Canada has increased its efforts to fortify its banking sector on Thursday, by offering loan guarantees to mitigate the impending impact of the global financial crisis, which is anticipated to push the country to the brink of recession. This measure aligns with similar multibillion-dollar programs adopted in the United States and Europe, aiming to restore confidence in lending markets after numerous bank failures, primarily linked to investments in distressed U.S. mortgages.

Finance Minister Jim Flaherty emphasised the government's commitment to preserving the competitiveness of Canadian financial institutions in global wholesale markets. Reuters quoted him as saying in a statement, “The government of Canada is acting today to ensure that financial institutions in this country are not put at a competitive disadvantage when raising funds in wholesale markets to lend to consumers and businesses.”

The global economic turbulence, which has rattled world markets and plummeted consumer confidence to historically low levels, is predicted to bring Canada's economy dangerously close to recession, according to the Bank of Canada. In its quarterly report, the central bank projected a 0.4 per cent contraction in the fourth quarter of this year and zero growth in the first quarter of 2009, meeting the technical criteria for a recession, which entails two consecutive quarters of economic decline.

Bank of Canada Governor Mark Carney emphasised that while the economic outlook was sluggish, he refrained from characterising it as recessionary. Finance Minister Flaherty expressed optimism that a recession could still be averted.

To counterbalance the challenges, a substantial depreciation of the Canadian dollar may help offset the decline in commodities markets, benefiting manufacturers. Furthermore, the cumulative reduction of the bank's key interest rate by 225 basis points since December of the previous year is expected to stimulate economic growth in the months to come, noted Carney. Canada's relatively robust housing and banking sectors have positioned the country more favourably compared to other developed economies.

Despite meagre annual growth rates of 0.6 percent for 2008 and 2009, the central bank anticipates a robust recovery in 2010, with a growth rate of 3.4 percent. Carney expressed confidence in this recovery, highlighting that it is milder compared to recoveries following previous crises.

According to Reuters, Finance Minister Flaherty reasserted his commitment to maintaining the country's 11th consecutive budget surplus for the current year. However, he cautioned that this might not be sustainable in the following years and did not rule out the possibility of providing additional economic stimulus, in addition to the previously announced tax cuts.

Global leaders are set to convene in Washington next month to address the deepening worldwide economic gloom, with European leaders calling for a comprehensive overhaul of global financial system regulations. The finance ministers of G20 nations will meet in Brazil before the Washington gathering, with Carney emphasising the need to establish a process for reforming the global financial system.

Canada's program to bolster bank lending will be initiated in early November and is expected to continue for at least six months, as disclosed by Flaherty. The hope is that the country's banks will not need to utilize the program. Reuters quoted Flaherty as saying, "There may be no take-up on this, and... the excellent result would be that it's not necessary, that the banks don't take it up." He clarified that the program would be offered on a commercial fee basis and was unlikely to entail fiscal costs.

The Canadian Bankers Association welcomed these new measures, highlighting that Canadian banks are financially sound and well-capitalised even without federal government loan insurance. Nancy Hughes Anthony, the President and CEO of the Canadian Bankers Association, affirmed the strength of Canada's banking institutions.

In addition to these actions, the Canadian government had recently announced a plan to purchase up to Canadian $25 billion in mortgage assets from Canadian banks to boost liquidity and stimulate lending to consumers and businesses. The government had already acquired C$5 billion in mortgages in the program's initial phase on October 16, with a second auction of C$7 billion held more recently.

While there have been signs of improvement in global and Canadian money markets over the past two weeks, Carney cautioned against premature relaxation, stating that it was not yet time to withdraw the extraordinary liquidity injections that the central bank had initiated.

(With inputs from Reuters)

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Canada has increased its efforts to fortify its banking sector on Thursday, by offering loan guarantees to mitigate the impending impact of the global financial crisis, which is anticipated to push the country to the brink of recession.

Canada has increased its efforts to fortify its banking sector on Thursday, by offering loan guarantees to mitigate the impending impact of the global financial crisis, which is anticipated to push the country to the brink of recession. This measure aligns with similar multibillion-dollar programs adopted in the United States and Europe, aiming to restore confidence in lending markets after numerous bank failures, primarily linked to investments in distressed U.S. mortgages. Finance Minister Jim Flaherty emphasised the government's commitment to preserving the competitiveness of Canadian financial institutions in global wholesale markets. Reuters quoted him as saying in a statement, “The government of Canada is acting today to ensure that financial institutions in this country are not put at a competitive disadvantage when raising funds in wholesale markets to lend to consumers and businesses.” The global economic turbulence, which has rattled world markets and plummeted consumer confidence to historically low levels, is predicted to bring Canada's economy dangerously close to recession, according to the Bank of Canada. In its quarterly report, the central bank projected a 0.4 per cent contraction in the fourth quarter of this year and zero growth in the first quarter of 2009, meeting the technical criteria for a recession, which entails two consecutive quarters of economic decline. Bank of Canada Governor Mark Carney emphasised that while the economic outlook was sluggish, he refrained from characterising it as recessionary. Finance Minister Flaherty expressed optimism that a recession could still be averted. To counterbalance the challenges, a substantial depreciation of the Canadian dollar may help offset the decline in commodities markets, benefiting manufacturers. Furthermore, the cumulative reduction of the bank's key interest rate by 225 basis points since December of the previous year is expected to stimulate economic growth in the months to come, noted Carney. Canada's relatively robust housing and banking sectors have positioned the country more favourably compared to other developed economies. Despite meagre annual growth rates of 0.6 percent for 2008 and 2009, the central bank anticipates a robust recovery in 2010, with a growth rate of 3.4 percent. Carney expressed confidence in this recovery, highlighting that it is milder compared to recoveries following previous crises. According to Reuters, Finance Minister Flaherty reasserted his commitment to maintaining the country's 11th consecutive budget surplus for the current year. However, he cautioned that this might not be sustainable in the following years and did not rule out the possibility of providing additional economic stimulus, in addition to the previously announced tax cuts. Global leaders are set to convene in Washington next month to address the deepening worldwide economic gloom, with European leaders calling for a comprehensive overhaul of global financial system regulations. The finance ministers of G20 nations will meet in Brazil before the Washington gathering, with Carney emphasising the need to establish a process for reforming the global financial system. Canada's program to bolster bank lending will be initiated in early November and is expected to continue for at least six months, as disclosed by Flaherty. The hope is that the country's banks will not need to utilize the program. Reuters quoted Flaherty as saying, "There may be no take-up on this, and... the excellent result would be that it's not necessary, that the banks don't take it up." He clarified that the program would be offered on a commercial fee basis and was unlikely to entail fiscal costs. The Canadian Bankers Association welcomed these new measures, highlighting that Canadian banks are financially sound and well-capitalised even without federal government loan insurance. Nancy Hughes Anthony, the President and CEO of the Canadian Bankers Association, affirmed the strength of Canada's banking institutions. In addition to these actions, the Canadian government had recently announced a plan to purchase up to Canadian $25 billion in mortgage assets from Canadian banks to boost liquidity and stimulate lending to consumers and businesses. The government had already acquired C$5 billion in mortgages in the program's initial phase on October 16, with a second auction of C$7 billion held more recently. While there have been signs of improvement in global and Canadian money markets over the past two weeks, Carney cautioned against premature relaxation, stating that it was not yet time to withdraw the extraordinary liquidity injections that the central bank had initiated. (With inputs from Reuters) WATCH WION LIVE HERE

Canada takes action to prevent recession amid global financial crisis

One of the most well-known bankruptcy stories in American history was the collapse of Lehman Brothers, the fourth-largest investment bank, which took place on September 15, 2008.&nbsp;

At the time of the collapse, the financial company had $639 billion in assets and $613 billion in liabilities, while employees in business suits carried cardboard boxes and left their office building. The subprime catastrophe, which spread through financial markets and resulted in roughly $10 trillion in lost economic output, turned the bank into a symbol of the surfeits of the 2007–2008 Financial Crisis.&nbsp;

In this story, we look at the rise and fall of one of the most prominent investment bankers and the impact that it had globally.&nbsp;

Beginnings and their rise to glory&nbsp;

Lehman Brothers, founded in the mid-19th century by German immigrant Henry Lehman, began as a modest dry-goods store in Montgomery, Alabama, in 1844. The transformation into Lehman Brothers came with the arrival of Henry's brothers, Emmanuel and Mayer. Their ambitions quickly expanded beyond dry goods, leading them into the intricate world of cotton and commodities trading.&nbsp;

In 1858, a pivotal shift occurred as Lehman Brothers relocated its operations to New York, a burgeoning hub for commodities trading. While Henry managed the grocery and general store business, his brothers laid the groundwork for what would become a financial industry powerhouse.&nbsp;

Over the next century and a half, Lehman Brothers underwent numerous transformations and forged alliances. Although Lehman Brothers' 2008 bankruptcy catalysed rather than caused the Great Recession and the subprime mortgage crisis, it sent shockwaves across global markets, triggering a significant selloff.&nbsp;

The firm's journey was marked by resilience. In 1984, Shearson/American Express acquired Lehman Brothers for $360 million. In 1994, Lehman Brothers embarked on its path via an IPO, raising over $3 billion in capital. The repeal of the Glass-Steagall Act enabled Lehman Brothers to venture into both investment and commercial banking.&nbsp;

Lehman Brothers thrived, becoming the nation's fourth-largest investment banking firm by 2007. Much of its growth was fuelled by substantial investments in mortgage-backed securities (MBS), a twist of fate that, ironically, contributed to its eventual downfall.&nbsp;

The warning signs

A strategy shift towards sophisticated financial products like mortgage-backed securities and collateralised debt obligations (CDOs) marked the beginning of Lehman Brothers' route to its tragic collapse. When Lehman bought many mortgage firms, including BNC Mortgage and Aurora Loan Services, which specialised in Alt-A loans without complete paperwork, this change occurred in the early 2000s. At first, these actions seemed profitable; from 2004 and 2006, Lehman's real estate division contributed significantly to a 56 percent increase in capital markets unit revenues.

Despite these early gains, ominous signs began to emerge. The housing market in the United States revealed growing weaknesses, particularly with an increase in subprime mortgage defaults. Surprisingly, in February 2007, Lehman's stock price soared to a record high of $86.18 per share. Lehman kept on downplaying the significance of escalating home loan concerns despite mounting anxiety, assuring investors that the risks were under control.

The countdown to the collapse

Lehman's stock price fluctuated throughout 2007 as the U.S. housing market's cracks grew worse. Lehman responded to the economic crisis in August 2007 by closing down portions of its mortgage business and laying off 1,200 employees who worked in the mortgage industry. Despite this issues, Lehman continued to maintain a significant presence in the mortgage sector.

Lehman's susceptibility resulted from its considerable portfolio of mortgage-related assets and excessive leverage, as seen by a leverage ratio of 31. As a result, Lehman's stock price declined by almost 48 per cent in March 2008. This fall took place amid mounting worries that Lehman would be the next big Wall Street Company to have huge issues. Investor confidence continued to decline despite Lehman's ability to raise money and take steps to lower its risk. Lehman's first losses since being spun off from American Express were reported in June 2008, when it posted a huge $2.8 billion second-quarter deficit.

Global financial fallout

The global financial crisis began on September 15, 2008, when Lehman Brothers filed for bankruptcy. The financial markets around the world experienced shockwaves as a result of this catastrophe. It set off a series of crises, including stock market crashes and freezes in the credit markets. To stabilise the staggering global economy, governments and central banks were forced to undertake large bailout packages and financial support measures.

The collapse of Lehman Brothers serves as a warning of the dangers of uncontrolled risk-taking and financial excess as it had a ripple effect on the larger global financial crisis, which in turn affected people, financial institutions, and economies all over the world.

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One of the most well-known bankruptcy stories in American history was the collapse of Lehman Brothers, the fourth-largest investment bank, which took place on September 15, 2008.

One of the most well-known bankruptcy stories in American history was the collapse of Lehman Brothers, the fourth-largest investment bank, which took place on September 15, 2008. At the time of the collapse, the financial company had $639 billion in assets and $613 billion in liabilities, while employees in business suits carried cardboard boxes and left their office building. The subprime catastrophe, which spread through financial markets and resulted in roughly $10 trillion in lost economic output, turned the bank into a symbol of the surfeits of the 2007–2008 Financial Crisis. In this story, we look at the rise and fall of one of the most prominent investment bankers and the impact that it had globally. Beginnings and their rise to glory Lehman Brothers, founded in the mid-19th century by German immigrant Henry Lehman, began as a modest dry-goods store in Montgomery, Alabama, in 1844. The transformation into Lehman Brothers came with the arrival of Henry's brothers, Emmanuel and Mayer. Their ambitions quickly expanded beyond dry goods, leading them into the intricate world of cotton and commodities trading. In 1858, a pivotal shift occurred as Lehman Brothers relocated its operations to New York, a burgeoning hub for commodities trading. While Henry managed the grocery and general store business, his brothers laid the groundwork for what would become a financial industry powerhouse. Over the next century and a half, Lehman Brothers underwent numerous transformations and forged alliances. Although Lehman Brothers' 2008 bankruptcy catalysed rather than caused the Great Recession and the subprime mortgage crisis, it sent shockwaves across global markets, triggering a significant selloff. The firm's journey was marked by resilience. In 1984, Shearson/American Express acquired Lehman Brothers for $360 million. In 1994, Lehman Brothers embarked on its path via an IPO, raising over $3 billion in capital. The repeal of the Glass-Steagall Act enabled Lehman Brothers to venture into both investment and commercial banking. Lehman Brothers thrived, becoming the nation's fourth-largest investment banking firm by 2007. Much of its growth was fuelled by substantial investments in mortgage-backed securities (MBS), a twist of fate that, ironically, contributed to its eventual downfall. The warning signs A strategy shift towards sophisticated financial products like mortgage-backed securities and collateralised debt obligations (CDOs) marked the beginning of Lehman Brothers' route to its tragic collapse. When Lehman bought many mortgage firms, including BNC Mortgage and Aurora Loan Services, which specialised in Alt-A loans without complete paperwork, this change occurred in the early 2000s. At first, these actions seemed profitable; from 2004 and 2006, Lehman's real estate division contributed significantly to a 56 percent increase in capital markets unit revenues. Despite these early gains, ominous signs began to emerge. The housing market in the United States revealed growing weaknesses, particularly with an increase in subprime mortgage defaults. Surprisingly, in February 2007, Lehman's stock price soared to a record high of $86.18 per share. Lehman kept on downplaying the significance of escalating home loan concerns despite mounting anxiety, assuring investors that the risks were under control. The countdown to the collapse Lehman's stock price fluctuated throughout 2007 as the U.S. housing market's cracks grew worse. Lehman responded to the economic crisis in August 2007 by closing down portions of its mortgage business and laying off 1,200 employees who worked in the mortgage industry. Despite this issues, Lehman continued to maintain a significant presence in the mortgage sector. Lehman's susceptibility resulted from its considerable portfolio of mortgage-related assets and excessive leverage, as seen by a leverage ratio of 31. As a result, Lehman's stock price declined by almost 48 per cent in March 2008. This fall took place amid mounting worries that Lehman would be the next big Wall Street Company to have huge issues. Investor confidence continued to decline despite Lehman's ability to raise money and take steps to lower its risk. Lehman's first losses since being spun off from American Express were reported in June 2008, when it posted a huge $2.8 billion second-quarter deficit. Global financial fallout The global financial crisis began on September 15, 2008, when Lehman Brothers filed for bankruptcy. The financial markets around the world experienced shockwaves as a result of this catastrophe. It set off a series of crises, including stock market crashes and freezes in the credit markets. To stabilise the staggering global economy, governments and central banks were forced to undertake large bailout packages and financial support measures. The collapse of Lehman Brothers serves as a warning of the dangers of uncontrolled risk-taking and financial excess as it had a ripple effect on the larger global financial crisis, which in turn affected people, financial institutions, and economies all over the world. WATCH WION LIVE HERE

Flashback Friday: Revisiting the collapse of the Lehman Brothers  

The stock markets tumbled again on Friday, fears of a banking crisis resurfaced despite massive financial lifelines thrown at embattled lenders to prevent contagion across the sector. Markets had rallied on Thursday, after wall street titans, including JP Morgan, Bank of America, and Citigroup, pledged to inject $30 billion into first Republic bank.

Credit Suisse & First Republic stocks dive back deep in the red; Global markets rattled

The shares of swiss lender Credit Suisse tumbled as much as 30% on Wednesday. The Credit Suisse turmoil resulted in torrid sessions in Europe and the United States overnight, as investors fretted about potential runs on global bank deposits.

Bailout of Credit Suisse fails to stem rout; banking crisis weighs on Europe's rate policy | WION

Rattled clients pull millions from the bank, Credit Suisse group has reported biggest annual loss since 2008 Global Financial Crisis. It also warned that a further substantial loss would come this year.

Credit Suisse warns of more losses, rattled clients pull billions from bank

China's Evergrande is missing its debt payments. At least 70,000 retail investors have suffered losses. Molly Gambhir tells you how the crisis at Evergrande has popped China's real estate bubble.

Gravitas: China's $300 billion debt bomb: Evergrande is missing payments

Are world leaders ignoring an impending global financial crisis? China's Evergrande crisis has rattled global markets. While Treasury Secretary Janet Yellen has warned the US could default on its debt obligations. Palki Sharma tells you more.

Gravitas US Edition: Are world leaders ignoring an impending financial pandemic?

Evergrande is China's biggest real estate player. It is on the brink of bankruptcy. Evergrande is short on cash and has liabilities worth over $300 billion. Will China export a financial crisis, after a pandemic? Palki Sharma tells you why the world needs to worry.

Gravitas:Is a global financial crisis brewing in China?

Gravitas: Is a global financial crisis brewing in China?

The <a href="https://www.wionews.com/business-economy/uk-economy-starts-to-shows-cracks-under-brexit-and-global-strains-254409">world economy </a>is slowing to its weakest pace since the global <a href="https://www.wionews.com/opinions/us-china-trade-war-points-to-the-real-crisis-that-global-leaders-must-confront-at-g20-summit-231112">financial crisis</a>, amid continuing trade conflicts that have <a href="https://www.wionews.com/world/global-growth-fragile-under-threat-former-imf-head-christine-lagarde-250693">undercut business confidence</a> and investment, the IMF said Tuesday.

It warned that the outlook is beset by risks, and urged policymakers to work to find resolutions to trade disputes since there are limited tools to respond to a new crisis.

"With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts.

The IMF for the past year has every three months cut projected growth for 2019 as trade conflicts worsened.

In its latest World Economic Outlook, it trimmed the estimate by another two-tenths, to 3.0 per cent. The report also lowered the 2020 forecast by a tenth to 3.4 per cent.&nbsp;

"At three per cent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," Gopinath said.

In addition, the trade conflicts and a slowdown in auto sales worldwide means trade growth has slowed sharply, falling in the first half of the year to its weakest since 2012, with an estimated increase of just 1.1 per cent this year after a 3.6 per cent jump in 2018.

Running low on ammo

While the US economy also has been hit by uncertainty — largely created by President Donald Trump's trade offensive — the world's largest economy remains a bright spot on the global stage, the report said.

After upgrading its US outlook in July, the latest WEO reversed course and cutting the US forecast this year to 2.4 per cent — still above trend, but two-tenths below the July forecast.

In 2020, the IMF projects US GDP to expand by 2.1 per cent, unchanged from the prior report.

"For the United States, trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus," Gopinath said.

Major central banks have taken steps to soften the blow to growth by lowering interest rates, without which the downturn would have been worse, she said.&nbsp;

However, she cautioned that monetary policy "cannot be the only game in town" and governments, notably in countries like Germany, should take advantage of low rates to make investments to support growth.

"With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," Gopinath warned.

The US-China trade war alone is estimated to shrink the world economy by 0.8 per cent in 2020, the IMF said.

The fund warned that risks to the outlook predominate, and the uncertainty around trade policy -- which causes businesses to hold off on investments and undermines confidence — will take a larger chunk out of growth than the tariffs themselves

Slowing auto sales

"To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to an economic activity where needed," the report said.

But trade is not the only reason for the global slowdown: the report notes that in China's economy, for example, growth is moderating as intended amid slowing domestic demand.

Other major economies like Brazil, India, Mexico, Russia and South Africa are slowing this year due to "idiosyncratic reasons" but are expected to recover in 2020.

"A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade," the IMF said, which in addition to the higher tariffs and trade uncertainty is the result of the contracting auto industry.&nbsp;

That slowdown has had an impact in Germany, China and India, the report said.

The world economy is slowing to its weakest pace since the global financial crisis, amid continuing trade conflicts that have undercut business confidence and investment, the IMF said Tuesday.

The world economy is slowing to its weakest pace since the global financial crisis, amid continuing trade conflicts that have undercut business confidence and investment, the IMF said Tuesday. It warned that the outlook is beset by risks, and urged policymakers to work to find resolutions to trade disputes since there are limited tools to respond to a new crisis. "With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts. The IMF for the past year has every three months cut projected growth for 2019 as trade conflicts worsened. In its latest World Economic Outlook, it trimmed the estimate by another two-tenths, to 3.0 per cent. The report also lowered the 2020 forecast by a tenth to 3.4 per cent. "At three per cent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," Gopinath said. In addition, the trade conflicts and a slowdown in auto sales worldwide means trade growth has slowed sharply, falling in the first half of the year to its weakest since 2012, with an estimated increase of just 1.1 per cent this year after a 3.6 per cent jump in 2018. Running low on ammo While the US economy also has been hit by uncertainty — largely created by President Donald Trump's trade offensive — the world's largest economy remains a bright spot on the global stage, the report said. After upgrading its US outlook in July, the latest WEO reversed course and cutting the US forecast this year to 2.4 per cent — still above trend, but two-tenths below the July forecast. In 2020, the IMF projects US GDP to expand by 2.1 per cent, unchanged from the prior report. "For the United States, trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus," Gopinath said. Major central banks have taken steps to soften the blow to growth by lowering interest rates, without which the downturn would have been worse, she said. However, she cautioned that monetary policy "cannot be the only game in town" and governments, notably in countries like Germany, should take advantage of low rates to make investments to support growth. "With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," Gopinath warned. The US-China trade war alone is estimated to shrink the world economy by 0.8 per cent in 2020, the IMF said. The fund warned that risks to the outlook predominate, and the uncertainty around trade policy -- which causes businesses to hold off on investments and undermines confidence — will take a larger chunk out of growth than the tariffs themselves Slowing auto sales "To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to an economic activity where needed," the report said. But trade is not the only reason for the global slowdown: the report notes that in China's economy, for example, growth is moderating as intended amid slowing domestic demand. Other major economies like Brazil, India, Mexico, Russia and South Africa are slowing this year due to "idiosyncratic reasons" but are expected to recover in 2020. "A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade," the IMF said, which in addition to the higher tariffs and trade uncertainty is the result of the contracting auto industry. That slowdown has had an impact in Germany, China and India, the report said.

World economy at its weakest pace since global financial crisis: International Monetary Fund

Australia's central bank lowered the cost of borrowing for the first time in three years on Tuesday, hoping to extend a record 28-year-run without a recession in the face of stiffening economic headwinds.

The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25 per cent as the pace of growth slowed to levels not seen since the <a href="https://www.wionews.com/opinions/how-to-deal-with-the-next-global-financial-crisis-170190">global financial crisis.</a>

Australia dodged much of the global economic tumult of the past two decades as Beijing lapped up its vast iron ore, coal and other mineral deposits.But now rising unemployment, low wages, a housing slump and below-target inflation are stoking fears about the health of the economy down nder.

"The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target," governor Philip Lowe said in a statement.

The rate cut had been expected and analysts believe that more measures to juice the economy could be on the way.Lowe said the bank would "continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy".

The <a href="https://www.wionews.com/world/un-forecasts-global-economy-to-grow-27-in-2019-29-in-2020-220522">economy</a> grew at 0.3 and 0.2 per cent in the last two quarters while figures for the first quarter of 2019 will be released on Wednesday.

Any contraction would trigger alarm with negative growth for two consecutive quarters widely considered a recession. 
Many are predicting the cash rate will fall below 1.0 per cent this year and the central bank could even look at buying up securities.

In the 10 years since the global meltdown, the Reserve Bank of Australia has -- apart from a brief burst of optimism in 2010 -- steadily cut rates from a peak of 7.25 per cent.&nbsp;

Any hope of returning rates to more "normal" pre-crisis levels have been quashed by the slow global recovery, trade disputes between China and the United States and domestic challenges. Lowe said that while the global outlook appears "reasonable", the "downside risks stemming from the trade disputes have increased".

Earlier on Tuesday, there was news of faltering retail sales and the country's main telecoms firm cutting 10,000 contractors.

A downturn in the country's hypercharged housing market, falling consumption and stalled wages have already pushed Australia into a per capita recession, with the output per person falling for two consecutive quarters.

Treasurer Josh Frydenberg urged lenders to pass on the lower cost of borrowing to customers and criticised one lender for announcing it would pass on only an 18 basis-point cut.&nbsp;

The decision to cut rates takes the central bank further into uncharted territory.

Lowe has himself warned that "low-for-long" interest rates could pose problems for financial stability, with banks and other firms overvaluing risky assets.

But already there is talk about the bank going a step further in improving liquidity, by buying up securities -- known as quantitative easing. &nbsp;

National Australia Bank analysts predicted another cut in August and further possible cuts in 2020.

"It's quite possible that the government will begin to contemplate some further financial support as well later in the year if current trends continue," they said.

Australia's central bank lowered the cost of borrowing for the first time in three years on Tuesday, hoping to extend a record 28-year-run without a recession in the face of stiffening economic headwinds.

Australia's central bank lowered the cost of borrowing for the first time in three years on Tuesday, hoping to extend a record 28-year-run without a recession in the face of stiffening economic headwinds. The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25 per cent as the pace of growth slowed to levels not seen since the global financial crisis. Australia dodged much of the global economic tumult of the past two decades as Beijing lapped up its vast iron ore, coal and other mineral deposits.But now rising unemployment, low wages, a housing slump and below-target inflation are stoking fears about the health of the economy down nder. "The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target," governor Philip Lowe said in a statement. The rate cut had been expected and analysts believe that more measures to juice the economy could be on the way.Lowe said the bank would "continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy". The economy grew at 0.3 and 0.2 per cent in the last two quarters while figures for the first quarter of 2019 will be released on Wednesday. Any contraction would trigger alarm with negative growth for two consecutive quarters widely considered a recession. Many are predicting the cash rate will fall below 1.0 per cent this year and the central bank could even look at buying up securities. In the 10 years since the global meltdown, the Reserve Bank of Australia has -- apart from a brief burst of optimism in 2010 -- steadily cut rates from a peak of 7.25 per cent. Any hope of returning rates to more "normal" pre-crisis levels have been quashed by the slow global recovery, trade disputes between China and the United States and domestic challenges. Lowe said that while the global outlook appears "reasonable", the "downside risks stemming from the trade disputes have increased". Earlier on Tuesday, there was news of faltering retail sales and the country's main telecoms firm cutting 10,000 contractors. A downturn in the country's hypercharged housing market, falling consumption and stalled wages have already pushed Australia into a per capita recession, with the output per person falling for two consecutive quarters. Treasurer Josh Frydenberg urged lenders to pass on the lower cost of borrowing to customers and criticised one lender for announcing it would pass on only an 18 basis-point cut. The decision to cut rates takes the central bank further into uncharted territory. Lowe has himself warned that "low-for-long" interest rates could pose problems for financial stability, with banks and other firms overvaluing risky assets. But already there is talk about the bank going a step further in improving liquidity, by buying up securities -- known as quantitative easing. National Australia Bank analysts predicted another cut in August and further possible cuts in 2020. "It's quite possible that the government will begin to contemplate some further financial support as well later in the year if current trends continue," they said.

Australia cuts rates to historic low as economy slows

Observing that the global financial crisis has exposed several limitations of conventional and unconventional monetary policy tools, Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said monetary economics in emerging markets needs a rethink.

This includes challenging the conventional wisdom of modern central banks to hike or reduce their interest rates by 25 basis points or multiples thereof, Das said in a special address delivered on the sidelines of the annual Spring Meetings of the International Monetary Fund and World Bank.

Highly appreciated by the audience for his call for out-of-the-box thinking to address monetary policy challenges of the 21st century, Das said the unconventional monetary policies of advanced economies have resulted in "risks and spillovers" for the emerging markets.

In his speech titled 'Global Risks and Policy Challenges facing Emerging Market Economies', Das observed that the global financial crisis has exposed several limitations of conventional and unconventional monetary policy tools.&nbsp;

In despair, some have turned to the heterodox evolution of ideas that are being practised as modern monetary theory, he noted.

In the end, monetary policy must touch the real economy, spur investments, and maintain monetary and financial stability, he asserted.&nbsp;

The time has come to think out of the box, including by challenging the conventional wisdom, he told the packed auditorium.&nbsp;

Typically, modern central banks with interest rates as their main instrument move in baby steps -- 25 basis points or multiples thereof -- and announce a stance of tightening, neutrality or accommodation to guide the markets and the public on the likely future course of policy, he said.&nbsp;

"One thought that comes to my mind is that if the unit of 25 basis points is not sacrosanct and just a convention, monetary policy can be well served by calibrating the size of the policy rate to the dynamics of the situation and the size of the change itself can convey the stance of policy," the RBI Governor said.&nbsp;

For instance, if easing of monetary policy is required but the central bank prefers to be cautious in its accommodation, a 10 basis points reduction in the policy rate would perhaps communicate the intent of authorities more clearly than two separate moves -- one on the policy rate, wasting 15 basis points of valuable rate action to rounding off, and the other on the stance, which in a sense binds future policy action to a pre-committed direction, he said.&nbsp;

Likewise, in a situation in which the central bank prefers to be accommodative but not overly so, it could announce a cut in the policy rate by 35 basis points if it has judged that the standard 25 basis points is too little, but its multiple, that is 50 basis points, is too much.&nbsp;

"This approach can also be useful when the central bank is on a tightening mode and potentially help avoid policy turnaround from forward guidance via stance too far into the future, which in a highly volatile global scenario, may not even be a year," Das said.&nbsp;

Stating that management of global spillovers poses a formidable challenge to emerging market economies, Das told the audience that a truly global financial safety net remains elusive as in this age of mobile capital flows, consequences of their arrivals, sudden stops and reversals are to be borne nationally.&nbsp;

As a result, emerging market economies (EMEs) are typically at the receiving end when global spillovers flare up, he said, adding that they have no recourse but to build their own forex reserve buffers.&nbsp;

Paradoxically, the accumulation of reserves has become stigmatised, including with labels such as "currency manipulation", he rued.&nbsp; 
"As I see it, we may be unintentionally setting the stage for several EME currencies to break out and challenge the hegemony of the dominant reserve currencies.&nbsp;

"There is a need for greater understanding on both sides. In the meantime, so far as the Reserve Bank of India is concerned, we will continue to play by the extant rules of the game," Das said in his special address.

Das also said central banks have to interact closely with financial markets for transmission of monetary policy impulses.&nbsp;

"In this context, ensuring a sound and efficient payment and settlement system is a pre-requisite," he noted.&nbsp;

Observing that the global financial crisis has exposed several limitations of conventional and unconventional monetary policy tools, Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said monetary economics in emerging markets needs a rethink.

Observing that the global financial crisis has exposed several limitations of conventional and unconventional monetary policy tools, Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said monetary economics in emerging markets needs a rethink. This includes challenging the conventional wisdom of modern central banks to hike or reduce their interest rates by 25 basis points or multiples thereof, Das said in a special address delivered on the sidelines of the annual Spring Meetings of the International Monetary Fund and World Bank. Highly appreciated by the audience for his call for out-of-the-box thinking to address monetary policy challenges of the 21st century, Das said the unconventional monetary policies of advanced economies have resulted in "risks and spillovers" for the emerging markets. In his speech titled 'Global Risks and Policy Challenges facing Emerging Market Economies', Das observed that the global financial crisis has exposed several limitations of conventional and unconventional monetary policy tools. In despair, some have turned to the heterodox evolution of ideas that are being practised as modern monetary theory, he noted. In the end, monetary policy must touch the real economy, spur investments, and maintain monetary and financial stability, he asserted. The time has come to think out of the box, including by challenging the conventional wisdom, he told the packed auditorium. Typically, modern central banks with interest rates as their main instrument move in baby steps -- 25 basis points or multiples thereof -- and announce a stance of tightening, neutrality or accommodation to guide the markets and the public on the likely future course of policy, he said. "One thought that comes to my mind is that if the unit of 25 basis points is not sacrosanct and just a convention, monetary policy can be well served by calibrating the size of the policy rate to the dynamics of the situation and the size of the change itself can convey the stance of policy," the RBI Governor said. For instance, if easing of monetary policy is required but the central bank prefers to be cautious in its accommodation, a 10 basis points reduction in the policy rate would perhaps communicate the intent of authorities more clearly than two separate moves -- one on the policy rate, wasting 15 basis points of valuable rate action to rounding off, and the other on the stance, which in a sense binds future policy action to a pre-committed direction, he said. Likewise, in a situation in which the central bank prefers to be accommodative but not overly so, it could announce a cut in the policy rate by 35 basis points if it has judged that the standard 25 basis points is too little, but its multiple, that is 50 basis points, is too much. "This approach can also be useful when the central bank is on a tightening mode and potentially help avoid policy turnaround from forward guidance via stance too far into the future, which in a highly volatile global scenario, may not even be a year," Das said. Stating that management of global spillovers poses a formidable challenge to emerging market economies, Das told the audience that a truly global financial safety net remains elusive as in this age of mobile capital flows, consequences of their arrivals, sudden stops and reversals are to be borne nationally. As a result, emerging market economies (EMEs) are typically at the receiving end when global spillovers flare up, he said, adding that they have no recourse but to build their own forex reserve buffers. Paradoxically, the accumulation of reserves has become stigmatised, including with labels such as "currency manipulation", he rued. "As I see it, we may be unintentionally setting the stage for several EME currencies to break out and challenge the hegemony of the dominant reserve currencies. "There is a need for greater understanding on both sides. In the meantime, so far as the Reserve Bank of India is concerned, we will continue to play by the extant rules of the game," Das said in his special address. Das also said central banks have to interact closely with financial markets for transmission of monetary policy impulses. "In this context, ensuring a sound and efficient payment and settlement system is a pre-requisite," he noted.

Monetary economics in emerging markets needs a rethink, says RBI Governor

By&nbsp;Iosif Kovras 
 
It has been ten years since the global recession hit – and the perfect opportunity to rethink and reassess the crisis with the benefit of time. Much of the focus so far has been on economic or policy failures, with the question of accountability left out of the discussion. In stark contrast to the grassroots calls for punishing those responsible, political leaders were not overly concerned with accountability, leaving bankers off the hook. 
 
This was a mistake. To give only one example, in the US and the UK, this post-crisis impunity – along with other political factors – have had deleterious effects on democratic politics, setting the stage for demagogues to emerge and ride a tide of popular discontent.

Our comparative research, carried out with Kieran McEvoy Neophytos Loizides, reveals that Iceland stands out from the rest. Iceland, a tiny European nation of 330,000 inhabitants, offers valuable lessons on the importance of accountability and suggests how to deal with such issues if or when the world suffers another financial crisis.

Days after the collapse of 97 per cent of its banking industry, Icelandic authorities designed a comprehensive policy of accountability, based on two overlapping objectives: establishing the truth and punishing those responsible. An independent truth commission was mandated to document the causes of the meltdown, and the newly established Office of the Special Prosecutor was tasked to thoroughly investigate and prosecute those responsible for any crimes committed in the run-up to the crisis. Both mechanisms have been remarkably successful.

Published in 2010, the truth commission’s 2,200-page report not only documented the manifold failings of the financial system in Iceland but also offered specific recommendations to protect state institutions from a future crisis. The report instantly became a bestseller, with copies sold in supermarkets. It was a popular gift – parents even gave it to their children to help them avoid making the same mistakes.

The Office of the Special Prosecutor successfully prosecuted 40 bank executives. This is remarkable, especially given the small population of the island and the comparative experience of other European countries affected by the recession, such as Ireland, Cyprus, or the UK (table below).

Populism is based on a simplistic view that divides society between the “real people” and the “corrupt elites”. In the aftermath of a financial crisis, bank executives were often – and still are – seen as the “greedy elites”, responsible for their people’s suffering; that explains why the public finds it so hard to forgive them. By not properly investigating the causes of the crisis as has happened in Iceland, skilful demagogues elsewhere have been able to frame political elites and the judiciary as part of a corrupt establishment.

Below are four key things that Iceland did in the wake of the global recession, that others countries can learn from.

1. Establish resources for special investigations 
​​​​​​​ 
As we show in our ongoing research with Stefano Pagliari, even though the judiciary is independent, politicians can take steps to boost the effectiveness of prosecutors. Excessive or reckless risk-taking is not always punishable by law, so prosecutors must prove bankers intended to break the law. This means expertise in white collar crime is indispensable to a criminal investigation. Iceland had this capacity but most other crisis-affected countries did not.

2. When truth leads, justice follows 
 
Uncovering the truth and punishing those responsible are equally valuable objectives. But they can be mutually reinforcing only in a particular sequence: truth leads and justice follows. For example, the Icelandic commission created a safe space for participants to reveal the whole truth, premised on the understanding that their evidence would not be used in court. Bankers would have been understandably reluctant to share sensitive information about their activities had prosecutions run parallel to the commission.

A similar commission in Cyprus, comprised of three former judges and with a legalistic mandate, resulted in guarded testimonies and concealment rather than a revelation of the truth. Yet in Iceland, once the commission’s report revealed the shocking details of the banks’ failings, the ensuing momentum allowed the special prosecutor to start bringing charges.

3. Use of forensic technologies 
 
The application of forensic technologies is the real secret of Iceland’s success story. By analysing millions of data points, commissioners reconstructed patterns of activity in the lead-up to the crisis.

In addition, while Irish and Cypriot prosecutors had difficulty explaining the technical details of white-collar cases to a judge or jury, in interviews I found out that Iceland’s Office of the Special Prosecutor developed a simulator able to reconstruct banking interactions. Converting data into visuals provided sufficient clarity to ensure convictions.

4. Don’t prosecute politicians 
 
Iceland wasn’t right about everything. The most important mistake was the decision to set up a special court for the former prime minister, the first and only political leader in the Western world convicted for his role in the crisis, for “gross negligence” – failing to inform his cabinet of major developments in the crisis, which led to three national banks failing. Even politicians of the opposition now acknowledge it was a mistake that needlessly polarised Icelandic politics.

The comparative experience of other countries, such as Greece, shows that prosecuting politicians can have deleterious effects on much-needed consensus-building in times of crisis. An endless blame game will have an adverse impact on economic recovery. Political leaders should be punished in the ballot box, not in a courtroom.

Iceland’s most remarkable achievement is that demagogues have not appeared. True, other factors have played a significant role in protecting democratic politics from the emergence of populist leaders. Here I point to the country’s swift economic recovery and its electoral system.

Yet by pursuing accountability, the state signalled it was performing its duty to uphold the rule of law and, by doing so, it may have protected democratic politics for decades to come.

In a post-truth political era, a report of the Special Investigation Commission (SIC) in Iceland established the truth about the causes of the crisis. This limited “the range of permissible lies” – to cite Michael Ignatieff the famous Canadian academic – and thwarted conspiracy theories. Meanwhile, in Greece, populist politicians still contest the figures of state deficits that triggered the crisis. They maintain that deficits were artificially inflated to force Greece into external supervision. Think, for example, of the waves of indictments against the former head of the Greek statistical authority.

The policy recommendations of the commission set the stage for a comprehensive set of institutional reforms, geared at protecting democratic institutions from a future financial crisis. At the same time, the Office of the Special Prosecutor developed unparalleled expertise in white-collar crime investigation. In contrast, other European countries do not have a better capacity to investigate corporate crimes now than they did ten years ago.

The experience of Iceland shows that pursuing policies of accountability after a crisis may protect democracies from political instability and strengthen state institutions, thus protecting that country from a future crisis.

 
(Iosif Kovras is Reader in Comparative Politics, City, University of London) 
 
(This article was originally published on The Conversation. Read the <a href="https://theconversation.com/how-to-deal-with-the-next-financial-crisis-take-some-lessons-from-iceland-104354">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL) 
&nbsp;

By Iosif Kovras It has been ten years since the global recession hit – and the perfect opportunity to rethink and reassess the crisis with the benefit of time. Much of the focus so far has been on economic or policy failures, with the question of accountability left out of the discussion.

By Iosif Kovras It has been ten years since the global recession hit – and the perfect opportunity to rethink and reassess the crisis with the benefit of time. Much of the focus so far has been on economic or policy failures, with the question of accountability left out of the discussion. In stark contrast to the grassroots calls for punishing those responsible, political leaders were not overly concerned with accountability, leaving bankers off the hook. This was a mistake. To give only one example, in the US and the UK, this post-crisis impunity – along with other political factors – have had deleterious effects on democratic politics, setting the stage for demagogues to emerge and ride a tide of popular discontent. Our comparative research, carried out with Kieran McEvoy Neophytos Loizides, reveals that Iceland stands out from the rest. Iceland, a tiny European nation of 330,000 inhabitants, offers valuable lessons on the importance of accountability and suggests how to deal with such issues if or when the world suffers another financial crisis. Days after the collapse of 97 per cent of its banking industry, Icelandic authorities designed a comprehensive policy of accountability, based on two overlapping objectives: establishing the truth and punishing those responsible. An independent truth commission was mandated to document the causes of the meltdown, and the newly established Office of the Special Prosecutor was tasked to thoroughly investigate and prosecute those responsible for any crimes committed in the run-up to the crisis. Both mechanisms have been remarkably successful. Published in 2010, the truth commission’s 2,200-page report not only documented the manifold failings of the financial system in Iceland but also offered specific recommendations to protect state institutions from a future crisis. The report instantly became a bestseller, with copies sold in supermarkets. It was a popular gift – parents even gave it to their children to help them avoid making the same mistakes. The Office of the Special Prosecutor successfully prosecuted 40 bank executives. This is remarkable, especially given the small population of the island and the comparative experience of other European countries affected by the recession, such as Ireland, Cyprus, or the UK (table below). Populism is based on a simplistic view that divides society between the “real people” and the “corrupt elites”. In the aftermath of a financial crisis, bank executives were often – and still are – seen as the “greedy elites”, responsible for their people’s suffering; that explains why the public finds it so hard to forgive them. By not properly investigating the causes of the crisis as has happened in Iceland, skilful demagogues elsewhere have been able to frame political elites and the judiciary as part of a corrupt establishment. Below are four key things that Iceland did in the wake of the global recession, that others countries can learn from. 1. Establish resources for special investigations As we show in our ongoing research with Stefano Pagliari, even though the judiciary is independent, politicians can take steps to boost the effectiveness of prosecutors. Excessive or reckless risk-taking is not always punishable by law, so prosecutors must prove bankers intended to break the law. This means expertise in white collar crime is indispensable to a criminal investigation. Iceland had this capacity but most other crisis-affected countries did not. 2. When truth leads, justice follows Uncovering the truth and punishing those responsible are equally valuable objectives. But they can be mutually reinforcing only in a particular sequence: truth leads and justice follows. For example, the Icelandic commission created a safe space for participants to reveal the whole truth, premised on the understanding that their evidence would not be used in court. Bankers would have been understandably reluctant to share sensitive information about their activities had prosecutions run parallel to the commission. A similar commission in Cyprus, comprised of three former judges and with a legalistic mandate, resulted in guarded testimonies and concealment rather than a revelation of the truth. Yet in Iceland, once the commission’s report revealed the shocking details of the banks’ failings, the ensuing momentum allowed the special prosecutor to start bringing charges. 3. Use of forensic technologies The application of forensic technologies is the real secret of Iceland’s success story. By analysing millions of data points, commissioners reconstructed patterns of activity in the lead-up to the crisis. In addition, while Irish and Cypriot prosecutors had difficulty explaining the technical details of white-collar cases to a judge or jury, in interviews I found out that Iceland’s Office of the Special Prosecutor developed a simulator able to reconstruct banking interactions. Converting data into visuals provided sufficient clarity to ensure convictions. 4. Don’t prosecute politicians Iceland wasn’t right about everything. The most important mistake was the decision to set up a special court for the former prime minister, the first and only political leader in the Western world convicted for his role in the crisis, for “gross negligence” – failing to inform his cabinet of major developments in the crisis, which led to three national banks failing. Even politicians of the opposition now acknowledge it was a mistake that needlessly polarised Icelandic politics. The comparative experience of other countries, such as Greece, shows that prosecuting politicians can have deleterious effects on much-needed consensus-building in times of crisis. An endless blame game will have an adverse impact on economic recovery. Political leaders should be punished in the ballot box, not in a courtroom. Iceland’s most remarkable achievement is that demagogues have not appeared. True, other factors have played a significant role in protecting democratic politics from the emergence of populist leaders. Here I point to the country’s swift economic recovery and its electoral system. Yet by pursuing accountability, the state signalled it was performing its duty to uphold the rule of law and, by doing so, it may have protected democratic politics for decades to come. In a post-truth political era, a report of the Special Investigation Commission (SIC) in Iceland established the truth about the causes of the crisis. This limited “the range of permissible lies” – to cite Michael Ignatieff the famous Canadian academic – and thwarted conspiracy theories. Meanwhile, in Greece, populist politicians still contest the figures of state deficits that triggered the crisis. They maintain that deficits were artificially inflated to force Greece into external supervision. Think, for example, of the waves of indictments against the former head of the Greek statistical authority. The policy recommendations of the commission set the stage for a comprehensive set of institutional reforms, geared at protecting democratic institutions from a future financial crisis. At the same time, the Office of the Special Prosecutor developed unparalleled expertise in white-collar crime investigation. In contrast, other European countries do not have a better capacity to investigate corporate crimes now than they did ten years ago. The experience of Iceland shows that pursuing policies of accountability after a crisis may protect democracies from political instability and strengthen state institutions, thus protecting that country from a future crisis. (Iosif Kovras is Reader in Comparative Politics, City, University of London) (This article was originally published on The Conversation. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

How to deal with the next global financial crisis 