A record level of $158.8 trillion in global debt, together with low economic growth is creating a serious threat of a new financial crisis, says the sixteenth annual Geneva Report.
Total world debt, excluding the financial sector, has risen from 180 percent of global output in 2008 to 212 percent last year, according to the report written by a panel of senior economists including three former senior central bankers.
“Contrary to widely held beliefs, the world has not yet begun to deliver, and the global debt to GDP ratio is still growing, breaking new highs,” the report said.
The World Bank data showed that in 2013 global GDP was $74.909 trillion.
At a world level, there was acceleration in real growth from the mid-1990s until the mid-2000s, largely driven by the impressive performance of emerging markets over this period.
However, output growth in advanced economies has been declining for decades, which accelerated after the crisis. The developed economies enjoyed only a temporary improvement in real output growth in the late 1990s which had already started gradually eroding by the mid-2000s.
A “poisonous combination of high and rising global debt and slowing gross domestic product, driven by both slowing real growth and falling inflation,” may cause a crisis, warns the report.
Despite the modest decrease in household debt in the UK and the rest of Europe, the credit binge in Asia has offset the improvements, pushing the global private and public debt to a new high in 2013.
Until 2008, the leveraging up was being led by developed markets, but since then emerging economies led by China have been the driving force in the process, thus becoming the most vulnerable to the next crisis.
“Although the level of leverage is higher in developed markets, the speed of the recent leverage process in emerging economies, and especially in Asia, is indeed an increasing concern,” says the report.
Forget Visa and MasterCard. After the two American credit system payment companies froze accounts without notice in March, Russia has been looking for an alternative in China UnionPay.
China UnionPay plans to have 2 million cards in Russia in the next three years.
Instead of seeing the small Visa and MasterCard logo on credits cards, ATMs, and retail outlets, Russians will start to see the three words “China. Union. Pay.”
China UnionPay first emerged in 2002 on the domestic Chinese market as an alternative to Visa and MasterCard, but quickly expanded internationally, and now is already number one in terms of quantity of cards in the world.
Russia’s biggest banks – VTB- Gazprombank, Promsvyazbank, Alfa Bank, MTS, and Rosbank- are already making technical preparations, running tests on Union Bank cards.
“VTB24 already serves China UnionPay cards in its ATM network and now the bank is in negotiations with this payment system to start acquiring retail merchants,” VTB24’s press office said in a statement.
Most banks just began their relationship with China by offering clients corresponding services- none of the bankers imagined that they would be issuing Chinese credit cards.
In March, both Visa and MasterCard blocked the accounts of cardholders at BankRossiya and SMF Bank, both which were sanctioned by the US over Russia’s involvement in Crimea.
Russian financiers who used to keep their assets in dollars and euros were shocked by the event, and moved their capital back to Russia out of fear one day all their assets would be blocked by politicians in Washington DC.
“Visa and MasterCard have 100 percent trust, but right now, there is no trust in the system, and many, even our clients, have shifted their transactions from American dollar and Euro to Yuan. They are eager to receive this card- we already have a big list of people waiting to get this card instead of MasterCard and Visa,” Denis Fonov, Deputy Chairman at LightBank, a small Moscow-based bank, told RT.
LightBank was working with UnionPay long before it knew the cards would be coming to the Russian market – and ordered 10,000 cards pre-emptively as a side service for clients.
As a result of the freeze, Visa and MasterCard will now have to pay a security deposit to Russia’s Central Bank, which is estimated to be billions for each company. Similarly, once UnionPay begins operating in Russia, it will also put down a security deposit with Russia’s Central Bank, about $3-4 billion, Fonov said.
$5.3 trillion in payments
There are already 20,000 cards in circulation in Russia, and a second order of 100,000 cards is planned for September. In Russia many banks accept UnionPay cards, but not merchants, that’s the next step.
By the beginning of 2014, the payment system had already issued 4.2 billion cards, mostly in China.
In terms of total world trade turnover, China UnionPay is the leader in debt cards, with over $5.3 trillion in payments, or about 47 percent of the market share, whereas Visa has 40.6 percent, and MasterCard only 12.2 percent, according to the Nilson Report.
In overall transactions, Visa is still the leader with $4.6 trillion, and China UnionPay comes in second with $2.5 trillion in transactions in the first half of last year.
UnionPay already successfully operates in Australia and Canada, with their deposits tied to both the local currency and the yuan. In total, UnionPay operates in 142 countries.
China’s UnionPay will be a temporary solution for Russia to detach from the West while it prepares to launch its own payment system, which officially isn’t slated to begin operating for another 16 months, and according to sources in the industry, it could even be 2-3 years out.
For Switzerland to copy and paste EU sanctions against Moscow is unwise, and would jeopardize the country’s role as a mediator, said Swiss Economy Minister Johann Schneider-Ammann.
The Swiss government has no plans to follow in the EU’s footsteps and impose sanctions against Russia, Schneider-Ammann said in an interview with the Swiss newspaper Schweiz am Sonntag.
Schneider-Ammann said that choosing a side would undermine the country’s neutrality in the matter.
“This role [as mediator] will be weakened, if we duplicate EU sanctions,” Schneider-Ammann said, adding that Switzerland holds the chairmanship of the Organization for Security and Co-operation in Europe (OSCE), which is vitally important for peace talks between Russia and Ukraine.
Another main concern for Switzerland, home to many Russian nationals, is any economic blowback from sanctions.
The economy minister warned that shutting out Russia could “result in a domino effect” which will “have a negative impact on our economy.”
Unlike its European neighbors who are dependent on Russia for natural gas, Switzerland is financially tied to Russia. Switzerland is home to an estimated $15.2 billion in Russian assets as of 2012, and oil exchanges in Geneva account for 75 percent of Russian crude exports, Reuters reports. Many Russians live in the country.
In March, after Crimea reunited with Russia and the US unveiled its first round of sanctions, Switzerland said it would take measures if needed.
Switzerland has however frozen assets of ousted Ukrainian President Viktor Yanukovich and other former Kiev government officials.
The minister plans to visit Moscow in October to discuss Swiss-Russian bilateral economic cooperation. Schneider-Ammann is a member of Switzerland’s Free Democratic Party, and was first elected to the Swiss National Council in 1999.
France’s biggest bank has reportedly agreed an $8-9 billion settlement with US prosecutors over hiding $30 billion in money transfers to countries on the US sanctions blacklist. The fine against BNP Paribas could be a record for this type of violation.
In the proposed settlement, BNP Paribas will plead guilty to criminal charges in early July, The Wall Street Journal reports, citing a source close to the matter. After admitting violating the International Economic Powers Act, the bank will temporarily be banned from doing deals in US dollars. France has warned this could have a negative effect on the stability of the euro zone.
The US Department of Justice is negotiating with BNP Paribas over the infractions, and the penalty could be the biggest of its kind. French President Francois Hollande said the fines are ‘unfair’ and ‘disproportionate’.
In 2012, the US fined HSBC $1.9 billion over similar US sanctions violations, and Credit Suisse pled guilty to concealing sanctions data and paid $2.6 billion in fines.
After examining over $100 billion of transactions, US authorities found that $30 billion were illegally conducted with Iran, Cuba, and Sudan as they are countries sanctioned by the US.
The infraction will force the company to reshuffle its US-based management, according to several sources. The Wall Street Journal reports 30 bank employees have already left, or will soon exit, the company.
First set at $3 billion, the penalty later was rumored to have reached $16 billion before the latest $8-9 billion figure. The largest fine on record for a bank is the $13 billion JPMorgan Chase & Co paid out for pre-crisis mortgage frauds. BNP Paribas has only set aside over $1 billion to pay out any potential fines, and a fine between $8-9 billion could nearly wipe out the company’s entire pre-tax earnings of $11.2 billion.
No more Fitch, Moody’s, or Standard & Poor’s for Russia and China, as they have agreed to establish a rating agency on joint projects, and later, international services, Russian Finance Minister Anton Siluanov said Tuesday.
“The establishment of an independent rating system is being discussed. Many countries would like to have more objectivity in the assessment of rating agencies,” Siluanov said.
“There will be a Russian-Chinese rating agency, which will use the same tools and criteria for assessing countries and regional investments that existing rating agencies use,” the minister said.
State-owned Chinese companies will cease to work with US consulting companies like McKinsey and Boston Consulting Group over fears they are spying on behalf of the US government.
US consulting companies McKinsey, BCG, Bain & Company, and Strategy&, formerly Booz & Co., will all be snubbed by state-owned Chinese companies, the Financial Times reported, citing sources close to senior Chinese leaders.
“The top leadership has proposed setting up a team of Chinese domestic consultants who are particularly focused on information systems in order to seize back this power from the foreign companies,” a senior policy adviser to the Chinese leadership was quoted by the FT as saying.
“Right now the foreigners use their consulting companies to find out everything they want about our state companies,” the adviser said.
Last Thursday China announced that all foreign companies would have to undergo a new security test. Any company, product or service that fails will be banned from China. The inspection will be conducted across all sectors – communications, finance, and energy.
China has already banned Microsoft’s Windows 8 operating system from government computers, according to Chinese state media agency Xinhua.
“Under President Xi Jinping, technology and implementation will look to be converging, so foreign tech firms should be very worried about their prospects,” Bill Bishop, an independent consultant based in Beijing, told the FT.
Chinese officials have said that government ministries, companies, universities, and telecoms networks are victims of US hacking, and will try to avoid using US technology in order to protect “public interest”.
The dictate follows the US Justice Department’s indictment of five Chinese military officers it suspects of committing cyber crimes against a number of major US companies, including US Steel, Westinghouse and Alcoa. The US accused the army officers of stealing trade secrets and even published their photos.
Beijing responded by calling the US a ‘robber playing cop’, and more recently said the US is a “mincing rascal” and involved in “high-level hooliganism”.
The US-China fallout came after revelations made by NSA contractor Edward Snowden that the US uses economic cyber espionage to spy on international competitors, including China.
The dispute is only the latest setback in relations between the world’s two largest economies. Issues like Ukraine, Syria, and North Korea have been divisive topics between the two superpowers.
A report by Transparency International has revealed the extent of worldwide corruption over the last two years, with Israel and Greece showing the highest levels among developed countries. Politicians are considered the most corrupt among all sectors.
The Global Corruption Barometer 2013, conducted by the Berlin-based anti-corruption watchdog, is a sampling of over 114,000 opinions of people from 107 countries. The survey asked participants about corruption and the institutions engaged in it.
The report shows that corruption numbers have increased over the last two years, along with the number of people exhibiting distrust toward their governments and law enforcement agencies.
Before the 2008 financial meltdown, 32 per cent of people believed their governments to be effective at tackling corruption. That figure has now fallen to just 23 per cent. Transparency International said in a press release that the report “shows a crisis of trust in politics and real concern about the capacity of those institutions responsible for bringing criminals to justice.”
The survey asked participants to rank the corruption levels of various institutions from 1 to 5, with 1 being “not corrupt at all” and 5 being “extremely corrupt.”
Political parties were perceived to be the most corrupt institutions worldwide, scoring 3.8 out of 5. Police forces came in second place with a score of 3.7. Public officials, civil servants, and the parliament and judiciary came in third place, scoring 3.6.
The media came in ninth place, although it was voted to be the most corrupt sector in Britain. The UK media has lost the respect of many residents in recent years – around 69 per cent of survey participants now believe the media is corrupt, compared to just 39 per cent in 2010.
“This very sharp jump is in large part due to the series of scandals around phone hacking, the Leveson Inquiry, and the concentration of media ownership,” said Robert Barrington, head of the British wing of Transparency International.
Business and private sectors, along with the healthcare sector, came in at eighth on the corruption scale, with the education system not far behind. The military and NGOs took the 10th and 11th places.
Although religion came in last place on the corruption scale, it still ranked among the most corrupt in certain countries, including Israel, Japan, Sudan and South Sudan.
Of all OECD members surveyed, the corruption levels of Greece and Israel came in first and second place respectively, with their political and cultural institutions ranking at the top of the corruption meter.
Over 80 per cent of Israelis believe that one must have contacts very high up in the public sector in order to get anything done. Transparency International says it sees “deep-rooted failures of governance” in Israel. A similar figure was seen in Lebanon, Russia, and Ukraine.
Arab countries have seen a rise in corruption since their 2011 uprisings, although public anger against corrupt officials was what sparked the Arab Spring in the first place. The expectation of having cleaner, more transparent regimes did not match the countries’ political and business realities.
Of the four countries that experienced regime change in the aftermath of the Arab Spring, Egypt, Tunisia and Yemen feel that corruption has only increased since 2011. While 64 per cent of Egyptians think corruption is on the rise, a staggering 80 per cent of Tunisians believe that to be the case within their country. Eighty-four per cent of Lebanese citizens believe corruption to be on the rise in within their nation, while only around half of Libyans believe that corruption is worsening.
Egypt leads the pack in anti-police sentiments, largely because police violence has injured so many people over the past year. The 80 per cent disapproval rating dropped to only 45 per cent when Egyptians were asked about the military, which just several days ago ousted former Islamist-backed president Mohamed Morsi.
To glean more analysis on the increasing slide into corruption and public distrust of political institutions, RT talked to Finn Heinrich, who is director of research at Transparency International in Berlin. He sees the world as split into two major trends. The first is petty corruption and bribery in the southern hemisphere – mostly Africa, where citizens feel there is no other way to take care of one’s day-to-day needs. The second is corruption on a more official level, which is witnessed in the northern and western parts of the world – mainly in business and politics governed by financial greed.
As a way out of the situation, Heinrich believes “you really need to be in it in a long-term. You can’t expect quick gains from the fight against corruption. So, I think what we see in many of those countries are the upheavals which you find in many countries, including many post-communist countries, after revolution where old systems are no longer intact and new systems are yet to be built. So, corruption is on the rise. We hope that the new leaders, compared to their predecessors, are really taking the challenge of setting up systems of transparency and accountability much more serious.”
Heinrich thinks that only an integral and comprehensive effort can last, and that effort must include both the government and its citizens.
Transparency International is the world’s foremost organization on fighting corruption. It has 90 chapters worldwide, which aim to raise awareness and establish methods of tackling corruption and measuring its harmful effects.
The year is 2008. In the US the housing bubble has burst, leaving major financial institutions with a large mess on their hands. It will always be remembered as a time of failing banks, the ‘credit crunch’, plummeting stock markets and declining trade worldwide. The causes of the financial meltdown are a complex interplay of forces, but at the core of the issue is Wall Street’s greed and risk-taking, as well as a failure on the part of regulators and the financial market to prevent the situation from exploding. The end result on the world economy has been nothing short of disastrous. Since 2008 we have seen too many reports of famine, joblessness and uprisings (after all, these things tend to be related).
So what steps were taken to “rein in the excesses of Wall Street?” Well, governments and central banks handed out bailouts to poorly performing financial institutions of a magnitude never seen before.
We have come to normalise the reckless disregard for human life so characteristic of the banking sector. We could have walked down many different paths to deal with the financial crisis – so what else could we have done?
In Venezuela the government takes a very different approach to the banking sector. For example, there is a law in place that means that at least 10% of a bank’s lending should support development projects. President Chavez has recently threatened to nationalise the banks that are not delivering on this. The Venezuelan government wants to see more loans going to support small farmers rather than just going to big businesses. “Either you finance agricultural production or we will take measures. There is no alternative,” Chavez has said. And the irrefutable warning, “If you can’t do it, give me the banks.”
Chavez has made similar threats to the commerce sector, having angered the business community by imposing regulations that will guarantee a fixed maximum price on basic consumer goods. This is to avoid the price of goods being driven up by speculation, the catastrophic effects of which were seen in the Horn of Africa last year. Speculation on the world food market helped to fuel the widespread famine that endangered millions of people.
Venezuelan businesses have predictably complained about the new price fixing measures, calling them “unviable” for business as usual. But rather than balking at the first hurdle, Chavez has said he will seek investment from outside the country if the companies are not able to deliver within the new constraints. It seems that in Venezuela they are unwilling to let big business hold the country to ransom.
Lets take a case study in the UK for comparison – the Royal Bank of Scotland (RBS). Consider this worrying timeline:
2009: the UK government provides an unprecedented bailout to banks, and now officially owns 84% of RBS
2010: bonuses totaling almost £1 billion were paid to top executives of RBS, despite reporting losses of over £1 billion in the same financial year
2011: the massive drop in the price of RBS stocks meant that UK taxpayers lost £26 billion on the value of their investment
2012: there was much controversy over the £1 million bonus offered to the RBS Chief Executive.
Luckily for the UK taxpayer, the RBS Chief Exec turned down the £1 million bonus following intense pressure. But the government could have demanded this of him in the first place. Why didn’t they? The tired old argument of “we don’t want top people or businesses to leave the country” just doesn’t fly in the face of 2.7 million unemployed people in the UK and cuts to much needed welfare payments and disability allowances.
If Venezuela can teach us anything, let it be that:
It is possible to take a stand against ugly business practices
It is possible to expect our banking and commercial sectors to make a positive contribution to the world
There is no better time than right now
- Venezuela’s Economy Grows by 5.5 Percent in 2012 (alethonews.wordpress.com)