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We are globally freer

Index of Economic Freedom was released last week. Slovakia was 57th down 15 places from previous year. The main reason behind decline of economic freedom in Slovakia was higher taxation, non-flexible labor market regulation and slow and inefficient judiciary system. We belong among other 59 countries where economic freedom decreased this year. On the other hand the economic freedom globally is on its highest levels for 20 years; it was lowest in 1997.

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The freest economies are Hong-Kong, Singapore, Australia, Switzerland and New Zeeland. But still 65 % of population is living mostly in not economically free countries due to the fact that most populated countries are India and China and they are considered as not full free economies. The US is another surprise. And it’s not difficult to see why. The U.S. is losing ground. Marginal tax rates exceeding 43% and they cannot finance runaway government spending. The national debt is skyrocketing and Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and economic prosperity.

To have more economic freedom we need more market oriented reforms not regulations. And it seems to me that in Europe this is only visible with connection to Britain whose representatives threaten from time to time that they leave EU if reforms are not going to happen. The same we heard from the country’s chancellor George Osborne on Wednesday (15 January). He stated that the UK will leave the European Union if the bloc refuses to reform. „It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline,“ he added. He also urged that Europe’s labour market was becoming increasingly uncompetitive and was falling behind China and other economic blocs.

The European Central Bank said last year that it will use stricter rules when stress testing banks’ balance sheets. But it seems that this year is everything different. ECB allegedly favor 6% capital requirement in bank stress test and not 8 % was discussed last year. Final number could be finally smaller because small number of countries want an easier benchmark and may press for compromise lower than 6%. We will see if stress tests will not be just complete farce. On the other hand the European Central Bank is concerned that national differences in how bad debt is classified could cripple its probe into the health of euro-area banks. European banks’ bad loans are classified according to a variety of national rules, which makes a comparison among lenders difficult. The aim of the ECB is to define as non-performing all exposures, including loans, debt securities, financial guarantees and other commitments, which are past due for more than 90 days. So finally we can have more serious problems in banking sector than we think.

Switzerland has announced its intention of becoming a renminbi hub in December 2012 and competes with other European financial centers as Britain, Germany and France. The signing of a free trade agreement (FTA) with China earlier this year might give Switzerland a boost. China´s intention to have reserve currency with connection of gold hoarding is imminent. The big problem in China remains still the same. An out-of-control credit creation process which is blowing up. Instead of crushing credit creation, the PBOC’s liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. But Industrial and Commercial Bank of China, the world’s largest bank by assets, said that it has no plans to rescue investors in a troubled off-balance-sheet investment trust product named Credit Equals Gold #1 Collective Trust Product which matured January 31st with outstanding 492 million. And If the trust product goes into default, it could possibly be the first default to test the China´s financial system. We will see and we must to wait till the end of the month.

We finish today with just two quotes from the Dennis Lockhart, the Atlanta Fed President who stated that “One of the stupidest things a central banker could do is comment on the stock market“ and then he added that the stock market is not „a bubble in any way“. Not bad.

Matúš Pošvanc

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About matus.posvanc

Trhu so zlatom a striebrom sa venujem od roku 2011. Prešiel som rôznymi fázami a pohľadmi na problematiku. "Trh je manipulovaný. To je jasné!" Inak by cena zlata predsa nešla dole. "Zlato na úrovni 100 tis. USD? Žiaden problém." Najneskôr do pár rokov. "Futures trh je najväčšie zlo a tzv. papierové zlato je nutné zakázať". Nuž, po dlhom štúdiu tejto problematiky, som hlúposti a táraniny opustil. Ostalo to, čo považujem za podstatné. Význam zlata je veľký. Avšak bez pochopenia trhu okolo neho, sa sám od seba znovu neobjaví. Kúpiť zlato ako časť svojho portfólia má zmysel. Snažiť sa na zlate zbohatnúť? To je iný príbeh. Jednu jeho časť nájdete na mojom blogu.
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