Thursday, June 2, 2011

2002 Jetta Rear Lights

02.06.11 - Day View - The Forex market (Forex)



basic principle of financial risk management is the joint participation. The more diversified financial portfolios, the more people who share the inherent risks, and the less impact any particular risk to the individual. Theoretically, the ideal situation is when the financial contracts are distributed worldwide, with each investor owns a fraction, and none of them is in terms of excessive risk. Example of Japan shows that despite the complicated structure of our financial markets, we are still very far from achieving the ideal. Given the lack of effective management of huge risk, even in the twenty-first century financial sector actually remains fairly primitive. A recent World Bank study, it was estimated that

damage from the triple disasters (earthquakes, tsunamis and the nuclear crisis) occurred in March, may ultimately do in Japan at 235 billion dollars (Not counting the lives tragically lost people). This is about 4% of Japanese GDP in 2010.
Given the strong public response in terms of charity help to eliminate the effects of the disaster, and voluntary contributions to Japan, you might think that the economic losses were divided into international level. However, the papers proposed to move such payments from foreign countries into the hundreds of millions of dollars - which is less than 1% of all losses.
Japan needed was a real joint participation in the financial risks: charity rarely plays a big role. Insurance companies operating in Japan, recover some losses. The same World Bank study estimated that the total amount of claims against insurers in Japan, may eventually make 33 billion dollars. It is clear that the insured risk was a fraction of the total risk. In addition, much of this risk, even if he insured, still carries Japan: he was not effectively distributed among foreign investors, however, Japan continues to bear the costs alone.

Before the crash, Japan has issued bonds associated with the aftermath of the earthquake, the amount of $ 1.5 billion, as a means of risk management: debt is canceled in the event of a specific seismic event. This project facilitated the distribution of risk associated with earthquakes, between Japan and foreign investors who were willing to take risks, and which fascinated a large prospective return. Unfortunately, the $ 1.5 billion - Is little more that can bring the charity - but only a drop in the bucket compared to the scale of damage. Moreover, even this triple disaster often do not meet the definition of seismic event, specified in the bond agreements. Much more is required of bonds associated with the risk catastrophes, and they should be much more efficient.
Of course, compared with two Japanese "lost decade", held since 1990., Triple disaster this year does not look so great. In the 1980s, real GDP growth per capita in Japan has averaged 3.9% per year, but since the early 1990s - just 1.4%. If growth in real per capita GDP after the 1990s, continued at the level of the 1980s, the Japanese economy would be 60% larger than today - considering the losses trillions of dollars.
Japan could insulate themselves from many unwanted vibrations of GDP, if properly managed this risk. Although no country ever to do so in such a large scale, it is now important to apply this innovative approach. Many economists argue that countries must cover their risks through the issuance of another type of public debt, tied to their own GDP, or a similar indicator of economic success.
In its simplest form, the securities would represent a share of GDP. Canadian economist Marco Kamstr proposes to issue shares titled "Trill" on which dividends would be paid each year in the amount of trillionth of GDP for this year in local currency. If the Japanese government released "Thrill" in the 1990s, when nominal GDP in Japan was 443 trillion. Yen, dividends paid to investors for the first year would amount to 443 yen. Each year thereafter, the dividends paid would be hesitant depending on changes in GDP. Investors around the world took to the risks associated with the Japanese GDP in exchange for alleged profits, as well as in the case of bonds associated with the risk of accidents.
«Trill" is likely to be sold on a very high price in the 1990s may yield dividends would be within 1%. Ultimately, people in the 1990s, having witnessed the recent high growth rates expected to rapid growth in Japanese GDP in the subsequent decades. In 2010. when GDP was only about 479 trillion. yen, the same "Trill" would bring the dividend of 479 yen, not much more than the initial profit, and it is no doubt disappointing to many investors.
Thus in the case of minor expectations terms of growth, "Trill" probably would have had now a much lower cost. This low value would be a disaster for investors, but a boon for Japanese, compensating them losses. Given the current concern about the high ratio of public debt to GDP, which is now is 202% on a gross basis, need to think about the fact that it is likely it would be much less if in the past, Japan would use the funding mainly through the "Trillo", rather than the traditional debt and issue them to investors worldwide.
Robert Shiller, an economics professor at Yale University and chief economist at MacroMarkets LLC

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