New Financial World

On a cold saturday morning , I attended a seminar called "NFW". I was skeptical about attending it as I had to sacrifice my sleep but the fact that I had paid 50 pounds for it made me overcome the lethargic feelings. I reached just in time for it as the first speaker had just began to introduce himself when I entered the audi(torium). The main goal of the seminar was to discuss the need of a "New Financial World" which can be better equipped to deal with crisis and what should be its main features. Also whether 2013 is the year of triple dip recession or recovery. Like most such seminars topic of discussion evolves around one country which is the union of red(republicans) and blue(democrats) states , officially known as the United States of America. The biggest problem facing the policy makers in US is 'Fiscal Cliff' as the current US Debt to GDP ratio is 103% which is worse than that of European Union (But certain countries within it are in worse condition). If democrats and republicans don't come to a conclusion before 11.59.59 pm 31st December on how to solve burgeoning debt crisis then US is in for another recession which could be caused due to automatic spending cuts and high taxes. So let's hope that the democrats and republican show that United States of America can make a united decision for the country and the world.Even though the deal is reached the chances of recession still exists but its impact can be much lower than otherwise. In global markets , anything which happens in one corner of the world affects the other corner too. On this note , the next big region to be discussed considering the fact that seminar took place in London was obviously the EU. Countries in the European Union are facing a deficit of 4.1% which is much lower than the figure of 8.7% in the US. Like most statistical measure this figure doesn't reflect the true picture as south european economies like Portugal , Ireland , Greece and Spain are struggling to survive. Mosts say the main reason for this debt crisis is that although EU has one central bank and single monetary policy but the fact that it lacks single fiscal policy lead to budgetary problems. Hence, the only way forward is that the head of states agree on a single fiscal policy. Speculators are expecting the economy to be on track by the second half of the year. Moving to the third biggest economy of the world , Japan ,which is suffering from a long term period of slow growth. Although the elections have shown some signs of improvement as the Nikkei has been rallying up since then and also the fact Yen has weakened has helped the exports. But the biggest problem for Japan is deflation. The new government has planned to increase inflation by quantitative easing. Considering that its ties with China and South Korea has reached new lows. It's a tough year ahead but can be exciting for the Japanese economy if the new government delivers on to its promises. China, the manufacturing hub of the world, has experienced seven quarters of slow growth but on the contrary it's industrial production has grown by 10%. Currently Chinese economy is over dependent on exports and have just recovered from the shocks of inflation in 2011. It have to move towards becoming consumer driven economy which means creating domestic demand for its products otherwise it will always be known as one of the emerging markets and not developed. We cannot forget the Middle East for it is source of most of the consumption of natural gas and oil in the world. 2012 will go down in the history of this region of extreme riches as the year of revolutions , popularly known as the Arab Spring. Whether these developments have made the region more volatile or not is hard to tell. But this will certainly lead to the change in attitude of people towards the Arab world. The growth of Islamic Finance in financial centres have forced the banks find ways to correlate global financial system with that of what Arab world think is right. The biggest problem faced by financial institutions are that inside the arab world also various countries have their own interpretations of Islamic finance , hence, same policies can't be used for Dubai and Riyadh. The only solution to this is to deal with it and not waste time complaining about it. Most market experts are excited about 2013 as they are bullish about most economies by the second half at least. With this I would like to wish you merry christmas and very happy new year.