By Lachman Balani
TORONTO: Expecting a compromise by Republicans and Democrats to avoid the looming `fiscal cliff’ in the US, Jason Henderson, treasurer and head of Global Markets at HSBC Canada, says he does not see it as a precipitous drop off a cliff, but “more of a gradual slide” so that the effects will be mitigated.
Speaking at a session on global markets, organized by the HSBC in collaboration with the Indo-Canada Chamber of Commerce (ICCC) here at the Radisson Plaza Hotel in Mississauga on Monday, Henderson started off with France having just been downgraded a notch by Moody’s.
He said one of the major worries on economists’ minds was the so-called `fiscal cliff’ in the US, whereby tax cuts from the Bush era would be suspended and government spending slashed, thus adding an unwanted $607 billion onto the US government’s balance sheet.
However, he said he does not see it as an overnight event in the form of a precipitous drop off a cliff, but “more of a gradual slide” so that the effects will be mitigated, adding that American leaders might reach some compromise on the issue.
The next ‘flashpoint’ is the Eurozone, which, Henderson claimed, was a good idea in its day but is not so good anymore as the 17 nations did not put in place a fiscal union and only have a monetary one.
To ratify a fiscal union, he said, the member-nations need a majority (51 percent) of their citizens to agree to certain terms which `in the case of Greece, Portugal, Spain and Italy (to name only four) would mean austerity measures and in the case of Germany (to name only one) to bail out these core nations.’ He said he does not see it happening in the near future.
Also, he does not see Germany leaving the Eurozone as that would mean that its new currency would be worth more than the Euro and that would potentially German exports.
Asked by a member to put a time span as to when the issue would be resolved, he said: “Ten years’’ (that number was used just to signify a certain length of time, meaning not anytime soon, and not to be used as definitive as nobody is that clairvoyant).
Henderson said the third area of concern is China’s slowdown. It is the new government’s mandate under Xi Jinping to systematically put brakes on the economy to slow the rate of growth and change the emphasis from spending on infrastructure to fomenting consumer spending.
However, that is not so bad because growing at a 10 percent clip when the Chinese GDP a few years ago was $3 trillion and growing even at 6 percent now when it is nearing $7 trillion will lead to a higher amount in absolute dollar terms, he said.
After the speech, Henderson had a lively and interactive question-and-answer session with the audience.
To a question, he said the Canadian loonie, in the near term, will remain stable vis-a-vis the US dollar, and he expected the Indian rupee to trade in a volatile fashion within a certain range.
Despite having misplaced his notes, Henderson delivered an impactful and insightful speech on the situation in the global markets – which speaks volumes about his experience, knowledge and mastery on the subject.