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  1. 1. COVER STORY Sovereign Debt Crisis Ripple Effect on the Global Economy? Even as the world economy is recovering from a meltdown, a sovereign debt crisis threatens to send it into turmoil again. Rising concerns over sovereign debt underline the need for credible fiscal adjustment by troubled governments sooner rather than later. 22 | March 2010 | | Chartered Financial Analyst | Analyst_Mar_2010.pmd 22 3/23/2010, 11:03 AM
  2. 2. Sovereign Debt Crisis W henever the world economy adopted in the wake of financial crisis faces financial crises, social and neglected fiscal reforms during the unrest or the boom-bust boom years. There is a growing concern cycles of commodities, there is charac- about the risks related to western teristically a wave of sovereign de- economies debt burdens as political as- faults. It is no different this time too. In surance to curb spiraling debt remains the process of settling the dust from the in doubt. At this juncture, a sovereign great financial crisis, a new risk has debt default somewhere in the world emerged—skyrocketing government could be a potential force and cause the debt around the world. The deep global feathering global recovery to stagger. recession and massive fiscal pumping Economists warn that even if developed have put significant strain on the fiscal nations avoid outright default, their deficits of the US, Europe, Japan and credit ratings could be slashed which re- some emerging economies. Some of sult in raising borrowing and intensify- them are facing the government debt to ing economic underperformance. GDP ratio double-digit levels, leading Financial woes in Dubai and Greece to sovereign risk pressures due to fear may be just a harbinger of other stories that the unsound fiscal imbalances which might unfold later in 2010. The could prompt a crisis similar to the recent credit ratings downgrades and 1982 Mexican debt crisis. In the past, debt auction failures in the UK, Greece, some countries like Spain and Austria Ireland and Spain warn that unless de- learnt their lessons, but countries like veloped economies start to put their fis- Argentina are yet to learn. cal houses in order, investors and rating Statistics indicate that sovereign agencies would probably turn from debts have totaled more than $35 tn friends to enemies. Feeble economic re- worldwide, with the debt-to-GDP ratio covery and ageing population is likely to hitting a record high. Major economies increase the debt burden in Japan, the include the US, the UK, Germany and US and the UK and several other France facing record debt due to large Eurozone countries in the coming days. aggregates in their public debts. Mean- According to IMF recent report, public while, credit rating agencies cut the debt in advanced G20 economies will sovereign debt rating for Mexico, rise from 78% of GDP in 2007 to 118% Greece, Portugal and Spain after the in 2014. It suggests that even faster Dubai government abruptly announced growth would help slow the rise in debt its plan to delay debt payments in No- but would not break it, underscoring the vember 2009. Fitch Ratings assert that need for increased taxes and reduced “the extraordinary sovereign interven- discretionary spending. Accordingly, tion and support for the financial sec- sustaining growth should remain top tor, as well as fiscal stimulus packages priority if they want to break the debt and the severity of the recession, have spiral. weakened high-grade sovereign credit profiles, making 2010 a tough year for New phase of global crisis governments throughout the world.” Greece is at the center of the sovereign Financial crisis combined with se- debt crisis. Global slowdown has made vere economic recession, worsened the the difficulties of the euro become more fiscal position of many western econo- prominent, particularly for the periph- mies because of stimulus packages and eral areas of the 16-nation Eurozone lower tax revenues to support the finan- countries including Portugal, Ireland, cial sector. Skyrocketing government Italy, Greece and Spain. After Greece debt is promoting calls for stimulus joined the EU and adopted the euro in withdrawal. In fact, it is not stimulus 2001, it went on a borrowing binge. spending, falling output is the main When bond rating agencies downgraded cause of wider fiscal deficit in many the country’s debt in December 2009, it western countries. The impact is even was running a budget deficit amounting severe in countries with fiscal structure to 12.7% of GDP which is higher than problems, loose monetary policies that of Spain and twice the Eurozone | Chartered Financial Analyst | | March 2010 | 23 Analyst_Mar_2010.pmd 23 3/23/2010, 11:03 AM
  3. 3. Cover Story  Andrew K P Leung* “While the risks of unsustainable debt levels are there, whether they would lead to full-fledged sovereign debt crises in 2010 depends on how far and how long the bigger Western economies continue to turn a blind eye to these risks.” In reaction to the financial crisis, many countries have put themselves at and other ‘unallocated derivatives’. That’s a lot of the risk of overextending their fiscal positions and being burdened with deleveraging to do in a short time. extremely high levels of debt. How do you view the global economic What is worrying is that in the aftermath of the current recovery fueled by unsustainable amounts of spending in China, the US, financial crisis, the real deleveraging may start later. the UK, and literally everywhere? While any economic recovery is still fragile and consumer As stock markets around the world at least seem to be stabi- confidence remains anaemic, banks are extremely cau- lizing and economic sentiments less dire, there is a risk of a tious with lending notwithstanding an abundance of gov- slightly self-congratulatory sense of relief. That somehow the ernment-provided liquidity. Meanwhile, governments are worst of this tsunami of a global financial crisis didn’t quite politically impotent to impose strong medicine and in- happen. That we have learnt from the past and have ‘gotten stead try to pump-prime economies with more public smarter’. spending and even more liquidity turned on by the money Well, McKinsey Global Institute has just published a re- printing press. The more anodyne name, Quantitative port pouring a sobering quantity of cold water on such smug- Easing (QE) is of course preferred. While all this is going ness (Deleveraging: Now the Hard Part, McKinsey Quarterly, on, fiscal deficit of the United States jumped from 3.2% of January 2010). Looking at past financial crises, there is a GDP in 2008 to 10.0% in 2009; in the euro area, from 1.9% 10-year historical trend in the build-up of the ratio of debt to of GDP to 6.9%; in the UK from 5.5% to 11.9%; and in GDP, followed by one to two years of economic downturn as Japan from 6.9% to 9.1%. leverage continues. Then a period of two to three more years This time around, for a change, the Emerging Markets, of economic downturn sets in as deleveraging begins in ear- China and India, in particular, may help a little to cushion nest. While deleveraging is taking its course, what follows is the pain of the world economy (Nomura Global Economics, a period of economic rebounce as GDP growth picks up while 2010 Global Economic Outlook – A Tale of Two Recoveries, the debt ratio is gradually restored to normal levels. December 16, 2009). However, China is extremely wary of The need for sobriety was heralded in an earlier paper her own asset bubbles created by overlending. She is “The Aftermath of Financial Crisis” by Carmen Reinhart treading a tightrope balancing between pushing growth for and Kenneth Rogoff, which was presented at the American her needed 20 million extra jobs a year and overheating. Economic Association meetings in San Francisco, January 3, Her own consumption growth is picking up rapidly. But it 2009. This shows the aftermath of severe financial crises is would still take years before she manages to rebalance her usually characterized by deep and lasting effects on asset continental-sized economy away from export-led growth prices, employment and output. Housing price drops and prone to external shocks. But above all, the emerging mar- rises in unemployment extend over five and six years respec- kets can’t help much with the process of deleveraging. It tively, although output declines last only two years on aver- seems that before champagnes are opened, there is a great age. The end of recessions sparked by financial crisis is al- deal more bitter medicine to be swallowed, and for a fairly most invariably accompanied by massive increases in gov- long time. ernment debt. Do you subscribe to the notion that the global financial system remains The above analyses show that after a major financial fragile with sovereign debt posing a risk to markets and substantial crisis, the subsequent recession could last three to five losses expected from commercial real estate? years while the whole deleveraging process could be long In The Coming Sovereign Debt Crisis, published in Forbes on and painful, taking from six to eight years. Against an January 14, 2010, Nouriel Roubini, the New York University estimated global GDP of about $50 tn, the Bank for Inter- economics professor and co-author Arpitha Bykere , sounded a national Settlements in Basel, Switzerland is reported to characteristic warning bell. The global downturn hit the tax have quoted a global derivatives market of $1.144 qua- revenues of several developed nations hard, at a time when drillion in the current financial crisis, taking into account they are spending billions on stimulus and financial sector the full range of instruments including listed and Over- bailouts. Unemployment remains high and their ageing popu- the-Counter (OTC) credit derivatives, interest rate de- lation profiles continue to put pressure on government bud- rivatives, credit default swaps, foreign exchange deriva- gets. The authors argue that if countries should continue with tives, commodity derivatives, equity-linked derivatives loose fiscal and monetary policies to support growth instead of 24 | March 2010 | | Chartered Financial Analyst | Analyst_Mar_2010.pmd 24 3/23/2010, 11:03 AM
  4. 4. Sovereign Debt Crisis focusing on fiscal consolidation, government debt will be implementing vigorous austerity programs. growing so high that investors may stop buying the bonds Even if we assume that the International Monetary Fund issued by some countries. UK, Spain, Greece and Ireland are would simply stand by with folded arms to allow some facing sovereign risk pressures, if their fiscal imbalances are smaller countries to fail, it is unlikely to snowball into a not addressed immediately. These clarion calls are echoed in global meltdown provided the bigger countries start vigor- The World Economic Forum’s Global Risk Report, also pub- ously to put their own houses in order. lished on the same date, which warned that in the final analy- Countries like Greece, the UK and Germany are a tip of the iceberg and sis, unsustainable debt levels could lead to full-fledged sover- are struggling to find a self-sustaining recovery? Elucidate. eign debt crises. Greece, Ireland and to a similar extent, Spain, all have I am not certain whether commercial real estate losses overextended themselves with loose money policies feeding would be the trigger of another financial crisis. But with high into a collapsing property bubble. At the same time, all are vacancy rates due to the weak economy and with property trying to rescue their economies from the financial crisis loan books sustained at historically low interest rates, any when government revenues are hit hard by the economic upturn in the interest-rate cycle fueled by rising fears of infla- downturn. In the case of Greece, her debts are forecast to tion runs the risks of a domino-style collapse across the whole rise to 120% of GDP in 2010. Similar predicaments are spectrum of property asset classes. shared by some of the bigger countries like the UK, whose Do you think that government’s unprecedented programs like fiscal and debt is forecast to rise to 100% of GDP this year. monetary support have come at the cost of significant increase of risk to Germany has fared better as public and private bor- sovereign balance sheets and a consequent increase in sovereign debt rowings have been less cavalier. Moreover, falls in her burdens that raise risks for financial stability? consumption sector including cars are offset by healthy It seems that a kind of Keynesian fundamentalism has been gains in her exports of machinery, largely to China. Never- doing the rounds in the early responses to the financial crisis. theless, ZEW, the Germany-based Centre for European But once started, and the economy is still not out of the woods, Economic Research, expects any recovery would be a long it is politically difficult to stop, particularly in face of looming hard slog. elections. There are obvious danger signs ahead but govern- All of these countries need to rethink their economic ments largely remain in denial, at least overtly, for the time models in the interest of long-term sustainability. Rather being. than depending on the financial, consumption and prop- How far unsustainable debt levels in nations around the world could erty sectors, more attention will have to be given to high- lead to full-fledged sovereign debt crises in 2010? Will growing govern- end manufacturing, science, technology, innovation and ment debt force a default in Japan? creativity that stay several steps ahead of the game set First and foremost is the United States, by far the largest by mass producing manufacturing powerhouses like economy in the world and the issuer of the world’s leading China. Additionally, all have to improve the productivity reserve currency. Although the medium-term outlook of the of their public sector rather than focusing mainly on how greenback continues to be gloomy, what Paul Krugman calls much will be spent on what in order to please the voters. the US Dollar Trap suggests there are hardly any markedly According to you what are the government’s likely policy options safer and better alternatives. Nevertheless, while the risk of available to minimize the implications of ballooning sovereign debt? a US sovereign default remains rather slim, there may come Politicians have to be upfront with their electorates that a a point when the US dollar may appear increasingly unat- painful belt-tightening is in order for a few more years tractive with low interest yields and a declining exchange rather than continuing to inebriate fiscal prudence with rate. When more and more of the bigger funds and central the drug of easy money. This candidness needs to be banks are gradually diversifying away from the greenback, matched by a credible program of national economic re- this may trigger a potentially destabilizing spiral, if not an structuring to confront the paradigm shifts in the 21st cen- immediate stampede, that could affect confidence in tury, not by resorting to defeatist protectionism however smaller problematic countries by contagion. nuanced, but by harnessing the ingenuity, resourcefulness, A similar worry applies to the UK economy and the Brit- and competitiveness of their peoples. ish pound. Although the UK’s prospects seem bleaker, a Jared Diamond has a salutary tale to tell in his inter- tightening about-turn is very much on the cards, especially esting book about lost civilizations entitled Collapse, How following the coming General Election in May. Japan, as the Societies Choose to Fail or Succeed (Penguin Books, 2009). A second largest economy for the time being, is still a net comparison of the lack of foresight of the Greenland Norse saver, backed up by over $1 tn in the world’s second largest settlers and the ingenuity of the native Inuit is instructive. foreign currency reserve. China, set to overtake Japan’s The story of survival, adaptation and transformation is as economy this year, is rebouncing with relatively enviable relevant for the sustainability of past civilizations as for growth rates with very low debt levels. She is deeply con- the modern zeitgeist of the 21st century. cerned about the domestic risks of over-liquidity and is al- ready reining in the credit flow. Smaller countries like * Chairman, Greece and Ireland remain highly wobbly but both are Andrew Leung International Consultants Limited, London | Chartered Financial Analyst | | March 2010 | 25 Analyst_Mar_2010.pmd 25 3/23/2010, 11:03 AM
  5. 5. Cover Story average. Portugal budget deficit has and stifle global growth as weaker deficit internally. Analysts say, “this is peaked substantially higher than previ- Eurozone members will throw the world the key reason why Japan gets away ously forecast at 9% of GDP, while economy into a ‘double-dip’ recession. with paying only 1.3% on their 10-year Spain’s deficit for 2009 will be 11.4%. bonds when other large OECD countries The skyrocketing debt of these na- Island’s debt at risk must pay 3-4% to attract investors.” tions is raising questions about the vi- Though markets are nervous about Like Japan, India has a high govern- ability of the euro itself. There is in- holding the sovereign debt of the ment debt to GDP ratio of 75%, but it is creasing public speculation that the 11- smaller Eurozone members, these prob- financed almost entirely from domestic year-old currency could collapse under lems should prove manageable if the funds given its high savings. However, the pressure of the economic and finan- region continues to recover. However, JPMorgan Chase Analyst Masaaki cial crisis. The Greece sovereign debt among the major economies, Japan of- Kanno in Tokyo says that “Japanese crisis has stoked worries about EU fers the greatest source for worry in the bonds are in a bubble that could pop in members with high debt levels, particu- near future. Though Greece is just the the next three to five years, as savings larly Portugal, which is now sufferinga starter of the debt crisis, Japan is the rates drop. Even if the government can political crisis, in what one pundit fan- cifully called another round of Eurozone sovereign debt whack-a-mole. The prob- Amidst pan-European debt spiral, there are lem is even more for trading nations like Canada, a major producer and ex- reigniting fears that the US could be next and there porter of commodities as their price is no easy way out from debt crisis. movements have a big impact on nomi- nal GDP and government revenues. Analysts ponder that these countries’ first country to feel the pinch as the somehow keep borrowing at a 1.4% in- budget deficit issues concern more fun- debt-to-GDP ratio has grown from 65% terest rate, interest expense will rise to damental economic problems that in the early 1990s to over 200% now, the roughly $200 bn by 2019, or 45% of gov- could jeopardize the future of the euro highest among advanced economies. ernment revenue, unless it pushes The IMF expects Japan’s gross public through a big increase in the national 2010 Projected Sovereign Debt debt to reach 227% of GDP in 2010 and value-added tax.” However, those rates Issuance warned that market concerns over fiscal are unlikely to hold as the Japanese gov- sustainability and political uncertainty ernment has been able to replace bonds have led to a widening of credit default paying as much as 7% interest with Rest of the world 19% swap spreads. steadily lower-rate debt over the years. India 3% Japan’s debt burden is a legacy of China 3% United States massive government spending in the Is the US next? France 4% 45% 1990s after the asset bubble burst Amidst pan-European debt spiral, 4% which led to a decade of stagnation. In there are reigniting fears that the US Spain 5% 6% the recent past, rising ageing popula- could be next and there is no easy way 11% Germany tion have added considerably to the out from debt crisis. The Congressional UK debt burden. Fortunately, Japan has Budget Office (CBO) forecasts a whop- Japan almost no foreign currency-dominated ping $1.6 tn deficit this year, which debt obligation as the high savings rate would come to 10.6% of GDP, the worst has allowed governments to finance the in modern times. Just like other devel- 26 | March 2010 | | Chartered Financial Analyst | Analyst_Mar_2010.pmd 26 3/23/2010, 11:03 AM
  6. 6. Mc Graw Hill | Chartered Financial Analyst | | March 2010 | 27 Analyst_Mar_2010.pmd 27 3/23/2010, 11:03 AM
  7. 7. Cover Story  Lihong Zhu *  Lynn E Dellenbarger** In reaction to the financial crisis, many countries have put themselves at Since Obama and the other G8 countries disbanded and now the risk of overextending their fiscal positions and being burdened with only deal with a G20 annual meeting that is some indication extremely high levels of debt. How do you view the global economic as to how dependent the G8 countries have become to the un- recovery fueled by unsustainable amounts of spending in China, the US, developed world. The US and EU and Japan need the undevel- the UK, and literally everywhere? oped world’s goods, services and food to continue. If one looks at China and the US, they are now cutting back on How far unsustainable debt levels in nations around the world could making loans. The stimulus money for consumers to purchase lead to full-fledged sovereign debt crises in 2010? Will growing govern- new cars in the US has come to an end and the loan mortgage ment debt force a default in Japan? bailout is also ending. The debt level in the US was recently To see how far unsustainable debts levels are, all one needs to raised by $1.9 tn and instead of new stimulus money going do is look to Dubai had to be bailed out. Countries are trying to into the US economy the US Federal government is coming cut back but revenues continue to fall. Obama is capping gov- under increasing pressure to deal with the large budget deficit ernment programs in the US and will cap what they can that keeps rising. One needs to realize, even with the global spend. Stimulus money will become more scarce globally. The financial crisis both China’s and India’s economy still grew. other countries could not allow Dubai become insolvent and China’s economy is currently growing at 10%. The US economy they cannot let Japan either. It would cause a major global in the 4th Quarter, 2009 grew at a 5% rate but one must realize meltdown if the number 2 economy in the world defaulted. The that was with a much smaller economy than before the finan- other countries would have to bailout Japan putting more cial crisis. Brazil did fine in the financial crisis since a large pressure on their economies. portion of their economy is agriculture and people still have to Countries like Greece, the UK and Germany are a tip of the iceberg and eat. People can cut back on the goods and services they buy but are struggling to find a self-sustaining recovery? Elucidate. can cut back very little on the amount of food they eat. With the One needs to realize that Greece, the UK and Germany belong financial crisis, the number of people going on diets may have to the European Union (EU). They get tariff breaks in selling risen as they cut back financially. In the US, banks are raising to other EU countries which helps them export their goods. interest rates they charge their customers which means the China has now surpassed Germany in the amount of exports consumer will have less money to make purchases with and they sell. The EU can bail out the member countries and pro- that will also aid in slowing down the recovery since they will vide trade incentives to them to help their economies. The EU be buying fewer goods and services. member countries could actually help themselves by further- Do you subscribe to the notion that the global financial system remains ing trade amongst themselves. The EU could also add fragile with sovereign debt posing a risk to markets and substantial Ukraine to their membership opening new markets. They losses expected from commercial real estate? have rail service all the way to Asia and that is a booming area We agree that the global financial markets are fragile but the globally now with 60% of the world market being there. world needs to be divided in looking at commercial real estate. According to you what are the government’s likely policy options avail- During the global financial crisis, Chinese citizens came to the able to minimize the implications of ballooning sovereign debt? US buying up the cheap property after the housing collapse. Governments are going to need to raise taxes on households Other country citizens did the same thing: buy cheap US real and freeze government department budgets. If the govern- estate. Now with the US economy starting to rebound invest- ments raise taxes, they can pay down the debt and also hire ing in property may be a wise financial buy as property values more workers which would have a multiplier effect on the are starting to rise again. China on the other hand, may have a economy. If the countries don’t raise taxes, they cannot con- housing bubble burst as their economy keeps booming which tinue to offer the services they offer. They will not be able to could threaten global financial markets. pay down the deficits either. China, India and Brazil are in Do you think that government’s unprecedented programs like fiscal and enviable situations in that the goods and services they pro- monetary support have come at the cost of significant increase of risk to duce are cheaper than US and EU goods and they can increase sovereign balance sheets and a consequent increase in sovereign debt exports stimulating their economies. The goods and services burdens that raise risks for financial stability? are also cheaper for their citizens. The US and EU consumers In the US, the Federal Government cannot continue with large could not buy as many products if it was not for China, India amounts of stimulus money to prop up the 10% unemploy- and Brazil and Southeast Asia with their cheaper goods. It ment rates. The deficit has become too high to continue to do will be interesting in the US how state governments deal with that. As we wrote in the paper, “The Retooling of the US the stimulus money running out and then having dwindling Economy”, this is basically the equilibrium level now. Job rainy day funds to use. growth will be part-time sector as the economy grows. There will be fewer new full-time positions now. China’s economy *Associate Professor and Head of Technical Services growing at 10% and India’s growing economy should help to Washington State University, Washington. maintain unemployment rates of about 4% for their countries. **Associate Professor Dellenbarger & Associates Los Angeles, California. 28 | March 2010 Analyst | | Chartered Financial| | March 2010 | 28 | Chartered Financial Analyst | Analyst_Mar_2010.pmd 28 3/23/2010, 11:03 AM
  8. 8. Sovereign Debt Crisis oped nations, the US government re- Stifling recovery matters squeeze liquidity and stabilize finan- sponded to the financial crisis by taking The big question that pundits are dis- cial market. Governments have to con- on the debts of banks and essentially cussing is the impact of soaring govern- stitute a feasible and reliable solution bankrupting its treasury in order to pre- ment debt on the global economy and to avoid a new round of trust crisis serve the wealth of its financial elite. more importantly, how governments from the markets regarding their capa- Now the Obama administration like around the world are likely to deal with bilities in containing deepening public the governments of Europe is demand- their fast looming debt obligations. debts. ing that the cost be borne by the general They are of the view that it is not pos- public in the form of sweeping cuts in sible to reduce that debt too quickly The road ahead basic social programs and a reduction without stifling global economic recov- Sovereign default of any nation could in consumption. ery. If the US economy witnesses a mean economic disaster as funding Many economists warned in 2009 fairly robust recovery, then the deficit sources dry up. Altogether it will lead to against the US policy of flooding finan- should go down on its own. However, significant unemployment levels as in- cial markets with cheap credit on the basis of near-zero interest rates and the electronic equivalent of printing a tril- A balanced budget is the need of the hour for lion dollars—designed to prop up the major US banks and enable them to sovereign entities to avoid a serious debt bubble record bumper profits despite double- digit unemployment. Benn Steil, Senior burst. Fellow at the Council on Foreign Rela- tions and author of Money, Markets and western economies must consolidate frastructure projects would come to a Sovereignty says: “The economy over the considerably their government spend- standstill and a social and political dis- last six months has been on a sugar ing over the next two or three years. Ian order cannot be ruled out. The tremors high. If Congress and the Obama Ad- Stewart, Director, Deloitte Research, of subprime meltdown and the collapse ministration don’t trim deficits, Ameri- UK suggests that “the ideal solution of mighty financial institutions con- cans will get to the point where credit is would be to have a credible plan to tinue to ripple through the financial much more expensive in the US than it gradually reduce that deficit over time, markets and the global economy. Gov- ever has been in the past.” Many strug- so that financial markets would be ernments poured immense amounts of gling states and local governments are convinced that it wouldn’t be a problem taxpayer funds to prevent succeeding already having trouble paying their in the future.” If this does not happen, crises. But they accomplished it at a big bills are turning to Washington for fi- governments in these countries have to price—dreadful sovereign debt hanging nancial aid. Brian Coulton, Head of glo- face large deficits and will have to com- over most of the western world and bal economics at Fitch Ratings in Lon- pete with private investors for scarce racking financial pain and feeble eco- don warns that once rock-solid econo- funds and will drive up long-term in- nomic growth. The financial crisis and mies like the US and the UK could join terest rates. A balanced budget is the resulting economic recession have cre- shakier nations like Japan and Ireland need of the hour for sovereign entities ated a more vulnerable environment in losing their ‘AAA’ ratings, if they to avoid a serious debt bubble burst. where today’s risks may become don’t get their bad habits under control. However, given record unemployment tomorrow’s crises. However, economists like Paul levels, feeble economic recovery may – N Janardhan Rao Krugman have argued that US debt re- probably prevent any drastic mea- Reference # 01M-2010-03-05-01 mains manageable at current levels. sures like mild interest rate hikes to | Chartered Financial Analyst | | March 2010 | 29 Analyst_Mar_2010.pmd 29 3/23/2010, 11:03 AM