Globally, the drive to reinstate economic normalcy got more pronounced when, recently, China reduced its interest rate for the second time, and Bank of England injected small monetary dose in the system.

The Chinese Central Bank announced to cut its interest rates from 6.31 percent to 6 percent, a move to boost economic activity after China recorded its steepest fall in economic growth rate during the last three years.The Chinese economy grew at 8.1 percent annually, a direct impact of slow-down in exports to troubled European countries.

The stock market in China responded negatively to this latest package launched by Chinese Central Bank, with stock prices of major banks falling due to this unexpected action.Shares of the Bank of China, the China Construction Bank and the Industrial and Commercial Bank of China are likewise moving into negative territory.

Recently, the Bank of England jumped into the rough waters and signaled that it would extend its quantitative easing program in an attempt to bring back stability and pull back the economy from the roughness of recession.

Chris Williamson, Chief Economist at Markit said, while referring to English economy “The Economy is showing signs of renewed stress, with GDP likely to fall for a third Successive quarter. Even the Purchasing Managers Index, PMI surveys, the strength of which in first quarter was seen as a key factor behind the bank of England holding off on further Quantitative Easing, have not fallen to an extent that would normally be consistent with further stimulus, based on historical relationships between PMI and policy.”

He believed that quantitative easing program may not produced any formidable impact, but said that at July meeting Monetary Policy Committee might inject money into the system boosting consumer confidence. The Bank of England injected £50 billion euros of electronic money into the system, a move that might help the off-balanced economy to re-balance itself.

And, to expand the drive of monetary stimulus, the European Central Bank joined the other banks by announcing a reduction in key lending rates from one percent to .75 percent. Globally, central banks are more cautious in safeguarding their economies from the venoms of recession, which are high sensitive to events that occur in different regions and circumstances.

Over the last few years, debt crisis in the Euro Zone and financial mayhem that erupted in the US has became the prime factor for weakening and destabilizing economies in other parts of the world. All economies are inter-connected and inter-related in forms and degrees.

Theory tells us that reduction of interest rates will lower the cost of borrowing, and thus will be able to draw the borrower an inch closer to borrowing  and effectively turn policy into real remedy. With fall in interest rates corporations find it easy to rely on borrowing because repayment will be less burdensome, since now corporations are required to pay lesser then earlier and finally leading to rise in production.

The hope is that monetary aid extended by central banks in various countries and diverse regions of the world might help the wheel of economic activity to gain velocity.

Image Courtesy of kool99 / Shutterstock.com

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Amsterdam, Netherlands - Atradius, one of the leading global credit insurance companies anticipates an increase in insolvencies across most developed markets. The Eurozone led slowdown in global growth and the tight financing conditions make it more difficult for businesses to grow.

Uncertainty over the Eurozone sovereign debt crisis and development of the economy has increased tensions in financial markets, though the latter have eased since the ECB intervention of Euro 1 trillion.

A major issue is that credit conditions in advanced markets have been tight and have shown hardly any improvement since the financial crisis in 2008. The banking sector continues to consolidate its debts and seeks additional capital to comply with new and stricter regulations. This has created a challenging environment for households and firms, especially in the Eurozone, and, to a lesser extent, in the US.

Insolvencies rise

Atradius expects the number of insolvencies to increase across most European markets as those of the US improve, as discussed in the April 2012 Atradius Economic Outlook [http://global.atradius.com/creditmanagementknowledge/publications/economic-research.html].

Increases are expected to be the highest in Southern Europe, with forecasts of double-digit growth in Italy and Greece. The insolvency situation is expected to deteriorate somewhat, even in Germany, despite its relatively benign economic conditions. Better news is coming from the United States. With the country’s moderate growth, Atradius projects a decrease in insolvencies. But the forecasted number of insolvencies over the year remains high from an historical perspective.

Downside risks

In general, insolvencies tend to track the business cycle, with economic growth below trend pushing up insolvency numbers. Therefore, there continue to be downside risks to this scenario.

Firstly, an escalation of the Eurozone crisis would hit firms and governments across the globe through financial and trade linkages. In accordance with our analysis in January, Atradius still expects the Eurozone to stay intact as the costs of a break-up would be extensive.

Secondly, the risk of a steep increase in the price of oil, as spare capacity is limited and unrest in the Middle East is high. While the dependence on oil is declining, a large price increase over a short period would increase retail prices and hurt consumer spending across the globe.

Atradius chief-economist John Lorie commented; “Whereas the US is moving on relatively well, in the Eurozone the sovereign debt crisis has moved from the financial markets to firms and households. As consumer confidence is low we see consumers unwilling to spend and banks unwilling to provide finance to firms in the Eurozone. Rates of insolvencies are likely to go up in those markets. In the US on the other hand, rates are likely to improve.”

About Atradius

The Atradius Group provides trade credit insurance, surety and collections services worldwide. With a presence through 160 offices in 45 countries, it has a market share of approximately 31% of the global trade credit insurance market. Atradius has access to credit information on 100 million companies worldwide and makes more than 20,000 trade credit limit decisions daily. Its products help protect companies throughout the world from payment risks associated with selling products and services on credit.

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An executive at Goldman Sachs left the firm today with a bang, penning a New York Times op-ed accusing the company of increasingly putting profits ahead of clients. Greg Smith started as an intern 12 years ago and last headed a derivatives department. Not surprisingly, Goldman quickly and strongly disagreed with his take.

There have obviously been plenty of unflattering headlines about Goldman in the past few years. We decided to look at just one aspect of their record: SEC charges levied against Goldman and its employees over the past decade.

April 2003: SEC charges Goldman Sachs over conflicts of interest among its research analysts. The company eventually settled for $110 million in fines and disgorgements.

November 2003: Former Goldman economist John Youngdahl pleads guilty to insider trading. The firm had to pay the SEC $4.2 million over profits it gained from the illegal dealings.

July 2004: Goldman settles with the SEC for $10 million over charges it improperly promoted a stock sale involving PetroChina.

January 2005: Goldman settles with the SEC for $40 million over charges that it violated securities law in promoting initial public offerings.

April 2006: Two former Goldman employees are charged with running an international insider-trading ring while they were at the firm. Eugene Plotkin and David Pajcin, both in their 20s, paid off insiders at other firms and stole early copies of Business Week to get an edge. They also tried (unsuccessfully) to use strippers to get information. Both eventually served jail time.

March 2007: A Goldman subsidiary, Goldman Execution and Clearing, settles with the SEC for $2 million over allegations that faulty oversight that allowed customers to make illegal trades.

March 2009: Goldman Execution and Clearing settles with the SEC for $1.2 million over improper proprietary trading by employees.

July 2009: The SEC charges a former Goldman Sachs trader Anthony Perez and his brother with insider trading based on information Anthony Perez obtained through his job at Goldman Sachs. He was fined $25,000 and his brother more than $150,000.

May 2010: The SEC hits Goldman Execution and Clearing with a $225,000 fine for violating a rule aimed at regulating short selling.

July 2010: Goldman settles with the SEC for $553 million over allegations that it misled investors about the collateralized debt obligation ABACUS 2007-AC1 by not disclosing the involvement of a hedge fund in its creation, or the fact that the hedge fund stood to benefit if the CDO failed. Goldman executive Fabrice Tourre was also charged.

March 2011: The SEC charges Goldman board member Rajat Gupta with insider trading. Gupta allegedly passed on information he learned as a board member to the hedge fund Galleon Group. In October, 2011, he was arrested and hit with criminal charges by the FBI. The case is pending.

September 2011: The SEC charges a Goldman employee, Spencer Midlin, and his father for insider trading based on information Spencer Midlin gained from his position at Goldman Sachs. The two men were ordered to pay $92,000.

February 2012: Goldman Sachs receives notice from the SEC that the agency may bring charges related to mortgage backed-securities.

by Cora Currier ProPublica, March 14, 2012, 3:20 p.m.

Image Courtesy of  http://www.flickr.com/photos/seiu/

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