A mental structure for macro-economics
1
6 Circles
5 Instruments of the ECB
5 Financial markets
Roger Jean Claessens is an International lecturer and an independent
consultant for the financial services industry.
Profe...
The purpose of the seminar
Provide you with a mental structure
The schedule of the day
Morning
 (a) The economic circuit
 (b) The economic cycles
 (c) The intervention of the Central...
The schedule of the day
Morning
- (a) The economic circuit
- (b) The economic cycles
- (c) The intervention of the Central...
This is an
economic circuit
(a) The economic circuit
Products
& Services
GNP
CONSUMERS
Salaries,
interest,
rentals
LABOUR
ENTREPRENEURS
Samuelson underlines that every economy has to answer
three basic questions:
What to produce?
Is determined by the consume...
Products
& Services
GNP
CONSUMERS
Salaries,
interest,
rentals
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
(a) The economic c...
10
€ $
What happens when you purchase a product
in the USA?
Salaries have been doubled,
what are the consequences
on the economy?
Discussion
(a) The economic circuit
(a) The economic circuit
In Samuelson’s representation, the government is
either acting as a consumer or as a company,
dep...
Products
& Services
GNP
CONSUMERS
Salaries,
interest,
rentals
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
Government Central...
GNP = C+I+G+(X-M)
The Gross National Product is equivalent to the sum
of private consumer spending (C), private
investment...
The goal of modern economic management is to keep
this circuit in balance.
There are two states of unbalance:
INFLATION = ...
You purchase one egg
daily for one Euro!
What happens if the
farmer knows that you
had a big salary
increase?
Discussion
(...
17
INFLATION
18
INFLATION
(c) The intervention of the central bank
19
20
DEFLATION
ENTREPRENEURS
(a) The economic circuit : The Entrepreneur
The economic system depends upon people.
Adam Smith pointed out that the individual
motivation, invention, and innovation ...
Market competition (the invisible hand in Adam
Smith’s terms) leads a self-interested person to wake up
in the morning, lo...
Strangely enough, we often make the statement in our
part of the world, that we have discouraged the
entrepreneurs because...
The entrepreneur is also someone who will continuously
struggle to balance flexibility and cost cutting in order to
discov...
Paul Krugman highlights how the government can
induce firms to lift productivity.
Higher productivity translates into high...
CONSUMERS
(a) The economic circuit : The Consumer
ON CONNAIT LE CONSOMMATEUR!
Keynes underlines in the mid thirties that households
are the most important component of overall demand.
Keynes appoints ...
Veblen went even further than Marshall and
encouraged economists to be more willing to meet with
sociologists, anthropolog...
Veblen made this rightful conclusion that consumers’
demand of goods is determined by the use of the good
and the price th...
How can one get a feel for the mood of both the
consumers and the entrepreneurs?
By analysing the economic indicators.
The...
Products
& Services
GNP
(b) The economic cycles
(b) The economic cycles
A fall of the GNP means that men and women will be
in a more precarious situation and that pessimism will
probably settle ...
There are 300 hundred key economic indicators
divided into 3 categories :
1. the leading indicators = upstream indices of
...
(b) The economic cycles
37
Each cycle is unique but contains enough similarities with
others to enable us to draw general conclusions.
Let us also re...
What might be indicators
around us of an economic
boom or a slow down?
(b) The economic cycles
Discussion
• Production
• employment
• productivity
• wages
• sales
• profits
• output
• credit
• investment goods
• Stock exchange
•...
 Orders
 exports / imports
 employment
 sacrificed prices
 raw materials
 intervention
 bankruptcies
 savings
 In...
The better the understanding of a situation is, the
greater the probability to take a right decision, hence the
study of t...
Markets do react to their release
Each week about 60 are released for the G 7
Monitoring is an on-going and time consuming...
Salaries,
interest,
rentals
LABOUR
(b) The economic cycles
44
The challenge of the European Union is to decrease non-
structural[1] unemployment.
[1] Structural unemployment means unem...
(1) The key economic indicators
Population, employment & unemployment
46
(1) The key economic indicators
Population, employment & unemployment
47
Products
& Services
GNP
CONSUMERS
Salaries,
interest,
rentals
LABOUR
ENTREPRENEURS
48
(b) The economic cycles
49
The economic indicators and their correlation:
1. GDP
2. Unemployment
3. Industrial production
(Source: The Economist)
...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
GNP
CONSUMERS
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
Government Central Bank
59
5 Key tools of the central bank
1. The printing of money
2. The short term interest rates
3. The fractional reserve
requir...
1- Printing money
(c) The intervention of the central bank
The question central bankers must answer is:
“What is the correct money supply level?”
The easy answer is enough to buy al...
P.Q = M.V
P = price level of goods and services
Q = quantity of goods and services produced in a
national economy (= GDP)
...
Reserve requirement of 10 out of 100
100 is deposited with Bank A
Bank A is going to deposit 10 with CB and lend 90
90 is ...
(c) The intervention of the central bank
(c) The intervention of the central bank
The preference curve of the borrowers
2- Interest rates
The preference curve of the lenders
(c) The intervention of the central bank
2- Interest rates
(c) The intervention of the central bank
The cost of borrowing and the return of a deposit
(c) The intervention of the central bank
When the perspective changes, the curve moves
Interest rate
Short term interest rate + inflation
= +/- long term interest rate
Real interest rate
= +/- nominal interest...
0
20
40
60
80
100
120
140
160
180
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Interest shares GDP Bonds
(c) The intervention of...
Money makes the economic system work.
(c) The intervention of the central bank
(c) The intervention of the central bank
3 – Fractional reserve requirement
The representation of a bank’s balance sheet
S...
(c) The intervention of the central bank
3 – Fractional reserve requirement
Commercial Bank Central Bank
%
DEPOSITSLOANS D...
(c) The intervention of the central bank
Commercial Bank Central Bank
Purchase of bonds
Euro
4 – Open market policy or “qu...
(c) The intervention of the central bank
Commercial Bank
5 – Balance sheet structure
(c) The intervention of the central bank
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
05/20
00
11/20
00
05/20
01
11/20
01
05/20
02
11/20
02
05/20
03
11/20
03
05/20
04
11/20
04
05/20
05
11/20
05
05/20
06
11/20...
The ECB’s president argues that its most
valuable asset is information, not money.82
GNP
CONSUMERS
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
Government Central Bank
About 200 years ago Adam Smith defined what, in his
view, should be the role for a government.
“First”, he said, “providin...
(d) The intervention of the government
From the end of the 19th century the economic
functions of the state developed without
interruption in almost all of the i...
The state intervenes, as a spending prone
economic agent, to improve the real or nominal
income of certain citizens.
(For ...
Keynes recommended, in addition to state intervention
resorting to budget deficits to stimulate the
economy, to spend thus...
One of the functions of the state consists in
attenuating the acute or chronic crises of
unemployment or inflation as well...
The balance of payments is a good source in this
respect.
It reveals the overall situation of the economy and
provides an ...
Trade in goods balance -20
Plus Trade in services balance 4
Plus Transfer payments 2
Plus Investment income 6
Equals CURRE...
A surplus in the overall balance will indicate a
probability of a strong and stable currency, of a healthy
economy with st...
With huge non-funded pension liabilities, European
governments will struggle to keep their budget deficits
within the limi...
The national debt is a relatively new and impressive
event.
On the positive side, a national debt undeniably allows
for in...
95
Intérêts
&
Capital
Time
The law of compounded interest
96
At 10 % p.a. =
capital & int.
Double in 7,2
years.
(e) Money and the financial markets
The art of asking questions…..
(e) Money and the financial markets
98
What might be the difference
between
those markets?
1. The money market
2. The capital market
3. The foreign exchange
mark...
The art of asking oneself questions
(e) Money and the financial markets
The market is available for financial transactions up
to one year for the professionals of the financial
sector.
Periods a...
Quotations are with bid and offer rates
- for instance 2.25 – 2.35 for a given period;
This means that if you would call a...
The capital market comprehends transactions
beyond one year.
Rates reflect the inflation expectations of the market
partic...
Bond pricing is determined by:
• the rating of the issuer,
• the rating of the bond,
• the market’s appetite for a certain...
Present Value (PV) & Future value (FV) of money
What will be the purchasing power of 100 € in year from
now?
(e) Money and...
Future value (FV) = Present value x interest rate
Present Value (PV) = Future value (FV) x discount factor
Discount factor...
Bond pricing
Please note what would happen with a 3 % and with
a 10 % discount rate!
(1.07)³
100.000
(1.07)³
10.000
(1.07)...
Price
Interest rate
(e) Money and the financial markets
Bond Price
SS&&PP RRaattiinngg MMooooddyy’’ss
EEqquuiivvaalleenntt
DDeeffaauulltt PPrroobbaabbiilliittyy
((SSuubbsseeqquueenntt yyeea...
Samuelson’s circle shows a closed economy.
When a consumer purchases a piece of equipment in
another economic/currency sys...
€ $
Consumer
Market
(e) Money and the financial markets
3. Foreign Exchange Market
• The seller could accept the
currency of the buyer and
change the currency in his
home country.
• When would he choose
th...
The foreign exchange market is the largest market in
the world. It is an over the counter
market, regulated by a strict co...
It is by large the largest market in the world and the
most unpredictable, although theoretically there is a
fundamental l...
EUR / USD 1.39458 - 1.39475
Prices are quoted as shown:
The EUR is the unit - buyer & selling side
(e) Money and the finan...
The dealer which is being called quotes:
EURO / USD 1.39458 – 1.39475
1.39458 is the buying side = the rate at which he is...
The dealer which is being called quotes:
EURO / USD 1.39458 – 1.39475
Settlement needs to be done in two working days -
ph...
Inflation - Interest rates & Foreign Exchange
1970 : £ = 120 FLUX = € 3
2003 : £ = 66 FLUX = € 1.60
2011 : £ = 50 FLUX = €...
Difference in
interest rate
Expected
difference in
inflation rate
Difference
between
forward & spot
rate
Expected
change i...
(e) Money and the financial markets
4_ Stock Market
(e) Money and the financial markets
4_ Stock Market
Forward Future
Specific amounts Standard amounts
Over the counter Organised market
Settlement risk Off-setting is easy
Up ...
The name derivative comes from the fact that the
profit or loss is derived from the fluctuation of another
product called ...
The underlying product might be a raw material
such as wheat, petrol, but could also be shares or
bonds, a portfolio, and ...
The prices of the derivatives will fluctuate in line
with:
1. The interest rate
2. The volatility of the underlying instru...
“People often talk about financial markets as if they were
casinos, but they are more dangerous than any gambling
den. The...
0
20
40
60
80
100
120
140
160
180
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Interest shares GDP Bonds
(e) Money and the finan...
0
20
40
60
80
100
120
140
160
180
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Interest shares GDP Bonds
(e) Money and the finan...
0
20
40
60
80
100
120
140
160
180
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Interest shares GDP Bonds
(e) Money and the finan...
What would happen in extreme
economic deterioration,
characterised by hyper-inflation?
(e) Money and the financial markets...
0
50
100
150
200
250
300
350
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Interest shares GDP Bonds
(e) Money and the financial ...
132
The schedule of the day
Morning
- (a) The economic circuit
- (b) The economic cycles
- (c) The intervention of the central...
Products
& Services
GNP
CONSUMERS
Salaries,
interest,
rentals
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
Government Central...
(1) The key economic indicators
1. Measuring economic
activity
2. Growth
3. Population, employment
and unemployment
4. Fis...
(1) The key economic indicators
Consumption
(1) The key economic indicators
Investments and Savings
(1) The key economic indicators
Economic activity
The gross domestic product is measured per quarter
and is often expresse...
(1) The key economic indicators
Growth
140
(1) The key economic indicators
Growth
(1) The key economic indicators
Growth
GNP
CONSUMERS
LABOUR
ENTREPRENEURS
WHAT?
HOW?
FOR WHOM?
Government Central Bank
(1) The key economic indicators
Population, employment & unemployment
(a) The economic circuit
(1) The key economic indicators
Exchange rate
(1) The key economic indicators
Fiscal indicators
(1) The key economic indicators
The balance of payments
(1) The key economic indicators
Fiscal indicators
Government spending as percentage of national income
in G7 countries
200...
(a) The economic circuit
What are the
recent
economic
highlights?
Discussion
151
152
(2) The economic highlights of today
“WE ARE A MOONWALKER NATION”
President Obama visits Facebook on the 20th of
April 2011
154
156
157
158
159
160160
(2) The economic highlights of today
Most crisis do not detonate like
bombs – they emerge:
What could be their indicators?
(2) The economic highlights of today
Most crisis do not detonate like
bombs – they emerge:
What could be there indicators?...
1. Aging
2. Far-East
3. Connectivity
4. “GRIN”
technologies
5. Environnement
(genetics, robotics, internet, na
no technolo...
Conclusion
Economics is the study of choice.
It does not tell us what to
choose. It only helps us
understand the consequen...
Sources
Sources
contact@rogerclaessens.be
167
Bibliography
“Pocket Economist”, M Bishop, The Economist
Books,2000
“Economics” Paul Samuelson, Armand Colin ( old French
...
169
Addendum
Interventions & Ideas for the financial sector
Interventions in 2008 - 2009
1. Bank deposit guarantee
2. Bank recapitalisation
3. Purchase of poor quality assets
4. Liqu...
9. Short selling crack down
10. Derivatives regulations
11. Interest rates decrease
12. Help for municipalities and househ...
18. Accounting rules
19. Credit rating agencies
20. Executive pay
21. Private equity
22. Credit card regulations
23. Produ...
Seminar economics uk_2012_eib_bnp version
Upcoming SlideShare
Loading in …5
×

Seminar economics uk_2012_eib_bnp version

1,578 views

Published on

Published in: Economy & Finance, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,578
On SlideShare
0
From Embeds
0
Number of Embeds
1,018
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Seminar economics uk_2012_eib_bnp version

  1. 1. A mental structure for macro-economics 1 6 Circles 5 Instruments of the ECB 5 Financial markets
  2. 2. Roger Jean Claessens is an International lecturer and an independent consultant for the financial services industry. Professor at UBI (United Business Institutes), Brussels Expert lecturer for FEBELFIN (Federation of banks & insurance in Belgium) Expert lecturer for the EIB in Luxembourg Expert lecturer for BGL BNPPARIBAS others… Author of several books: « Corporate culture », End 2011, Serbian Bank Association (SBA) «What is a bank?» 2009, Promoculture & Author House, UK « Branch Management», with P. Wiertz,2006 Promoculture & SBA « Ethics, corporate values and prevention of money laundering», 2003 SBA « Marketing in financial services », 2007 SBA Member of the Luxembourg Club of Economists.
  3. 3. The purpose of the seminar Provide you with a mental structure
  4. 4. The schedule of the day Morning  (a) The economic circuit  (b) The economic cycles  (c) The intervention of the Central Bank  (d) The intervention of the Government  (e) Money and the Financial Markets Afternoon  (1) The key economic indicators  (2) Economic highlights of today
  5. 5. The schedule of the day Morning - (a) The economic circuit - (b) The economic cycles - (c) The intervention of the Central Bank - (d) The intervention of the Government - (e) Money and the Financial Markets Afternoon  (1) The key economic indicators  (2) Economic highlights of today
  6. 6. This is an economic circuit
  7. 7. (a) The economic circuit Products & Services GNP CONSUMERS Salaries, interest, rentals LABOUR ENTREPRENEURS
  8. 8. Samuelson underlines that every economy has to answer three basic questions: What to produce? Is determined by the consumers. How to produce? Is determined by the competition between companies. For whom? The answer to the third question is a matter of choice. (a) The economic circuit
  9. 9. Products & Services GNP CONSUMERS Salaries, interest, rentals LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? (a) The economic circuit
  10. 10. 10 € $ What happens when you purchase a product in the USA?
  11. 11. Salaries have been doubled, what are the consequences on the economy? Discussion (a) The economic circuit
  12. 12. (a) The economic circuit In Samuelson’s representation, the government is either acting as a consumer or as a company, dependant upon its specific action. The guardian of the monetary system is the central bank
  13. 13. Products & Services GNP CONSUMERS Salaries, interest, rentals LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? Government Central Bank
  14. 14. GNP = C+I+G+(X-M) The Gross National Product is equivalent to the sum of private consumer spending (C), private investment spending (I), government spending (G) and net foreign spending (eXports - iMports) on final goods and services output. (a) The economic circuit
  15. 15. The goal of modern economic management is to keep this circuit in balance. There are two states of unbalance: INFLATION = a state of unbalance, characterised by increasing prices. The consequence of inflation is a decreasing purchasing power of money, i.e. with the same amount of money you will acquire a decreasing number of goods and services. DEFLATION = is an unbalance characterised by decreasing prices (a) The economic circuit
  16. 16. You purchase one egg daily for one Euro! What happens if the farmer knows that you had a big salary increase? Discussion (a) The economic circuit
  17. 17. 17 INFLATION
  18. 18. 18 INFLATION
  19. 19. (c) The intervention of the central bank 19
  20. 20. 20 DEFLATION
  21. 21. ENTREPRENEURS (a) The economic circuit : The Entrepreneur
  22. 22. The economic system depends upon people. Adam Smith pointed out that the individual motivation, invention, and innovation inspire an economy to greater prosperity. The “Wealth of a Nation” depends upon imagination, entrepreneurship and discipline (a) The economic circuit : The Entrepreneur
  23. 23. Market competition (the invisible hand in Adam Smith’s terms) leads a self-interested person to wake up in the morning, look outside at the earth and produce from its raw materials, not what he wants, but what others want! The invisible hand (= the market) forces people to give up if they do not produce something more valuable than they started with. (a) The economic circuit : The Entrepreneur
  24. 24. Strangely enough, we often make the statement in our part of the world, that we have discouraged the entrepreneurs because of administrative burdens, high social security contributions and high taxation. (a) The economic circuit : The Entrepreneur
  25. 25. The entrepreneur is also someone who will continuously struggle to balance flexibility and cost cutting in order to discover the optimal structure of the enterprise, pushing for productivity, which is “the” competitive asset of a nation. (a) The economic circuit : The Entrepreneur
  26. 26. Paul Krugman highlights how the government can induce firms to lift productivity. Higher productivity translates into higher standard of living. But rising productivity requires rising investments in plant, equipment, research and education. High taxes discourage the search for productivity. (a) The economic circuit : The Entrepreneur
  27. 27. CONSUMERS (a) The economic circuit : The Consumer
  28. 28. ON CONNAIT LE CONSOMMATEUR!
  29. 29. Keynes underlines in the mid thirties that households are the most important component of overall demand. Keynes appoints income the chief determinant. (a) The economic circuit : The Consumer
  30. 30. Veblen went even further than Marshall and encouraged economists to be more willing to meet with sociologists, anthropologists and psychologists if they wanted to develop a better understanding of the consumer. (a) The economic circuit : The Consumer
  31. 31. Veblen made this rightful conclusion that consumers’ demand of goods is determined by the use of the good and the price that the consumer thinks other people will think he paid! He analysed the underlying motivation of many purchases. (a) The economic circuit : The Consumer
  32. 32. How can one get a feel for the mood of both the consumers and the entrepreneurs? By analysing the economic indicators. There are about 300 major indicators. Every week about 60 of them are being published on the key economies. (a) The economic circuit : The Consumer
  33. 33. Products & Services GNP (b) The economic cycles
  34. 34. (b) The economic cycles
  35. 35. A fall of the GNP means that men and women will be in a more precarious situation and that pessimism will probably settle in. It reflects the mood of the entrepreneurs and the consumers (b) The economic cycles
  36. 36. There are 300 hundred key economic indicators divided into 3 categories : 1. the leading indicators = upstream indices of change 2. the coincidental indicators = indices of change 3. the lagging indicators = downstream indices of change Example: 1. The stock index 2. Building permits 3. Savings versus income (b) The economic cycles
  37. 37. (b) The economic cycles 37
  38. 38. Each cycle is unique but contains enough similarities with others to enable us to draw general conclusions. Let us also remember that many internal or external factors can have an impact on the economy, such as: politics, acts of war, etc. (b) The economic cycles
  39. 39. What might be indicators around us of an economic boom or a slow down? (b) The economic cycles Discussion
  40. 40. • Production • employment • productivity • wages • sales • profits • output • credit • investment goods • Stock exchange • GNP • public sentiment • risk taking • new activities • interest rates • central bank • resources • inventories (b) The economic cycles
  41. 41.  Orders  exports / imports  employment  sacrificed prices  raw materials  intervention  bankruptcies  savings  Intensity of fluctuation  Excess capacity  liquidity  credit-crunch  competition  central bank  producers  imagination (b) The economic cycles
  42. 42. The better the understanding of a situation is, the greater the probability to take a right decision, hence the study of the economic indicators They are the language of the economy They are the basis for educated decisions (b) The economic cycles
  43. 43. Markets do react to their release Each week about 60 are released for the G 7 Monitoring is an on-going and time consuming process Understanding their correlations is key to economic decisions (b) The economic cycles
  44. 44. Salaries, interest, rentals LABOUR (b) The economic cycles 44
  45. 45. The challenge of the European Union is to decrease non- structural[1] unemployment. [1] Structural unemployment means unemployment linked to the changes or lack of changes within the economy, the social structure or demographics. The unemployment in the EU remains significant for various reasons, which we qualify as structural but are in fact non- structural. The equilibrium in the employment market will be more and more difficult to establish. The structure of the age pyramid is changing dramatically. (b) The economic cycles: The labour market 45
  46. 46. (1) The key economic indicators Population, employment & unemployment 46
  47. 47. (1) The key economic indicators Population, employment & unemployment 47
  48. 48. Products & Services GNP CONSUMERS Salaries, interest, rentals LABOUR ENTREPRENEURS 48 (b) The economic cycles
  49. 49. 49 The economic indicators and their correlation: 1. GDP 2. Unemployment 3. Industrial production (Source: The Economist) (b) The economic cycles:
  50. 50. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 7.3 2.7 1.5 0.8 2.8 1.7 2.2 3.6 4.2 4.3 3.5 3.3 3.5 2.9 2.1 2.2 1.2 -2 -2.6 3.1 3.2 2.9 -4 -2 0 2 4 6 8 GDP USA 50
  51. 51. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 7.3 2.7 1.5 0.8 2.8 1.7 2.2 3.6 4.2 4.3 3.5 3.3 3.5 2.9 2.1 2.2 1.2 -2 -2.6 3.1 3.2 2.9 Series2 4.1 3.9 4.5 5.4 6.1 5.9 5.8 5.7 5.7 5.4 5.2 5 4.7 4.4 4.5 4.7 5.1 6.5 9.7 9.7 9 9.1 -4 -2 0 2 4 6 8 10 12 USA 51
  52. 52. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 7.3 2.7 1.5 0.8 2.8 1.7 2.2 3.6 4.2 4.3 3.5 3.3 3.5 2.9 2.1 2.2 1.2 -2 -2.6 3.1 3.2 2.9 Series2 4.1 3.9 4.5 5.4 6.1 5.9 5.8 5.7 5.7 5.4 5.2 5 4.7 4.4 4.5 4.7 5.1 6.5 9.7 9.7 9 9.1 Series3 6.4 3.3 -1 -6.4 -2.9 0.2 0.1 2.3 3.4 4.6 3.9 1.9 3.6 4.9 1.9 1.9 1 -4.5 -10. 1.7 5 3.7 -11.5 -6.5 -1.5 3.5 8.5 USA 52
  53. 53. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 3.7 3.6 2.3 1.7 1.3 1.2 1.0 0.5 0.6 1.9 1.4 1.6 1.7 2.6 3.1 2.6 1.6 -3.9 1.2 1.7 1.6 1.6 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 EU GDP 53
  54. 54. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 3.7 3.6 2.3 1.7 1.3 1.2 1.0 0.5 0.6 1.9 1.4 1.6 1.7 2.6 3.1 2.6 1.6 -3.9 1.2 1.7 1.6 1.6 Series2 9.5 9.0 8.4 8.3 8.4 8.3 8.7 8.8 8.8 9.0 8.9 8.4 8.1 7.8 7.2 7.3 7.1 9.5 9.9 9.9 9.9 9.9 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 EU 54
  55. 55. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 Series1 3.7 3.6 2.3 1.7 1.3 1.2 1.0 0.5 0.6 1.9 1.4 1.6 1.7 2.6 3.1 2.6 1.6 -3.9 1.2 1.7 1.6 1.6 Series2 9.5 9.0 8.4 8.3 8.4 8.3 8.7 8.8 8.8 9.0 8.9 8.4 8.1 7.8 7.2 7.3 7.1 9.5 9.9 9.9 9.9 9.9 Series3 3.8 1.9 3.8 -0.6 -0.3 -0.1 1.8 1.2 0.6 1.5 0.6 1.0 3.2 3.3 3.7 4.3 3.8 -15. 1.4 5.3 5.3 2.9 -16.0 -11.0 -6.0 -1.0 4.0 9.0 EU 55
  56. 56. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 GDP -5.5 -4.7 0.6 -2.9 -1.9 -0.4 0.7 1 3.4 4.3 1.1 2 4 2.7 2 2 1.3 0 -5.5 1.7 2.4 -0.6 -7 -5 -3 -1 1 3 5 AxisTitle Japan GDP 56
  57. 57. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 GDP -5.5 -4.7 0.6 -2.9 -1.9 -0.4 0.7 1 3.4 4.3 1.1 2 4 2.7 2 2 1.3 0 -5.5 1.7 2.4 -0.6 Unemployment 4.9 4.7 4.7 5.3 5.2 5.2 5.2 5.3 5 4.8 4.5 4.2 4.1 4.2 4 4 3.9 4 5.7 4.9 4.5 4.6 -6 -4 -2 0 2 4 6 Japan 57
  58. 58. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 09/20 09 05/20 10 05/20 11 08/20 11 GDP -5.5 -4.7 0.6 -2.9 -1.9 -0.4 0.7 1 3.4 4.3 1.1 2 4 2.7 2 2 1.3 0 -5.5 1.7 2.4 -0.6 Unemployment 4.9 4.7 4.7 5.3 5.2 5.2 5.2 5.3 5 4.8 4.5 4.2 4.1 4.2 4 4 3.9 4 5.7 4.9 4.5 4.6 Ind Production 1.1 0.7 -0.3 -1.2 -1.0 -1.0 0.5 0.3 0.7 0.4 0.1 0.1 0.3 0.5 0.2 0.1 0.4 0.2 -2.3 1.9 -1.3 -1.7 -6 -4 -2 0 2 4 6 Japan 58
  59. 59. GNP CONSUMERS LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? Government Central Bank 59
  60. 60. 5 Key tools of the central bank 1. The printing of money 2. The short term interest rates 3. The fractional reserve requirements 4. The open market policy 5. The financial structure of the banks (c) The intervention of the central bank
  61. 61. 1- Printing money (c) The intervention of the central bank
  62. 62. The question central bankers must answer is: “What is the correct money supply level?” The easy answer is enough to buy all the goods and services produced, so that full employment is reached without a rise in prices. P.Q = M.V (c) The intervention of the central bank
  63. 63. P.Q = M.V P = price level of goods and services Q = quantity of goods and services produced in a national economy (= GDP) M = the monetary supply (the assets of the consumers and the entrepreneurs, with corresponding liabilities for the banking system and the central bank) V = is the velocity of the circulation of money (c) The intervention of the central bank
  64. 64. Reserve requirement of 10 out of 100 100 is deposited with Bank A Bank A is going to deposit 10 with CB and lend 90 90 is deposited with Bank B Bank B is going to deposit 9 with CB and lend 81 81 is deposited with bank C Bank C is going to deposit 8,1 with the CB and lend 72,9 … M0 = cash = 100 = monetary base M1 = cash + sight deposits = 342,9 = money supply = (100+90+81+72,9) (c) The intervention of the central bank
  65. 65. (c) The intervention of the central bank
  66. 66. (c) The intervention of the central bank The preference curve of the borrowers 2- Interest rates
  67. 67. The preference curve of the lenders (c) The intervention of the central bank 2- Interest rates
  68. 68. (c) The intervention of the central bank The cost of borrowing and the return of a deposit
  69. 69. (c) The intervention of the central bank When the perspective changes, the curve moves
  70. 70. Interest rate Short term interest rate + inflation = +/- long term interest rate Real interest rate = +/- nominal interest rate – inflation (c) The intervention of the central bank 2 – Interest rates
  71. 71. 0 20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Interest shares GDP Bonds (c) The intervention of the central bank
  72. 72. Money makes the economic system work. (c) The intervention of the central bank
  73. 73. (c) The intervention of the central bank 3 – Fractional reserve requirement The representation of a bank’s balance sheet Sum of assets Sum of liabilities Net worth Assets-Liabilit ies to third parties
  74. 74. (c) The intervention of the central bank 3 – Fractional reserve requirement Commercial Bank Central Bank % DEPOSITSLOANS DEPOSITS
  75. 75. (c) The intervention of the central bank Commercial Bank Central Bank Purchase of bonds Euro 4 – Open market policy or “quantitative easing”
  76. 76. (c) The intervention of the central bank Commercial Bank 5 – Balance sheet structure
  77. 77. (c) The intervention of the central bank
  78. 78. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 05/20 09 09/20 09 04/20 10 05/20 11 08/20 11 GDP 7.3 2.7 1.5 0.8 2.8 2.2 2.2 3.6 4.3 4.3 3.5 3.3 3.5 2.9 2.1 2.2 1.2 -1.2 -2.9 -2.6 0.01 2.8 2.3 s t interest rate 6.57 6.49 3.95 2.05 1.82 1.82 1.22 1.05 1.08 2.06 3.02 4.01 5.00 5.23 5.12 4.51 2.01 0.20 0.00 0.02 0.02 0.01 0.27 -4 -2 0 2 4 6 8 USA: GDP vs Short term interest rate 78
  79. 79. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 05/20 09 09/20 09 04/20 10 05/20 11 08/20 11 Short term 6.57 6.49 3.95 2.05 1.82 1.82 1.22 1.05 1.08 2.06 3.15 4.01 5.00 5.22 5.18 4.51 2.01 1.28 0.00 0.02 0.02 0.01 0.27 Long term 6.39 5.60 5.45 4.95 5.21 5.21 3.99 4.11 4.77 3.99 4.22 4.51 5.01 4.57 4.86 4.47 3.46 2.96 3.20 3.40 3.82 3.13 2.12 -0.50 0.50 1.50 2.50 3.50 4.50 5.50 6.50 7.50 USA rates 79
  80. 80. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 05/20 09 09/20 09 04/20 10 05/20 11 08/20 11 short term 4.18 5.1 4.55 3.38 3.42 3.42 2.55 2.08 2.07 2.15 2.13 2.44 2.87 3.61 4 4.6 4.74 3.9 1.3 0.07 0.06 1.4 1.54 long term 5.34 5.06 5.06 4.59 5.09 5.09 4.11 4.11 4.11 3.78 3.33 3.43 3.96 3.67 4.36 4.24 4.00 3.27 3.4 3.4 3.07 3.1 2.24 0 1 2 3 4 5 6 EU rates 80
  81. 81. 05/20 00 11/20 00 05/20 01 11/20 01 05/20 02 11/20 02 05/20 03 11/20 03 05/20 04 11/20 04 05/20 05 11/20 05 05/20 06 11/20 06 05/20 07 11/20 07 05/20 08 11/20 08 05/20 09 09/20 09 04/20 10 05/20 11 08/20 11 short term 0.04 0.05 0.02 0.02 0.03 0.03 0.02 0.00 0.02 0.00 0.02 0.02 0.04 0.04 0.06 0.07 0.08 0.08 0.05 0.04 0.03 0.02 0.15 long term 0.17 0.17 0.13 0.13 0.13 0.14 0.06 0.13 0.16 0.14 0.13 0.15 0.19 0.17 0.17 0.16 0.13 0.14 0.14 0.13 0.13 0.12 1.02 0.00 0.20 0.40 0.60 0.80 1.00 1.20 Japan rates 81
  82. 82. The ECB’s president argues that its most valuable asset is information, not money.82
  83. 83. GNP CONSUMERS LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? Government Central Bank
  84. 84. About 200 years ago Adam Smith defined what, in his view, should be the role for a government. “First”, he said, “providing for national defence, second, administering justice through a court system; third, maintaining public institutions and resources such as roads, canals, bridges, educational systems, and the dignity of the sovereign.” (d) The intervention of the government
  85. 85. (d) The intervention of the government
  86. 86. From the end of the 19th century the economic functions of the state developed without interruption in almost all of the industrialised countries. Today, simultaneously public and private institutions exert control. (d) The intervention of the government
  87. 87. The state intervenes, as a spending prone economic agent, to improve the real or nominal income of certain citizens. (For example the minimum income level are nowadays among the usual objectives of the public authorities). The State, all things considered, behaves exactly like any other large consumer or investor or entrepreneur. (d) The intervention of the government
  88. 88. Keynes recommended, in addition to state intervention resorting to budget deficits to stimulate the economy, to spend thus more than the receipts and to borrow to finance this extra expenditure. Many states did pursue this economic policy only too well with a resulting high inflation and/or a high indebtedness as a result. (d) The intervention of the government
  89. 89. One of the functions of the state consists in attenuating the acute or chronic crises of unemployment or inflation as well as promoting the economic growth. (d) The intervention of the government
  90. 90. The balance of payments is a good source in this respect. It reveals the overall situation of the economy and provides an excellent idea of the economic activity by both the state and the consumers and producers. (d) The intervention of the government
  91. 91. Trade in goods balance -20 Plus Trade in services balance 4 Plus Transfer payments 2 Plus Investment income 6 Equals CURRENT ACCOUNT -8 Equals CAPITAL ACCOUNT 5 Plus Balancing item 3 BALANCE OF PAYMENTS 0 91 (d) The intervention of the government
  92. 92. A surplus in the overall balance will indicate a probability of a strong and stable currency, of a healthy economy with stable interest rates, where the investment climate should be favourable. Deficits can occur. During recessions, balanced budgets are probably not the best thing. Over the course of the business cycles budgets should be balanced. (d) The intervention of the government
  93. 93. With huge non-funded pension liabilities, European governments will struggle to keep their budget deficits within the limits they agreed to when joining the Euro. The solution has to do with welfare reform rather than tax harmonisation The real problem in the EU is that taxes on labour are very high, probably too high. The answer to that is not tax harmonisation but the reform of the welfare state. (d) The intervention of the government
  94. 94. The national debt is a relatively new and impressive event. On the positive side, a national debt undeniably allows for internal transfers between individuals of the same age or different age. On the negative side, an external national debt constitutes a real charge for the economy and a limitation to the national consumption. (d) The intervention of the government
  95. 95. 95
  96. 96. Intérêts & Capital Time The law of compounded interest 96 At 10 % p.a. = capital & int. Double in 7,2 years.
  97. 97. (e) Money and the financial markets
  98. 98. The art of asking questions….. (e) Money and the financial markets 98
  99. 99. What might be the difference between those markets? 1. The money market 2. The capital market 3. The foreign exchange market 4. The stock market 5. The future market Discussion (e) Money and the financial markets
  100. 100. The art of asking oneself questions (e) Money and the financial markets
  101. 101. The market is available for financial transactions up to one year for the professionals of the financial sector. Periods are standard and the computation of interest is done on an exact day count basis. Beyond one year one talks about the capital market. (e) Money and the financial markets 1. Money Market
  102. 102. Quotations are with bid and offer rates - for instance 2.25 – 2.35 for a given period; This means that if you would call a bank you: Could place money at 2.25 less the margin of the bank & Could borrow at 2.35 plus the margin of the bank (providing a contractual framework). (e) Money and the financial markets 1. Money Market
  103. 103. The capital market comprehends transactions beyond one year. Rates reflect the inflation expectations of the market participants, mainly the governments and institutional borrowers and lenders. The main instrument used to raise long term capital is a bond. (e) Money and the financial markets 2. Capital Market
  104. 104. Bond pricing is determined by: • the rating of the issuer, • the rating of the bond, • the market’s appetite for a certain rate or borrower, • the placement power of the underwriters, • the commissions, • the tenor of the bond, … (e) Money and the financial markets 2. Capital Market
  105. 105. Present Value (PV) & Future value (FV) of money What will be the purchasing power of 100 € in year from now? (e) Money and the financial markets 2. Capital Market 105
  106. 106. Future value (FV) = Present value x interest rate Present Value (PV) = Future value (FV) x discount factor Discount factor for one year = Discount factor for two years = 2 1 1 r r1 1 (e) Money and the financial markets 2. Capital Market 106
  107. 107. Bond pricing Please note what would happen with a 3 % and with a 10 % discount rate! (1.07)³ 100.000 (1.07)³ 10.000 (1.07)² 10.000 1.07 10.000 107.83681.6008.1608.7309.346 (e) Money and the financial markets 2. Capital Market
  108. 108. Price Interest rate (e) Money and the financial markets Bond Price
  109. 109. SS&&PP RRaattiinngg MMooooddyy’’ss EEqquuiivvaalleenntt DDeeffaauulltt PPrroobbaabbiilliittyy ((SSuubbsseeqquueenntt yyeeaarr)) AAAAAA AAaaaa 00..0022 AAAA AAaa33//AA11 00..0055 AA AA22//AA33 00..0088 BBBBBB BBaaaa22 00..2288 BBBB BBaa11//BBaa22 11..5533 BB BBaa33//BB11 77..2288 CCCCCC BB22//BB33 1144..0000 CCCC BB33//CCaaaa 1177..0000 CC CCaaaa//CCaa 1188..2255 (e) Money and the financial markets Credit risk – credit ratings
  110. 110. Samuelson’s circle shows a closed economy. When a consumer purchases a piece of equipment in another economic/currency system, he will need to exchange his national currency into the foreign one. (e) Money and the financial markets 3. Foreign Exchange Market
  111. 111. € $ Consumer Market (e) Money and the financial markets 3. Foreign Exchange Market
  112. 112. • The seller could accept the currency of the buyer and change the currency in his home country. • When would he choose that option? • What determines the value of a currency? (e) Money and the financial markets 112 3. The foreign exchange markets Discussion
  113. 113. The foreign exchange market is the largest market in the world. It is an over the counter market, regulated by a strict code of conduct. The daily turnover is now close to an estimated $4.000.000.000.000. (e) Money and the financial markets 3. Foreign Exchange Market
  114. 114. It is by large the largest market in the world and the most unpredictable, although theoretically there is a fundamental link between the interest rates, the balance of payments of countries and the exchange rates of their currencies. (e) Money and the financial markets 3. Foreign Exchange Market
  115. 115. EUR / USD 1.39458 - 1.39475 Prices are quoted as shown: The EUR is the unit - buyer & selling side (e) Money and the financial markets 3. Foreign Exchange Market
  116. 116. The dealer which is being called quotes: EURO / USD 1.39458 – 1.39475 1.39458 is the buying side = the rate at which he is willing to purchase EURO against USD 1.39475 is the selling side = the rate at which the dealer is willing to sell EURO against USD (e) Money and the financial markets 3. Foreign Exchange Market
  117. 117. The dealer which is being called quotes: EURO / USD 1.39458 – 1.39475 Settlement needs to be done in two working days - physical exchange $ € Settlement risk ! (e) Money and the financial markets 3. Foreign Exchange Market
  118. 118. Inflation - Interest rates & Foreign Exchange 1970 : £ = 120 FLUX = € 3 2003 : £ = 66 FLUX = € 1.60 2011 : £ = 50 FLUX = € 1.10 There is a relationship between the inflation and the interest rate and the exchange rate (e) Money and the financial markets The key economics indicator : the exchange rate
  119. 119. Difference in interest rate Expected difference in inflation rate Difference between forward & spot rate Expected change in spot rate equals equals equals equals (e) Money and the financial markets The key economics indicator : the exchange rate
  120. 120. (e) Money and the financial markets 4_ Stock Market
  121. 121. (e) Money and the financial markets 4_ Stock Market
  122. 122. Forward Future Specific amounts Standard amounts Over the counter Organised market Settlement risk Off-setting is easy Up to 12 months Up to what the market will bear (e) Money and the financial markets 5_Futures Market 122
  123. 123. The name derivative comes from the fact that the profit or loss is derived from the fluctuation of another product called the “underlying” product (e) Money and the financial markets 5. Futures and derivatives Market
  124. 124. The underlying product might be a raw material such as wheat, petrol, but could also be shares or bonds, a portfolio, and so on. A derivative could be an option to purchase or to sell something at a later date at a certain price. (e) Money and the financial markets 5. Futures and derivatives Market
  125. 125. The prices of the derivatives will fluctuate in line with: 1. The interest rate 2. The volatility of the underlying instrument 3. The time 4. The actual price of the underlying instrument 5. The price at maturity of the contract (e) Money and the financial markets 5. Futures and derivatives Market
  126. 126. “People often talk about financial markets as if they were casinos, but they are more dangerous than any gambling den. The numbers on a roulette wheel never change, but markets offer no guarantee that yesterday’s odds will be the same tomorrow. 126 (e) Les marchés financiers
  127. 127. 0 20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Interest shares GDP Bonds (e) Money and the financial markets Market Fundamentals
  128. 128. 0 20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Interest shares GDP Bonds (e) Money and the financial markets Market Fundamentals
  129. 129. 0 20 40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Interest shares GDP Bonds (e) Money and the financial markets Market Fundamentals
  130. 130. What would happen in extreme economic deterioration, characterised by hyper-inflation? (e) Money and the financial markets Discussion
  131. 131. 0 50 100 150 200 250 300 350 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Interest shares GDP Bonds (e) Money and the financial markets Market Fundamentals
  132. 132. 132
  133. 133. The schedule of the day Morning - (a) The economic circuit - (b) The economic cycles - (c) The intervention of the central bank - (d) The intervention of the government - (e) Money and the financial markets Afternoon  (1) The key economic indicators  (2) Economic highlights of today
  134. 134. Products & Services GNP CONSUMERS Salaries, interest, rentals LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? Government Central Bank
  135. 135. (1) The key economic indicators 1. Measuring economic activity 2. Growth 3. Population, employment and unemployment 4. Fiscal indicators 5. Consumers 6. Investment and savings 7. The balance of payments 8. The exchange rates 9. Money and the financial markets 10. Prices and wages
  136. 136. (1) The key economic indicators Consumption
  137. 137. (1) The key economic indicators Investments and Savings
  138. 138. (1) The key economic indicators Economic activity The gross domestic product is measured per quarter and is often expressed as a percentage increase or reduction compared with the previous quarter. The change is often annualised. One speaks about a recession when the GDP falls two quarters in a row.
  139. 139. (1) The key economic indicators Growth
  140. 140. 140
  141. 141. (1) The key economic indicators Growth
  142. 142. (1) The key economic indicators Growth
  143. 143. GNP CONSUMERS LABOUR ENTREPRENEURS WHAT? HOW? FOR WHOM? Government Central Bank
  144. 144. (1) The key economic indicators Population, employment & unemployment
  145. 145. (a) The economic circuit
  146. 146. (1) The key economic indicators Exchange rate
  147. 147. (1) The key economic indicators Fiscal indicators
  148. 148. (1) The key economic indicators The balance of payments
  149. 149. (1) The key economic indicators Fiscal indicators Government spending as percentage of national income in G7 countries 2000 2010 France 51.6 55.9 UK 36.6 52.5 Italy 46.1 51.6 Germany 45.1 47.9 Canada 42.0 43.2 United States 33.9 41.6 Japan 39.0 40.8
  150. 150. (a) The economic circuit What are the recent economic highlights? Discussion
  151. 151. 151
  152. 152. 152 (2) The economic highlights of today
  153. 153. “WE ARE A MOONWALKER NATION” President Obama visits Facebook on the 20th of April 2011
  154. 154. 154
  155. 155. 156
  156. 156. 157
  157. 157. 158
  158. 158. 159
  159. 159. 160160
  160. 160. (2) The economic highlights of today Most crisis do not detonate like bombs – they emerge: What could be their indicators?
  161. 161. (2) The economic highlights of today Most crisis do not detonate like bombs – they emerge: What could be there indicators? ° fraud, waste, abuse ° disinformation ° financial indicators ° economic indicators ° lack of common sense
  162. 162. 1. Aging 2. Far-East 3. Connectivity 4. “GRIN” technologies 5. Environnement (genetics, robotics, internet, na no technology) The trend 163
  163. 163. Conclusion Economics is the study of choice. It does not tell us what to choose. It only helps us understand the consequences of our choices. “New Ideas from dead economists”, Todd Bucholz
  164. 164. Sources
  165. 165. Sources
  166. 166. contact@rogerclaessens.be 167
  167. 167. Bibliography “Pocket Economist”, M Bishop, The Economist Books,2000 “Economics” Paul Samuelson, Armand Colin ( old French edition), 1964 “Economics for Professional Investors” Tim Lee, Prentice Hall Professional Finance series, 1998 “New Ideas of Dead Economists”, Todd Bucholz, Plume, 1990 “The world is flat”, T. Friedman, Penguin, 2006 “The dead of inflation” R.Bootle, Nicholas Brealey, 1996 “International Economics, P. Krugman & M. Obstfeld, Addison Wesley Longman,1995
  168. 168. 169 Addendum Interventions & Ideas for the financial sector
  169. 169. Interventions in 2008 - 2009 1. Bank deposit guarantee 2. Bank recapitalisation 3. Purchase of poor quality assets 4. Liquidity guarantee 5. Lending guarantee 6. Mergers 7. Investment banks accepting commercial bank regulations 8. Stress test
  170. 170. 9. Short selling crack down 10. Derivatives regulations 11. Interest rates decrease 12. Help for municipalities and households 13. Corporate tax cuts 14. Tax rebates for individuals 15. Infrastructure improvement programs 16. IMF 17. EU Supervision Interventions in 2008 - 2009
  171. 171. 18. Accounting rules 19. Credit rating agencies 20. Executive pay 21. Private equity 22. Credit card regulations 23. Product transparency 24. Off-shore centres Interventions in 2008 - 2009

×