Risk of US double-dip recession rises: S&P

WASHINGTON: The odds the United States will slip back into recession next year have risen, ratings agency Standard & Poor's said, citing risks from the European debt crisis and budget tightening at year-end.

The US ratings firm raised the chance of the US falling into recession to 25 per cent, up from a 20 per cent chance estimated in February, as the world's largest economy struggles to recover from a severe 2008-2009 slump.

It also pointed to the looming possibility of the government being forced by existing law to severely cut spending and increase taxes on January 1, the so-called fiscal cliff that would crunch the economy.

"Economic activity has downshifted sharply from earlier this year," S&P said in a report on North American credit conditions amid global uncertainty, dated August 20.

"At the same time, possible contagion from the European debt crisis, the potential so-called 'fiscal cliff', and the risk of a hard landing for China's economy have added greater uncertainty to US economic prospects," it said.

In the second quarter, the world's largest economy grew at a 1.5 per cent annual rate, a sharp slowdown from late last year as unemployment remained stuck above 8.0 per cent.

S&P underscored concern about the impact of a recession in the 17-nation eurozone, whose economy contracted 0.2 per cent in the second quarter. S&P forecast a 0.6 per cent contraction this year.

"A double-dip recession in Europe that transmits financial turmoil to the US could push it into recession," the agency said.

However, S&P said its baseline scenario for the US economy -- remained "modest growth," projecting a gross domestic product expansion of about 2.1 per cent for this year.

S&P also said it expected that politicians would agree before year-end to change the current severe budget cut and tax hike mandates to avoid the fiscal cliff fate.

However, it said, "We do not believe the US and European economies will improve substantially in the next year."

Indonesian president warns investment, growth at risk

JAKARTA: Indonesia risks losing a "golden opportunity" to boost economic growth if it fails to improve infrastructure and streamline investment regulations, President Susilo Bambang Yudhoyono warned on Thursday.

Last year, Southeast Asia's largest economy grew at a robust 6.5 percent and foreign direct investment was a record $20 billion.

But Yudhoyono said investment and growth were both at risk without a good investment climate and improved infrastructure.

"We realise that we still have a number of constraints regarding the investment climate and legal uncertainties that many have complained of," he said in a speech to parliament on the eve of the country's independence day.

"This has the potential to create uncertainty... and loss of opportunity to achieve higher and better-quality growth," he said.

A secure investment climate and easier business permits would not only encourage more investment in Southeast Asia's largest economy, they would also speed up the development of infrastructure, he said.

"The potential and opportunities will spread across our country, which will certainly attract investments. This is a golden opportunity that must not be wasted," he said.

"The availability and quality of infrastructure is a necessary condition to optimise the golden opportunity", he added.

In his wide-ranging speech, he also stressed the need to eradicate corruption and added that "the law must be enforced... and should provide a deterrent effect".

Investors consistently cite corruption and lack of reliable infrastructure as major hurdles to business, in a sprawling archipelago of 17,000 islands where companies are sometimes forced to build their own roads, bridges, railways and ports.

The economy is projected to grow at around 6.5 percent again this year.

Yudhoyono is expected to unveil the draft budget for 2013 later Thursday.

The new get-rich rules

SO WHAT IF THE economy looks like it's on the brink of another downturn?

Because this could jolly well be the year that you start your journey towards amassing an abundance of wealth.

How?

Here's the plan: an easy financial tune-up that will save you plenty of cash, and smart investment tactics to help you make loads more.

SEE WHAT YOUR BANK IS HIDING FROM YOU

Start your tune-up at where you keep by what you find.

Most recently, a technical glitch at HSBC caused its customers to be charged more than they had actually spent. Although some discrepancies were significant enough to be spotted easily, others were not.

Some banks also charge miscellaneous fees that you may not be aware of. And if you don't examine your bank statements regularly, you could miss them entirely.

Take action if you see something you don't like.

"Some institutions will throw in a freebie as a form of service recovery for mistakes they've made, or even drop monthly fees if you make certain adjustments to the way you bank," says Greg McBride, a senior banking financial analyst.

SLASH YOUR MOBILE BILLS 

Eighty per cent of mobile phone users overpay for service, says Schwark Satyavolu, co-founder of Billshrink.com (a website that analyses how you spend your money and advises you on how to save).

Not by just cents, either, but by an average of $200 a year. If you're not wedded to the latest phone - can you live without an iPhone 4S? - a no contract plan will probably save you big.

You can get unlimited phone, texting and surfing the Net for roughly $40 a month. If you can't abandon your gadget, you can at least save on texting by using free apps like Textplus, IMO and Textnow.

And don't rule out prepaid - if you're either a very light or very heavy (unlimited) user, this may be the best option for you.

Next, call your service provider. Let the company know that you've seen its competitor's ads and you're thinking about switching if you don't get a better offer. More often than not, the rep will pony up a "special promotion" to save you some bucks.

INTERROGATE YOUR CREDIT CARD 

We can never stress this enough: As long as you have credit card debt, you'll never get rich. It's a simple truth. Accept it, then do something about it.

The problem isn't really the amount you owe, but what it's standing in the way of: a downpayment on a property, your ability to invest in stocks with good ROI, a rainy day savings account.

And don't just transfer your debt from one low-rate card to the next. Eliminate it!

Take out a low-interest personal loan to clear all your credit card debts, and work to pay off that loan as quickly as possible without incurring new debt on your cards (meaning, don't even use them).

BADGER YOUR BOSS 

Okay, now that you're losing less money, it's time to bring in more.

Here's what not to do: March into your boss's office and declare: "If you won't pay me what I'm worth, I'll find a company that will."

Instead, lay the groundwork now for a big raise next year, says Deborah Kolb, a negotiation consultant.

Start by periodically reminding your boss how much you do - just drop it in the conversation.

Next, schedule a series of quick meetings to update him on the projects you're working on. Finally, six months before the next round of raises, meet with him formally.

Tell him exactly what you believe you're worth, Kolb says. Then ask him for a six-month plan, with specific goals, to take you there.

PLAY THE MARKET LIKE A PRO 

These smart investment tactics will ensure that looking at your bank balance puts a smile on your face.

Mix the risk Spread your investments across two or more funds in different sectors to guard against a single investment underperforming, says Darius McDermott, a financial analyst.

Play the long game

Smarter investors opt for drip-feed schemes known as "dollar cost averaging", where you buy "units" on a month-bymonth basis. It removes the need for a big lump sum and has good returns in volatile markets.

Watch and learn

Review your investment by comparing it every six months against a benchmark such as the STI index, says Ben Yeardsley, an international funds and wealth manager.

READ THE ESTATE SECTION 

Many Singaporeans have become instant millionaires over the past decade through real estate. But there's really no telling when the bubble may pop, given that the economy may be heading for a downturn. Yet, none of this matters.

It's still a smart investment for two reasons: First, every payment you make builds equity in the property - it's like putting money in a savings account (unlike paying for your car, which is a depreciating asset).

And, second, interest rates on housing loans are currently very low. Combine these two factors and the "real" monthly cost is half of what It seems. If the house rises in value quickly, that's icing on the cake.

Key lesson from Iceland crisis is 'let banks fail': analysts

REYKJAVIK - Three years after Iceland's banks collapsed and the country teetered on the brink, its economy is recovering, proof that governments should let failing lenders go bust and protect taxpayers, analysts say.

The North Atlantic island saw its three biggest banks go belly-up in the October 2008 as its overstretched financial sector collapsed under the weight of the global crisis sparked by the crash of US investment giant Lehman Brothers.

The banks became insolvent within a matter of weeks and Reykjavik was forced to let them fail and seek a $2.25 billion bailout from the International Monetary Fund.

After three years of harsh austerity measures, the country's economy is now showing signs of health despite the current global financial and economic crisis that has Greece verging on default and other eurozone states under pressure.

"The lesson that could be learned from Iceland's way of handling its crisis is that it is important to shield taxpayers and government finances from bearing the cost of a financial crisis to the extent possible," Islandsbanki analyst Jon Bjarki Bentsson told AFP.

"Even if our way of dealing with the crisis was not by choice but due to the inability of the government to support the banks back in 2008 due to their size relative to the economy, this has turned out relatively well for us," Bentsson said.

Iceland's banking sector had assets worth 11 times the country's total gross domestic product (GDP) at their peak.

Nobel Prize-winning US economist Paul Krugman echoed Bentsson.

"Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net," he wrote in a recent commentary in the New York Times.

"Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver," he said.

During a visit to Reykjavik last week, Krugman also said Iceland has the krona to thank for its recovery, warning against the notion that adopting the euro can protect against economic imbalances.

"Iceland's economic rebound shows the advantages of being outside the euro. This notion that by joining the euro you would be safe would come as news to the Spaniards," he said, referring to one of the key eurozone states struggling to put its public finances in order.

Iceland's example cannot be directly compared to the dramatic problems currently seen in Greece or Italy, however.

"The big difference between Greece, Italy, etc at the moment and Iceland back in 2008 is that the latter was a banking crisis caused by the collapse of an oversized banking sector while the former is the result of a sovereign debt crisis that has spilled over into the European banking sector," Bentsson said.

"In Iceland, the government was actually in a sound position debt-wise before the crisis."

Iceland's former prime minister Geir Haarde, in power during the 2008 meltdown and currently facing trial over his handling of the crisis, has insisted his government did the right thing early on by letting the banks fail and making creditors carry the losses.

"We saved the country from going bankrupt," Haarde, 68, told AFP in an interview in July.

"That is evident if you look at our situation now and you compare it to Ireland or not to mention Greece," he said, adding that the two debt-wracked EU countries "made mistakes that we did not make ... We did not guarantee the external debts of the banking system."

Like Ireland and Latvia, also rescued by international bailout packages and now in recovery, Iceland implemented strict austerity measures and is now reaping the fruits of its efforts.

So much so that its central bank on Wednesday raised its key interest rate by a quarter point to 4.75 percent, in sharp contrast to most other developed countries which have slashed their borrowing costs amid the current crises.

It said economic growth in the first half of 2011 was 2.5 percent and was forecast to be just over 3.0 percent for the year as a whole.

David Stefansson, a research analyst at Arion Bank, told AFP Iceland hiked its rates because it "is in a different place in the economic (cycle) than other countries.

"The central bank thinks that other central banks in similar circumstances can afford to keep interest rates low, and even lower them, because expected inflation abroad is in general quite (a bit) lower," he said.