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”. 

Blockchain: A New Economic Paradigm?

Hailed as the most important invention since the internet itself, does blockchain represent a new economic paradigm that could revolutionize e-commerce and make musicians rich again? 

By: Ringo Bones 

As the working principle behind bitcoin and related crypto-currencies, the blockchain’s distributed consensus model has been hailed during the last few years as the most important invention since the internet itself. A blockchain is essentially just a record, or ledger, of digital events – one that is “distributed”, or shared between many different parties. It can only be updated by consensus of a majority of participants in the system. And, once entered, information can never be erased. The bitcoin blockchain contains a certain and verifiable record of every single bitcoin transaction ever made. 

To use conventional banking as an analogy, the blockchain is like a full history of banking transactions. Bitcoin transactions are entered chronologically in a blockchain just the way bank transactions are. Blocks, meanwhile, are like individual bank statements. Based on the bitcoin protocol, the blockchain database is shared by all nodes participating in a system. The full copy of the blockchain has records of every bitcoin transaction ever executed. It can this provide insight about facts like how much value belonged a particular address at any point in the past. 

In the brave new world of illegal peer-to-peer music file-sharing via the internet, musicians are yet again be able to make a comfortable living yet again like they did via a rights management based on the blockchain model. The music industry lacks complete information about the rights holders of recorded musical works. These include performers, composers and songwriters. Blockchain technology can be used to provide the secure issuance and distribution of digital assets including listing and registration of musical works for its clients and helping collecting societies provide more transparency and efficiency to all market participants. 

Crude Oil’s lack Of Geopolitical Leverage: Bad For The Global Economy?

Even though the Saudi-Iran tensions only managed to generate a “slight” trading price rise in crude oil a few days ago, does crude oil’s current lack of geopolitical leverage bad for the global economy? 

By: Ringo Bones 

Since the Saudi Arabia-Iran tensions due to the execution of a prominent Saudi Shia cleric Sheikh Nimr al-Nimr only managed a “slight” increase in the trading floor price of crude oil despite of the subsequent riots that had resulted in a fire that gutted parts of the Saudi embassy in Tehran, crude oil prices still continued its inevitable terminal decline during the second week of January 2016. If the current Saudi-Iran tensions happened back in the 1980s or the 1990s, crude oil prices would have tripled by now. But given the lack of crude oil’s geopolitical leveraging that has global economic repercussions that it used to have back in the 1980s, 1990s or even during the George “Dubya” Bush administration part of the first decade of the 21^st Century, does the current downward trend in crude oil prices spell bad news for the global economy? 

The current bargain basement prices of crude oil can be squarely blamed on the current “oil glut” that the world had been experiencing since the latter half of 2014. Given the high-level new oil strikes in the state of California back in 2013 and the American and Canadian tar-sands crude oil extractions that has since become economically viable during the past few years which made the United States now the world’s number one producer of crude oil and Capitol Hill even recently voting to end the Federal ban on U.S. oil exports is just one of the pieces that resulted in our current global crude oil supply glut. During the last OPEC meeting of 2015 where Saudi Arabia and the rest stuck to keeping its current output levels in the hopes of driving America's tar-sands crude oil extraction industry out of economic viability only made the situation work in America's favor. As Iran is now slated to reenter the global crude oil export market as a “reward” for the recent Nuclear Deal – the global crude oil supply glut will likely to worsen – rather than get better – further into 2016. 

A few hours ago, crude oil hits 33 US dollars per barrel – quite a far cry from 18 months ago when it used to trade within the 100 US dollars per barrel mark not to mention that “extreme peak” back in July 2008 when crude oil hit the 147 US dollar per barrel mark. Overall, crude oil lost 70-percent of its value since 2014 thanks to the global supply glut and the waning demand due to improvements in renewable energy power generating systems like wind and solar during the past 10 years. Not to mention that the ongoing downward trend in global crude prices caused most of the trading losses incurred in 2015.