Why Canada Can Avoid Banking
Crises and U.S. Can’t
Why the United States had 16 banking crises
since 1790 , while Canada has not recorded any? According to finance professor
Charles Calomiris’s paper, one of the leading financial historians, the
difference between the financial systems is based on the formulation of
economic policy. In the case of Canada these policies have been established by
a liberal democracy, while in the United States are set by a populist
democracy. According to Calomiris, populist democracy is
operated by favoring and benefit that can be given to certain sectors of
society by the use of influence.
With respect to the opinion issued by Calomiris,
we can estimate that one of the factors that led to the banking crisis in 2007
brought in the United States, was the implementation of more flexible rules on
banks, encouraged by a populist government, with the order to gain sympathy
from the public and especially a population that is entitled to vote, without
assessing the possible outcomes.
Emerging markets continue to
show upward trend
The cost of goods and
services in emerging countries has been increasing and this has been a trend
for the last 10 years. The observation that there is a tendency for the
valuation of the currencies of emerging countries versus their counterparts in
developed economies has been described in 1964 by the economists Bela Balassa
and Paul Samuelson. However, the valuation effect could pay off in higher time
frames than an investor would expect, going up to 20 to 30 years. However, there is a concern
that must be valued for making investment decisions using this observation: the
politics of the country, a country with an unsteady political environment
generate an inevitable decline in its valuation of the currency, so it should
not be used only an economic model to guide investment. The estimated value of
appreciation of emerging market currencies is 5% - 7%.
This analysis leads to a conclusion, it is important to keep an eye on
emerging markets, but do not forget that the only fact that the currencies in
this countries will grow against the developed economies does not mean that the
inversion should be addressed to those countries, other parameters must be kept
in mind, for example the politic environment and other factors. Also, the
appreciation is going to take place on the middle to long term.
China's economy might topple
China's economy is reducing its growth.
Compared with the
sustained growth rate of over 10% from 2000 to 2010, the actual growth rate has
fallen, and has a tendency to continue falling. It is estimated that by 2018 -
2022 the rate will be 6.5%.
This slowdown in the
economy should be well managed to avoid having effect on the world economy.
There are several possible causes for this slowdown, among which are the
"middle income trap" because their workers have begun to receive more
income and their products will be less competitive due to higher costs, but
also noted the effect "natural landing" , which occurs when a
developing economy is equated with advanced economies. It is also important to
consider that infrastructure investments have declined.
Much credit has been
based on real estate, which currently has marginal returns and is saturated,
which, coupled with the slowdown in the economy will mean an increase in bad
debt.
However, the growth
of the economy should be linked to the respect for the environment and the
growth model sustainability, and is my strong believe that regarding these
points the Chinese economy has long way to go.
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