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Board of Directors Report to the General Assembly for the Year 2010

2010 saw the continuation of a recovery process as the world economy emerged from the throes of a deep recession that had permeated global markets in the two preceding years. Unprecedented fiscal policy from national Governments defined efforts to restore stability in a world economy compromised by a lack of confidence and insufficient liquidity. The dichotomy between high levels of Government spending and concerns of Government solvency exacerbated market wariness in 2010. The developed nations burdened by rapidly accruing debt were the subject of extensive speculation.


Worldwide, the repercussions of natural disasters harkened to the lingering consequences of our mounting dependence on increasingly depleted natural resources. Politically, socioeconomic changes allowed new players such as Brazil, Russia, India and China, to take center stage in international relations.


In the world economy, different regional financial outlooks and shifting global power structures engendered a substantial divide between the industrialized nations of the West and the developing countries of Asia. In terms of fiscal policy, Western Governments engaged in loose fiscal and monetary policies to prop up their economies in 2010. Meanwhile, Asian powers continued to see consistent growth and were largely absolved of the debt concerns that afflict the West.


In March, the US passed a comprehensive health care reform bill, concluding an issue that had fractionalized the nation politically throughout the preceding months. President Obama continued in 2010 to codify his principles of equality and social reform that have dominated throughout the term of his presidency. His decisions came after his administration’s resolution in January to increase the Federal debt limit to 14.3 trillion USD, a prospect that will entrench the US deficit by an additional 1.9 Trillion USD. Earlier in the year, new financial regulations were signed into law. The reforms heighten due diligence for riskier financial instruments.


In the realm of monetary policy, the US and China were at the forefront of polarized measures as each superpower took steps in opposite directions to secure the stability of their economies. U.S. Federal Reserve Chairman Ben Bernanke extended the quantitative easing practices that have characterized the Fed’s approach to ending the recession by maintaining low interest rates to boost lending.


The Fed bought 900 Billion USD in treasury bills to keep vast amounts of cash in the market. The EU, likewise, chose to secure the solvency of the troubled Euro Zone, stating that it was prepared to make one Trillion USD available in its bailout fund. Conversely, China altered its managed float monetary policy to distance the Yuan from the Dollar. China’s Central Bank decreased the money in circulation to avoid inflation and potential real estate bubbles in the booming economy.


The European Union’s recurring concerns of the solvency of its member states, with Ireland and Greece taking center stage, have placed the EU in a difficult predicament. The bailout packages that the organization engineered with the International Monetary Fund (IMF) were met with skepticism since European investors still remained uncertain of the solvency of Spain and Portugal.


Europe’s attempt to rein in its superfluous spending was met with adamant opposition from nationalists who protested the budget cuts and reduced benefits associated with deficit reduction. Protests extended from Greece and Ireland, where budgetary restructuring is most pervasive, to the UK and France, with looting and strikes, respectively. To address its financial woes, Ireland decided to implement new measures to reduce the deficit and then dissolve its Government, opening the way for elections in the New Year.


Whereas Ireland’s troubles traced to a bursting bubble, Greece’s solvency remained questionable with a debt-to-GDP ratio over 100 percent and business endeavors founded on rent-seeking practices that take government funds but bring limited value-added to society. The UK and France, for their part, took decisive action to circumvent the crises of their continental peers.


The political and economic changes were incarnated in the USD/Euro exchange rate and the USD/Yuan rate. At the beginning of the year, the Euro was highly valued relative to the dollar but as European investors exposed their debt fears over European Union plans to provide financial support to the continent’s ailing economies, the dollar appreciated against the Euro. By mid-year the two currencies were edging towards parity until the US reaffirmed the lengthy nature of its economic rebound and, later in the year, increased dollar cash flow with QE2. At year end, the USD/Euro exchange rate was 1.34, compared to 1.44 at close of 2009.

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