Category: Economy

Europe crisis will take years to sort out: Paulson

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Although there are similarities with what the United States went through at the onset of the financial crisis, the issues in Europe are more complex and will take years to resolve, Henry Paulson, former Treasury Secretary and founder of the Paulson Institute told CNBC on Wednesday.

“There is similarity [with the financial crisis in the US] in certain regards. This has been going on for a long time and I think it will take years to play out,” Paulson told CNBC.

Paulson, who served as Treasury Secretary when the subprime mortgages credit crunch erupted, sparking the world’s worst economic crisis since the Great Depression, said that at the time the US was faced with a “collision of political forces and market forces”.

“That’s really what you’re seeing in Europe,” Paulson said. “The structural issues around the EU are very difficult issues.”

The most important thing is protecting the banks from a big failure that could drag down the whole banking system, he said.

“When you look at Lehman Brothers – I believe Lehman Brothers was a symptom as much as anything – I don’t think that is the right analogy. The one thing you should take away from Lehman Brothers is you don’t want a big, systemic institution to fail and you certainly don’t want that with a member state [in Europe],” Paulson said.

In his opinion European Central Bank President Mario Draghi has taken “a big step” to stabilize the banks with the “massive” liquidity injection.

The ECB launched a long-term refinancing operation (LTRO) in December, offering banks three-year loans at its record low 1% interest rate and another LTRO is scheduled for Feb. 29.

The important thing is that a Greek default doesn’t happen in a “messy” way said Paulson, who added: “The American people don’t like bailouts, no one likes bailouts but they`re certainly better than the alternative, which would be a catastrophe.”

American banks are much better capitalized than a few years ago and better regulated and their exposure to sovereign debt in the European Union is manageable, but still “I wouldn’t want to test this firewall if … you had catastrophe there. And I`m not expecting that,” Paulson said.

The financial crisis stemmed from wrong government policies and is not the fault of banks exclusively, despite the fact that they made a lot of mistakes, according to Paulson.

“Wall Street will get through this, Wall Street made a lot of mistakes… financial crises stem from flawed government policies. Always.”

“This was a huge credit crisis. Why did Americans borrow too much and save too little? There are flawed government policies, “he said.

But while banks worked to correct their mistakes and a lot was done to strengthen the banking system, the government policies that brought on the credit crunch still need to be changed, Paulson said.

“I think it’s going to be years before we get our unemployment down to an acceptable rate. It’s going to take a higher growth rate than we had to create a higher jobs number,” said Paulson.

“I’m not being an alarmist, I just think that until we deal with the huge structural issues that we have… we’re not going to get the kind of growth that we need.”

Tax issues have come into the limelight recently as a tentative deal was reached to preserve a cut in the payroll tax and provide more unemployment benefits.

Paulson said there was no doubt the economy needed more tax revenues but that the whole tax system should be revamped.

“The issue shouldn’t be what do we do with this rate or that rate, it should be what form of taxes… will give us economic growth? We need a new system and I’ve been for a system where we’d eliminate the deductions… and lower the rates and have something that will make us competitive,” he explained.

Chinese central bank governor Zhou Xiaochuan said on Wednesday China will continue to invest in euro zone government debt and will play a bigger role in solving the area’s problems via the International Monetary Fund and the EFSF rescue fund, boosting hopes for a solution.

“Chinese are investors all around the world and they very much want to invest more. I think they’re looking to invest in Europe, they’re looking to invest in the US, they’re looking to invest everywhere,” Paulson said.

But at the same time Chinese companies, as well as government officials, are worried about Europe, he added.

“Their job isn’t becoming any easier to continue to grow and meet the needs of the Chinese people.”

Living conditions have improved dramatically over the past 10-20 years but China, with its USD 6 trillion gross domestic product still dwarfed by the US’ USD 14 trillion and Europe’s USD 16 trillion, has many reforms to carry out.

“I’m not a bear on China, but China has got some real challenges,” Paulson said. “They need to speed up the process of reform. There’s actually more risk to them if they’re going too slow than if they’re going too fast.”

“I believe that you’re going to see ultimately more political freedom, more personal freedoms, because they will inevitably follow the economic freedom,” he added.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia’s budget carriers go long haul for growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Budget carriers in Asia, which have seen surging growth over the last decade, are now looking to tap the long-haul market.

“The long-haul low-cost market is the latest fad, as a very small portion of long-haul flights are operated by LCCs, (low cost carriers). This is a sector which has tremendous growth potential,” Brendan Sobie, Senior Analyst at CAPA – Centre for Aviation, told CNBC.

By the end of 2012, there will be an estimated 50 budget carriers operating in Asia, but only four will be in the long haul segment. Air Asia X of Malaysia and Australia`s Jetstar currently fly long distance, and they will be joined by Singapore`s Scoot in mid-2012 and Philippines` Cebu Pacific in 2013.

Low cost carriers typically fly short distances of up to three hours, and pack up to 25%  more passenger seats on the same aircraft type. Passengers in Asia have so far lapped up the cheap fares of these no-frills airlines..

Whether they are willing to put up with the lack of entertainment as well as limited legroom and food on longer routes of five to 10 hours will make or break the long haul budget model.

Air Asia X, which pioneered the category, announced this month that it was discontinuing all flights to London and Paris by the end of March, after almost three years of operations. CEO Azran Osman-Rani told CNBC that falling European demand and high taxes squeezed them out of those routes. The carrier will now focus on Australia, Korea, China and Japan.

But some see Air Asia X`s change of plans as a setback for the long-haul budget model.

“Air Asia X experimented with something new and had to pull out. Don`t know whether passengers are ready to fly long haul on budget,” a senior executive with a full-service European airline told CNBC.

The success of the long-haul model depends on “passenger tolerance”, Campbell Wilson, the CEO of Scoot, said on the sidelines of the Low Cost Airlines 2012 Conference in Singapore. His airline plans to fly to destinations within nine to 10 hours of Singapore and will launch with a flight to Sydney later this year.

Another long-haul budget carrier, Philippines` Cebu Pacific, is looking toward the Middle East market, which has a large Filipino immigrant population. According to its CEO, Lance Gokongwei, about 600,000 Filipinos visit Saudi Arabia every year – yet the Middle East is not served by any Filipino airline

“There is a rock-solid demand base [for us],” said Gokongwei, adding that currently there are 11 million Filipinos abroad. “Overseas contract workers are our main market.”

While Cebu is looking to tap a very specific market, others are hoping to cash in on the boom in leisure travel by offering a cheaper option to more far-off destinations. But full-service airlines are already responding with more attractive pricing.

“Over the last year, legacy airlines have also dropped prices by about 20 percent. The spread between budget and us is fast narrowing,” said the full-service airline executive.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Europe’s the wild card as traders watch the Fed

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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European debt crisis headlines are the wild card for markets Wednesday, but the interesting news of the day may come from the Fed.

The minutes from the last FOMC meeting are released at 2 p.m. EST. Traders are watching to see what Fed members had to say about more quantitative easing , but Fed watchers are also looking to see what the Fed says about its members expectations for its balance sheet and how they formed their views on the target Fed funds rate.

“It is a bit rearview mirroresque. The flavor that comes through from the minutes oftentimes is something investors bite on,” said Mark Luschini, chief investment strategist at Janney Montgomery.

Some market participants are convinced the Fed will carry out more easing, which traders believe has provided a leg of support under the stock market`s current rally.

Besides the Fed, there are also several economic reports, including the Empire State survey at 8:30 a.m. EST; Treasury international capital flow data at 9 a.m.; industrial production at 9:15 a.m. and the National Association of Home Builders Survey at 10 a.m.

Fed Chairman Ben Bernanke and other Fed members have left the door open for more easing, if the economy weakens sufficiently to require it. The next program, if carried out, would further expand the Fed balance sheet with the anticipated purchase of hundreds of billions of dollars of mortgage securities.

“In the past the minutes had contained a few remarks about whether Committee participants thought further asset purchases were likely or whether the balance sheet would contract, so if tomorrow`s minutes are to expand on that we would expect to see something a little more substantive, perhaps how many favor expansion, contraction or no change of the balance sheet,” writes J.P. Morgan economist Michael Feroli.

Feroli said the Fed members will also include “key factors” that influenced Committee members views on the path of the funds rate. After the Jan. 24/25 meeting, the Fed issued a statement saying that it now expects to keep rates no hold until the end of 2014, more than a year longer than it previously had stated. The Fed also released individual members expectations for when rates would begin to rise.

“If we are right that any decision regarding further QE (quantitative easing) remains data dependent, then we would expect the majority of the Committee foreseeing no change in the size of the balance sheet for the time being,” he noted.

Besides the Fed and economic reports, there are a few earnings reports, including Comcast (the parent of CNBC), CBS, Abercrombie and Fitch, Deere, Six Flags and Nvidia.

Treasury Secretary Tim Geithner appears before the House Ways and Means Committee at 10 a.m. and former Treasury Secretary Hank Paulsen appears on “Squawk Box” at 7 a.m.

Whither Stocks?

Stocks Tuesday were weighed down by concerns about Greece`s ability and willingness to abide by austerity measures, required by euro zone finance ministers and the IMF as a prerequisite to more bailout funds. A comment by the head of the Democracy party, possibly the next Greek prime minister, turned the U.S. stock market losses into a slight gain in the Dow late in the day. There were reports that he provided a letter to the European commission assuring compliance with bailout agreements.

A euro zone finance ministers` meeting was cancelled for Wednesday but it was expected they would hold a conference call instead as Greek continues to work on its plan.

The Dow finished up 4 at 12,878 after moving in a 90 point range. The SandP was off 1 at the key 1,350 level, and the Nasdaq finished up less than a point at 2,931.

“The market has been remarkably resilient,” said Luschini, although he expects a short term pullback.

The positive economic surprises that pushed stocks higher are now fading and not likely to continue to give stocks a boost. “We think this market is vulnerable if only because of some of the conditions that make it ripe for a pullback,” he said.

“The market has been built here on the back of positive surprises,” he said.

Scott Redler of T3Live.com analyzes the market`s short-term technical and he notes an interesting phenomena. “We haven`t had a close below the 10-day moving average since Dec. 20,” he said. The 10-day moving average for the SandP 500 is now 1,343, and the 20-day is 1,329.

“Typically, the strongest stocks, the high beta stocks, follow an elevated 10- and 20-day moving average. Rarely does an index track it so well and since the Dec. 20 gap and go, the SPDR (Spy SandP 500 ETF) has not closed below or considerably below the 10-day moving average during this entire rally,” he said.

Redler said the SandP has been trying to break resistance at 1,354, a level it has hit several times in the past week. If it does close above that level, he expects to see the SandP try to make a run to 1,370, its closing high in 2011.

“In order to break through, we have to have more unambiguously good news, and I think that it`s got to be Europe again,” said Luschini.

Traders have been debating and waiting for a pull back for the past week or so. “The bulls are spoiled. Even if we do get a correction, then don`t get far away from the market… It does feel like we`re going to take out that 2011 high,” Redler said.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Disclaimer

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia’s aviation boom comes with rising competition

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While Europe’s debt crisis and global economic uncertainty are threatening airline profitability in the West, in Asia airlines are experiencing relatively strong growth.

According to forecasts from the International Air Transport Association (IATA), carriers based in Asia Pacific will make profits of USD 2.1 billion in 2012. That`s 60% of the total profits of USD 3.5 billion predicted for the global airline industry.

But below the surface, there`s a growing risk to the health of the region`s airline sector from increased competition. Airlines in Asia are adding capacity at such a rapid clip on international routes that industry watchers are growing alarmed.

Airline CEOs will be meeting on the sidelines of the Singapore Airshow this week to discuss the challenges facing the sector.

“It does look like there`s going to be a substantial increase in capacity this year as new aircraft orders arrive and as new carriers enter the market, or existing carriers enter new markets,” Peter Harbison, Executive Chairman of CAPA – Centre for Aviation, told CNBC in an interview.

IATA`s numbers back this up. In 2011, international traffic in the Asia Pacific region grew 4.1%, but airlines added 6.4% in capacity.

Three large orders from Asia set new records for their size and ambition last year. Indian low-cost carrier IndiGo placed the largest-ever order for 180 planes from Airbus, only to be trumped days later by Malaysia`s AirAsia, which placed an order for 200 aircraft. A few months later, Indonesian airline Lion Air became Boeing`s (NYSE: BA) largest customer with an order for 230 short-haul 737 aircraft.

“If you look at 2010, it was a fantastic year, everybody was doing well, and in order to keep up with that growth everyone began to add capacity,” Siva Govindasamy, Deputy Asia Editor at aviation publisher Flightglobal, told CNBC.

He says airlines are already beginning to see pressure on their yields – the amount of money they make per passenger mile – because of the increased capacity.

_PAGEBREAK_

The China Factor

But there could be one “game changer” for Asia`s airlines in the coming year – and that`s the millions of Chinese tourists expected to travel abroad.

According to China National Tourism Administration, Chinese tourists made 57 million outbound trips in 2010. That`s expected to rise to 100 million by 2015.

CAPA`s Peter Harbison says the impact could be potentially enormous, especially for the North Asian triangle of Japan, South Korea and Northeast China. He says if governments in the region were to deregulate the market, North Asia could see 200 million additional passengers per year.

Another key, says Harbison, is to get more international flights connecting tier-2 and tier-3 cities. “It`s not just the ability to fly, it`s the accessibility of airlines… If you have flights between Nanjing [in China] and Kyushu [in Japan], you suddenly start simulating a huge amount of growth; you`ve just built a road that now opens whole new markets.”

Low-Cost Boom

Experts say much of the future growth in both North Asia and Southeast Asia is going to be driven by low-cost carriers, given the fact that many countries in the region have a burgeoning, price-conscious middle class.

Indonesian budget carrier Citilink is typical of this trend. The carrier, which had just two planes in 2008, has nine in operation currently. That is expected to grow to 20 by the end of the year. In 2011, it ordered 25 A320 planes from Airbus , with an option for an additional 25.

“The growth market is the low-cost market. It`s fares-driven rather than service-driven, and it`s commoditized, particularly short-haul flight,” Con Korfiatis, vice president of the carrier said. “It`s really about the destination, rather than the flight itself… People are saying I want to get there on time and safely, but I want to get there cheaply.”

According to him, the premium market in Indonesia is growing at seven to eight percent, while the budget market is growing at about 20 percent.

According to Flightglobal`s Govindasamy, there is still a lot of scope for low-cost carriers to grow in Asia, given their relatively low penetration compared to the West.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China addressing capital crunch facing banks: Analysts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China`s Central Huijin Investment Co.`s plans to cut the dividend payout ratio for three of its “Big Four” lenders, is a sign that Beijing is waking up to capital constraints facing the banking sector, Fraser Howie, Managing Director at CLSA Singapore, said.

“It`s not necessarily a crisis, or a collapse (of the banking system), but basically the dividend ratio has been too high and their capital base has been getting eroded because of poor loans…this is a move that was certainly needed,” Howie told CNBC Monday.

Chinese banks, which were encouraged to go on a lending spree by the government to boost liquidity and spur growth post the 2008 global financial crisis, now face capital strains and the risk of rising non-performing loans.

According to the state parent company Huijin`s website, the move will reduce the ratio for Industrial and Commercial Bank of China, Bank of China and China Construction Bank by 5 percentage points to 35% of their 2011 earnings. Analysts say this will allow the banks to save 10-15 basis points of their capital adequacy ratios per annum.

“It shows that Huijin is willing to allow the banks to adopt a more sustainable capital strategy,” adds Mike Werner, Senior Equity Analyst, Chinese and HK Banks at Sanford C. Bernstein.

However, Jim Antos, Chinese banking analyst at Mizuho Securities says the impact of a 5 percentage point`s dividend payout reduction is “trivial” for the large lenders.

“We estimate Industrial and Commercial Bank of China could put an extra 10.5 billion yuan (USD 1.67 billion) into retained earnings. For Bank of China, the savings would be around 6.1 billion yuan (USD 968 million),” Antos said.

Antos, who has a neutral call on CCB and ICBC and an underperform call on BOC, says this decision has not changed their investment view on the Chinese lenders, adding that the move was expected.

In addition to helping the banks preserve capital, Werner believes there is another motive behind Huijin`s move to lower the dividend payout.

“Huijin must generate a certain amount of cash in order to pay off the debt issued to purchase their stake in the Chinese banks from the PBOC in 2007 as well as the debt issued in 2010 that was used to participate in the banks` rights offerings that year,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Job creation improves in January, but slowly

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Employment growth in January was likely more sluggish than in December, but one tiny glimmer may be an increase in hiring by small and startup businesses.

“We’re starting to see it under-the-radar, and that’s exactly what you’d expect to see,” said Diane Swonk, chief economist at Mesirow Financial. For one, “The quit rate started to pick up.. and people don’t do that unless they have another job. It’s a little bit of a silver lining in what’s still a very dark cloud.”

Economists expect to see about 150,000 nonfarm payrolls added in January, down from a surprise 200,000 in December, and they warn the seasonal factors that drove up December’s data may impact January’s report. In December, 42,000 courier jobs were added, to accommodate holiday package deliveries, and it is likely those same jobs will be lost in January, as they have been in past years. Retailers, in both November and December, added a total of 67,000 workers.

“It will be a soft report, a payback for December,” said Moody’s Economy.com chief economist Mark Zandi.

“Weather helped construction, and if you take those two (loss of seasonal jobs) things into account, we’ll probably get a total 100,000 increase in payrolls. The average for December and January is 150,000, and that probably is where job growth is today,” he said. “It’s okay in an economy at full employment, we’d be happy with that. But given where unemployment is, it’s discouraging. But we are moving in the right direction, and slowly but surely the jobs market is improving.”

Zandi agrees that small business and startups may be adding more employment. He said the last official government data on hiring by business size was released a year ago, and at the time, companies with more than 1,000 employees were leading hiring and small businesses were lagging.

“I sense that small business growth is picking up, and that would be consistent with the household data,” said Zandi.

The household survey is a sample survey based on data from households versus the nonfarm payrolls, based on payroll data from businesses and government agencies. Since August, the household survey has averaged job increases of about 268,000 per month, outpacing nonfarm payrolls.

Swonk said that small business creation may be showing up in those household numbers but it would still be a trickle. “We’re still talking about marginal numbers…We’re cautious because it doesn’t take much to snuff out a small business,” she said.

William Dunkelberg, chief economist for the National Federation of Independent Businesses, said he`s not looking for much in terms of small business job creation though he had not yet reviewed January NFIB data. “I’m not looking for a strong number (in the jobs report),” he said, noting the 150,000 consensus sound about right.

“I`m not looking for a lot since a lot hasn’t really happened. It looks like things slowed down in December, and November was best,” he said. But he noted, like the other economists, that the small business creation data will be hard to decipher.

“Those data we only get with a long lag. It was true in 2010 , we started to have more (business) births than deaths,” he said.

The government is releasing revisions dating back three years with Friday’s employment report, which is released at 8:30 a.m. EST. Economists also expect to see the unemployment rate stay unchanged at 8.5%.

Who’s Hiring

Swonk said she believes there’s a trend underway, similar to one in the 1990s, where small business development is being fostered by larger companies that are outsourcing and are reluctant to add workers to their own payrolls. She expects to see nonfarm payrolls for January of 118,000, with 127,000 additions in the private sector.

To illustrate her point, Swonk said she recently discovered a program in Chicago where big health care companies are spurring new job growth by working with local universities and fostering business formation. The program is not new, but it highlights an important trend and one that is not just linked to the pharmaceutical industry.

Todd Smith works at a small biotech company in Chicago that has been adding workers. Smith is senior vice president of marketing and business development at Horizon Pharma, which has grown from 47 employees to 188 in the last year. He and the company’s CEO both had worked previously at Abbott Labs.

Horizon last summer raised USD 49.5 million in an IPO, as it prepared to launch its first drug in the US, DUEXIS, an osteoarthritis and rheumatoid arthritis drug, for patients with gastrointestinal sensitivity. “That’s allowed us to be one of the fortunate ones to be hiring people in this economy,” he said, adding there are a lot of good candidates available from big pharma that also have smaller startup experience.

Smith said the company is also planning to add more staff later on. It has a second drug pending FDA approval for rheumatoid arthritis, called LODOTRA, which is now being sold in Europe.

Pharmaceutical industry employment was hit hard in the recession. Industry employment peaked in 2007 at 295,000 workers, and fell by nearly 10%, to a trough of 269,100 in early 2011, Zandi said. It has slowly risen to 275,000, as of November and those jobs could include tiny startup biotech firms, as well as major pharma, which laid off tens of thousands of workers due to mergers and regulatory changes as well as drugs coming off patent.

“It’s one of those times in history where you have some of the best people – in spite of what they do – losing jobs,” said Smith. Smith said Horizon hopes to continue adding as it grows.

“As we continue to meet milestones, we will continue to build out,” he said.

He also said because his company is in Chicago, he did not need to move and there are plenty of professionals that can be hired locally. He said the same trend has been apparent in places like New Jersey, where biotech firms are growing up around bigger industry names.

Besides the jobs report, another clue to hiring will be reported in Friday`s non manufacturing ISM number, which shows service sector activity. The number is released at 10 a.m., as are factory orders data.

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Current slowdown ‘nothing like 2008’: Goldman’s O’Neill

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While many earnings reports in January 2012 have disappointed investors, stocks performed strongly last month, igniting fears of a market plunge similar to the drop witnessed in the middle of January 2009.

But while there are plenty of risks to an economic recovery, the start of 2012 is nothing like the 2008-2009 crisis, Jim O`Neill, Chairman at Goldman Sachs Asset Management told CNBC on Thursday.

“The key to this market movement over January is that people were worried about everything that could go wrong, literally across the board. And with it, (there was) a staggering amount of cash around,” O`Neill said.

“So just the cessation of bad news itself has sort of appeared (to be) a bit of a positive,” he said.

“We came into the year with people full of fearing (a repeat of) ’08 if not worse…and the evidence from all over the place is that it`s nothing like ’08,” O`Neill said.

He pointed out that at the core of the euro zone, Germany appeared to be accelerating.

“So one third of the euro zone that’s supposedly falling apart is actually improving,” he said.

China appears as though it’s getting closer to a soft landing, he said, and the United States was also showing signs of moving forward.

China had become a driving force in global growth, he said, adding people would have to acknowledge some of the positive news coming out of the region at some point.

“China has created USD 1.4 trillion dollars of GDP in a year, that’s 10% of the euro zone in one year,” O`Neill said,

“I used to say China creates the equivalent of another Greece every four months. It’s now less than every three months. They’re creating half a United Kingdom every 12 months,” he added.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rising deficits pose major threat to economy: Bernanke

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rising federal budget deficits are posing a significant threat to the US economy and are likely to cause a crisis if not brought under control, Federal Reserve Chairman Ben Bernanke told Congress Thursday.

Calling the situation “unsustainable,” the central bank leader pointed out that surging health-care costs, along with the high level of government spending used to pull the economy out of recession, are creating fiscal hazard.

“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the House Budget Committee. “Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth.”

At the same time, he also warned Congress not to pull the reins too tightly so as to threaten growth.

The Fed, following its meeting last week, stopped short of announcing another round of asset purchases, commonly known as quantitative easing.

Bernanke reiterated that stance, as well as the central bank’s intention to keep its targeted funds rate near zero through late 2014.

“While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed,” he said. “Moreover, the sluggish expansion has left the economy vulnerable to shocks.”

Unemployment has improved but remains at 8.5 percent, a level likely to hold when the government releases its January jobs report on Friday.

Bernanke faces a Republican-controlled House whose leadership has been critical of the Fed’s monetary policy and the risk it poses to inflation. The Fed’s Open Markets Committee statement exacerbated those concerns when it stated the central bank would be willing to accept some inflation over the short term in an effort to grow the economy and bring down unemployment.

“We are not seeking higher inflation, we do not want higher inflation  and we will not tolerate higher inflation,” Bernanke said in response to a question from committee Chairman Paul Ryan, a Wisconsin Republican.

The Fed’s balance sheet stands at $2.9 trillion, swelled by purchases of assets such as Treasurys and mortgage-backed securities. The goal of quantitative easing  has been to bring down interest rates and encourage investors away from low-yielding fixed-income vehicles and into higher risk such as stocks and real estate.

The stock market has wiped out much of its losses during the financial crisis, but housing remains mired at Depression-era levels.

“Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed,” Bernanke said.

But Ryan pinned blame on the Fed for its easy-money policies in the last decade as the root cause for the current lag.

“A lot of us believe the Federal Reserve was too loose for too long in the 2003 to 2005 period and that in part was what led to the asset bubble and the malinvestment that occurred and the problems we have today,” he said. “I know you don’t agree with that. But because you don’t agree with that, our fear is that you’re just going to repeat these same mistakes again but by orders of magnitude that we can’t even comprehend right now.”

Ryan also said the Fed’s policies are hurting savers by keeping rates so low, and cautioned the chairman against trying to “bail us out” in Congress and its actions that have led to the high budget deficit, expected to be near $1.1 trillion in 2012.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow