The major drawback of Mudarabah from the bank’s asset perspective for financing is the tolerance of all financial losses by Rabb-ul-Maal only. So, when an Islamic bank agrees upon a Mudarabah contract as a Rabb-ul-Maal, then that bank has to pay for all the losses. The disproportion in case of loss situations is the main problem of Mudarabah.
The principle relating the sharing of loss and limiting it to the capital invested is not discussed in Quran. This perspective was appropriate in early Islamic era, when Mudarib was usually poor, having limited financial resources. This incompleteness refrained him from entering corruption and has no capacity of participating in sharing of loss when it occurred due to his own negligence apart from other reasons.
This fact can also be valued by having a glance at the rules defining Mudarabah, which explains the rights and duties of Mudarib. The traditions and Riwayat portray that Mudarib is poor and resource-starved man yet a skillful person of those times.
In Musharakah, as all the partners are required to work, so loss participation by all partners present in the board is justified. But, as far as Mudarabah is concerned, the complete authority of business rests with the working partner, and Rabb-ul-Maal is solely responsible for bearing the losses, which gives an unjustified view at a glance.
As an example, consider an Islamic economic system with Mudarabah as the only instrument used on asset and liability side. The Mudarib which are generally blue chip companies have no liability to share the loss and get the financing from banks, which act as Rabb-ul-Maal from the point view of assets in Mudarabah. From the liability perspective, Mudarib is the bank, while small savers and investors fall in the category of Rabb-ul-Maal. Thus, all the losses experienced by the blue chip companies are paid off by small savers and investors, and are also responsible for sharing the losses without interfering in business affairs.
Restricted Mudarabah along with deliberate negligence is not sufficient to guard them against losses occurring from business cycle fluctuations. The following example depicts that with the existing system, Mudarabah solely cannot bring about sufficient egalitarian change.
Now let’s examine trust deficit and documentation issues leading to the rare usage of Mudarabah in economic systems. Firstly relax these assumptions and focus on the trust deficit and documentation problem in the economy. The losses occurring due to business cycle fluctuations are not tolerated by the business which had the power to run the business. Not only has the bank born the loss, as it is also Mudarib from the liability perspective. Small savers and investors bear all the losses encountered.
Now suppose that interest based lending and borrowing is prohibited by the policies of the government. Will the people be interested in being Rabb-ul-Maal in Mudarabah, where all the money is taken by bank or shareholder in blue chip company, and they can easily invest or earn from it, and in case of loss it is passed on to the small savers? With the existing system, which relaxes the assumptions of trust deficit and documentation problems having no conventional competitive banking system, Mudarabah seems to be unproductive.
For the current system, Mudarib works similar to an employee where compensation is related to the profits. The entrepreneur-having the responsibility of sharing losses is Rabb-ul-Maal. The principal agent relationship present in corporate sector of organizations is different from it. The principal agent relationship includes hiring of agents but the policies have no obligations regarding the influence of principal on the decisions of the agent.
The equality in financing positions to be a pivotal question for general and Islamic bankers who are surrounded by trust deficit and documentation problems. Why people would be keen in investing in companies which provide no guarantee over par value let alone dividend and lack cash inflows to a great extent?
Equity financing is widely used with important agreements in place. In developing countries, the study of debt size and equity market is of great interest. For example, in Pakistan, there is a mild existence of corporate bond market, while equity financing covers the most part of the market. The development of certain agreements by conventional equity based institutions and instruments is the core reason behind their extensive application.
In order to make Mudarabah more effective, the following two covenants can be introduced:
a) Some capital is to be contributed by the Mudarib. This will be different from Musharakah because the sole working partner is Mudarib.
b) The loss can be shared by Mudarib to a limited extent.
The problem of adverse selection, moral hazard and principal-agent conflict could be avoided to a great extent by the inclusion of these two covenants. A famous Hadith clarifies the fact that the all conditions agreed by the Muslims are supported except for the ones which permits unlawful acts which have been prohibited.
Arguments can be made over these two agreements who would violate the principle of Al-Kharaj Bil Daman (The risk of exposure i.e. one can claim profit only if the one is ready to bear the business risk).
These arguments will not result in violation because of the principle because the given proposal does not transfer all the owed money to the Mudaribs and confirmed some fixed profit to the Rabb-ul-Maal. Rabb-ul-Maal will be legally responsible to bear losses, but Mudarib will also bear some loss sharing in participation with some capital.
To make this model under the supervision of Islamic Fiqh, combining Musharakah and Mudarabah can be done, whereas if Mudarib is included in the combination will eventually be a Sharik. This combination is widely spread in distributing liability products and is proposed by Maulana Taqi Usmani in his Book “Introduction to Islamic Finance” (p. 36) for project financing as well.
For more info please visit
http://www.halaltamweel.com
Tuesday, January 17, 2012
Few part-timers, but more are working multiple jobs
Employee lanes in the US are diverse and varying for the US workers. It is noticeable for the welfare of employees and the economy that the average worker manages to grab 35 hours of work every week, which is when he is having pressure to grab lesser, considering the economic inflation.
According the Bureau of Labor Statistics, it was stated that workers tended to work for lesser number of hours either due to pressure from employer or lack of full time work. This caused decrease in part time workers, statistically by 371000 by the end of December. However, the strategy of the current Government considering the future of part time workers is still unknown. Jim Borbely, working for BLS reasoned that the statistics could be either due to workers retaining their full time status or unfortunately due to part time workers losing their jobs.
Borbely presented the brighter side of his perspective claiming that statistical figures show a decrease of 1 million the number of unemployed workers, indicating that conditions of workers are improving. However, this is not what everyone perceives of the situation. According to Ellen Emst Kossek, HRM professor from Michigan State University’s School of Human Resources & Labor Relations, statistics cannot be ignored. She added on the ambiguity on why workers retained their work hours. Is it because they are making more money or because they are working more and getting less?
She claimed that workers are under economic pressure and opting for full time jobs not because of better economic conditions, but clearly due to worsened conditions. Furthermore, she added that the companies are not paying them on time and blocking their overtime, enforcing them to work more and earn less. BLS claims that above 7 million people in America were forced to opt for two or more part time jobs as identified by statistics by the end of December. According to her, burnout occurs due to stress and fatigue due to multiple jobs. This also disturbs the social system. She identifies that long term thinking involves quality jobs for citizens.
For more info, please visit
http://lifeinc.today.msnbc.msn.com
According the Bureau of Labor Statistics, it was stated that workers tended to work for lesser number of hours either due to pressure from employer or lack of full time work. This caused decrease in part time workers, statistically by 371000 by the end of December. However, the strategy of the current Government considering the future of part time workers is still unknown. Jim Borbely, working for BLS reasoned that the statistics could be either due to workers retaining their full time status or unfortunately due to part time workers losing their jobs.
Borbely presented the brighter side of his perspective claiming that statistical figures show a decrease of 1 million the number of unemployed workers, indicating that conditions of workers are improving. However, this is not what everyone perceives of the situation. According to Ellen Emst Kossek, HRM professor from Michigan State University’s School of Human Resources & Labor Relations, statistics cannot be ignored. She added on the ambiguity on why workers retained their work hours. Is it because they are making more money or because they are working more and getting less?
She claimed that workers are under economic pressure and opting for full time jobs not because of better economic conditions, but clearly due to worsened conditions. Furthermore, she added that the companies are not paying them on time and blocking their overtime, enforcing them to work more and earn less. BLS claims that above 7 million people in America were forced to opt for two or more part time jobs as identified by statistics by the end of December. According to her, burnout occurs due to stress and fatigue due to multiple jobs. This also disturbs the social system. She identifies that long term thinking involves quality jobs for citizens.
For more info, please visit
http://lifeinc.today.msnbc.msn.com
Insurance study: Women are better drivers than men
Women in the battle between two genders, come out as the winners. In other words, according to astonishing facts and figures presented by an automobile insurance company online, claim against the odds, that women are better drivers than men.
According to the study, around 80 % of fatal or injurious accidents involve to male drivers. Furthermore, it is added that women have a participation of 27 % of the actual number of accidents that occur. Moreover, according to the presented facts and figures of the year 2007, 6.1 million road accidents involved male drivers while 4.4 million involved women
Study claims that men three times are more likely to be liable for DUI violations than women. CEO James Shaffer added that it was disappointing to know how bad a common citizen of America drives 4. He added into his perspective that no matter what might be the reason behind the facts and figures: whether it may be risk taking characteristics, high testosterone levels, hence higher ability to take risks and increase in aggression, it is clear that men do not drive up to the mark.
Statistics on traffic violation tell that men are comparatively more likely to be involved in reckless driving, loss of control, abiding by laws and over speeding, than women. It was unveiled that male drivers have insurance claims of up to $765 per 6 months compared to $698 per 6 months for women. Pete Moraga representing Insurance information network in California claims that the results that these studies confirm are already in knowledge, however she said, that women and men are becoming less different drivers as the time passes.
This study is a comparison of women and men on different aspects of driving using statistics. The study includes comparison on traffic violations, frequency of accidents and insurance prices. According to a statistical report by Insurance Institute for Highway Safety's Highway Loss Data Institute in the year 2009, causalities in accidents involving men was more likely than accidents involving women. Comparatively men drive longer and more aggressively than women. Nevertheless it was also mentioned that in accidents of comparative force, accidents involving women are more likely to report casualties than men. Moraga added that drivers cannot win on the basis of gender. It is the responsibility of both the sexes to drive so that they themselves and others are safe on the road.
For more info, please visit
http://bottomline.msnbc.msn.com
According to the study, around 80 % of fatal or injurious accidents involve to male drivers. Furthermore, it is added that women have a participation of 27 % of the actual number of accidents that occur. Moreover, according to the presented facts and figures of the year 2007, 6.1 million road accidents involved male drivers while 4.4 million involved women
Study claims that men three times are more likely to be liable for DUI violations than women. CEO James Shaffer added that it was disappointing to know how bad a common citizen of America drives 4. He added into his perspective that no matter what might be the reason behind the facts and figures: whether it may be risk taking characteristics, high testosterone levels, hence higher ability to take risks and increase in aggression, it is clear that men do not drive up to the mark.
Statistics on traffic violation tell that men are comparatively more likely to be involved in reckless driving, loss of control, abiding by laws and over speeding, than women. It was unveiled that male drivers have insurance claims of up to $765 per 6 months compared to $698 per 6 months for women. Pete Moraga representing Insurance information network in California claims that the results that these studies confirm are already in knowledge, however she said, that women and men are becoming less different drivers as the time passes.
This study is a comparison of women and men on different aspects of driving using statistics. The study includes comparison on traffic violations, frequency of accidents and insurance prices. According to a statistical report by Insurance Institute for Highway Safety's Highway Loss Data Institute in the year 2009, causalities in accidents involving men was more likely than accidents involving women. Comparatively men drive longer and more aggressively than women. Nevertheless it was also mentioned that in accidents of comparative force, accidents involving women are more likely to report casualties than men. Moraga added that drivers cannot win on the basis of gender. It is the responsibility of both the sexes to drive so that they themselves and others are safe on the road.
For more info, please visit
http://bottomline.msnbc.msn.com
Good Design Intrigues Most Automakers
At the beginning of the week, Hyundai defeated 2012 Ford Focus and Volkswagen’s newly updated Passat by calling out a strike to win the Car of the year Award in North America. John Krafcik, CEO of Hyundai Motor America, backed by the 50-juror judging panel, proposed the idea that not just the 40 mpg highway fuel economy rating but in fact the cars design was the basic reason for the victory.
As per researchers such as J.D Power and associates, due to the high competition found in the automotive industry, for most buyers, the exterior image of the car plays a much bigger role than the car’s need for fuel.
Even today, when recession is at its peak, carmakers such as Ford, Hyundai and Audi are not out of work only because of the designs which they provide their buyers. As per Freeman Thomas, when it comes to cars, “It’s the difference between a short-order cook and a great chef.” Today he believes that car designs majorly influence a buyer’s choice because of the issues that Founder Henry Ford had to face until he finally gave up in the 1920s and agreed to provide customers with different models of the “Model T”.
The new chairman of the inclining General Motors, Alfred P. Sloan presented a collection of colors to the company. He hired a coachbuilder, Harley Earl, to become the first manager of design, of the industry, for the company. This step accentuated the department of "Art and Color" of General Motors. The concept of utilizing sculpted clay models was introduced by Earl, along with the suggestion of using refined automotive designs. Earl contributed very prolific ideas to the company; in 1939 he renamed the first concept car, Buick Y-Job, as "Styling Division" in order to emphasize its aesthetics. Buick Y-Job was designed to provide a bunch of variant sophisticated ideas to the public, such as a mechanical convertible roof. Another important intention behind the renaming of Buick Y-Job was to examine the response of its potential customers with regards to its advanced style.
The approach is practiced even today. The Detroit Auto Show of 2012 is displaying a range of concept cars such as the model of the redesigned Acura NSX. The production of Acura NSX is prospected to begin by the year 1214 while a redesigned and fabricated Honda Accord Coupe will reach the showrooms within this year.
The major part of the accord was focussed on midsize passenger car segments from which sales worth 2 million units were made. The director of AutoTrends Consulting, Joe Phillippi said that customers are not satisfied with plain vanilla design but want something different now. The winner of this segment, Toyota was far behind this time as it was severely criticised by its customers who saw the new model before the official launch which was after 18 months. It was said that Toyota copied the design of Camrys 2012 model. The makers are trying hard to redo the design a bit but it is still far behind its competition like Ford.
A new design of the Fusion sedan which is to compete with Camry was launched by a US car maker. It has been given the Eyes on Design Production Car design award by almost 24 automobile designers at the Detroit auto show. This has caused it to gain many financers. Chief researcher of IHS Automative, Rebecca Lindland believes that due to design Camry 2012 will not be able to compete. The producers are also increasing their production rates now as previous year there was a shortage of cars due to tsunami and quakes. She believes that Fusion because of its design could be the top seller.
It is not easy to construct a best seller design for a car as the basic architecture is the same. It is hard to decide where to locate things like pillar or windshield when constructing a new product is keeping a check on its aerodynamics. All details have a great effect on the co efficient of drag which basically means on the fuel economy. It is also important that all new cars have wind tunnel test performed on them.
An experienced designer of GM, Jhon Cafaro, stated that now a day’s talented designer started to work on some new projects with latest designs that are aerodynamic too. The use of digital tools of designing is presented as good news for designers so that a designer himself, his fellow companion and his competitor can easily find many surprising ways to set up their designs free. With the increasing regularity, the manufacturers are continuously kept on taking over other’s studios for the sake of talent. This war for the leadership of designing is mostly prominent on flood of auto show instead nastiest skirmishes is ready to take over the place.
Many years ago, Kia launched its styling project of bending steel metal in amazingly simple technique. Kia hired Peter Schreyer from Audi, recently Automobile Magazine declared him Man of the Year. Kia is now well reputed in this technology.
Chris Chapman of BMW is hired by Hyundai and now he would give breakthrough to the Korean carmaker. It introduced Elantra and Sonata sedan as well.
This design industry is too agile in awareness of designers; today’s leader can also be tomorrow’s laggard. Goodness of your designs is measured by the latest design you produced, no other criteria.
As per researchers such as J.D Power and associates, due to the high competition found in the automotive industry, for most buyers, the exterior image of the car plays a much bigger role than the car’s need for fuel.
Even today, when recession is at its peak, carmakers such as Ford, Hyundai and Audi are not out of work only because of the designs which they provide their buyers. As per Freeman Thomas, when it comes to cars, “It’s the difference between a short-order cook and a great chef.” Today he believes that car designs majorly influence a buyer’s choice because of the issues that Founder Henry Ford had to face until he finally gave up in the 1920s and agreed to provide customers with different models of the “Model T”.
The new chairman of the inclining General Motors, Alfred P. Sloan presented a collection of colors to the company. He hired a coachbuilder, Harley Earl, to become the first manager of design, of the industry, for the company. This step accentuated the department of "Art and Color" of General Motors. The concept of utilizing sculpted clay models was introduced by Earl, along with the suggestion of using refined automotive designs. Earl contributed very prolific ideas to the company; in 1939 he renamed the first concept car, Buick Y-Job, as "Styling Division" in order to emphasize its aesthetics. Buick Y-Job was designed to provide a bunch of variant sophisticated ideas to the public, such as a mechanical convertible roof. Another important intention behind the renaming of Buick Y-Job was to examine the response of its potential customers with regards to its advanced style.
The approach is practiced even today. The Detroit Auto Show of 2012 is displaying a range of concept cars such as the model of the redesigned Acura NSX. The production of Acura NSX is prospected to begin by the year 1214 while a redesigned and fabricated Honda Accord Coupe will reach the showrooms within this year.
The major part of the accord was focussed on midsize passenger car segments from which sales worth 2 million units were made. The director of AutoTrends Consulting, Joe Phillippi said that customers are not satisfied with plain vanilla design but want something different now. The winner of this segment, Toyota was far behind this time as it was severely criticised by its customers who saw the new model before the official launch which was after 18 months. It was said that Toyota copied the design of Camrys 2012 model. The makers are trying hard to redo the design a bit but it is still far behind its competition like Ford.
A new design of the Fusion sedan which is to compete with Camry was launched by a US car maker. It has been given the Eyes on Design Production Car design award by almost 24 automobile designers at the Detroit auto show. This has caused it to gain many financers. Chief researcher of IHS Automative, Rebecca Lindland believes that due to design Camry 2012 will not be able to compete. The producers are also increasing their production rates now as previous year there was a shortage of cars due to tsunami and quakes. She believes that Fusion because of its design could be the top seller.
It is not easy to construct a best seller design for a car as the basic architecture is the same. It is hard to decide where to locate things like pillar or windshield when constructing a new product is keeping a check on its aerodynamics. All details have a great effect on the co efficient of drag which basically means on the fuel economy. It is also important that all new cars have wind tunnel test performed on them.
An experienced designer of GM, Jhon Cafaro, stated that now a day’s talented designer started to work on some new projects with latest designs that are aerodynamic too. The use of digital tools of designing is presented as good news for designers so that a designer himself, his fellow companion and his competitor can easily find many surprising ways to set up their designs free. With the increasing regularity, the manufacturers are continuously kept on taking over other’s studios for the sake of talent. This war for the leadership of designing is mostly prominent on flood of auto show instead nastiest skirmishes is ready to take over the place.
Many years ago, Kia launched its styling project of bending steel metal in amazingly simple technique. Kia hired Peter Schreyer from Audi, recently Automobile Magazine declared him Man of the Year. Kia is now well reputed in this technology.
Chris Chapman of BMW is hired by Hyundai and now he would give breakthrough to the Korean carmaker. It introduced Elantra and Sonata sedan as well.
This design industry is too agile in awareness of designers; today’s leader can also be tomorrow’s laggard. Goodness of your designs is measured by the latest design you produced, no other criteria.
Eurozone slammed by credit downgrades, collapse of Greek bond talks
With an intention to avoid default, the private bondholders interrupt the talking which was getting held in between the reporters and Mr. Evangelos Venizelos (Finance Minister of Greece). It was a good-for-naught day for the Europeans, Friday the 13th, as per the Senior Producer, John W. Schoen. Because of the demonstrated financial problems in Europe, the rumors started to flow as per the expectations that France, Italy, Spain, and other eurozone states will be demoted by the credit agency Standard and Poor’s, in the middle of the European trading day.
But the collapse was not really expected by the investors and traders with respect to the talking which was getting held in between the bondholders and Greek officials regarding default head off. As per the statement of the UBS trading head at the New York Stock Exchange, Art Cashin, S&P cuts are in real concentration, till next week Greece could be in a better position to take off.
It was clearly stated by the Greek officials that the situation could go worse and the consequences could be ruinous, if a mutual decision will not be taken in near future regarding the swapping of bonds. There was still an uncertainty regarding the payment by the government of Greece and strike to the banks.
The rating of S&P fell from AAA, which was granted to it in August by the U.S government securities, to AA+, after implementing the same procedure with respect to France Friday. Mr. Francois Baroin (Finance Minister of France) said that no more self-denial steps will be taken by the government, while talking to a French TV channel. With respect to the rating, he said it an excellent one, but the news was not good according to him.
Austria, Slovakia, and other six countries were demoted by single notch, while Italy, Spain, and Portugal were demoted by a double notch. Other demoted countries included Cyprus, Malta, and Slovenia. As per the demotion of 14 countries which fall in eurozone, there are 33percent chances that they will again be demoted in 2012 or 2013. The countries which demonstrated steady outlooks were Germany and Slovakia.
As per the statement of S&P, there is gap exists between the problems which took place in eurozone in recent times and the policy made by the European policymakers in order to cope-up with the situation, which clearly resembles the inadequacy of the policies. It has a great role in deriving current ratings of us. Moreover, there are some other factors beside the lack in proper-policy-making, which also influenced our ratings in the current manner. They include weakening growth prospects and tightening credit.
We have not got any proper solution to cope-up with the current financial issues of eurozone in the meeting of us held in last month, said by S&P. A laconic statement was released by the International Monetary Fund in an attempt to stable the market after the break down of talking between Greek officials and bondholders.
Our basic objective is to make things normal between the Greek officials and bondholders, so that their talk can be resumed, which will ultimately result in both the sectors (official and private) working together for mutual benefits, as per a spokesperson.
It is required by the government of Greece to have an agreement with banks to head-off default of 14.5 billion euros which equals to $18.4 billion before its due date, which is 20th March. It is having a high priority especially after the break down of talks. Moreover, there is also a threat hurting the economy because of high borrowing costs and deep budget cuts. Even if there is an agreement, time is still an important factor to consider, as it will take approximately six weeks to swap the debt.
Initially it was expected that the banks will face the loss of 50 percent, but afterwards it ended up in the loss of 70 percent for the bankers. Presently, the financial lifeline of Greece is primarily dependent upon the debt deal which is expected to finalize shortly. The executives of three big international organizations are present in Athens since Tuesday. They are strongly in the favor of finalizing debt agreement in participation with bondholders so that it can be enforced as a pre-defined condition for bailout. These organizations include European Union, its key financial institution called as European Central Bank and International Monetary Fund.
The probability of default is high, as perceived by many investors. They are also foreseeing drastic consequences of default upon many European Countries which are already debt-burdened. At Shelter Harbor Capital, the idea of buying bonds of other European countries was openly criticized by an investment manager. He highlighted the attitude of investors in terms of their concerns for frequency of occurrence of such events. He strongly rejected the idea of buying bonds of other countries on the grounds that its applicable rules are subject to change as soon as some other investor buys the bonds from the same market of other country. It may be Italy, France or even Spain. Based on this notion, he explicitly cautioned Greece initiative realizing its small size and limited money available.
The news has negatively influenced the European stock market and the figure of Euro went as low as 16-month. The recorded trading of Dow Jones Industrial average trend showed the decline trend of 54 points. Although, the news about expected downgrades were presented in stride, yet its impact was considerable.
The future plans of flourishing Eurozone were critically highlighted by Richard Batty, a strategist of Standard Life Investments. He stated that the prevailing circumstances are giving a preview about the fiscal mess of Eurozone that is present and may prevail. He further stated that there is no such strong plan for fiscal unionization of Eurozone.
The analysts of European debt crisis, likewise bankers and investors are not optimistic about the consequences of prevailing scenario. One the one hand, US economy to struggling to restore from the unfavorable jerks, on the other hands, European economy is still drowning in recession.
The prevailing negative impact is quite widespread in the circles of US. It is also evident from the recent trade data of US exports gathered last month. In the views of Paul Dales, a senior economist at US Capital Insight, trade deficit recorded in November is the biggest indicator of approaching crisis towards US economy. For the ten months, it has affected Europe and other parts of the world as well, but now the threat is there for US economy as well.
The growth rate of 2011 in US economy is relatively weaker as compared to last years. The only sustaining factor in 2011 was the exports made by US. The first quarter had quiet humble figures, the second quarter improved to touch the growth rate of 1.3 percent, and the third quarter enjoyed the figure of 1.8 percent growth rate. The government has not released the figures of fourth quarter’s growth rate but the report is optimistically awaited.
Despite favorable growth rate observed in 2011, the Economists are not optimistic about growth to take place at the same pattern in future. It is because; the growth in 2011 was mainly triggered by use of credit cards and spending the savings. The basic wages were stalled; however, spendthrift attitude was adopted for savings and credit cards. The trend is not lasting hence further growth is not forecasted.
Talking about the growth rate of fourth quarter of 2011 at Capital Insight, Dales along with his colleagues estimated the figure of 2.2 percent. They also stated that after this peak, the growth will decline and the trend of 2012 will approximate 1.5 percent annual growth rate. This expected growth rate will serve as a sustaining factor to manage the approaching financial shock in case any debt default occurs in any European country.
But the collapse was not really expected by the investors and traders with respect to the talking which was getting held in between the bondholders and Greek officials regarding default head off. As per the statement of the UBS trading head at the New York Stock Exchange, Art Cashin, S&P cuts are in real concentration, till next week Greece could be in a better position to take off.
It was clearly stated by the Greek officials that the situation could go worse and the consequences could be ruinous, if a mutual decision will not be taken in near future regarding the swapping of bonds. There was still an uncertainty regarding the payment by the government of Greece and strike to the banks.
The rating of S&P fell from AAA, which was granted to it in August by the U.S government securities, to AA+, after implementing the same procedure with respect to France Friday. Mr. Francois Baroin (Finance Minister of France) said that no more self-denial steps will be taken by the government, while talking to a French TV channel. With respect to the rating, he said it an excellent one, but the news was not good according to him.
Austria, Slovakia, and other six countries were demoted by single notch, while Italy, Spain, and Portugal were demoted by a double notch. Other demoted countries included Cyprus, Malta, and Slovenia. As per the demotion of 14 countries which fall in eurozone, there are 33percent chances that they will again be demoted in 2012 or 2013. The countries which demonstrated steady outlooks were Germany and Slovakia.
As per the statement of S&P, there is gap exists between the problems which took place in eurozone in recent times and the policy made by the European policymakers in order to cope-up with the situation, which clearly resembles the inadequacy of the policies. It has a great role in deriving current ratings of us. Moreover, there are some other factors beside the lack in proper-policy-making, which also influenced our ratings in the current manner. They include weakening growth prospects and tightening credit.
We have not got any proper solution to cope-up with the current financial issues of eurozone in the meeting of us held in last month, said by S&P. A laconic statement was released by the International Monetary Fund in an attempt to stable the market after the break down of talking between Greek officials and bondholders.
Our basic objective is to make things normal between the Greek officials and bondholders, so that their talk can be resumed, which will ultimately result in both the sectors (official and private) working together for mutual benefits, as per a spokesperson.
It is required by the government of Greece to have an agreement with banks to head-off default of 14.5 billion euros which equals to $18.4 billion before its due date, which is 20th March. It is having a high priority especially after the break down of talks. Moreover, there is also a threat hurting the economy because of high borrowing costs and deep budget cuts. Even if there is an agreement, time is still an important factor to consider, as it will take approximately six weeks to swap the debt.
Initially it was expected that the banks will face the loss of 50 percent, but afterwards it ended up in the loss of 70 percent for the bankers. Presently, the financial lifeline of Greece is primarily dependent upon the debt deal which is expected to finalize shortly. The executives of three big international organizations are present in Athens since Tuesday. They are strongly in the favor of finalizing debt agreement in participation with bondholders so that it can be enforced as a pre-defined condition for bailout. These organizations include European Union, its key financial institution called as European Central Bank and International Monetary Fund.
The probability of default is high, as perceived by many investors. They are also foreseeing drastic consequences of default upon many European Countries which are already debt-burdened. At Shelter Harbor Capital, the idea of buying bonds of other European countries was openly criticized by an investment manager. He highlighted the attitude of investors in terms of their concerns for frequency of occurrence of such events. He strongly rejected the idea of buying bonds of other countries on the grounds that its applicable rules are subject to change as soon as some other investor buys the bonds from the same market of other country. It may be Italy, France or even Spain. Based on this notion, he explicitly cautioned Greece initiative realizing its small size and limited money available.
The news has negatively influenced the European stock market and the figure of Euro went as low as 16-month. The recorded trading of Dow Jones Industrial average trend showed the decline trend of 54 points. Although, the news about expected downgrades were presented in stride, yet its impact was considerable.
The future plans of flourishing Eurozone were critically highlighted by Richard Batty, a strategist of Standard Life Investments. He stated that the prevailing circumstances are giving a preview about the fiscal mess of Eurozone that is present and may prevail. He further stated that there is no such strong plan for fiscal unionization of Eurozone.
The analysts of European debt crisis, likewise bankers and investors are not optimistic about the consequences of prevailing scenario. One the one hand, US economy to struggling to restore from the unfavorable jerks, on the other hands, European economy is still drowning in recession.
The prevailing negative impact is quite widespread in the circles of US. It is also evident from the recent trade data of US exports gathered last month. In the views of Paul Dales, a senior economist at US Capital Insight, trade deficit recorded in November is the biggest indicator of approaching crisis towards US economy. For the ten months, it has affected Europe and other parts of the world as well, but now the threat is there for US economy as well.
The growth rate of 2011 in US economy is relatively weaker as compared to last years. The only sustaining factor in 2011 was the exports made by US. The first quarter had quiet humble figures, the second quarter improved to touch the growth rate of 1.3 percent, and the third quarter enjoyed the figure of 1.8 percent growth rate. The government has not released the figures of fourth quarter’s growth rate but the report is optimistically awaited.
Despite favorable growth rate observed in 2011, the Economists are not optimistic about growth to take place at the same pattern in future. It is because; the growth in 2011 was mainly triggered by use of credit cards and spending the savings. The basic wages were stalled; however, spendthrift attitude was adopted for savings and credit cards. The trend is not lasting hence further growth is not forecasted.
Talking about the growth rate of fourth quarter of 2011 at Capital Insight, Dales along with his colleagues estimated the figure of 2.2 percent. They also stated that after this peak, the growth will decline and the trend of 2012 will approximate 1.5 percent annual growth rate. This expected growth rate will serve as a sustaining factor to manage the approaching financial shock in case any debt default occurs in any European country.
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