Deena Zaidi is the chief writer and owner of the economic website Financial Keyhole
Markets and economists have long been obsessed with the Fed's first interest rate hike in nine years, but it seems the factors are not reciprocating positively to what the Fed is looking for. Reports on labor and emerging economies coupled with low inflation, strong dollar and falling commodity prices suggest that the US economy may not be as sound as expected.
Reaction to the jobs report
The world economy has seen many changes this year. Interestingly, in many cases theory seemed far from what happened practically in the global financial markets. While many questioned the effect China on various economies, Eurozone was going through its own tough phases with Greece in turmoil and an ongoing refugee crisis.
What started, as a pompous affair of five nations coming together in support of one another’s infrastructural needs, now appears to be more of a promotional event.
Greece has been struggling hard to meet the requirements needed to be a member in the Eurozone. Moreover, following the 2008 financial crisis in the US, Greece’s economy got smaller by 25% since 2009. Germany, France, Italy and Spain are the most important economies accounting for 29 percent, 21 percent, 16 percent and 11 percent of the Union’s GDP, respectively. The current economic crisis affecting some of the Eurozone peripheral countries is raising doubts over the euro’s future and it is the major obstacle to its growth.
Greece’s third bailout package is on its way for delivery. The new rescue package of $95bn stands debated in the German parliament and is up for a vote before August 20. While the IMF stands aloof amongst all this upheaval, global reception to the third bailout package has not been good.
Dodd-Frank turned five last month and once again, the debate around some of its rules sparked many discussions by politicians and economists, but less by the public. According to a poll conducted in 2015, only 4 percent were ‘very familiar’ and 30 percent were ‘somewhat familiar’ of the Dodd-Frank law.
The world’s second largest economy, China made headlines when it became a part of two new banks in the Asia-Pacific region. The two new banks are a five member initiated BRICS-bank called ‘New Development Bank’ (NDB) and Beijing-led bank called ‘Asian Infrastructure Investment Bank (AIIB). A look at the purpose of these banks (see table below) can make one wonder if they share a common goal – infrastructure development in Asia-Pacific region. But the structure and number of members in these two banks reflect otherwise.
Ever since the 2008 financial crisis, the Federal Reserve Board has been trying to regulate big banks that pose huge systemic risk to the economy. The financial crisis highlighted the fact that big banks were taking more risks for which they were not prepared. Some banks were so big that if allowed to fail, they could have taken down the entire financial system with them.
The two emerging economies of China and Russia might be ranking differently on the global economic scale but recently it seems they have something in common: a growing interest in the Asian region. Both the countries are witnessing a downfall in their economies.
Greece was the first non-member to be offered BRICS membership, even though ironically the association of the emerging economies is yet to take off. The New Development Bank (NDB) operated by the five member-countries of Brazil, Russia, India, China and South Africa (BRICS) is all set to take off with an intention to develop economic relations amongst developing countries. It is considered to be an important institution since it is the first to be created by emerging countries with the hope to finance many important projects.
Greece is facing its nightmares: a complete shutdown for a week for its banks. What remained open were the ATMs as people rushed in to withdraw as much cash as possible. But the bigger news is around Greek referendum, which will be a decisive factor for Greece’s destiny. Greece was the first Eurozone country in need of bailouts in 2010 and the years that followed. While it was obvious that many rules in the Eurozone were bent for Greece, the money it needed always remained insufficient for its complete revival.
The Greece crisis has lasted for more than five years and now the meeting with its creditors seems to be lasting for days. The country needs new bailouts in order to pay back its earlier debts. This week Greece might be reaching a decisive point: to stay in the Euro or exit. A look at its banking system highlights the troubled economy of Greece.