Saturday, December 19, 2009

NEVER ENDING BAILOUT

Banking trouble never seems to end for the world. Even despite of pumping huge funds to bailout and buying up crisis lead bank mortgage assets the story still remains to be unfolding few funds more to be spent.

This time the number have taken a growth in European banks (ECB).European countries have been trying to hard to come out of the crisis of recession which have jeopardized theirs future economic growth.
• The total demand for European bank write downs has only increased in the last six months.
• At present the ECB have increased the limit of bank failure and toxic assets buy up to at €553 billion ($796.57 billion) for 2007 to 2010.
• The estimate, which is €65 billion more than what the central bank forecast just six months ago.
• The prime reasons for hike of this is that new real-estate problems and loan risks in central and eastern Europe.
• This simply depicts that the major world economies are still struggling and spending tax payers money to buy up the worst night mares of the economy.

In the month of June 2009 the ECB have estimated the that toxic assets and bank write down will eat up in total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced. Now this figure is revised up for more write ups.

Now a question might come when this nightmare of toxic assets and bailout will come to an end. And last but not the least how this affect Indian market ?
•The ans to the first one is that this process of bailout and toxic assets buy up will end only when fresh new cases will not come up, when the European government designs some regulatory norms for the ECB. Other wise in the future loose ECB monetary policies will lead to burst out of financial time bombs.
• India will hardly get any affect from the rising ECB toxic assets and bailout in direct link up but when ever their will be burst out of these time bombs in the short term one will get knee jerk reactions from the market.
• But as this process of bank failures will rise in the future more pressure it will exert on the long term prospect of Europe and Us economy to revive back.
• Since we should not forget that U.S and U.K are the prime exporting countries of India and we are all convoluted internally where a pull at one end of the thread and pull up us too.

The UK has strong ties with India, and UK companies are well positioned to take advantage of this growing export and investment market. India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.The image below shows the import figures of Europe.

So the rising bailout funds will exert tremendous pressure on the Indian economic growth in the comings days. The market which is flooded with cheap money might work against all these negative cues but in the later time India along with other Asian economies will have to face some hard times due these mounting deficits.

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