RESULT OF END OF EASY MONEY...TURKEY

Chinese tune is going to spook slowdown and Turkey has just begun the music.  When easy money becomes a burden financial contagion spills over. Borrowed living or consumption as an individual and as a country is always costly and comes up always with a bailout.  Turkey ongoing chaos would lead to a massive problem for Europe and other countries.  According to Data from the Bank of International, Settlements indicate that Italy has $17 billion of the loan, France has $38.4 billion, UK has $19.2 billion, Germany has $17.1 billion and Spain has $82 billion and the top eurozone banks have combined total assets of more than 20 trillion euros. Much of these exposures are also lira in the balance sheets of local subsidiaries and the currency depreciation is spooking contagion effect on the repayment schedule in the long term. Several European financial institutions, including Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, have significant operations in Turkey.   

According to  BIS cross-border figures also show that Japanese banks are owed $14 billion, U.K. lenders $19.2 billion and the United States about $18 billion. Turkey blames US for this carnage of Liar since they imposed Tariff on Turkey exports. Well when an economic growth is not balanced and not stable then any damage to the traditional economic policies would spook plunge for an economy.

The increasing trend of US interest rates has increased the outflow of capital for the country.  Turkey’s loans in US dollars account for around 30% of GDP and in euro it could be as much as another 20%. Turkey’s non-financial companies’ foreign currency liabilities now exceed their foreign exchange assets by more than $200bn. In the next 12 months alone, private non-financial institutions must repay or roll over $66bn in foreign currency debt. Well, the numbers now seem to be larger than what has been perceived.  Turkey’s banks, meanwhile, face a figure of $76bn.  In all, private companies in Turkey sit on a pile of debt equivalent to about 40% of GDP and in the past year. 

Turkey has been running huge and growing current account deficits, reaching $ 7.1 billion by January 2018, while the rolling 12-month deficit rose to $ 51.6 billion one of the largest current account deficits in the world. It has inflation hovering above 10% and the govt is not inclined for pushing up the interest rates. Around $350bn in foreign debt is being held by Turkey banks which lead to a contagion call on various asset classes. One of the prime characteristics of Turkey is that it has low savings rates. Just below 21% live under the poverty line. GDP is mostly made up of consumer activity, at 60%, but government activity is 15% of the total. It has unemployment rate of 12% the overseas lending is too much to its banks.

  When an economy does not invest properly within its own economic inequality is has to face uncertain times when traditional economic theories start changing. The Tariff Imposition era is one such activity where traditional economic theories are bound to collapse and it pinpoints very clearly towards the historical political failures in terms of designing economic policies. Only export oriented economic growth is not suffice for a stable long term economic growth.

The country has inbuilt some problems but it has now started blaming US for its tariff impositions. Getting into the details further its being found that The top export destinations of Turkey are Germany ($16.2B), the United Kingdom ($15.2B), Italy($8.26B), the United States($7.69B) and Iraq ($7.63B). 

Highest Value Turkish Export Products

Below are the 20 highest value export products delivered to international customers in 2017. Shown within brackets is the change in value for each exported product year over year.

1.       Cars: US$11.8 billion (up 41.4% since 2016)

2.       Gold (unwrought): $6.6 billion (down -19.9%)

3.       Trucks: $4.8 billion (up 5.3%)

4.       Jewelry: $4.1 billion (up 9.9%)

5.       Automobile parts/accessories: $4.1 billion (up 6.4%)

6.       Processed petroleum oils: $3.7 billion (up 31.6%)

7.       T-shirts, vests (knit or crochet): $2.9 billion (down -1.8%)

8.       Iron or non-alloy steel bars, rods: $2.6 billion (down -2.9%)

9.       Women’s clothing (not knit or crochet): $2.5 billion (up 9.2%)

10.   Insulated wire/cable: $1.9 billion (up 8.9%)

11.   Carpets, other textile floor coverings: $1.8 billion (up 13.6%)

12.   Refrigerators, freezers: $1.8 billion (up 3.6%)

13.   Jerseys, pullovers (knit or crochet): $1.8 billion (up 10.7%)

14.   Piston engine parts: $1.7 billion (up 7.1%)

15.   Public-transport vehicles: $1.6 billion (up 7.8%)

16.   TV receivers/monitors/projectors: $1.5 billion (up 4.5%)

17.   Men’s suits, trousers (not knit or crochet): $1.4 billion (down -5.9%)

18.   Hot-rolled iron or non-alloy steel products: $1.4 billion (up 70.5%)

19.   Miscellaneous furniture: $1.3 billion (up 1.9%)

20.   Miscellaneous nuts: $1.3 billion (down -5.8%)

Among these product categories, hot-rolled iron or non-alloy steel products posted the greatest year-over-year increase in Turkish export sales with a 70.5% gain in value from $832.2 million in 2016 to $1.4 billion during 2017.In second place were exported cars which grew 41.4%.Turkish exports of processed petroleum oils also showed a respectable gain of 31.6%. Leading the decliners were exported gold, down -19.9%.

The carnage is beyond currency now as a global asset class will be redeemed by taking advantage of the currency volatility and this would spook a sudden liquidity or profit booking in portfolios across the market.

When economic policies are ruled over by a government and desired economic initiatives are not taken then that spooks a massive blow to the system. Recep Tayyip Erdoğan who won the election during the campaign, he blamed external factors and their domestic collaborators for Turkey’s economic woes, which seemed to resonate with voters. They own the election blaming others and not focusing to improve domestically.  This is the place where economic disparity comes into play. When an economy does not focus on creating more job and keeps the economy alive on limited resources and constantly leverage the same then one day this type of collapse would happen. Borrowed living as an individual and as a country is always costly and comes up always with a bailout. 

4TH INDUSTRIAL REVOLUTION....DESIGN COSTING ... SERIES 3

 

In my third series, I find that under the 4th Industrial revolution design based costing plays a pivotal role. Small things with huge capacity, cheap things with huge quality are the key boon to support the 4th industrial revolution.  I am talking about nanotechnology and its design costing impact on the global industry and the 4^th Industrial revolution. I have discussed two subjects here where I find cost management and costing tools will have a huge impact in the coming days. The 1^st one was Nanotechnology and the second is climate change and its economic aspect which leads to economic growth during these tough times of trade war without focusing much on export-driven economic growth. Well In my 1^st part I will discuss the design costing and the upcoming Femtotechnology. But before all these, I will present the whole research in parts so that readers can absorb it slowly.

Cost management and cost reduction can be a boon for stopping the radical climate change. The biggest question which will strike everyone is that how this could be possible. Climate change has been a known global issue and no country is left from its curse. Cost management means efficiency in cost which is a reflection of the efficiency of the production process, improvisation of the traditional process and improvement in the society. Design costing has been an important topic which needs no introduction also since nanotechnology has changed the landscape of production and resources management. Nanotechnology is one of the finest products of design based cost management which improves the production and efficient resources management. This resource management creates a ripple effect on the climate and hence its boon.

Before we get into further we need to clear few meanings deeply. Nano is the prefix that refers to a one billionth of a quantity in many sciences like physics. Since dimensions of an atom are about 10nano-meters, this prefix is popular in studying atoms and molecules as well. Nano was coined by Richard P. Feynman’s classic talk at the annual meeting of the American Physical Society at the California Institute of technology in 29thDecember, 1959. Later, Feynman’s idea was followed by Eric Drexler.

The main difference of nanotechnology in comparison with other technologies lies in materials scale and structure of this technology. Thus, nanotechnology is in relation with the production process which has an important effect on the implementation of this phenomenon. This is one of the finest design based technological improvisation which has a huge impact on the climate.

Climate change targets can only be achieved when efficient production and resource management is being implemented and this subject is dominated by cost accountants since they are being taught about these two key areas. Cost reduction leads to the elimination of inefficiencies and hence journey from better to best in terms of manufacturing.

Capitalist and business models don’t want to deploy capital to change the traditional cost of production since they will have to face a longer gestation period in improving the production process. This has been evident in many countries due to which these countries don’t implement the climate change related trade policies in a faster way. Private segment shy away from the investments and they demand more tax benefits for implementing the same which is actually at the cost of the economy. Capitalist minds always stay away from these transformation phases. This area has now been broken and disruptive production and business models have come up to give a challenge to the capitalist mindsets.

Nanotechnology has a huge impact on the energy cost saving and reduction of carbon dioxide into the atmosphere. Costing tools improves the design cost and hence a vast number of industries gets to benefit from the Nanotechnology segment. Nan technological approaches like light-emitting diodes (LEDs) or quantum caged atoms (QCAs) lead to a strong reduction of energy consumption for illumination.

Lighter stronger materials are being produced in manufacturing which leads to efficiency in production and also saves energy cost significantly. Skyscrapers and construction industry get a significant boost up from the nanotechnology-driven production process with low-cost material but with a high density of quality. The current steel designs are based on the reduction in the allowable stress, service life or regular inspection regime. Extra copper of nano-particles reduces the surface unevenness of steel which then limits the number of stress risers and hence fatigue cracking. Design costing leads to business opportunities and creates disruptive growth avenues replacing the traditional process.

But the world is moving ahead of Nanotechnology now. The 4^th Industrial revolution would improvise the efficiency of the production process and would lead a quantum jump in the cost management segment. Climate issues can be resolved provided the too much capital chasing limited assets are being realigned and focused towards the climate change. Climate change would result in a stupendous implementation of costing tools and design costing methods which leads to change of production process.  Export-driven economic growth is not the way for s sustainable economic growth. The recent trade war and its impact on the export-driven economy will be very harsh on the society and on the GDP growth. 

 It's not about a number, rather I am about the economic growth distributed among the society. We have seen historically that a huge amount of capital keeps chasing a limited asset class or segment. This is due to the capitalist mindsets and lack of government policies to frame equal growth within its own economy. Today we find that there is a wide disparity of economic growth within countries internal due to lack of vision. 

Climate change is an opportunity for the economic growth provided efficient policies are being deployed to bridge the gap which is existing within every country.  One can pick up any country to find the widening gap of growth. The best I can remember now is the growth of the German economy and the rest of the EU. China today is facing trade war problems, well it can easily mitigate the risk of slowdown provided it fasten the process of adhering to the climate goals. These goals itself are highly economic growth supportive. Climate change is an integral part of the 4^th industrial revolution and one should work on the lines to get growth. I repeat again what I have said many times in my previous articles that all traditional economic theory is redundant and 4^th industrial revolution will create new theories.

4TH INDUSTRIAL REVOLUTION....COST MANAGEMENT SERIES 2

In this series of writing, I will be discussing and sharing the perspective of cost management and its role in the 4^th industrial revolution on a global platform. India remains a nascent stage compared to others.  Efficient cost management could only make the 4^th industrial revolution to be within the budgets for the emerging economies. Cost Management makes an economy grow since if production cost is low and cost-efficient and measurable then the GDP growth happens faster and stable for that economy. The 3^rd industrial revolution has this biggest boon of cost management which made economies like Japan and China to grow supported by various other rationales.

The question which comes to mind is that what the significance of cost management, cost control and cost measurement in the 4^th industrial revolution. The answer is simple cost management subject would help a country to fight against poverty, upgrade the society, make things affordable and more importantly uplifts the GDP of an economy. The growth of the society through cost control and cost measurement can achieve. The 4^th industrial revolution married with cost management plays a pivotal for the next decade of GDP growth. Many countries have identified the same and the challenge is for the those who are still fighting with traditional protocols and not opening the gates for the next generation revolution.

A country like India needs to understand that low-cost production through traditional production methods are now on the verge of death and hence 4^th industrial revolution married with cost management should be adopted at a faster pace compared to its historical trends. India needs to develop strategies and methods faster so that as the landscape of production is changing the GDP growth might get slower in the coming decade as 4^th industrial revolution married with cost management is already being implemented by the other countries.

 It's up to the different countries about how they take up the 4^th industrial revolution and become a developed economy. Bridging the gaps of the society should be the prime focus for the 4^th revolution. I am happy to share that Japan has again strike the chord with its focus on revolution just like it did during the times of its cost management tool developments.

On the other hand, many economies started late on the 3^rd industrial revolution and they became emerging economies as of now. This stark contrast can be eliminated in the 4^th industrial revolution. Today we speak about nanotechnology. Well, nanotechnology is the product from the cost management. Efficient cost design and cost measurement have given birth to nanotechnology. Hence in this series of my writing, I will share my insights and analysis on the 4^th industrial revolution and the cost management roles within the same. Productivity under the 4^th industrial revolution would be very much linked with cost measurement since this revolution is more being carried by non-rich fellows coming from unknown segment not having a cash-rich segment for investments. They have the intellectual capacity and courage to take forward the 4^th industrial revolution and hence for them every penny matters. Hence without proper cost management, the 4^th industrial revolution might not take its full shape.

 The 4th industrial revolution is all set and many economies future growth will be dependent on the 4th industrial revolution.   The success of GDP growth of any economy is dependent on its cost management and cost measurement. A low-cost product has been the success demand for the economic growth. The 4th industrial revolution is all about IOT, AI autonomous vehicles, Robotics, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, quantum computing and big data analytics. All these are the cost management techniques under the 4th industrial revolution.  In the coming decade, the success of an economy will depend upon how efficient they are in adopting cost management through IOT,AI and big data analytics. The biggest question as of today is that how much the government is focused towards achieving the next round of economic growth through the 4^th industrial revolution.

According to research reports, many economies are just yet to take participation in planning the 4th industrial revolution whereas many economies have already adopted the same in their economic growth agenda and have started well to work on the same lines. A Country like Germany was one of the first countries to increase digitization and the interconnection of products, value chains, and business models to drive digital manufacturing forward.

There are 25 Leading countries, concentrated in Europe, North America, and East Asia. All but two countries in this archetype are high-income economies. Japan’s Society 5.0 – a strategy to use emerging technology to transform not only production but all of society – followed in 2016. However, the majority of the economies including around 90% of the economies from Latin America, the Middle East and North Africa, Sub-Saharan Africa and Eurasia are under the nascent stage.

The government along with corporate needs to develop policies for the adoption and development of 4^th industrial revolution. India needs to be extremely proactive in these areas. The 4^th industrial revolution will not take the time as compared to 3^rd industrial revolution. The 4^th revolution is exponential and hence the government needs to be proactive so that they don’t miss the opportunity and became backward nations.

Cost management would play a pivotal role behind the 4^th industrial revolution. Efficient cost measurement and cost control would amplify the 4^th industrial revolution since many economies particularly the emerging ones would find 4^th industrial revolution to be an expensive game hence through cost control the same could be made affordable.

4TH INDUSTRIAL REVOLUTION & COST MANAGEMENT SERIES 1

In this series of writing, I will be discussing and sharing the perspective of cost management and its role in the 4^th industrial revolution on a global platform. India remains a nascent stage compared to others.  Efficient cost management could only make the 4^th industrial revolution to be within the budgets for the emerging economies. Cost Management makes an economy grow since if production cost is low and cost-efficient and measurable then the GDP growth happens faster and stable for that economy. The 3^rd industrial revolution has this biggest boon of cost management which made economies like Japan and China to grow supported by various other rationales.  The question which comes in mind is that what the significance of cost management, cost control and cost measurement in the 4^th industrial revolution. 

The answer is simple cost management subject would help a country to fight against poverty, upgrade the society, make things affordable and more importantly uplifts the GDP of an economy. The growth of the society through cost control and cost measurement can achieved. The 4^th industrial revolution married with cost management plays a pivotal for the next decade of GDP growth. Many countries have identified the same and the challenge is for the those who are still fighting with traditional protocols and not opening the gates for the next generation revolution.

A country like India needs to understand that low-cost production through traditional production methods are now on the verge of death and hence 4^th industrial revolution married with cost management should be adopted at a faster pace compared to its historical trends. India needs to develop strategies and methods faster so that as the landscape of production is changing the GDP growth might get slower in the coming decade as 4^th industrial revolution married with cost management is already being implemented by the other countries.

 It's up to the different countries about how they take up the 4^th industrial revolution and become a developed economy. Bridging the gaps of the society should be the prime focus for the 4^th revolution. I am happy to share that Japan has again strike the chord with its focus on revolution just like it did during the times of its cost management tool developments.

On the other hand, many economies started late on the 3^rd industrial revolution and they became emerging economies as of now. This stark contrast can be eliminated in the 4^th industrial revolution. Today we speak about nanotechnology. Well, nanotechnology is the product from the cost management. Efficient cost design and cost measurement have given birth to nanotechnology. Hence in this series of my writing, I will share my insights and analysis on the 4^th industrial revolution and the cost management roles within the same. Productivity under the 4^th industrial revolution would be very much linked with cost measurement since this revolution is more being carried by non-rich fellows coming from unknown segment not having a cash-rich segment for investments. They have the intellectual capacity and courage to take forward the 4^th industrial revolution and hence for them every penny matters. Hence without proper cost management, the 4^th industrial revolution might not take its full shape.

 The 4th industrial revolution is all set and many economies future growth will be dependent on the 4th industrial revolution.   The success of GDP growth of any economy is dependent on its cost management and cost measurement. The low-cost product has been the success demand for the economic growth. The 4th industrial revolution is all about IOT, AI autonomous vehicles, Robotics, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, quantum computing and big data analytics. All these are the cost management techniques under the 4th industrial revolution.  In the coming decade, the success of an economy will depend upon how efficient they are in adopting cost management through IOT,AI, and big data analytics. The biggest question as of today is that how much the government is focused towards achieving the next round of economic growth through the 4^th industrial revolution.

According to research reports, many economies are just yet to take participation in planning the 4th industrial revolution whereas many economies have already adopted the same in their economic growth agenda and have started well to work on the same lines. A Country like Germany was one of the first countries to increase digitization and the interconnection of products, value chains, and business models to drive digital manufacturing forward. There are 25 Leading countries, concentrated in Europe, North America, and East Asia. All but two countries in this archetype are high-income economies. Japan’s Society 5.0 – a strategy to use emerging technology to transform not only production but all of society – followed in 2016. However, the majority of the economies including around 90% of the economies from Latin America, the Middle East and North Africa, Sub-Saharan Africa and Eurasia are under the nascent stage.

The government along with corporate needs to develop policies for the adoption and development of the 4^th industrial revolution. India needs to be extremely proactive in these areas. The 4^th industrial revolution will not take the time as compared to 3^rd industrial revolution. The 4^th revolution is exponential and hence the government needs to be proactive so that they don’t miss the opportunity and became backward nations.

Cost management would play a pivotal role behind the 4^th industrial revolution. Efficient cost measurement and cost control would amplify the 4^th industrial revolution since many economies particularly the emerging ones would find 4^th industrial revolution to be an expensive game hence through cost control the same could be made affordable. 

CHINESE BUBBLE ...WAR WITHIN CHINA

The Chinese economy is going to face some hard days as the following reasons are grappling the economic growth engines to slow down, overheating in its real-estate sector, a roller-coaster stock market, and a rapidly growing shadow-banking sector. The battle is within the Chinese economy now more compared to US economy  These segments have been one of the key growth contributors for the Chinese GDP but now these factors are now being narrowed down to get the economy into a sustainable economic growth.  My Fear is only the bubble burst and not the rules of presently controlling the bubble. My article will accentuate these lines where prices are controlled but constructions are being supported. This would be a disaster for the Chinese economy in the long term.

Chinese real estate market is similar like US where bubbles were created. From June 2015 through the end of last year, the 100 City Price Index, published by SouFun Holdings, rose 31 percent to nearly $202 per square foot. That’s 38 percent higher than the median price per square foot in the US, where per capita income is more than 700 percent higher than in China. This is the very reason why China imposed many rules to control the bubble. They increased down payment requirements, tightened mortgage restrictions, banned the resale of property for several years, and limited the number of homes that people can buy.  But the restrictions have lead minimal effect currently based upon the data. Loans for individual purchases grew 20 percent year on year to reach 22.86 trillion yuan, with the growth rate declining 2.2 percent, as compared to the last quarter of 2017.

But the loan to developers is a significant threat. According to the data as of mid-2017, the volume of real-estate related loans at listed Chinese banks stood at 22.6 trillion yuan (approx. USD$3.59 trillion) as compared to 12.88 trillion in mid-2014, for an increase of over 75%. This is the very reason why banks are being restricted in the use of bank loans or trust funds to invest in the real estate market.

China’s real-estate sector accounts for an estimated 15% of GDP and 20% of the national demand for loans. The industry players have significant debt to equity ratio where many of the player's ratios go beyond 250%. The below chart depicts the name of the ones who are having a significant threat to the economy.

The rental market is not at all supportive for the rental as wages are low in China. Developers rent to consumers to make a 1.5 percent yield while paying a combined debt-and-equity cost of capital of almost 10 percent. This is a big gap and hence only buyers are the solution and excess construction has created a bubble. Rental markets will never grow and neither can be expected to be supportive of the Chinese real estate industry.

But I don’t find that there is any slowdown in the bubble formation. Based on the data new land purchase and the start of real estate projects have grown strongly in last 5 month of 2018. Investment in the residential real estate is up 14 percent and development loans are up 21 percent. Banks are again very actively getting into the speculative bubbles and mortgage growth is now 20%. This is a significant threat and I can promise more money and more avenues will open for this sector in the long term to balance the US trade restriction and investments. Long tenures of loans and another type of benefits will be doled out to balance the economy from the other side.

China has come up with a new set of rules for its real estate market to control prices speculation but how strong the same would be is a question mark. Enterprise buyers have to meet certain requirements including based in the city for five years or longer, paying a tax of at least one million yuan ($156,490), and hiring 10 or more employees with their accumulation fund and social insurance records of five years. Enterprises paying five million yuan tax are excluded. Further, the enterprises will be prohibited to resell the homes for five years instead of three years. This policy is curbing speculation. But my fear is speculation which already has been built will start coming down and that will create an immense problem for the Chinese economy. Those who are betting on the wealthy Chinese population, well they are buying more outside of China rather within China.

Funding restrictions are going to fail since many real estate developers are looking ahead for Mezzanine debt is a hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default, after other senior lenders are paid. Hence a substantial growth in M&A will come up in the Chinese economy as many developers will lookout for offshore funding and getting into JV so as long-term period could be achieved. The developers want to wait for the removal of price caps and other restrictions as the current US trade war might force the Chinese officials to remove the restrictions and create the bubble further.

According to the data the US trade restrictions have created a serious mark on the Chinese economy and its a matter of concern for the 2nd largest economy and the rest of Asian economy. According to the sources, the recent economic data cast a deep shadow over the growth of manufacturing of the Chinese economy and the upcoming slowdown for the Chinese economy. In a brief statement, the General Administration of Customs said growth in China’s US-bound shipments slowed to 5.4 percent in the first six months from 19.3 percent a year earlier. June export growth was even slower at 3.8 percent, down 23.8 percentage points from the same time in 2017, the administration said.

If the export sector is going to face slowdown then other economic sectors will be given leeway or it will be total collapse based on the measures of cleaning the economy. The battle is within Chinese economy to balance its growth. I think China might be an example in the books of economics were chasing growth based on the export of an asset bubble, both turn into a nightmare.

These bubbles were being managed through various avenues but now with trade restrictions and US export market being turning into dry ground china will have to figure out new ways of economic growth. The construction industry will have to suffer a major setback at any point of time even if the funding restrictions are being removed keeping to balance the current economic growth based on US trade restrictions.

Where Does the Treasury Stands and Where the Risk of Holding the Same

The history knows that China and Japan have been the largest holder of US Treasury papers but the rules and risk of games have changed the holding patterns. The key thing to be noticed is who new buyers are and what the global community thinks going ahead in the long term about the US treasuries. Many times small sparks show the ugly part of the larger fire behaving like carnivorous, waiting to swallow an economy. The current scenario of the US economy and the long-term outlook seems to be a threat provides the way things are going on. Trade war, drop in govt. corporate tax revenue and rising deficit create an immense problem for the US economy. If by reducing taxes and creating trade barriers  American Job creation should have been increased then every economy should have done the same. Tax cuts do not spook investments but only shareholders wealth.

Japan has been consistently reducing its holding whereas China had some upward hunger for the same and later on came down too. The 3^rd position of US treasury holding is being held by those countries where Corporate America prefers to register its overseas cash holding. Ireland. Yes, you are correct to hear. The below list names the countries other than China and Japan who are holding the US treasury.

 Ireland, in the third position behind China and Japan. It’s where Corporate American likes to register its “overseas cash.” It held $300 billion of Treasuries in April, about the size of its GDP.

The largest holders of US Treasuries, after China and Japan:

·         Ireland: $300 billion
·         Brazil: $294 billion
·         UK (“City of London!”): $263 billion
·         Switzerland: $242 billion
·         Luxembourg: $214 billion
·         Hong Kong: $194 billion
·         Cayman Islands: $181 billion… down from $250 billion a year ago!
·         Taiwan: $168 billion
·         Saudi Arabia: $160 billion
·         India: $152 billion
·         Belgium: $137 billion
·         Singapore $118 billion

If we look at the numbers for the US Total Debt splitting in two parts we find that

·         Debt held “internally” by US government entities rose by $181 billion to $5.73 trillion.

·         Debt that is publicly traded soared by $1.05 trillion to $15.34 trillion.

Americans themselves are buying the US Treasury through institutional and individual investors, directly and indirectly, through bond funds, pension funds, and other ways. Coming up with the volume of purchase in monetary terms it stands to around $1.01 trillion. That’s quite a big chunk as interest rates start climbing. I told long back in one of my articles that US itself is freeing up its Dollar from the clutches and also risking risk and reward ratio leads to more higher interest rates demand from countries like China.  Hence the best way to free up the treasury and make it’s a healthy product for investments is its own people shifting the assets from equity to debt.

 We should not forget that the yield from the current Treasury Yields from US now competitive enough with the average S&P 500 dividend yield. Low risk and better returns are the best part. The ongoing trade war and investment restriction and other aspects give an immense indication that economic will face jitters and so the corporate earnings and hence gains will not be similar to what S&P 500 provided in the last couple of years.

Further, the way the fiscal deficit is climbing up it's being found that total federal budget deficit surged to $530 billion in the first eight months of fiscal 2018, which began in October, surpassing last year's deficit over the same period by $97 billion. Now due to tax cut down corporate tax revenues, for example, were down $42 billion, about 25 percent till now. This number will amplify too few more percentage jumps. The story is yet to complete. Due to interest rate hike, the government spent a whopping $239 billion on interest payments alone, up 15 percent from the same period last year. This number will also increase in the coming days.

According to CBO it has been predicted that federal deficits will top $1 trillion in 2020. The CBO projects the Republican tax law passed last fall will add $1.84 trillion to the federal deficit over the next 10 years. Congressional Budget Office projects that the federal debt will continue to grow and that the debt-to-GDP ratio will be 94.5 percent in 2027. Interest payments on that debt will also continue to grow, nearly doubling from 1.6 percent of GDP in 2018 to 3.1 percent in 2028. In dollars, that means net interest payments will increase from $316 billion in 2018 to $915 billion in 2028.

Rising debt would spook problems on the Treasury segment where higher interest rates and risk to investments will be significant.   Is that reason why China and Japan are dumping and they are getting out of this holding? Dollar and Yen war is already in place but the rising debt is a threat for the US government in parallel to falling in income from corporate tax revenue. According to the certain projections, United States' gross domestic product will reach 78 percent, according to the CBO, the highest ratio since 1950. The debt is projected to grow to 96 percent of GDP by 2028 before eventually surpassing the historical high of 106 percent it reached in 1946. This is a very big impact on the economy in the long term. Tax cut down may not be able to pass on real benefit to the economy unless the door related trade is kept open.

IS THIS US ECONOMIC CRACKS RECIPE ???

US cost competitiveness and its economic impact is now being ignored but will cost the economy huge in the long term. I will discuss on these lines later in the article. Economic growth can be achieved in many ways, either through innovation and framing policies or through just copying the growth of other and building the same at home.  China does the same through copying the strategies and growth formula and building the same within his own economy.  This is the very reason why US is now against china.  The copy-pasted economic growth has currently rattled the global economy with trade tariffs and other things. China economy will face more slowdown which is hard to be measured currently. US coming up in a hard way to prevent some Chinese companies from investing in U.S. technology firms.

 This is going to be another blow which is beyond the measurement of any economic theory. We all know that Silicon Valley created a huge growth for the US economy. Now the 2nd round of Technological growth has been easily achieved by China through its judicious access to the intellectual property rights of US.  From the inside sources, it has been found that the Treasury Department is coming up with rules and regulation where a Chinese firms that have a 25% or more stake from a buying a U.S. company that is viewed by the Federal government as having “industrially significant technology.” This is major slowdown trigger for the Chinese economy.

 Well those who are thinking that this is illegal and against globalization well the US has an act already in place the International Emergency Economic Powers Act of 1977 gives the  US President board authority to engage in acts to protect the citizens of the U.S. It was used after the Sept. 11, 2001, terrorist attacks. The trade was will take a new route and new shape which will only slow down many economies and their consumption pattern.

 On the other hand, Trump has reduced taxes and has lead big boon for the US corporate sector. But the surprising part is that major investment drive in US is being carried by Tech Giants and not by the non IT segment of the industry. Companies like Alphabet and Amazon are spending billions to upgrade and create new dimensions in the economy swallowing up the SME segment.  This investment climate is not good since it make me remember the Tech Bubble. A balanced investment approach which benefits the society is the most ideal economic growth.

 I find that trade war with EU would lead to a flight of investments into US by these trading countries so as to keep the US happy and comfortable. Trump is already started attracting overseas investments.For example, a new survey from the German Chambers of Commerce Abroad shows that half of the German companies currently in the United States plan to boost their investment, with 53 percent also planning to hire more staff. In the last two weeks, Innogy, E.ON and EnBW all announced new American projects.

 Flight of investments to US is about to begin and the biggest factor to be watched is that they how much these economies will balance the investments compared to relaxation of trade barriers.  At the same time its big threat for US since if these countries subsidiaries decide to get out and shift their investments out of US since US is no longer a larger market for consumption compared to other countries. For example, Harley-Davidson who took the decision to shift some of its production out of US. These things will slow down the US economy also and a mixed reverse scenario would happen in the long term.  The trade war will go beyond to corporate war where the impact will be long term and not short lived.

  

If We make quick look towards the investment pattern by China within US and the after effect it can have due to the new guidelines one can measure the depth of the problem which US will face in macro front and also the fall of subsidiary profits by Chinese companies. China can divert its funding to other countries and hence it can have a short-term affect whereas US might have a long-term effect.

The number of deals declines and drop in investments might be argued with this point that US has given a tax cut down to the corporate so that they can start investing but the point is who will buy from America if there is a trade war with importing countries. This is going to be really game to watch where how the economic balances are being executed by the US economy. Will US corporate will execute the investments which they have promised since the announcement and real investments are two different theories actually.

If we look at the investments across the industries executed by China over the last decade almost we find that finance and real estate are the two biggest segments which attracted a substantial amount of investments in to US. The problem may not be with technological IPR issues but with the US treasury holding and safeguarding the dollar from the clutches of China as a foreign reserve currency.

The paradox is that US investments in China is much more than what China has. US shifted its production plant to acquire the rising class of consumption form the 2^nd largest economy and also other Asian economies.  Investments in rising interest rate scenario has to adjust with cost inflation and designing product cost structure based on the importing countries cost competitiveness . This is highly grey area which is not being taken into account by Trump.  I will cover this in my 2^nd part with broader examples where the Tyre will never meet the road.

NATO..EU UNDER PRESSURE...Advantage to US

The way the global economic trade problems are growing it's better to have a world war 3 and just like World War 2 where many economies agreed for building the broken infrastructure, the history can be repeated.   The German economy is going to face slowdown and also those economies where trade and tariffs have been amplified. Global inflation will spook up, investments will slow down and further GDP growth will be hampered. The story becomes more dangerous when the European economy is broken and China business policies are never user-friendly.  

 The unemployment number is currently under comfortable zone but it seems to be short-lived. The immigration problem has pushed the Eurozone into broken state and the results of the same are dangerous for the long-term economic high tides.  The ship may not sail and might get further fragmented before the collapse of the Euro. Merkel has become such figure that she could hardly be replaced by any

one else after s such a long stint of being Chancellor.  The current trade indication and rules for the German car market is an alarm for the EU, since European countries account for the highest dollar value worth of cars amounting to $405.4 billion which stands at 54.8% of the international car sales. Out of this Germany alone holds 21.35% share of the car sales. In US the German export comprises around 205 followed with spare parts another few percentages. Immigration has divided societies and creating repulsive government election mindset.

The article 5 of NATO is the key to be protected which is under the Threat of Trump. Article 5 is an article which was activated during 9/11 which states that when any country is threatened then the defense of other countries would fight against that threat. Even in case of Syria and the Ukraine matter article 5 was activated. Now I hope who will get the most benefit if US breaks the NATO or reduces its funding. Trump is actually favoring Russia who is looking for fragmented Euro-zone as Putin wants to have the revenge of breaking his USSR during his times.  The political revenge is more polite compared to personal revenge as the later destroys economies over the long term. The depth of Friendship of  Trump and Putin will be tested in NATO  conference to be held in July. Now if the defense goes for toss then EU will find fruits like Brexit.

Don’t forget that US is focused towards increasing the budget and meeting the target of other nations of NATO towards defense. Since if defense spending goes up US arms and ammunition deals would go up. There has been a revision in the U.S. weapons export policy also and it has been done keeping the long-term growth derived from NATO. Well, Trade barriers and other things are just threat to get more buyers of defense equipment and investments into US economy. NATO is just growth model for the US economy now.

Some of the data relating to US Arm Demand in relation to different countries. This will get an idea of how much NATO is important to US economy and how they will bargain with other countries to increase spending:

• The Trump Administration notified Congress of $82.2 billion in offers for new major arms sales in 2017. This was an increase from the last year of the Obama administration when offers totaled $76.5 billion.
• The top six recipients of U.S. arms sales notifications in 2017 were in order Saudi Arabia, Poland, Japan, Canada, Romania, and Bahrain.
• The Trump Administration favored major arms deals of missiles and bombs in 2017 over other categories of weapons.
• Saudi Arabia and U.A.E. received around $659 million in weapons for likely use in combat operations in Yemen.
• A total 25 countries were slated to receive major firearms sales in 2017, including Bahrain, Honduras, Ukraine, and Turkey.
• The Trump Administration proposed a total of 16 major arms deals that would support the manufacturing of arms abroad

The top ten recipients of U.S. arms sales notifications in 2017 were, in order, Saudi Arabia, Poland, Japan, Canada, Romania, Bahrain, Australia, United Kingdom, United Arab Emirates, Greece, and Singapore (see Table 1 below). This was in part due to the fact that one major deal can have a major impact on a country’s rank and many countries do not engage in major deals in consecutive years.

The above data reflects that US is looking ahead for increasing the defense spending by other countries since some of the countries may not repeat the same order demand. This is the key reason for NATO to be squeezed by Trump.

US trade war and the way the G7 summit ended speaks enough for the upcoming problems for the EU. NATO is the next threat for the global economy. Mr. Trump currently himself is the WORLD TRADE CENTRE designing policies across the globe. Defense spending is under big question mark and US contributes around 22% of the NATO Allianz common funding which is spent on projects like military readiness, join exercise and initiatives to counter cyber warfare. It’s responsible for 70% of the total defense spending among alliances. Trump will be negotiating and would threaten to cut down expenses if trade balances are not reversed. This situation would be turning into a nightmare for the EU as, without much support of US, the recent immigration might turn out is a disaster. If US soldiers are removed from EU then Merkel and the whole of EU will get broken.

Merkel is focusing on creating Bilateral and unilateral trade deals as she can see in the long distance that EU will be broken due to the wrong decision of getting immigration policy adopted and implanted by her. The bilateral and unilateral trade deals would protect even in case of a referendum where Brexit type of things happens in the long term. All it can be said she is trying to keep the EU intact despite whatever happens. Further, as EU and China are developing bilateral trades Trump is bound to react at the NATO summit.  He will create policies to impact trade and tariffs across the EU unless they reduce their love towards China.

Global GDP and investments are going to face more problems as every economy is on the verge of collapse due to macro and unstable government policies. We are all preparing for some collapse in the year 2019 and the recipe is being cooked now.

GLOBAL ECONOMIC SLOWDOWN IN H2 2018....

2018 H2 seems to be a tough time for the global economy. Slowdown seeds have been sown and the fruits are getting ready. Europe is completely into the doldrums. Brexit battle followed with Italy having a very inexperienced government followed with Germany struggling with its own government stability has just amplified the economic slowdown. Angela Merkel’s coalition partners – the Christian Social Union (CSU) is creating an immense problem for her stability. We have Donald Trump as topping over the ice of slowdown where his trade policies irrespective of what percentage of they contribute to his economy is already affecting productions of other countries. Germany is under very much under the nightmare of losing its most valuable market US.

China is under immense slowdown and it is busy is saving the global and Asian economy form another major recession.  Shadow banking ghost is being now slaughtered by the Chinese monetary and government therapist. Their economy is now under immense pressure externally as well as internally.  Bond issuance cancellation by China has grown significantly, April-47 billion yuan and in March 47.4 Billion. The combined debt of China which includes borrowing via loans and bond issuance is 13.2 trillion Yuan which is US$2.1 trillion as of March 2018. Please don’t compare the debt with other economies since every economy has its own macro dynamics ruling the same.

Investment in China has taken a massive blow and almost low to the 1990 levels. This means consumer segment will face slow down and manufacturing has already taken a setback. Banks are reluctant to fund and business loans have dried up. Cleaning the books of China was a good idea but Donald has turned that into a nightmare with its trade war and restriction of Chinese companies taking up stake and investments in the US. IPR has become a big threat and copy based economic growth of China now seems to be a difficult game.  Chinese companies shave to pay 2.7 trillion yuan of bonds and in the offshore segment during 2^nd half of FY-18 they have to pay another 3.3 trllion yuan of trust product sets which are about to mature in the second half of the calendar year 2018. The global currency will be under immense threat of volatility. The corporate debt to GDP of China is 167% which is significant threat currently after Donald trump trade war. Always remember when manufacturing happen flow of capital keeps moving but when goods start getting dumped at ones warehouse things becomes difficult. China is focusing on de-leveraging the economy and that will come at a huge cost for the economy. Chinese banks are also under pressure of holding around 4.1 trillion yuan of bonds and govt is chasing the banks to offload and reduce the exposure. Shadow banking is under elimination but it will come at a cost for the Asian economy since the slowdown in China will affect other major economies too.

Brexit has created a threat for the other countries as the difference of opinion and unity of EU is broken which is a big threat for EU as a whole. Russia and U.S both are keen to exploit and find resources to turn things and rule within the EU economy. EU is broken and the pain is being heard very lightly currently as all focus is on the Donald Trumph trade war.

Trade war and protection policies will spook inflation and also slow down investments which leads to cut down on consumption pattern on the global landscape.  Commodity prices are already increasing and trade barriers would create massive volatility of the prices which will erode the profits. Zero interest rates days are over and whatever wage the US citizens got are on the way of depletion as higher borrowing cost eats up.  Global interest rates are scaling up and fragile manufacturing and trade outlook leads consumers to be on the sidelines.

The trust factor and no proper outlook of the different economies keep investors under immense pressure. Scaling up of interest rate spooks liquidation of risky assets and flight towards safer assets. 2018 end and beginning of 2019 would be massive slowdown phase keeping the global economic scenario in mind as developed currently. Asian bond market will need soon support as trillion of bonds are about to mature and repayment is tough game. The irony of bond issuance have been that bond buyers dont know what type of complex hybrid bonds have been issued.  Well very soon the world will come to know once the default happens.

ARTIFICIAL INTELLIGENCE ...DRIVEN BALANCED SCORE-CARD

Finally, a dream has come true where humans will be replaced by machines or technology. Everyone has watched Star Trek serial which used to be a fascination of a different world.  We have now originally created the same but are we creating a sustainable economic growth and social development. Today I will depict one of the tools of strategic cost management called Balanced Scorecard and its relative measure of the technological advancement and its link with the same. The motive behind this short article is that we need AI driven Balance Score Card Approach.

Balance scorecard and technology-driven process need a quick look at how they are getting linked to each other or there is some gap between the same.  Balanced scorecard 4 principles need to be aligned well with changing technological innovation in the long term otherwise organizational imbalances will emerge as one of the key bottlenecks for long-term sustainable business.

Artificial intelligence is the new era of the global economy.  Automated process and negligible human interference lead to a significant drop in human labor and more efficiency in the business process and cost management. Does this mean that cost management and traditional costing methods and strategies are getting obsolete and new strategies are transforming the same into AI or Blockchain based strategies? The global economy is adopting Blockchain and AI in much faster pace as compared to the previous decade of the Internet revolution.

Efficiency in process and system cannot be achieved alone based on IT. IOT helps in improving the efficiency of the humans and of the organization. It leads to a substantial jump in the learning curve and also in customer satisfaction and improving the financials of the companies who are using IOT to improve the values.  A perfect match of Balanced scorecard but where does this Balances scorecard 4 pillars fit when we remove or replace humans and just focus on creating robotic and AI-based systems.

Cost management and Technology helped the societies across the world to develop and grow and prosper into a much-advanced civilization. Now in the current or upcoming decade, we are witnessing trends of cost management leads to zero marginal cost of production followed with advanced technology replacing human manpower. Cost management has been able to resolve the issue of getting prices lower so that equal participation could happen from the society is achieving the balance of living standard.  This is one of the key principle benefits of the subject, but with the advancement of technology and now AI and other modes which are taking over the traditional practices would spook imbalances in many fronts. Unemployment is the key fruit of AI and Block Chain. I will keep IOT out of the thing as this helps to build efficiency in accordance with the principles of the Balanced Scorecard.

Now the biggest questions are the will AI or Blockchain will be able to adhere to the principles of Balanced Score Card. Operational efficiency might grow but with massive technology changes, the investment risk remains always high. Human manpower combined with Technology is the best since human cost investment is limited whereas technology-driven process would be high-cost extensive matter as technology changes faster than one changes his dress.

Now Blockchain or AI should be implemented but with a combination of humans too. Operational efficiency maintenance through technology is huge cost initiative hence complete dependence on the same would be a problem for the long term since technology investments is not constant like human cost where the cost remains the same with an abundant supply of skills and labor.

Customer satisfaction which is one of the key pillars of Balanced Scorecard is the prime focus of the emerging economies but they are forgetting that easy money investments days in return of negative ROI is going to end soon. Once the easy money comes to an end and ROI is being demanded the investments in technology would decline and that’s the place where again one has to start the with human labor.

 The learning curve is just declining due to AI and another technological advancement where humans are involved is negligible.  Human’s involvement plays a pivotal role in developing the future technology based on the customer interaction. Feedback process and one-time interaction is highly required to develop the future growth strategy. Big data analytics are being deployed to find a pattern of customer consumption patterns and in other areas but one should remember nothing is constant hence consumer pattern change would be faster by the time the data-driven product development hits the ground. The simple formula to save oneself is developing a rapid system of identification of upcoming changes rather than past data analysis.  The learning curve over here needs to assemble with humans and not with only robotics and algorithm-based system.

The prime aim of cost management as a subject has been to develop efficient products for the mass and social development of an economy through a judicious mix of human manpower and technology. But capitalist mindset is all set to eliminate the growth the society and only focused towards a collective growth of capital. AI or Blockchain should improve the expertise of the human and society. The learning curve should not be compromised at any point of time. We need an AI-based balance scorecard approach.

SMARTPHONE FRAUDS...BILLION LOST TO ECONOMY

The economic loss due to financial frauds is multifold and not restricted to any country or family. Where a family suffers financial loss due to online frauds, an economy and insurance companies also face the same. One of the most interesting parts of studying this subject is that individual loss could boil down to an economic loss when that family due to financial loss degrades the middle-class family just below the poverty line or below the poverty line.  This subject and aspect are often ignored in a financial fraud based economic loss. Fraud from Banks and other places creates a big hole in the pocket which effects consumptions of an economy in the long term. This subject is quite ignored but when taken on cumulative basis the affect could be multiford.  The income inequality widens and creates a multifold problem for the family or for the society at large over the period of time. One fraud can convert a golden spoon into bronze one.

Coming to India we find  Public Sector Banks in India lost at least 227.43 billion (Rs 22,743 crore) owing to fraudulent banking activities between 2012 and 2016, according to an IIM-Bangalore study. This was recently informed by Electronics and Information-technology minister Ravi Shankar Prasad in the Parliament, citing Reserve Bank of India (RBI) data.  

Prasad said there have been over 25,600 cases of banking fraud, worth Rs 1.79 billion up to December 21 last year. According to data released by the apex bank for the first nine months of FY17, approximately 455 cases of fraud transactions - each of Rs 1,00,000 or above - were detected at ICICI Bank; 429 at State Bank of India, 244 at Standard Chartered Bank and 237 at HDFC Bank.  

Hence being cashless can lead you to be really cashless. Cloning of data is one of the fastest and silent ways of hacking and stealing financial information. Many articles have been written on various online frauds and scams. Now among the thousand articles I have come up with some real experience and so new but common smartphone based scams which are duping the customers. Online frauds have been a most known topic but what about online financial scams through smartphones. It's not restricted to any country as of now. Recently around  148 MILLION U.S. consumers were put at risk for identity theft last year when their sensitive financial data—including Social Security numbers and credit card and driver’s license information—was hacked in a data breach at the credit reporting company Equifax. Every website is secured until its breached.

Smartphones are really smart for the crime world and particularly for the hackers.  Financial Transactions comes up with OTP which is further autosaved and not being executed manually. It does not ease of doing business. Please don’t place everything on the shoulders of the technological advancements and innovation. Certain things need to be manual so that hackers could be kept away.

Recently many of us might have received SIM card swap option. One of the most deadly and the funniest part is that in case you want to block the sim it takes time and also mobile operators in case of pre-paid connection fail miserably to provide you any proof of the number is under your name. Yes, Post Paid we get statements and documents but what about pre-paid. Does this mean that Pre-paid people are of no value? Remember most of the misuse of sim card related issues happen in Pre-paid phones. 

Many of us have recently started getting sms text followed with links to online shopping or financial investments or asking to upload personal details like adhar and pan card. Well these text sms based online links are all cloned websites smartly created to fool people. If you click on the link in the text directly, the scam artist may be able to install malware that can collect personal information (account numbers, passwords, etc.) from your phone. Mostly all phones we have e-commerce apps and we have all our credit card or debit card and bank account details auto saved. This is the key data which they easily get once you click on these offers. The phone call based scam has become old since with the stupendous growth in the last couple of years. Scammers are so smart that the caller ID might show the call is ostensibly from a bank, creditor, insurance company, or government agency. Investments related frauds can be executed in the same way just by cloning the websites. SMS and texting are one of the most critical baits for the online scammers. Every financial app or website is secured but when a breach happens only Gods know who hardly speaks.

I think Harvard University should open and deploy these hackers to create some good stuff for the benefit of the society rather being a scammer.

Swiping at shops and petrol pumps has become riskier. Reason being is that nowadays most banks have turned to payment cards where data is embedded in a small chip, rather than on a magnetic strip. This chip is the data provider to the scammer. Enter the “shimmer,” a thin card-sized gadget that con artists install on machines at various swiping points or gas pumps. These “shims” contain a microchip that can read and transmit information from your card. Though your chip card cannot be cloned in the same way that a strip card can, bad guys can glean enough information to make purchases using the extracted data.We are often surprised how my data of cards got lost. Well, next time look before you leap.

Pop based online virus attack and vendor connection are new in the breed where your computer freezes, and you get an ominous pop-up telling you to immediately call this number for Apple, Dell, HP, or Microsoft. When you do, you’re connected to a “technician” who informs you that your computer has a virus and all of your files are at risk. It seems legitimate and terrifying. The tech guy might ask for remote access to your device, then guide you through some diagnostic tests where you can see “proof” that there’s a problem—when in fact there’s none. Such ploys are convincing enough that countless people have turned over credit card information to pay for unnecessary “repairs.”  They even install malware and keep a track of your computer always when you are online where you never come to know about the same.

 These segments are growing up like anything. It's better to remember the numbers in mind or save somewhere else where next time it becomes handy but not auto-saved. Autosaved and freeing our memory have become the most important bait for the online fraud people and scammers.

Most people travel during holidays with families. Booking online tickets from pop up website is a big risk. Better to buy the same from the original website. Often AI and big data analytics capture the searches of our online shopping. We occasionally click on the same to browse further. This is the place of hackers were a cloned website can make huge shopping at your expense may not be immediate but obviously in the near future. Cheap and lucrative offers need to check before blindly getting into same. Facebook likes are also often used and framed by the hackers. Blindly liking post can be dangerous since the cloning of websites could be of great risk.

Online frauds have also taken a step higher than the ones who protect the system. We should avoid all these traps. Financial frauds happen only when you save the data and you don’t take a proper risk assessment. Many of us think that scam happens to rich people. Well, scam always happens to people who are on the roads and not in high rise skyscrapers. Online savings of data and swiping at any places should be avoided. The global economy faces a huge threat from the growing cashless economy.