The Credit Crunch

A Credit crunch is when there is lack of availability of loans and credit this can also be applied to a sudden reduction of the availability of obtaining loans from the banks. A Credit Crunch also involves the rise of official interest rates. During a credit crunch lenders or investors make less risky investments.

 A Credit Crunch is mostly caused when careless and inappropriate lending is occurred in a continuous manner over a long period of time which therefore results in major losses for lending and investing businesses that end up in debts.

The BBC reveals Northern Rock has asked for and has been granted emergency financial support from the Bank of England, in the latter’s role as lender of last resort. A day later depositors withdrew £1bn in what is the biggest run on a British bank for more than a century. They continue to take out their money until the Government steps into the guarantee their savings.

The symptoms of the problem is that banks are reluctant to lend to other banks, institutions reluctant to lend, and other organizations, because they may not be rewarded. In other words, the banks have a "strike." Why is this? This is because many banks have to lend money to people, their assets, but no one Lenders worry that they have made ​​a lot of loans to inability to pay, so they are reluctant to lend them any more cases by default, along with some old new loan. The fundamental problem is that a large number of non-performing loans, structured bank but because of the financial system and do not know who holds the non-performing loans. It sounds incredible, but it has happened, because regulators have allowed the complex restructuring loans and people to make new loans, support of non-performing loans - because of the government's inflation target.

An estimated how much money lent by the increase in the money supply. The compound annual growth rate of about 11%, in Australia, in the past 30 years, the money supply increased. The money is a reflection of some form of assets. When we borrow money, we expect it to be repaid, if there is no money to pay, we expect to get the return on the assets. The most fundamental problem is that too much money has been created, we now have money, there is no access to assets.

How could this happen? We allow bank loans loan support. As a risk mitigation strategy or insurance, it is a wise idea, but the loan when the loan when it falls as a commodity in their own right. That is, as long as we start the money as a commodity with intrinsic value of the assets to support independent, it is almost inevitable system operation control. It does not bankers greedy or incompetent government, it is a system, an inherent defect.

The built-in defects, we put all the money, it seems to be the same, as long as we have created some of the money, and we want it to pay interest. We treat all of the money, although it has a separate asset-backed value. We let the money you want to create an asset-backed case, we charge interest immediately. Every day, the government and Australia's major banks to create the new currency of approximately $ 500 million as a measure of the increase in the money supply. More and more, they have to create more money than the increase in our total wealth. They not only create more money than we need to pay more money before interest earned what. Our productive assets will not produce more wealth to pay this interest; we have to create more money, which in turn generate interest, which in turn requires more money to pay interest. In fact, we have created a classic Ponzi scheme, the loser is society as a whole unit known as inflation targeting. The government sanctions to encourage this practice a wide range of tax equivalent to the rate of inflation. Of course, this government, because it does not see that as a tax, it said, it promotes economic adjustment, the relative change in value of the different asset classes is rationalization. This rationalization is true, but there is other tax, us through inflation adjusted. A simple rule changes, we can solve the problem immediately and overnight. Allows the creation of new money, but do not pay interest until it turned into a productive asset. This is not a radical idea. It does every day, every week, as people invest in the new joint venture. When you invest in something terrible, something until it is earned, you do not expect the return on your money.

The currency issue is not a new idea to the actual asset-backed. The new idea is that the system does not have the issue of asset-backed currency. Need money, supported by the assets of the reasons why there are so many people called for a return to money backed by gold. Unfortunately unrealistic, because we need more gold than exists, but the proposals we put forward the same principle. Do not create interest-bearing money, unless it is behind an asset. There are a variety of ways for the community to become social investment, rather than a consumer society. In other words, we will not let the interest of the new funds, retained until it is income. Here are a couple of ideas.

Create interest-free money to first-time homebuyers, but it takes money to build a new house. Any interest earned until it has turned into a new house money. The money can be used to buy a second-hand housing, but it does not earn interest until.it is used to build a new house, thus increasing the asset base of. As a side benefit, this policy for those who do not have an affordable housing.

Create interest-free money; it consumes very little energy (the way a few greenhouse gas emissions) as a reward. Interest-free money as a reward frugal people. These people as a side benefit, the need to eliminate the emission permit trading, if we create enough investment incentives in infrastructure, which will reduce emissions - such as wind farms, the use of solar thermal energy production, solar cell, geothermal energy plant, insulation and other incentives, we will be in a few years, we have invested billions of dollars in renewable energy infrastructure money, zero interest rates and zero emissions.This approach will not lead to inflation of special money without interest, until it is invested in productive assets, will go back in time more money, rather than its cost of construction.

The credit crisis can be avoided, because the government has brought obvious need of new capital investment to create real value and real wealth. The Reserve Bank can control the issue of special money, you can use it to keep the inflation rate is zero. The rest of the economy can continue to be safe in their own way the money will not be eroded by inflation in the value of knowledge systems.

M&A

Mergers and Acquisition (Takeover)

Is It an opportunity for a business to make an investment internationally?

Combining of the two businesses entities under common ownership is called merger. Expanding the activities of the firm through acquisition involves significant uncertainties. Very often the acquiring management seriously underestimate the complexion involved in merger and post-merger integration.

The benefits from mergers are often difficult to quantify. The motivation may be to apply superior managerial skills or to obtain unique technical capabilities or to enter a new market.  Acquiring companies often do not know what they are buying. If a firm expands by building a factory here or buying machinery there it knows what it is getting for its money.

By bringing together two firms at different stages of the production chain an acquirer may achieve more efficient co-ordination of the different levels. The focus here is on the costs of communication, the costs of bargaining, the costs of monitoring contracts compliances and the costs of the contract enforcement. In 2011 Google paid $12.5bn to buy Motorola mobility, thus linkage a software company with a hardware manufacturer.

This is a merger that occurs when a larger company buys a competitor and absorbs it into the greater organization. Shareholders have the power to vote to approve or deny such a merger. If the shareholders vote down the acquisition, the corporation cannot legally continue steps to fulfill the merger. To sway shareholders, corporate officers often disseminate information relating to the proposed merger, including how the acquisition will strengthen the corporation and provide a greater share of the profits for investors.

One the biggest mergers in recent years are the mergers of British Airlines and Iberia Airlines (December 2010). The company will have its headquarters in London, with BA shareholders retaining 55% ownership of the company. The merger is seen as a chance for the two airlines to cut costs following two very tough years for the airline industry. Both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.

The problem can arise when one company have more than 51% of the shares because they might want to appoint their people on the top jobs. This actually happened in the case of British Airways and Iberia Airlines. Because according to the Spanish they want to cancel this merger. Strike action is being threatened by workers at Iberia in protest against restructuring which will lead to 4,500 job losses. “It’s not fair and it’s not the way things were supposed to be. The merger was supposed to bring growth for both companies and benefits for workers of both airlines,” Sepla head Justo Peral told the Daily Telegraph.

The Spanish carrier’s chief executive Rafael Sánchez-Lozano said: “Iberia is in a fight for survival. It is unprofitable in all markets. Unless we take radical action to introduce permanent structural change, the future for the airline is bleak.”

There are fewer risks; economic risk, political and fear of the recession create a certain type of respond in investing in the company. But in the time of the recession there is a decline in the market confidence, companies focus on their core business and they look at the profitability rather than expanding the business. Because if we compare with the situation of hot kettle as when it is hot it is hard to touch so when the situation is like this than the companies think how to make money and this is the period where good companies will survive and they can create value for the shareholders, and poor companies who do bad purchases they collapses. Recently sports direct bought Republic. It’s a bargain due to low share prices which also supports the M&A (merger and Acquisition).

Foreign Direct Investment

Foreign Direct Investment (FDI)

What it is? Why companies want to spend in other countries companies? How it helps the Businesses?

Foreign direct investment is the purchase of physical assets or a significant amount of the ownership of a company in another country to gain a measure of management control. Company invest direct in production facilities overseas rather than domestically. This includes giving the licence to allow the rights to manufacture company’s products to an overseas company franchise its operations to an overseas company.

Why a company wants to be a multinational company? Well mostly the company’s wants to grow their business and get high profits to improve the image and reputation. As most of the companies are market seekers, some companies can be raw material seekers as they want to improve the quality of the products as they are products and production efficiency seekers. Some companies are also political safety seekers.

Theories of FDI are not mutually exclusive but they can be viewed as collective. Transportation costs incurred when exporting goods. Particularly effect goods that are low value and high weight and can be easily produced any location for example cement. That makes Foreign Direct investment more attractive. Government is the main service of these through the imperium of the tariffs and quotes. These decreases the profitability of exporting and that makes FDI and licensing more attractive too. Companies may have competitive advantage through technology, management and marketing knowhow as well through their core product. Locating particular economic activity in a specific location gives a company a location advantage. The ownership of some special assets, powerful brand, technical advantage, and knowledge and management ability gives a company an ownership advantage.

According to the BBC News (3^rd march 2013) Europe's most senior trade official has said that a free-trade agreement between the US and European Union would boost its growth by as much as 1%, leading to many more jobs. The deal would be the biggest free-trade agreement in history. EU Trade Commissioner Karel De Gucht said that both were still "suffering the effects of the earthquake that hit our economies in 2008".                                                                                                   

"This is the cheapest stimulus package you can imagine," he told an audience at Harvard University on Saturday, saying that for the EU, "the income effects of the deal that we are now trying to achieve should be between 0.5% and 1% of GDP, meaning hundreds of thousands of jobs"

A deal would bring down trading barriers between the two biggest economies in the world. The EU estimates that a "comprehensive and ambitious agreement" will boost annual GDP growth by 0.5%.Mr De Gucht also noted that trade talks at the World Trade Organization had stalled, "largely because of differences of view between developed powers - like the US and the European Union - and the rising stars.

"An EU-US partnership can act as a policy laboratory for the new trade rules we need - on issues like regulatory barriers, competition policy, localisation requirements, raw materials and energy."This can improve the relation between the two countries and can help to boost the economy. There will a lot of the competitors are there in the market to follow them as the following competitors always try to be aware of the acts of the other successful companies .e.g. knickerbockers (1973).