ECB's Stark Sees No Potential For Global Recession - Report
Sun, Sep 21 2008, 12:14 GMT
http://www.djnewswires.com/eu
ECB's Stark Sees No Potential For Global Recession - Report
FRANKFURT (Dow Jones)--The crisis on the international financial markets won't lead to a global recession as the world isn't as much dependent upon the U.S. economy anymore, European Central Bank executive board member Juergen Stark said in an interview published Sunday.
"I don't see any potential for a global recession," Stark told Sunday paper Welt am Sonntag. In addition to being less dependent upon developments for the U.S. economy, the world economy is benefiting from newly established growth drivers in emerging markets, he said.
Stark said he isn't afraid there might be a period of deflation ahead.
"There's no sign of such a scenario," he told the paper. Previous "exaggerations" on the financial markets are now being corrected, and such a process "is painful," he said.
As for German economic growth, Stark said we "are likely to see very weak data in the third quarter." Depending on how much the recent developments will weigh on investors' and private households' sentiment, "we may see weaker economic growth in Germany over a prolonged period of time," he said.
Newspaper Web site: http://www.welt.de
-By Klaus Brune, Dow Jones Newswires; 49-69-29725-500; klaus.brune@dowjones.com
(END) Dow Jones Newswires
September 21, 2008 08:14 ET (12:14 GMT)
From: http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=72676c62-99d7-43fc-80f2-b7363e4b2a72
Sunday, September 21, 2008
For every dollar of GDP, there is $3.49 of debt
For every dollar of GDP, there is $3.49 of debt
By BILL GREINER
Chief investment officer, UMB Asset Management
First and foremost, we believe that too much debt currently exists in the U.S. economy.
As compared to the Gross Domestic Product, the total debt picture within the U.S. is 349 percent. In other words, for every dollar of GDP, there exists $3.49 of debt. Other countries are much less leveraged than we are.
As another background point, investment banking operations have historically been the core business of the brokerage houses. In the last few years, with the proliferation of debt within the economy, these firms have focused more of their time and capital on trading their own “book” instead of spending time and energy on the investment banking business. These firms have become much more reliant on their book profitability than their core business — investment banking.
At this stage, enter the hedge fund managers. Hedge fund investment strategies vary all over the map.
However, many have one thing in common: Many use debt in some format for various reasons.
So, a hedge fund manager who is managing $100 million in assets may indeed be making decisions and affecting a multiple of that $100 million in assets.
Consequently, when a hedge fund manager moves in a direction, the impact on the markets and on various financial institutions can be rapid and extreme.
When certain hedge managers see a firm struggling, they will short-sell the common stock of that firm. When this starts, many other hedge fund managers, like a cloud of locusts, may short-sell the company. This leveraged activity will drive the stock of the business down rapidly, putting a question mark over the company as to its ability to stay in business.
Consequently, we have two problems. The first has to do with the amount of leverage not only within the brokerage and banking businesses, but also the amount of debt outstanding within the country. Secondly, the relatively unregulated hedge fund industry moving extremely large sums of capital against a company with a highly leveraged balance sheet in need of daily capital inflows.
These two operatives are currently risks that need to be addressed prior to this problem coming to an end.
http://www.kansascity.com/business/story/806122.html
By BILL GREINER
Chief investment officer, UMB Asset Management
First and foremost, we believe that too much debt currently exists in the U.S. economy.
As compared to the Gross Domestic Product, the total debt picture within the U.S. is 349 percent. In other words, for every dollar of GDP, there exists $3.49 of debt. Other countries are much less leveraged than we are.
As another background point, investment banking operations have historically been the core business of the brokerage houses. In the last few years, with the proliferation of debt within the economy, these firms have focused more of their time and capital on trading their own “book” instead of spending time and energy on the investment banking business. These firms have become much more reliant on their book profitability than their core business — investment banking.
At this stage, enter the hedge fund managers. Hedge fund investment strategies vary all over the map.
However, many have one thing in common: Many use debt in some format for various reasons.
So, a hedge fund manager who is managing $100 million in assets may indeed be making decisions and affecting a multiple of that $100 million in assets.
Consequently, when a hedge fund manager moves in a direction, the impact on the markets and on various financial institutions can be rapid and extreme.
When certain hedge managers see a firm struggling, they will short-sell the common stock of that firm. When this starts, many other hedge fund managers, like a cloud of locusts, may short-sell the company. This leveraged activity will drive the stock of the business down rapidly, putting a question mark over the company as to its ability to stay in business.
Consequently, we have two problems. The first has to do with the amount of leverage not only within the brokerage and banking businesses, but also the amount of debt outstanding within the country. Secondly, the relatively unregulated hedge fund industry moving extremely large sums of capital against a company with a highly leveraged balance sheet in need of daily capital inflows.
These two operatives are currently risks that need to be addressed prior to this problem coming to an end.
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