As I was reviewing the economic news of 2013, I felt a few updates might be in order as we conclude the wild ride that this year has been.
One of the most fascinating stories of the year, from my capitalism-loving point-of-view, centered on Cyprus. In March, wealthy depositors with banks on the Mediterranean island nation had their accounts “levied” as part of a bailout deal for Cypriot financial institutions by other European Union members.
In the wake of this fiscal drama, The Cyprus Central Bank established the Independent Commission on the Future of the Cyprus Banking Sector. The report plainly states that, “the Cyprus banking system has suffered a series of disasters which have transformed what was once a large and prosperous industry into a national catastrophe.”
The report could easily have been entitled ‘How Not to Run a Bank or Banking Industry’. In addition to recommendations for the future, it documents the actions (or inaction) of different actors and stakeholders who, collectively, determined the quality of internal and external governance that pertained to Cypriot banking….Despite financial services contributing an ever-increasing amount to Cyprus’s GDP, the report notes the absence of a coherent national financial services strategy. As quoted in the report by one respondent: “We have one for tourism, why not for banking?” This was despite the banking industry peaking at nine times Cyprus’ GDP….
I also noted that India had a new head of its Central Bank, who was being treated by the county’s press like a Bollywood star. Raghuram Rajan, for the second time in a month, broke the usual central banker silence about politics and raised the issue of how the outcome of upcoming general elections is the latest threat to economy.
Even though the economic outlook has improved and the uncertainty over the tapering of bond purchases by the US Federal Reserve is behind us, India faces uncertainty as there is little clarity on what the elections will throw up.”In India, a potential additional source of uncertainty is the coming general election,” said Rajan in his foreword to the latest Financial Stability Report. “A stable new government would be positive for the economy.”
It looks like Rajan has had some success, as both the rupee and the economy have improved a bit and the reduction of the bond-purchase program by the our Federal Reserve looks like it will have minimal impact.
And just how is France’s experience with socialism going? The last time we checked, French citizens were fleeing the country in droves after Francois Hollande was elected with his dream of a 75 percent millionaire tax. When French constitutional courts gave Hollande’s idea of an individual tax was “confiscatory”, the socialist President found a workaround — a new 75 percent tax on businesses that pay salaries of over a million euros a year.
And how about the American economy? San Diego blogger and finance expert W.C. Varones says that 2013 was “The Year of the 1%ters” and offers the following prediction for 2014:
Wall Street strategists see an acceleration in economic growth based on the housing rebound and the domestic energy boom. That’s certainly plausible, and even looks like the default scenario barring an unforeseen shock. Rising health care costs due to Obamacare could certainly be one such shock, but would likely take more than a year to derail the recovery. So a best guess for 2014 would be more of the same: Wall Street and Washington lobbyists getting richer, the middle class struggling under heavy debt loads and stagnant income.
My prediction for 2014? This, expanded to cover the entire year.
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