India initiate a drab BRIC statement

BRICS Finance Ministers’ Joint Communiqué Issued at the end of Meeting in WashingtonFollowing is the text of the BRICS Finance Ministers’ Joint Communique issued at the end of the meeting in Washington, yesterday:

“We, the BRICS Finance Ministers and Central Bank Governors, met on September 22, 2011 in Washington DC, USA, amid growing concern regarding the state of the global economy.

While BRICS countries recovered quickly from the 2008-09 global financial crisis, some of us have been subject to inflationary pressures and growth prospects of all our countries have been dampened by global market instability. In advanced countries, the build up of sovereign debt and concerns regarding medium to long-term plans of fiscal adjustment are creating an uncertain environment for global growth. Also, excessive liquidity from aggressive policy actions taken by central banks to stabilize their domestic economies has been spilling over into emerging market economies, fostering excessive volatility in capital flows and commodity prices.

The immediate problem at hand is to get growth back on track in developed countries. In this context we welcome the recent fiscal package announced by USA as well as the decisions taken by Euro area countries to address financial tensions, notably by making the EFSF flexible. It is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth create jobs and reduce imbalances.

The current situation requires decisive actions. We are taking necessary steps to secure economic growth, maintain financial stability and contain inflation. We are also determined to speed up structural reform to sustain strong growth which would advance development and poverty reduction at home and benefit global growth and rebalancing. The contribution of BRICS countries and other emerging market economies to global growth is rising and will increase further. However, global rebalancing will take time and its impact may not be felt sufficiently in the short-term. We will also work to intensify trade and investment flows among our countries to build upon our synergies.

The BRICS are open to consider making additional efforts in working with other countries and International Financial Institutions in order to address the present challenges to global financial stability, depending on individual country circumstances.

We are concerned with the slow pace of quota and governance reforms in the IMF. The implementation of the 2010 reform is lagging. We must also move ahead with the comprehensive review of the quota formula by January 2013 and the completion of the next review of quotas by January 2014. This is needed to increase the legitimacy and effectiveness of the Fund. We reiterate our support for measures to protect the voice and representation of the IMF’s poorest members. We call on the IMF to make its surveillance more integrated and evenhanded.

Multilateral Development Banks are considered by developing countries as important partners in helping them meet their long term development finance needs. In the current global economic environment, the Banks need to mobilize more resources to increase their assistance to low income and other developing countries including finding ways of expanding their lending capacity, so that development finance is not neglected.

In the face of a slowdown of global economic growth, it is necessary to maintain international policy co-operation and co-ordination. We remain committed to work with the international community, including making contributions to the G20 Cannes Action Plan consistent with national policy frameworks to ensure strong, sustainable and balanced growth. We shall work together in searching for a coordinated solution to the current challenges as we did in 2008-09.”

DSM/SS/GN
(Release ID :76189)

India to regroup BRICs, in G-20 at Washington

India Convenes meeting of BRICS Finance Ministers in Washington DC on September 22, 2011; BRICS to Coordinate in addressing the Evolving Economic And Financial Situation In The Various Countries: Says Finance Minister

The Union Finance Minister Shri Pranab Mukherjee said that India is convening a meeting of BRICS Finance Ministers in Washington DC on September 22, 2011 on the sidelines of the Fund-Bank and G-20 Meetings. The Finance Minister said that we would explore the manner in which BRICS could coordinate in addressing the evolving economic and financial situation in the various countries of the world. The Finance Minister Shri Mukherjee said that the objective of the meeting is to discuss our concerns regarding the current state of the Global Economy and our Policy Response. Shri Mukherjee said that we will discuss the progress on the report commissioned by India on the role that BRICS can play in the global economy going forward, and also our role in the international financial institutions such as IMF and the World Bank. DSM/SS (Release ID :76054)

US Debt is Gold Standard ...? Asks Neel Kashkari.

 ( PIMCO, the biggest Debt fund Managing company, has many ' super Brains'  one of its catch is Neel Kashkeri, son of Indian Kashmiri Immigrants to US.    The Blue eyed Boy, profile on P.I.M.C.O: (Mr. Kashkari is a managing director and head of new investment initiatives in the Newport Beach office. Prior to joining PIMCO in 2009, Mr. Kashkari served in the U.S. Treasury Department from 2006-2009, first as senior advisor to Secretary Henry Paulson and then as Assistant Secretary of the Treasury. In the latter role, he established and led the Office of Financial Stability and oversaw the Troubled Assets Relief Program (TARP). Before joining the Treasury Department, Mr. Kashkari was a vice president at Goldman Sachs in San Francisco, advising technology companies on financings and mergers and acquisitions. Previously, he was an aerospace engineer at TRW Corporation. He holds both bachelor's and master's degrees in engineering from the University of Illinois at Urbana-Champaign and an MBA from the Wharton School at the University of Pennsylvania)

Neel, has raised the basic question, Whether value lies in the Hands of Beholder..?

Surely, Gold is Gold, because all call it Gold and are ready to pay for it. 

The removal Gold Standard in 1972.

When President Nixon, removed Gold standard and Forced $ in.1972 .  World was put to test, by explosion in Crude prices, The $ became entrenched in international trade, as a corridor and US Bonds the prize.  The International development heaved on Crude, which remained undervalued through out 80-90's. The 'Camp David',  agreement in 1979, between Israel and Egypt cemented the ' Crude' revolt. Simultaneously, the OIL Producing nation were galvanized under the umbrella of O.P.E.C.and Monarchy's were set up in Egypt, Syria, Libya, Iraq.to counter the threat of Khomeni in Iran and also as Allies against USSR. NOW the whole Edifice is crumbling across the Middle East and Libya. The recent OPEC meeting showed the deep fissures, and soon OPEC may will have its count.

 Does all this politics have further bearing on 'Fall Of $' and vis a vis.?

Could a U.S. debt downgrade trigger a financial crisis?

We approach Treasury’s debt-ceiling deadline, attention has shifted from the risks of a default on Treasury debt to the risk of a downgrade of U.S. credit. Many are asking whether a downgrade could itself lead to a financial crisis. With the example of 2008 still fresh in many minds, the question has become: Would it be as bad as the Lehman Bros. bankruptcy?

Some market observers speculate that a downgrade would be a non-event: Japan, for example, went from a rating of AAA to AA without much drama. Others suggest that a downgrade would increase Treasury’s borrowing costs by $100 billion a year or more, making our already unsustainable deficit trajectory even worse.

There are no rules to define what is systemic and what isn’t — or to accurately predict the consequences of an economic shock. Each crisis is unique. How exactly it will affect financial markets, companies and our economy is impossible to know. Nonetheless, recent examples offer guidance.

In 2008, a number of once-cherished beliefs were turned upside down: (1) that home prices in America would never fall; (2) that AAA-rated subprime securities are sound; (3) that a major investment bank would never fail. Consumers, investors and companies allocated capital according to these truths. When the beliefs were revealed to be false, massive shocks were inflicted on the economy as financial markets rapidly adjusted to account for these new risks.

Banks had to reduce their leverage and rein in lending. Companies froze investment. Consumers cut spending and started saving. As a result, the economy plunged into recession, and millions of jobs were lost.Unemployment shot to 10 percent.

The question now is whether U.S. Treasury bonds, which anchor the global economy, really are the gold standard, the risk-free financial instruments they have been trusted to be. What will happen if that truth is revealed to be false?

Four factors in particular can help assess the magnitude of the financial impact from an undermined truth:

(1) How strongly is the belief held?

In 2008, investors around the world generally believed that major U.S. investment banks were so large they would never be allowed to fail. In the six months leading up to Lehman’s bankruptcy, however, it came under increased funding pressure and its stock price slowly collapsed. Markets were not completely convinced that the government would have the will or the ability to save Lehman; otherwise investors would have continued lending to it, as they did to Fannie Mae and Freddie Mac, which had no trouble borrowing money before they were rescued only days ahead of the Lehman bankruptcy.

By comparison, U.S. Treasurys have been defined for decades as the risk-free financial instrument throughout global financial markets. Faith in Treasurys is far stronger than it ever was in Lehman Bros. This suggests a far bigger shock than Lehman if this truth is proven false.

(2) How big an asset class does the belief support?

U.S. Treasurys are a $14 trillion market — the single biggest security market in the global economy. In comparison, Lehman had approximately $600 billion of liabilities before it failed, less than 5 percent of the size of the Treasury market. Treasurys are held by virtually all 8,000 banks in America and nearly all insurance companies, corporations, pension plans and millions of individuals’ 401(k)s. This scale suggests a far larger shock than Lehman.

(3) How wrong was the belief?

Here, Treasurys are not as bad as Lehman. Even if the U.S. credit rating is downgraded, almost no one believes we will actually default on our debt. The United States is not entering bankruptcy, and its debt is not junk. Lehman debt ultimately proved to be worth a fraction of its face value. To some, this suggests a U.S. downgrade would produce a more modest shock than Lehman. But a small deviation from a cherished belief can be as shocking as a large deviation from a weaker belief.

(4) What is the economic context in which the shock is taking place?

Although the United States is technically no longer in recession, the U.S. economy is growing slowly. Unemployment remains at 9.2 percent. Europe is awash in its own fiscal crisis, and much of the developed world is struggling. When Lehman collapsed, U.S. unemployment was at 6 percent, but the economy was contracting and housing markets were plummeting. The global economic context in September 2008 was probably worse than today, but our economy remains vulnerable.

These factors suggest that a U.S. downgrade has the potential to be as bad or perhaps worse than the Lehman shock. The more strongly held a belief, and the larger the asset class it supports, the greater the potential damage to the economy when the belief is turned upside down. We may not be certain what will happen if U.S. credit is downgraded, but there is no upside to finding out.

 ( Tip : What is a Gold Standard : The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold.-- wikipeadia.

 2) The U.S. used a gold standard from its inception in 1789 until 1971, a stretch of 182 years. In 1965--not that long ago--all major countries in the world participated in the worldwide gold standard system known as the Bretton Woods arrangement.)