several separatist groups currently exist on the island. One such group is the autonomy for Puerto Rico association, which was established in 2012, and is comprised of 30,000 “unofficial and official” members.  Ivan Arrache, the association’s leader, has said that the group is unhappy about the island being a “non-incorporated US territory”. Indeed, they believe that Puerto Rico would be better off reunifying with its motherland, which lies 6,424 km away. Arrache added: “We want to become an autonomous community of Spain with a different system of taxation and trade. We want to be with Spain but not blend with it.”

José Nieves Seise

José Nieves Seise, founder of the Reunification of Puerto Rico with Spain group, also gave his opinion on the matter: “By returning to Spain, we’ll have autonomy. With autonomy Puerto Rico could have sufficient powers to boost the economy and attract foreign investment.” This Sunday at its annual assembly, the group will discuss further the idea of becoming Spain’s 18th autonomous region.

Seise maintains that Puerto Rico is not a Spanish colony, and said that contrary to popular opinion, the island was an ‘integral’ part of Spain, and that the US invasion in 1898 actually caused an involuntary separation between the two. He called attention to the fact that the split was actually very ‘superficial,’ as similarities between Spain and Puerto Rico cannot be ignored, and added: “Puerto Ricans love the Spanish people; we’re Spanish. We want to return to the country to which we belong.” However, the route to secession is barred by a huge obstacle: the 1898 Treaty of Paris, which laid out the steps that caused Puerto Rico to detach from its Spanish roots and become an American commonwealth island. If the secession were to actually happen, the treaty would need to be successfully contested. The successful contestation of the treaty would be an extremely difficult undertaking, if not an impossible one.

Regardless, the Reunification of Puerto Rico with Spain group is serious about Puerto Rico becoming a part of Spain again, and reportedly met with Spanish government officials at the consulate in Puerto Rico last year. Seise explained: “Our goal was just to let them know that our movement exists and that it’s something serious.” Seise has indicated that he will send a letter to Spanish King Felipe VI this month, in order to make him aware of the movement. As of yet, the Spanish government have apparently not issued a ‘formal response’ to the movement, though there is some evidence of backing in Málaga and Granada. Indeed, Seise has rejected claims that Puerto Rico had less freedom under Spanish rule, and has pushed the notion that joining the EU will allow Puerto Rico to genuinely overcome its debilitating economic situation. He has also indicated that he believes the island would receive more political rights if it were to join Spain, and has pointed out that citizens of the island aren’t even allowed to vote for the president of the United States.

Arrache commented:  “[Is Spain] going to leave us to do all the work ourselves? It takes two to tango.” He added:  “[Doesn’t Spain] appreciate the impact [taking us into their fold]would have against Catalan separatism and how this would help foster the idea of a united Spain?” Indeed, the Catalan region of Spain is currently readying itself for a vote that its separatists are calling the first step to independence from the country.  Approximately 12 Spanish citizens launched a secessionist support group in January.

Member Cristofer Pons Rodríguez commented: “Personally, I was attracted to the idea of creating a community of citizens that share the Spanish culture. It would be about creating a Hispanic bloc as an alternative to the Anglo-Saxon world, to defend our interests.” Many Spaniards are said to be concerned that taking in Puerto Rico and its debt will derail Spain’s current recovery from its double-dip recession. However, Rodríguez countered this belief with the following statement:  “This shouldn’t be an impediment to working together. The more united we are, the better chance we have of overcoming issues like debt.”

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Iqbal Latif, Managing Director, Gulf Real Asset Management

“The Yuan weakening was actually long overdue and the lower interest rates will help the anaemic liquidity”

China is not going to go bust any time soon. We need to look at the fear factor at play here. This week the Shanghai Composite (SSEC) dropped 8.5%, trading down -300 points and was pressing 3200. Back in July Howard Gold’s (Marketwatch) opinion was “China’s stock-market crash is just beginning” writing that “Morgan Stanley which made a good “sell” call on China weeks ago, now expects Shanghai to fall as low as 3,250 by mid-2016.” Now here we are.
The sell off is compounded by the fears that the Chinese economy may be slowing down far more drastically. China’s astonishing move to devalue its Yuan two weeks ago to make its exports competitive, and now its interest rate cuts amid intense measures to boost lending, are adding to the worries.

It is expected that there will be further easing moves and that the central bank is preparing to flood the system with liquidity to increase lending. However China’s economy is still growing at a fast clip compared with Western nations, and China has a vast $3.7 trillion in foreign-exchange reserves to help it weather shocks.

China needs a dose of quantitative easing to cope up with non-performing loans of the banks. The bursting of the property bubble and leveraged punters to the hilt have taken a heavy toll; but luckily the world demand is not slackening. China will continue to be a big exporter. The Yuan weakening was actually long overdue and the lower interest rates will help the anaemic liquidity, although it wouldn’t hurt to consult Bernanke. I see similarities to 2007/8, but the caveat is China is not hugely indebted like the Western countries were when they faced the meltdown.

David Powell, Chief Euro-area Economist, Bloomberg Intelligence    

“Growth in the Asian nation would have to slow much more precipitously before it would pose a big threat to the euro-area recovery.”

The biggest hit to the euro-area recovery from the slowdown in the global economy may have come already — from the downturn in Russia. The deceleration in China, by contrast, looks to be a much smaller problem for the monetary union. Growth in the Asian nation would have to slow much more precipitously before it would pose a big threat to the euro-area recovery. Russia has contributed most to the slowdown in foreign GDP growth (weighted by exports from the monetary union), which is the most important determinant of export growth, over the last year knocking 0.23 percentage point off the headline figure. China has chipped away only 0.03 percentage point.

Vasily Koledov, Director at Bluestone Capital Partners and BRIC+ Editor

“Whether there is going to be a major spillover into the world markets depends a lot on market perception.”

Two weeks ago China unexpectedly devalued its currency. This highlighted fears about the state of the Chinese economy and its real estate market, which many believe to be propped up by the government in order to give an appearance of stability. As a result, last week saw an 11.5% fall in the Shanghai Composite Index.

Market participants expected the government might announce a fresh loosening of monetary policy, including reductions in the proportion of deposits that banks need to hold in reserve.

However Beijing did not respond accordingly, as over the last seven weeks they have spent $200bn buying up equities to support prices and nearly $200bn of China’s FX reserves to keep the yuan from falling further since devaluation – likely deeming the operation too expensive.

What followed was yesterday’s crash which saw Shanghai Composite falling 8.5 %, its worst day since February 2007. The losses are continuing today as the market continues to lose faith in Beijing’s ability to prop up the economy.

In order to answer the question fully we must understand the roots of the crisis. Now, whether there is going to be a major spillover into the world markets depends a lot on market perception.

As it stands the majority of economic growth was really the result of governments injecting a lot of cash into the markets. This has led to government debt piling up all across the Western world so cash today has to be paid by debt tomorrow. Now, when you’re full of debt it’s harder to borrow more (or rather print more money thereby devaluing your currency as everyone has been doing) so policy responses to market shocks are now very weak.

So is this the end of the debt supercycle? Potentially. Spillover can be very bad for the wider economy however it is important to understand that the problems here are China specific and panic selling can easily be reversed if sentiment is re-established.

Ian Ivory, Partner at Goltsblat BLP:

“It is difficult to see which countries might gain from this situation – at the moment it is looking like a “lose, lose” outcome”

The slow-down in China will bear difficult consequences for everyone. It will heavily impact the global economy and we can expect to see a sharp fall of demand of goods and services and a significant reduction in global economic growth. The hardest hit will be its direct trading partners and in particular, the emerging economies who are providing raw materials for the One Belt One Road initiative. Russia is another classic example who will feel the pain and China will be a further negative drag on the Russian economy. It also puts into question the economic viability of the proposed energy pipelines between Russia and China. With the reduction in demand and the drop of oil prices, the upfront cost of building these pipelines is a significant burden and must surely put the projects under threat.

However, the reactions from both the mainland and internationally, point to the wider, fundamental concerns around our globalised world and how we function. What is happening in the China cannot be called a blip and is part of a wider, global problem.

Combined with the situation in Greece, the weakness of the Euro, military tensions in the Ukraine and the Middle East, the collapse of oil prices and the asset bubbles forming in a zero interest rate environment, there are some fundamental structural issues that world leaders need to urgently address. It is difficult to see which countries might gain from this situation – at the moment it is looking like a “lose, lose” outcome and the only questions are how long it will last and how deep the effects will be.

Recent events have been a major bump in the road for the global economy and represents a continuation of the volatility we have experienced since 2009. Whether it will lead to a full-blown crisis remains to be seen and it is too early to call at this stage.

The post Ask the Experts: Is This The Next Global Financial Crisis? appeared first on BRIC Plus News.

Very few have caught onto urban agriculture. Even with its many problems there are hardly any initiatives, a handful at best are dotted around the city.  The difference  is while in developed countries urban farming is somewhat seen as a luxury, as part of a fashionable “back to nature” trend, in emerging countries and places like Sao Paulo this trend is far more than that: it provides for basic needs such as nutrition while offering a well-needed revitalisation for the deprived urban areas.

An excellent example is José Aparecido Candido Vieira, 65 and ex-salesman.  After spending most of his life working a 14-hour working day and retiring two years ago, he found himself with only his meagre retirement income. It’s at this point that Jose decided to become a urban farmer. Local NGO Cidades sem Fome (Cities Without Hunger) teams up with future urban farmers to obtain necessary legal protection to establish productive growing spaces in vacant or underused lots. With the help of Cidades sem Fome and of course his wife, Jose started his plantation on the unused land under the electricity pylons that cross his neighbourhood in the East side of Sao Paulo – one of the poorest areas in the city. As well as providing extra nutrition for his family, Jose makes around R$ 700 to R$ 1200 from the sale of his produce.

The main objective of this type of project is to revitalise the most deprived areas of the city and provide cheaper fresh produce to this part of the population. According to the NGO coordinator Hans Dieter Temp , “there is no shortage of derelict places waiting to be put to a good use:  areas under the electricity transmission lines, land crossed by oil pipelines, vacant lots and abandoned public areas.

Another initiative happening in São Paulo is the Hortelões Comunitários group – the idea started as a Facebook group where urban farming enthusiasts would exchange tips about growing vegetables at home and/or in small spaces. Claudia Visoni and Tatiana Achcar were some of the people behind the initiative. The number of participants grew so quickly that the project went from social networking into the streets . The duo and a few group members joined forces and started their first community vegetable patch which at the time had only 800 square metres, inside Parque das Corujas. Now, the group has another 5 community gardens in the city.

However, setting up a community garden is not as simple as it seems.  There is still no effective support or public policy in the country for this type of initiative even with its great potential. “There are estimates that 40% of food consumed in São Paulo, could be produced in São Paulo”,  says Claudia Visoni.

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The yuan

The yuan, ¥, is the official unit of currency of the People’s Republic of China. The remimbi, like sterling for the British Pound, is the official currency title. Though the remimbi has only been in existence since 1948, the yuan is a much older unit. It is Mandarin for ’round coin’, and was first introduced in the Qing Dynasty of the 1600’s.

Currency devaluation

[via Forex Investor]

Though currency devaluation is a deliberate act by governments, it is taken in response to economic problems. Quite simply, the lower the currency, the cheaper the country’s exports are. China’s economy is based on exports, but the government had announced a plan to rebalance the economy towards being based on domestic transactions. However, with this latest move, it seems the plan may have been derailed. China has been struggling with a fall in exports, which descended by 8.3% over the weekend. While the government claims it is a one-off step to make the yuan’s value more responsive to global markets, many will see it as a desperate attempt to prevent an increasingly dangerous downwards export spiral.

What does this mean?

The response to the yuan devaluation has been utter panic in the financial world, as falls in stock markets have been reported worldwide. The real issue could be how China’s rivals respond. It has been suggested that this latest move could trigger a ‘currency war’, in which other emerging economies forcibly devalue their currencies in response. Could currency devaluation become the new export battleground?

What does this mean for China?

Counter-intuitive though it may seem, this latest move by China is actually a step towards a more market-led economic policy. Through this exercise, it is hoped that the Chinese authorities will allow the value of the yuan to be at least in part decided by international economic forces. The International Monetary Fund sees this as a positive step. While the conversion of the yuan into a free-floating currency is not yet on the table, perhaps these latest steps in market liberalisation will lead to some permanent changes.

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