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Showing posts from August, 2010

A bold step forward

On the 15th July the United States Senate gave final legislative approval to an overhaul of the rules that govern America’s financial system. This constituted the most significant reform of US financial regulations since the Great Depression of the 1930s. The passage of the Wall Street Reform and Consumer Protection Act represents a key legislative victory for Barack Obama and his Democratic Party. A few weeks earlier, the House of Representatives obliged the administration by passing the Act by 237 votes to 192. The finance reform bill created a divide between America’s political factions with Democrats in favour and Republicans bluntly against. However, unlike the healthcare reforms, undertaken a few months previously, which divided America right down the middle, this time Mr Obama has wider support amongst most sections of American society. Many Americans believe Wall Street bankers were to blame for the crisis and must be better controlled.

To assume that the new law will end all f…

A double dip to come?

Weak numbers coming out of America have spooked those who worry about a double dip recession. To make things worse, they have the laws of probability on their side, as in five of the past seven recessions in the US, the economy dipped more than once. As a matter of fact in two recessions it actually dipped thrice. The worriers continue to believe that a double dip will happen.

Ultimately economic growth or decline closely mirrors inventory build-ups or reductions. When demand drops or money becomes scarce or expensive (and CFOs scramble for cash), manufacturers reduce inventories. Business priorities shift towards cost management and working capital is scaled back. Output falls and the industrial economy begins to falter. This de-stocking clearly added to the economic woes of 2009 and deepened the recession. But when the tide turns, the upswing in inventory boosts recovery just as rapidly. This is precisely what subsequently happened in the United States. Production exceeded sales an…