Implications of US Economic Crisis in RP

 

United States of America is one of the largest powerful economies globally. And because of the current condition of US it greatly affects the other economies. Before we tackle the adverse effects of us economic crisis in RP let’s examine first the failure or the minimal success of traditional monetary policy measures against economic imbalances.

What is monetary policy?

     Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values.

 

With the apparent success at delivering relatively low inflation globally, many central banks have turned their attention to the possibility of ensuring financial system stability. In spite of the benign inflationary environment, the regular occurrence of financial crises has created stresses in a wide variety of countries. The US sub-prime problem, so-called, is the latest such crisis while the Asian crisis of 1997-98 remains fresh in the minds of all policymakers. Not surprisingly, central banks have turned their attention to the dangers that lurk behind ‘financial imbalances’ world wide, and how monetary policy can contribute to mitigating these. Although seemingly a logical extension to the inflation control problem, efforts at containing financial crises must acknowledge the dearth of analytical approaches to the problem. We simply do not have anything approaching a consensus theory of financial system stability. Therefore, attempts to increase emphasis on financial system stability as an additional goal of central banks must not only face the question whether the existing toolkit of monetary policy is capable of delivering the desired outcome, even if we can agree on a theoretical framework, but whether the relationship between the central bank and the supervisory authorities is sufficiently well structured or defined to prevent crises from erupting in the future. For the time being at least, and until the analytical apparatus is capable of delivering useful predictions, central banks ought to “stick to their knitting.” (http://www.icrier.org/pdf/Issuespaper_Siklos.pdf)  

 

           Economic conditions in the United States have a significant impact on the rest of the world. Furthermore, the U.S. can influence economic conditions in other countries.

Like many other emerging markets, the Philippine economy slowed down considerably in 2008. Latest data show that GDP growth rate for the first three quarters of 2008 fell to 4.6 percent, compared to 7.5 percent in the same period in 2007. However, also like many other emerging markets, the slowdown was not a result of the global financial crisis. Rather, the deceleration in the Philippine economy was largely brought about by a surge in inflation triggered by the sharp rise in food and fuel prices and to a lesser extent the US recession.

Impact on Asset Markets

The financial turmoil that emerged in the aftermath of the Lehman Brothers debacle magnified tensions in the global interbank and credit markets. As a result there was a virtual freeze in liquidity in US and European financial markets which stopped and, in many cases, reversed capital flows to emerging and developing countries. In large part, the latter reflected sales of debt and equity securities by nonresidents, selective withdrawals of bank deposits held with domestic banks and a decline in inflows of foreign direct investment. (World Bank, 2008)

The immediate impact of the liquidity squeeze in international capital markets was a rise in the price of risk—as measured by bond spreads—a sharp drop in equity prices, and exchange rate volatility.

Stock market and exchange rate volatility do affect macroeconomic stability and this has implications for private investment. However, the investment rate in the Philippines have been sluggish for the past decade and there is not much room for further deterioration. In terms of international trade, prices of traded commodities are mostly set in the global market. Exchange rate movements, therefore, affect profitability of exporters rather than demand for their products. Profitability of exporters, however, has an impact on their investment and employment decisions. Exchange rate movements affect the propensity to import, the degree of protection of import-substituting industries, and the peso value of remittances from abroad.

Impact on the Financial Sector

The onset of the global financial crisis raised fears that many emerging markets will face a debacle similar to the 1997 financial crisis that hit East Asia. The initial impact on asset markets did put pressure on financial markets especially in economies with high foreign participation in local equity markets, banking systems that depend heavily on short-term foreign currency funding, and those running external current account deficits (ADB, 2008). In East Asia, Korea and Indonesia experienced severe foreign currency liquidity shortages but the situation has improved considerably in December, 2008.

 

Impact on the Real Sector

The critical issue is whether the economic slowdown will persist in the wake of the global financial crisis. This largely depends on the strength of various contending factors. On the one hand, food and fuel prices have come down sharply from their peaks earlier this year. The price of Brent Crude Oil, for example, has already fallen to US$44 per barrel5 from its peak of US$145. Inflation is therefore expected to be

much lower in 2009.

On the other hand, the synchronized recession in major economies and the global credit squeeze will adversely affect exports, foreign direct investment and domestic private investment. Ironically, resilience of the Philippine economy would be partly due to factors that limited its economic expansion during the past 3-4 decades. One, Philippine exports generally have low value added in terms of their contribution to GDP.6 Moreover, the share of Philippine exports to the US has fallen from a peak of 34 percent in 1998 to only 16 percent in 2008.

Impact on Employment

Critical to the prognosis in 2009 is the impact of the recession in major economies on employment of overseas Filipinos (OFWs). Remittances have been the lifeblood of the economy during the past decade. In 2007 alone, remittances—as reported in the balance-of-payments account— amounted to $13.3 billion or 9.4 percent of GDP. The Department of Labor and Employment (DOLE) identified the following OFWs who are vulnerable to displacement due to the global economic and financial crisis. One of which are the OFWs who work in US under temporary working visas.

These groups comprise only about 15 percent of the roughly 4 million OFWs. Preliminary data from the Philippine Overseas Employment Administration (POEA) indicate that during the first ten months of 2008 the number of Filipinos deployed abroad rose considerably by 25.5 percent to 1,115,199, from 888,339 a year ago. Data, however, indicate a slowdown in the growth of remittances to only 3.3 percent in October. This brought the cumulative ten-month growth to 15.5 percent, lower than the 16.2 percent average in the first half of 2008. For 2009, the BSP sees a sustained growth in overseas remittances, although at a slower pace of 6-10 percent. This will definitely have a negative impact on the real sector, particularly on personal consumption expenditures. The impact will likely be muted, however, given that a 10 percent growth rate for an item that is 10 percent of GDP would still be substantial. Employment in the domestic economy has been fairly steady. While the unemployment rate in 2008 increased as expected, it rose only to 6.8 percent from 6.3 percent in 2007. (Impact of the Global Financial and Economic Crisis on the Philippines: A Rapid Assessment, Josef T. Yap, January 12, 2009)

Gender and Economic Development

People Centered Development

      What comes to mind when you hear the word development?

      Usually, when we think of development we are imagining of bustling cities, buildings, computers, cars, etc. We are focusing too much on the physical assets. But there is another paradigm of what is development, it's the People Centered Perspective" or "People Centered Development". This perspective is an approach to international development that focuses on improving local communities’ self-reliance, social justice, and participatory decision-making. It recognizes that economic growth does not inherently contribute to human development and calls for changes in social, political, and environmental values and practices. This development is focused on empowering the people and it has concern for the basic needs of the people concerned.

Development Indicators of the People Centered Development

1. Employment

        It means the people are productive they work efficiently.

2. Education and Training

        It means the people are knowledgeable. They are civilized, enlightened, literate, numerate and informed.

3. Nutrition

        People are well nourished. Eats enough food to survive.

4. Health

        Physically capable to do fruitful works.

5.  Fertility

        People are able to bear and rear children.

6. Migration

       People travel in search for opportunities.

Difference of Sex and Gender

What do we mean by "sex" and "gender"?

Sometimes it is hard to understand exactly what is meant by the term "gender", and how it differs from the closely related term "sex".

"Sex" refers to the biological and physiological characteristics that define men and women.

"Gender" refers to the socially constructed roles, behaviours, activities, and attributes that a given society considers appropriate for men and women.

To put it another way:

"Male" and "female" are sex categories, while "masculine" and "feminine" are gender categories. Aspects of sex will not vary substantially between different human societies, while aspects of gender may vary greatly.

Some examples of sex characteristics:

• Women menstruate while men do not
• Men have testicles while women do not
• Women have developed breasts that are usually capable of lactating, while men have not
• Men generally have more massive bones than women
   

Some examples of gender characteristics:

•     In the United States (and most other countries), women earn significantly less money than men for similar work
•     In Viet Nam, many more men than women smoke, as female smoking has not traditionally been considered appropriate
•     In Saudi Arabia men are allowed to drive cars while women are not
•     In most of the world, women do more housework than men

Sex

• Biological
• Physical attribution
• Body contour and feature
• Hormones, chromosomes and reproductive organs

Gender

• Social (church, media, government, school)
• Social construct
• Society and social interactions
• Shaped concept of being male or female

What is the role of women in economic development?

1. To have participation in governance

         Women could be shareholders, officials in academe and political leaders.

2. Women should be helping other women

         Women should eliminate crab mentality, they should seek to help other women, train them to be more skillful and knowledgeable. Women shouldn't be afraid of competition.

3. Empowered women should empower others

         Women should share their knowledge and experience, it may improve your knowledge.

LGBT Discrimination

Anti- Discrimination Legislation in the Philippines

      The Philippines Congress is currently debating groundbreaking legislation which, if passed, would firmly establish the protection of Filipinos against the discrimination on the basis of sexual orientation and gender identity in basic areas of life, such as employment, education, public accommodation and health services, as enshrined in international standards. A similar version of this bill was already passed in the Congress. However, while the House of Representatives passed the measure, it failed in the Senate. Now is the time for the House to uphold its previous decision for the Senate to commit itself to the principles of universal human rights outlined by treaties of which the Philippines is already a signatory.

Discrimination in the Philippines

      Members of the LGBT community in the Philippines continue to encounter discrimination in school, employment, public establishments and their own families. For example Mr. Rico a transgender who graduated as a Suma Cum Laude, is a professor in a university. But because of his sexual orientation and appearance, he was being discriminated by both his coworkers and students. Because of this, he was forced to resign and work as a showgirl in Japan. Mr. Rico could had been teaching, he would have taught many students and shared his knowledge but because of the eminent discrimination he resorted on being a showgirl. 

International Human Rights Law

      Everyone, regardless of their sexual orientation, gender identity or expression, is guaranteed the fullest enjoyment of their civil, political, social, economic and cultural rights under international law. Lesbian, gay, bisexual, transgender individuals, like any other person, are all entitled to equality before the law. The U.N  Human Rights Committee has urged states not only to repeal laws criminalizing same-sexual conduct but also to enshrine prohibition of discrimination based on sexual orientation into their constitution or other fundamental laws.

US Economic Crisis

     United States, a capitalist mixed economy, fueled by abundant natural resources,well-developed infrastructure  and high productivity. Though its GDP is larger than any nation which is about 23% of the gross world product, its national GDP is 5% smaller than the European Union in 2008, according to the International Monetary Fund. Considered the largest importer of goods and the third largest exporter, though its export per capita i relatively low. United States being one of the powerful and influential countries nowadays has a great impact on the global economy. 

     Today, America is facing an economic crisis that had started in August of 2007. In this month of the year, began the seizure in the banking system precipitated by BNP Paribas announcing that it was ceasing activity in three hedge funds that specialized in US mortgage debt. This was the moment it became clear that there were tens of trillions of dollars worth of dodgy derivatives swilling round which were worth a lot less than the bankers had previously imagined.

     Nobody knew how big the losses were or how great the exposure of individual banks actually was, so trust evaporated overnight and banks stopped doing business with each other. 

     After that event another bank went bankrupt, the Lehman Brothers, a large investment bank. Up to that point, it had been assumed that governments would always step in to bail out any bank that got into serious trouble: the US had done so by finding a buyer for Bear Stearns while the UK had nationalized Northern Rock. When this happen the notion that all banks were too big to fail has no longer held true, making all banks too risky to invest into. Within a month, the threat of a domino effect through the global financial system forced western governments to inject vast sums of capital into their banks to prevent them was collapsing. Credit flows to the private sector were choked off at the same time as consumer and business confidence collapsed.

     On May 2010 marked the point at which the focus of concern switched from the private sector to the public sector. By the time the IMF and the European Union announced they would provide financial help to Greece, the issue was no longer the solvency of banks but the solvency of governments. Budget deficits had ballooned during the recession, mainly as a result of lower tax receipts and higher non-discretionary welfare spending. Greece had unique problems as it covered up the dire state of its public finances and had difficulties in collecting taxes, but other countries started to become nervous about the size of their budget deficits. Austerity became the new watchword, affecting policy decisions in the UK, the euro zone and, most recently in the US, the country that stuck with expansionary fiscal policy the longest.

     In the circumstances, it is hard to be wildly optimistic about how events will play out. Markets are bound to remain highly jittery, although it seems unlikely that American bond yields will rocket as a result of the S&P downgrade. America's growth prospects are poor, which is why bond yields will remain low in what is still, for the time being, the world's biggest economy. Whatever it means for financial markets this month, 5 August 2011 will be remembered as the day when US hegemony was lost.

     The US is drowning in negative equity and foreclosed homes.Because of this, there will be a long period of weak growth and high unemployment as individuals and banks pay down the excessive levels of debt accumulated in the bubble years. At worst, the global economy will be plunged back into recession next year or even a Great Depression as the US goes backwards and the euro comes apart at the seams. 

    The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. The depression originated in the U.S., starting with the fall in stock prices that began around September 4, 1929 and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday). From there, it quickly spread to almost every country in the world.

     The Great Depression had devastating effects in virtually every country, rich and poor. Personal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25% and in some countries rose as high as 33%. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as cash cropping, mining and logging suffered the most. 

     This phenomenon could be avoided if there is international co-operation. There should be plans for growth not merely austerity. Europe lacks the political will to force the pace of integration necessary to avoid disintegration of the single currency.