The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘GDP

US deficit reaches world record levels, and rising


US deficit is now in Botswana and Russia territory in terms of record levels relative to GDP. The argument that this is not inflationary sounds to me like pushing water uphill.

$1.4 Trillion Deficit Complicates Stimulus Plans

WASHINGTON — The Obama administration said Friday that the federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before and the largest shortfall relative to the size of the economy since 1945.

http://www.nytimes.com/2009/10/17/us/17deficit.html?_r=1&th&emc=th

Written by Colin Henderson

October 17, 2009 at 02:25

Posted in Uncategorized

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The Economist Special Report on the World Economy coins the term ‘Gandhian Banking’


Under the heading ‘Gandhian Banking’ The Economist reveals the extent of worldwide government injection into banks at $432 billion by this spring and guaranteed bank debts at $4.65 trillion. Of perhaps even greater significance is the implicit guarantee that now exists for all banks.

By this summer 33 American banks had repaid the capital the government had injected into them. The new era of state ownership seemed to be passing almost as quickly as it had arrived. But the state still has a large stake in the financial system beyond its explicit ownership of shares. It now owns the risk of any of the bigger institutions failing. Governments will do their utmost to avoid a repeat of anything like the bankruptcy of Lehman Brothers and the ensuing chaos.

The piece is part of the Special Report on the World Economy. The broad theme of the report is one that has taken the media some time to catch up with, and that is the meaning of recovery and getting back to normal, or as they call in the ‘new normal’ and ‘normalcy’.

Massive fiscal and monetary stimulus is cushioning the damage to households’ and banks’ balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.

The reality of the new normal is that it does require significantly different planning and strategies and continuing with the pre 2008 strategies will not succeed. Again, and as noted yesterday (To Big to Fail and How Little the Concept is Misunderstood) it will be fascinating to see where the innovation in consumer banking products and channels comes from in banking.

Going back to my earlier ramblings on the future of banking lying in two camps:

  1. financial utilities
  2. innovators

… I remain even more convinced of this evolution. At the moment, the majority or all of TBTF’s (Too Big to Fail) are or will be in the financial utility category based on their fiddle while Rome is burning approach.

Written by Colin Henderson

October 5, 2009 at 22:16

Posted in Uncategorized

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Economic forecasts for Canada – latest June 2009


Here is a quick summary GDP forecasts for North American planners.

Courtesy of CBC here is the summary of the banks and Bank of Canada GDP forecasts for 2009 and 2010.  For me the open question remains to what extent 2010 is wishful thinking.  The other and related problem with the graph is that GDP growth is calculated on a moving base.

So the other way to read this is that even if the 2010 forecasts are correct, the absolute dollar GDP at December 2010 will not have achieved the level of Dec 2008, or 2 years previous.

GDP2growth

The IMF forecast for US GDP is here, and 2010 is barely in positive territory so that economy is still weak till beyond 2011:

4. The staff’s outlook remains for a gradual recovery, consistent with past international experience of financial and housing market crises. The combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010. Against this background, GDP is expected to contract by 2½ percent in 2009, followed by a modest ¾ percent expansion in 2010 on a year-average basis (on a Q4-over-Q4 basis, -1 ½ percent in 2009 and 1 ¾ percent in 2010). Meanwhile, growing economic slack—with unemployment peaking at close to 10 percent in 2010—would push core inflation to very low levels, with the headline CPI expected to decrease by ½ percent in 2009 and increase by 1 percent in 2010.

And Europe here:

Written by Colin Henderson

June 15, 2009 at 15:29

Posted in economy

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