Weekend Economic Glance, Nov. 1-8

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China and Taiwan broke new ground in the countries’ relationship during a meeting of their respective leaders. S&P downgrades Saudi Arabia due to negative economic outlook of the oil dependent country. The US government halts all drilling projects in the arctic due to changed market conditions and India is appealing to its citizens to turn in their private gold in exchange for interest payments.

Weekend Economic Glance, Nov. 1-8

 

Taiwan and China to boost economic integration and cooperation. Taiwan has decided to join the Chinese-lead Asian Infrastructure Investment Bank (AIIB) and the Silk Road Economic Belt (SREB). Both projects are Chinese initiatives supported by 57 prospective members worldwide like Germany, Russia, France and Great Britain. The projects are a direct contender to the American dominated institutions like the IMF and the World Bank and are seen as a way to establish a multi-polar world without US-dominance. The announcement was made on Saturday during a meeting between Chinese and Taiwanese officials. The meeting was the first of its kind in over 65 years and is seen as a milestone regarding the diplomatic relations between the two countries. Western commentators were very cautious in celebrating the development with the US-friendly German state broadcaster Tagesschau printing a headline that read “Only a fool would trust China”. Meanwhile BBC blamed China for the difficult relations in an article where the actual meeting was only a side note. The US has been supporting Taiwans former adversarial stance towards China in a bid to curb Chinese influence in Asia and has even delivered weapons to the country. China considers Taiwan to be a breakaway province that should be reunited with “the motherland”.

Saudi Arabian credit rating gets a downgrade. Rating agency S&P has downgraded Saudi Arabia’s credit ratings from AA- down to A+ with a negative outlook. S&P noted that the previous budget surplus of 13% of the GDP is a thing of the past. The country now expects a budget deficit in 2015 equal to 16% of GDP. This development is a direct result of the oil price, which has seen somewhat of a crash in the past. As a direct result of the downgrade, Saudi Arabia will now face higher refinancing costs due to increased interest rates that it has to pay for borrowing money in the market.

Weekend Economic Glance, Nov. 1-8

Source: http://oil-price.net/

US government to halt oil production projects in the arctic. The Obama administration has announced on Saturday that it will take back two overdue drilling licenses for the arctic. The projects were aimed at extracting underwater oil resources in America’s north. The official reason for the move is that the environment could not be adequately protected. However, it is no secret that underwater oil extraction is a very costly endeavor with production costs as high as 75$ per barrel. These oil projects are no longer economically viable at the current oil price level. Furthermore, the fact that the drilling projects were to be finalized and running by 2017 shows that the US government does not expect the oil price to rise any time soon. Republicans criticized the move as “destructive pattern of hostility against the energy production in our country”, as quoted by German paper FAZ.

India appeals to its people to turn in their gold. Indian Prime Minister Narendra Modi has launched a program to motivate Indians to put their private gold into the national banking system. The plans see banks collecting gold for up to 15 years and pay an annual 2.25 – 2.5 % interest to the owner. After 15 years the people can either cash in their gold or get it back. India hopes to unlock around 20,000 tons of gold worth over $800 billion resting idle in people’s homes or temples. The number is extremely surprising since it would make India the country with the highest gold reserves in the world in a very short time. Previous attempts to bring Indians to turn in their gold offered only 1% interest which is why the project is seen as very promising. India therefore goes hand in hand with Russia and China who have also been buying up gold during the last decade, filling up their national cash reserves. Some observers believe that the countries of the Shanghai Cooperation Organization (SCO) are planning to introduce an international currency backed by gold which would be a rival to the inflation plagued Dollar and ensure stable exchange rates for currencies. The gold standard could stabilize the global economy and would make countries much less vulnerable to outside economic attacks.

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