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Saief Mahmood

Downgraded: America’s debt crisis

Recently, Standard and Poor’s (S&P) downgraded America’s credit rating from AAA to AA+, ending the nation’s 94-year streak as a triple-A borrower. It has also warned that the rating might be lowered further to AA if certain required steps are not taken. Needless to say, this has been a huge blow for the largest economy of the world, indicating as it does that America is no longer among the list of risk-free sovereign countries.The downgrade occurred after the U.S. approved a deal to increase its debt ceiling—the maximum amount the U.S. government allows itself to legally borrow—in order to avoid defaulting on its debt. While the default was averted, the U.S. failed to deal substantively with its ongoing debt problem, currently standing at $14.3 trillion, just over 100 percent of its GDP, a failure that led to the S&P downgrade shortly afterwards.Needless to say, the blame game has only just started. Republicans are blaming Democrats. Democrats are blaming Republicans. No one is honestly accepting the blame themselves. The truth is that each of the related parties is to blame, and the White House and Congress have suffered considerably in this debacle. But the biggest loser is the American people.The impact of this downgrade will be felt in the short term, as well as in the long term. Countries like Japan and China who own a large portion of the debt are looking at the situation very closely, and may end up reevaluating their investment choices. The negative analysis was released while the unemployment rate in the U.S. was at 9.1 percent; in June, that represented 13.9 million people. Unfortunately, this downgrade may serve to make the unemployment situation even worse, as investors’ lose confidence in the U.S. as a safe borrower.Yet, if an investor takes his money out of U.S.… Read More

The Uses and Limits of Microfinance: the Bangladesh Example

As the financial service known as “Microfinance” enjoys greater acceptance around the world, it has come under increasing public scrutiny. The reasons why it has been steadily growing in popularity, particularly in many developing countries, deserve close attention.The term “Microfinance” describes a broad range of financial services that provide capital to low-income clients or solidarity lending groups (including consumers and the self-employed) who have traditionally lacked access to banking and related services.Microfinance is a proven tool for fighting poverty on a large scale. It provides very small loans known as ‘micro-loans’ to poor people (mostly women) to start or expand very small, self-sufficient businesses. Through their own ingenuity and drive and the support of the lending microfinance institution (MFI) poor women are able start their journey out of poverty.One of the most compelling examples of microfinance is the provision of credit services to poor clients known as microcredit. (Although microcredit is one form of microfinance, conflation of the two terms is endemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'.)Unlike commercial loans, no collateral is required for a micro-loan and it is usually repaid within six months to a year. Those funds are then recycled as other loans - keeping money in circulation and in the hands of borrowers. For example, a woman could borrow $50 to buy chickens so that she can sell their eggs. As the chickens reproduce, she can sell more eggs and eventually sell the chicks. As a borrower, she receives advice and support from the MFI that issued her loan, and support from other borrowers just like her.As her business grows and diversifies, she begins to earn enough to improve the living conditions for her and her family. Some MFIs also provide social services, such as… Read More

Europe in deep

Last year the European Financial Stability Fund was set up to bail out indebted EU members. It did not quite do the trick, and last July leaders followed it up with a second proposal, suggesting the €440 billion fund should be used to buy bonds issued by distressed euro area governments directly from investors in the secondary market. They suggest that the EU should be buying its member states' debt as a bailout mechanism.Analysts and politicians are questioning the effectiveness of the proposal. Investors are worried that the bailout fund may not have sufficient resources, especially if Spain and Italy need to be bailed out, something that looks increasingly likely. In many northern European countries, the idea of providing additional supports for countries that overspent is profoundly unpopular among voters. Economists are concerned that the bailout fund invites moral hazard and would encourage governments to spend irresponsibly.Adding to concerns is the prospect that European governments will be unable to repay their debts due to poor economic growth. The European Central Bank expects growth of only 1.4% and 1.8% in 2011, and between 0.4% and 2.2% in 2012. Germany, the region's economic powerhouse, reported a paltry 0.1% second-quarter increase in GDP, compared with a more robust 1.3% in the first quarter.Analysts suggest the EU requires a fundamental change in the way it operates. It needs a coordinated financial approach or to be disbanded. The present lack of coordination has resulted in a situation where economically stronger members of the union are now being forced to help subsidize less-competitive members that have spent beyond their means. Commentators have suggested that if stronger members do not bail out their fiscally-challenged neighbors, the Euro project, and likely the European Dream, will become a remnant of history.One suggested solution has been the so-called ‘Eurobond,’ or… Read More

On the status of women in the developing world

The empowerment of women is widely considered to be a crucial factor for economic development, as no people can move forward while leaving half of its population behind.Many underdeveloped and developing countries are, or have been, apparently unwilling to accept the fact that they cannot have satisfactory economic growth rate without equal productivity across the population. Economic reasons notwithstanding, there are also humanitarian, and thus social, factors. The sooner a country realizes that it must foster equal contribution from both genders, the more fortunate its people.A woman’s role may be constrained by local cultural practices. In countries like Kenya, Liberia, Rwanda, Ghana, Tanzania and Zambia, women usually lose their land when they are widowed, for their entitlement to their land is only a function of their marriage. According to customary law, they gain access to their husbands’ land through marriage, but they are not accorded property rights.While still unmarried, they have access to their parents’ land as long as their parents are alive. As farming is a principal source of livelihood in much of the developing world, this law means women have minimal decision-making power; their economic dependency is then part of an unfortunate feedback loop.The role of women is changing rapidly in some South Asian countries like Bangladesh, India, Sri Lanka and Nepal. Women are actively participating in the economy, and increasingly (but less remarkably) in the family decision-making process. In Bangladeshi federal elections the female participation rate is 80%, indicating a more central socio-economic role for women.But the situation is not as promising in some other parts of Asia, such as Afghanistan or Pakistan. Child-marriage, unemployment, religious constraints, dominance by husbands, various laws and gender discrimination, etc., are major barriers to real empowerment for women.Without sufficient empowerment, women in the developing world are prone to many problems: children… Read More

Welcome aboard!

If these are your first few weeks at university, welcome aboard, mate! Make sure to fasten your seat belt – it is going to be a roller coaster ride. I hope you are already well-prepared for the journey ahead, so I am not going to tell you what to do or what not do. I am just going to tell you what I did when I was in your position, and perhaps you will find something interesting in the experience of one university student finding his way on campus...For me, my first and second years in university were the times I did whatever I liked. I must have joined every single club: debate club, photography club, cycling club, tourist society, film society (to name a few); this helped me realize what I liked and what I didn’t. This time will never come back, so don’t be afraid to try something new!It was also a time for me to meet people (a lot of people). I made hundreds of friends. I talked with them, argued with them, helped them and supported them. Consider becoming a representative on the student council. However, do be cautious and proceed with this is at your own risk; I won’t take the blame if your campaign does not work out as you planned.Enjoy every moment of your time; party, socialize. But if you can spend a few hours volunteering, doing something for your community, please do it. I used my free time to campaign against child labour. I was beaten by the police a couple of times, and I was once taken to the police station for questioning about an office-front protest, but that’s nothing to be afraid or ashamed of. Many of my friends spent their spare time educating street children, and had fun doing… Read More
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