Obama needs bold steps to give shoulder to the waning US economy

Article first published as Obama Needs Bold Steps to Give Shoulder to the Waning U.S. Economy on Technorati.

Obama assumed the charge of presidency on January 20, 2009 when the United States of America was facing the most pathetic economic conditions of her history. The situation was economically deplorable with the federal deficit of 9.91 % of GDP against 3.18 % of last year’s along with the deteriorating international relations. Moreover, the skyrocketing increase in the national debt by $1.9 trillion was worsening the situation.

In spite of poor economic statistics of the state, the Bush government ostensibly pushed the state in the pit of unending terrorism war against unknown enemies. This war has swallowed trillion dollars along with many precious human lives of the state up till now. This loss is either in the shape of lavish military expenditure or in a form of the monetary aid to the allied countries worldwide.

Though the damaging consequences of the Bush policies started appearing in his regime, but they reached to the apex during obama’s presidency. So, it would be pertinent to say that Obama inherited joblessness from the Bush government. At this fragile moment Obama would have taken some rational and bold steps to revise the economic and international relationing policies of the previous government.

However, he did not take any brave step in his almost two years of the presidency. Obama’s statement that the economy is stronger than before is not less than a proclamation of the person living in a fool’s paradise. This is because the rise in stock market and corporate profits against 9 % unemployment level and 10.6 % federal deficit of total GDP is not more than trivial advancements.

The very first step that the world was expecting from him being the president of the sole world power was the immediate cessation of wars on the countries like Iraq and Afghanistan. The US should call her army back from above mentioned countries because she has totally deprived of the support from the indigenous people.

I would wrap up my opinion at a point that increasing the competitiveness of the US by investing more in the sectors of education, technology, and the internet is not sufficient enough. Instead the president needs to realize the damaging effects of the military combats in varying countries of the world.

basiliskt

Comparative study of foreign investment of Pakistan and India

Investment is deemed to be the backbone of an economy. It is necessary for both types of countries i.e.developed and developing because idle saving is just like a millionaire sitting idle and spending lavishly.Korah can never be the richest man of the world with idle hands so does the nations. In Economics ,three sector economies are composed of Investment , consumption and saving i.e. Y=I+S+C.Falling trends in any of the mentioned element can create disequilibrium not only in an equation but also in an economies.

Foreign investment is an integral part of investment which further has two parts i.e. foreign direct investment and portfolio investment. Foreign direct investment is an inflow of foreign assets by foreign investors in form of factories etc whilst portfolio investment is a purchase of money market instrument by foreign investors for financial returns.
In this paper I‘ll try to compare the foreign investment trends of two rivalry south Asian states i.e. India and Pakistan since Sept 9/11 event. After taking a keen review of statistics, rationality demands the answers of few questions like what Pakistan gained in war against terror. Who is wining this war? What will be the consequences of the war on Pakistan? Firstly Pakistan gains successive suicide attacks since 9/11.War is being won by India( though she is not the participant of war) because despite having almost 114 separatist movements she is successful in attracting unprecedented FDI of US$47billion in FY2008-09 whilst in Pakistan Foreign direct investment showed more resilience and stood at just $3205.4 million during the first ten months (July-April) of the current fiscal year as compared to $3719.1 million in the same period last year thereby showing a decline of 13.8 %. Last but not least the aftermath of war will be destabilized Pakistan.
Pakistan government should take serious steps not only in searching but also addressing the causes behind the reasons of this drastic difference. India isn’t heaven for foreign investment with 22% population living below than poverty line (2008 est.) .The only reason is lack of integrity and sincerity in foreign policy and economic planning of Pakistan. Every next government of Pakistan takes start by filling up papers and making committees without execution.USA has come out of the tragic incidence of war on terror but Pakistan is still facing unremitting bomb attacks. In brief the nations not learning from the history died on its own.

By : basiliskt

Money Market Of Pakistan

Money market is not some preset place like commodity market but a collective name given to all financial institutions dealing with short term credit financing. It performs various functions like Divert saving into investment, brings financial stability by transferring credit from one sector to other, reduces the reliance on bank borrowing, easing the implementation of monetary policy, providing short term finance to governments, lending the surplus funds ( if any) for short term etc. In Pakistan primary participants of money market are many like government of Pakistan, state bank of Pakistan, commercial, cooperative and saving banks. Let's see the recent developments in components of money market of Pakistan.

Treasury bills are an Obligation of government representing floating debt to finance short term gap between government receipts and expenditures and are usually issued with the maturities of 3, 6 months and 1 year. These are sold at discount and repaid at par after maturity in an open auction and the rate of discount is quoted by the bidders. Moreover they are negotiable, non interest bearing and non redeemable. The return of TB's is subject to 39% withholding tax. In Pakistan first auction took place on March 4, 1991. 292^nd auction of T bill was held on 04 Nov 09 and amount realized was Rs 19,983.10 million which is less than previous amount of Rs 20,759.08 million whilst weighted average yields were 12.425% ,12.551% and 12.5517% for 3,6 and 12 months resp .

Trading in credit ceiling is another important element of Pakistan's money market. State bank fixed a credit ceiling for banks. The ceiling was fixed for 6 months but reviewed quarterly. The fixation was directly related to foreign currency deposits. If at the end of a week a bank had some unutilized portion of the ceiling it could trade it with some other institutions that had already exhausted its ceiling with the effect from August 1, 1992, the SBP has abolished credit ceilings as an instrument of credit control and replaced them by credit /deposit ratio guidelines.

Money market is in fact a call loan market. Here banks and financial institutions lend out of their surplus funds and the institutions in need of funds can borrow from the market. Call loan market balance is determined by the forces of demand and supply, thus rate fluctuates a lot. Duration of the loan in call market is usually for a very short period like 1 day or a week. N o security is generally taken because participants are well recognized institutions. These are repayable on demand.

It involves sale of securities with a simultaneous commitment to repurchase the securities on a particular date at a predetermined price including interest. REPO's can take different forms like if a commercial bank holds more securities than wanted it will sell these securities to a DFI on REPO basis. This way back can get rid of securities in the short run. Commercial bank can also ask DFI's to lend on their behalf. For this purpose they provide DFI's with securities and also pay commission for this service. Similarly if a bank holds securities and wants to keep them but needs some cash for a short period of time ,it can arrange the funds through a REPO without loosing hold of securities .

In the same manner an individual client can get cash from a bank against securities on REPO basis without loosing the ownership of securities. SBP also offers funds to banks and financial institutions on 3^rd day REPO basis.

Indicative Inter-bank Average REPO and call rates

(Percent per annum)

Period

Overnight

1week

1months

3months

6months

12months

FY 09

Repo

Call

Repo

call

Repo

call

Repo

call

Repo

call

Repo

call

10.6

13.2

11.2

13.9

12.5

13.9

13.6

14.1

4.4

8.0

4.5

-

(Source:Domestic markets and monetary Management Deptt, SBP)

In August 2009, SBP adopted a new framework for its monetary operation by announcing an interest rate corridor. Under this frame work, SBP introduced an overnight standing deposit facility. The rate on this facility will be 300 bps below the discount rate and would effectively act as a floor rate for the over night inter bank repo borrowings. The SBP policy discount rate on the other hand would serve as ceiling on the upward movement in the money market repo rate. Moreover because of delayed announcement of monetary policy by SBP and an eventual reduction of 100bps in policy rate (which was less than market expectation) the market interest rate adjusted upwards.

The introduction of this corridor is expecting to help in containing the excessive volatility in overnight repo rate, would make monetary policy transmission more effective and faster transparency in money market operations. Considering the unrest socio-political circumstances of Pakistan, State bank of Pakistan has also reduced its policy rate from 50 bps to 12.5%. In short a pathetic condition of law and order in Pakistan is not only affecting her foreign investments (Foreign direct investment shows a decline of 13.8 % in current fiscal year in comparison with previous FY) but also influencing money market of Pakistan pejoratively.

By : basiliskt