Will There Be A Credit Bubble?

As this year’s IMF meeting went underway in Lima, Peru – will there be an impending “credit bubble” because central banks around the world had been keeping the cost of borrowing money too low for far too long?

By: Ringo Bones

As this year’s annual IMF meeting was hosted by Peru and was held in the capital city Lima, IMF’s managing director, Christine Lagarde recently calls for the world’s central banks to be more courageous after warning of the financial risk of the low borrowing costs that lasted since the 2008 as a part of the economic stimulus used to counter the global credit crunch. In a way, various central banks around the world had been busy printing money for a little over 7 years now and a 3-trillion US dollar corporate credit crunch now looms as debtors face that “day of reckoning” – the day when the US Federal Reserve finally decides to increase the cost of borrowing money. 

During the IMF annual meeting, which for this year was held in Lima, Peru, the IMF flashes its warning lights on the emerging market credit bubble which is around 18 trillion US dollars. With plunging commodity prices and the recent Chinese economic slowdown, will a “credit bubble” seems inevitable? 

Ina recent interview, US Federal Reserve chair Janet Yellen said that during the minutes of their September meeting, many of the top brass at the Fed had reached a conclusion that the US jobs market is robust enough to withstand an interest rate increase yet reached a consensus of choosing not to increase for fear that the decision could have a deleterious effect on the global economy – especially on emerging markets. Are low interest rates here to stay given that the Fed might not increase it until the middle of 2016? 

Are Banks Nickel and Diming Their Clients to Death?

Given that in hard economic times, banks should be incentivizing the populace o save some money, shouldn’t banks avoid at all costs in nickel and diming their clients to death with exorbitant processing fees?

By: Ringo Bones

Since 2010, banks around the world had since increased their service charges on checking accounts on average greater than the intended deposited cash’s interest rates. Since then, minimum balance for savings accounts to earn interest and avoid penalties had been raised 137%. But what should bank clients do to avoid being nickel and dimed to death out of their due savings account interests?

As of late, many a smart saver had been moving to smaller community banks and credit unions because these smaller financial institutions offer better growth on savings accounts. On-line banks too ate gaining new customers because they offer deals that are as good as that of smaller community banks and credit unions with even smaller processing fees because all transactions are done electronically on line.

Even though community banks and credit unions are still the way to go for folks who are not very computer savvy, community banks and credit unions have a very distinct disadvantage of a lack of nearby branches. Transportation costs could become very significant when moving and checking your accounts from one community bank or credit union to another. But then, how much do you have to move around your savings and time deposits given the very attractive interest rates offered by credit unions and smaller rural community banks that they provide to their clients?

Who’s Afraid of Stagflation?

Fast becoming an economic doomsayer’s buzzword in our post sub prime mortgage financial environment, will stagflation rear’s it’s ugly head again this 2008?


By: Ringo Bones and Vanessa Uy


Despite American economist, especially those in the pay of the Bush Administration, saying that the US economy is not yet in recession when we ring in 2008. But in our post - New Deal economic system that’s supposedly designed to keep economic recession a thing of the past, a form of economic malaise is now poised to threaten the on-going recovery process to lessen the impact of the sub prime mortgage crisis – namely stagflation.

Most of us living today – especially those under the age of 25 – has probably many questions to ask about stagflation, like: What is stagflation? Did stagflation happen before? Before we proceed, lets briefly discuss on what is stagflation and it’s primary causes.

When the post – World War II Keynesian Mixed Economy has alleviated the curse of old-fashioned economic depression and recession, it created the economic conditions that engendered the newfangled specter of stagflation. Stagflation is caused by a combination of stagnation in the production and employment sector with the inflation in the cost of living.

In 2008, stagflation now threatens China, Australia, and especially New Zealand whose individual Central Banks choose to raise the cost of borrowing money – i.e. raised interest rates – at a time when crude oil prices and food prices are at an all time high. The Las Vegas odds-makers say it’s a definite certainty that stagflation will definitely return in 2008, but let’s examine the economic conditions that made stagflation happen.

Back in 1979 during the Carter Administration, the economic slowdown of that year was primarily blamed on the artificially induced scarcity of the crude oil supply due to OPEC unable to respond the on-going geopolitical instability of the Middle East. This caused soaring food prices that contributed to the two-digit inflation that plagued America’s economy at the end of the 1970’s.

Then US President Jimmy Carter with the help of then Treasury Secretary G. William Miller, and then Federal Reserve Board Chairman Paul Volcker choose to cure the “inflation” part of stagflation back in 1979 by increasing the cost of borrowing money – i.e. raising interest rates. High interest rates on loans – 15% for large companies, 20% for less credit - worthy borrowers – were intended to combat inflation. The bad news is high interest rates adds to the cost in running a company and thereby leads to inflated prices. Some companies kept costs down by downsizing – i.e. laying off more “expendable” employees to keep their bottom line healthy. The poor and the unskilled members of the American society bore the brunt of the corporate downsizing during the latter days of the Carter Administration.

The fiscal oversight in tackling the 1979 stagflation documented on how President Carter and his financial advisers choose to reign in on the inflation part of stagflation because of their trust on “off the shelf” methods (or was it their trust of prevailing “off the shelf wisdom”) of tackling inflation are already tried and true. But at the expense of economic stagnation that prevailed well into the 1980’s. Let’s just hope that the Bush Administration’s “Economic Stimulus Package” has provisos for preventing the repeat of the 1979 stagflation because of the damage it could inflict on the already ailing global economy. A lot is now riding on the current US Federal Reserve Chairman Ben Bernanke’s decisions because it’s not just the American Economy that is on the line. The export - oriented economies of the Asian Far East will surely be affected.