Is Inflation Good For The Economy?

Even though it is the ruin of every country’s mismanaged economy, but did you know that the right amount of inflation is vital for a thriving economic system? 

By: Ringo Bones 

It is one of those things that either too much or too little is a bad thing and even though there had been news in the past that it was already cited as the ruin of some country’s mismanaged economy, the right amount of inflation is vital for the sustainable management of a thriving economy. But if it is important, how much inflation is necessary to make an economic system truly sustainable? 

At present due to weak energy prices since the latter half of 2014, global inflation levels are currently at unsustainably low levels. An annual inflation rate within 3-percent, give or take a few percentage points, is necessary for economically viable conditions. While too much inflation – the rapid increase of price of goods in too short a time - is usually a sign of an mismanaged economy or a result of some economic sanctions that will eventually lead to economic collapse, too little of it will foster inflation’s “evil twin” called deflation – where prices of goods decline over time. Deflation can be disastrous for a thriving economy because consumers will keep on postponing their purchase until prices fall further which could stifle economic activity to a virtual standstill. 

Keeping inflation rates at just the right levels was the raison d’être for the decision of the U.S. Federal Reserve to increase the overall interest rates before the end of 2015 but the Fed indefinitely postponed further interest rate increases for fear that it may stifle the ongoing economic recovery of the United States. But most economic experts say that if the Fed keeps on postponing their other scheduled interest rate hikes, the U.S. economy could experience deflation problems by 2017.  

Moody’s Downgrading Hong Kong’s Credit Rating: Unprecedented?

Despite being a traditionally viewed as a relatively safe investment for institutional investors, is the recent credit rating downgrade of Hong Kong by Moody’s unprecedented?

By: Ringo Bones 

Back in Marsh 12, 2016, the credit rating agency Moody’s downgraded Hong Kong’s credit crating to Aa1 and changed the outlook to negative from stable. Even after the July 1, 1997 handover back to China, Hong Kong has always been seen as a traditionally stable investment haven for institutional investors but the recent rationale for assigning a negative outlook by Moody’s is largely due to the increasing political risks of the hard-to-maintain policy of one country two systems as in “political linkages with China risk weighing on Hong Kong’s institutional strength. 

With the universal suffrage protests back in 2014 that virtually brought Hong Kong to a standstill to the recent “detainment” of bookstore proprietors who stock books who are critical with the Chinese communist party, it seems that China’s curbing of the political freedoms previously enjoyed by Hong Kong even after the 1997 handover from Britain are seen by many institutional investors around the world as a clear and present political risk that could affect the long-term economic outlook of Hong Kong despite enjoying a special administrative status. 

And given the recent economic slowdown of Mainland China many institutional investors see the economic and financial linkages of Hong Kong with the Mainland turn from positive to negative spillovers. Overall, Moody’s assessment is that banking-sector risk for Hong Kong’s government has increased. Although to most institutional investors who are worried about the declining freedoms in Hong Kong, Mainland China’s inability to maintain the one country two system policy of its special administrative cash cow of a region sends a big impression that it is the reason for the recent investment ratings downgrade. 

UK Exit From The EU: Economically Catastrophic?

While Euro-skeptic MPs and economists of both sides of the issue weigh it out, is UK’s exit from the EU or “Brexit” as economically catastrophic as it is predicted to be?

By: Ringo Bones 

Euro-skeptic MPs often pointed out the several billion UK£ worth of British taxpayers’ money being handed over o Brussels every year only had a marginal benefit to the UK economy and has suggesting that the UK is better off – economically – leaving the European Union. But while there are several politicians in the Obama Administration suggesting that a Britain leaving the EU or “Brexit” as it is now popularly called will be catastrophic to the UK economy, is a Brexit not as economically catastrophic as it is portrayed to be? 

The European Union is the UK’s biggest trading partner consisting of 670 billion US dollars worth which consists 50-percent of the UK’s annual GDP. The current trade deals that the UK has with the 27 other EU member countries also applies to the other 68 nations the UK currently has trade with. Exiting the EU would make the UK reestablish a new trade deal – 35 separate new trade deals need to be ratified with other trading nations in fact - just to keep its current trading status quo earnings. But would the UK’s imports to the United States be suddenly subjected to excessive tariffs if it chooses to leave the EU? 

UK’s imports to the US will not going to be suddenly subjected to excessive tariffs because incumbent conservative politicians in Capitol Hill will keep this as low as it did when it is still in the EU. The United States is the UK’s second biggest export market which it currently has 54 billion US dollars worth of trade. Unfortunately, the talk of “Brexit” has recently affected the value of the UK£. The UK£ has lost 12-percent of its value since August 2015 due to the talk of a “Brexit”.