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Saturday, 4 April 2009

Brown the ignoramus

Mr Brown repeated a claim at the IMF that that 90 per cent of $14,000bn of world trade is financed by trade althoough this is disputed by trade economists at the World Bank, who point out that the original research from which the figure comes suggests trade credit and cash finance the trade. Much trade is also within companies and so not reliant on trade finance.

More importantly, what Brown omits or doesn't understand is that much of this trade for oil and other commodities is transacted by cash backed letters of credit, which has nothing to do with the export credit agencies which finance exported capiyal goods over the long term.

In the former case a buyer puts cash in an account at his local bank and that bank issues a letter of credit which is presented to the buyers bank together with all of the paperwork for the sale of goods. The seller's bank takes the risk of settlement on the buyer's bank, but nobody is taking a risk on the buyer because he has aleady put up the cash.

In the sort of credit arrangement transacted by the ECA's a foreign buyer, perhaps supported by his own government gauarntees, is granted a long term (up to 10 years) line of credit to finance the purchase a new exported capital goods from the ECA's country.

Brown appears not to understand the difference.


Demetrius said...

King James 1 of England and VI of Scotland had much the same problems of understanding. As did his successor King Charles I of both. The result was a dire economic situation that compounded the relgious issues. Then it needed a Civil War to sort it all out. Anyone taking bets?

Oldrightie said...

Brown understands not even himself. "A poor player that struts and frets his hour upon the stage". Well his few hours of G20. Moronic nobody, promoted, like the rest of them, way beyond their ability.