Perspectives on the global economic meltdown (Jan 26 2010)

Singha · Post by **Singha** » 02 Oct 2010 08:40

I have a simple question on perceived worth to society and role models.

warren buffet and rakesh jhunjhunwalla - both very famous among gora and desi investors.
feared, lionised, revered, has media eating out of their hands , people hanging on to every burp to derive 'meanings'

what do they actually PRODUCE that is of long term value to society?

- they may sit on the boards of certain cos - a langotia yaari role where in the CxO gets a slap on the wrist and nothing more
if he does something too overtly bad like smoking pot in the officers washroom or busy doing the secy bent over their marble
tables when a investor delegation walks in
- they do not create some intangible but worthwhile thing like SW, philosophy, music, movies
- neither are they brick and mortar producers - medicines, cars, books
- they are not teachers
- to my knowledge neither actually runs any co as CxO except their personal cos in the business of making more money
using money using a recursive loop

and these are supposed to be the role models of ambitious youths, with a lessor pantheon of hedge fund/PE "masters of
the universe" ranged behind like a quarrelsome tableau of greco-roman gods....each figuring out how to cannibalize
on the other and take away their mansions, trophy wives and expensive dogs ?

up until the financial/mba 'boom' of 1980s people probably looked up to other areas - astronauts, scientists, political
leaders , writers, engineers to emulate....something changed in the moral fabric since then. perhaps kids from smaller
towns and cities unexposed to the 'global currents' still love their country and still want to do something real, but for
the 'globalized citizen kids' is all about money money money.

I feel like martin sheen in 'wall street' seeing the rot around me

Neshant · Post by **Neshant** » 02 Oct 2010 10:24

I have no problem if the guy invests (or gambles) his own hard earned money and wins big in a fair and square way. As long as he eats his own losses if/when it comes time.

But this crap about losing and passing on the loss to suckers is the pits.

nandakumar · Post by **nandakumar** » 02 Oct 2010 12:57

Singha wrote:I have a simple question on perceived worth to society and role models.

warren buffet and rakesh jhunjhunwalla - both very famous among gora and desi investors.
feared, lionised, revered, has media eating out of their hands , people hanging on to every burp to derive 'meanings'

what do they actually PRODUCE that is of long term value to society?

- and these are supposed to be the role models of ambitious youths, with a lessor pantheon of hedge fund/PE "masters of
the universe" ranged behind like a quarrelsome tableau of greco-roman gods....each figuring out how to cannibalize
on the other and take away their mansions, trophy wives and expensive dogs ?

up until the financial/mba 'boom' of 1980s people probably looked up to other areas - astronauts, scientists, political
leaders , writers, engineers to emulate....something changed in the moral fabric since then. perhaps kids from smaller
towns and cities unexposed to the 'global currents' still love their country and still want to do something real, but for
the 'globalized citizen kids' is all about money money money.

:

Singha
I am not sure that the Buffets and JhunJhunwalas are really the role models for kids and impressionable youth wanting to achieve success in life. My own take is that it can not be. Let me explain.
There isn't much about these individuals for kids and teenagers in their formative years of schooling and undergraduate studies to instill that sense of adoration, wanting to grow up like them etc. I am not talking about something being written about them in text books, in fact that is far from the case. Then at the post graduate level a whole lot of them branch off into disciplines that has nothing to do with fianance and investment management. The ones who really want to worship them in the sense of kissing the earth that those individuals tread upon is really very small.
The fan folowing, such as there is, can only among those individuals ( not just finance professionals but many more from other disciplines) who have taken an interest in stock market begin to entertain feelings of awe and may be a certain amount of undeserved professional respect.
But then you could say that of any field where there have been one of two iconic names at various points of time. So stock market has been no different. But has the society as a whole veered off course in its pursuit of false gods as these? I doubt it.

Hari Seldon · Post by **Hari Seldon** » 02 Oct 2010 14:41

Am traveling, posting's been light perforce.

Below is a link to an excellent bloomberg video of an interview with one sri James Grant - long an observer of Fed relations with the rest of the ekhanomy. Recommended watch, folks!

link

JwalaMukhi · Post by **JwalaMukhi** » 02 Oct 2010 18:54

Singha wrote:
and these are supposed to be the role models of ambitious youths, with a lessor pantheon of hedge fund/PE "masters of
the universe" ranged behind like a quarrelsome tableau of greco-roman gods....each figuring out how to cannibalize
on the other and take away their mansions, trophy wives and expensive dogs ?

up until the financial/mba 'boom' of 1980s people probably looked up to other areas - astronauts, scientists, political
leaders , writers, engineers to emulate....something changed in the moral fabric since then. perhaps kids from smaller
towns and cities unexposed to the 'global currents' still love their country and still want to do something real, but for
the 'globalized citizen kids' is all about money money money.

perfecto! there is lack of passion in engineering, medicine,arts and other competency building endeavors. There is dearth of people with money to pursue passionately such endeavors in desh. Most people with moolah are content to just while their time and resources away in other worldly pursuits. In TFTA ameerkhan there is critical mass of people with money, who have lot of passion in competency building endeavors. Wouldn't be a surprise to find someone with lot of moolah to get hands dirty to find solutions and build things. Many TFTAs with moolah, attend premier technical institutions to actually learn technical stuff and leverage that. Many of them will be weekend warriors tinkering in their garages or working on their hobbies that require fair amount of competency in engineering, art and other skills.
Until and unless, this trajectory changes there will be only imitators or coolies; at best in India, which was not how it used to be.

Abhijeet · Post by **Abhijeet** » 02 Oct 2010 19:04

Singha wrote:I have a simple question on perceived worth to society and role models.

warren buffet and rakesh jhunjhunwalla - both very famous among gora and desi investors.
feared, lionised, revered, has media eating out of their hands , people hanging on to every burp to derive 'meanings'

what do they actually PRODUCE that is of long term value to society?

Not sure about Rakesh J, but Warren Buffett's Berkshire Hathaway is actually sort of a holding company for many (tens or hundreds of) companies -- many of which are into creation of very mundane physical objects. So they are company management just like any other, and produce the same kind of value.

Successful investors invest other people's money and make their investors money. So that's a second kind of value -- they are able to spot companies which will do well, and buy low and sell high. Spotting value, and therefore allocating capital efficiently, is itself a form of value creation.

Theoretically, successful investors should also be able to bring about a form of market discipline -- companies will try to do the "right thing", whatever that is, to get a Warren Buffet to invest in them. Whether this function is actually performed or not is debatable of course.

Chinmayanand · Post by **Chinmayanand** » 03 Oct 2010 14:27

Economic sanctions? Yes, please

Brussels wants to delve deep into the running of national economies. It should beware of digging too far.

None of this is the economic integration that federalists dreamed of. It is more like a deal to police minimum standards than a joint economic policy. It is born of fear of the markets, not a love of Europe. Being whipped by Brussels is less scary than being flayed by bond traders. Hard discipline may be needed to preserve the euro, and to mollify German voters who do not want to bankroll irresponsible neighbours. But there are also dangers.

The plans would give Brussels unprecedented power to intervene. Depoliticising sanctions to make them credible risks delegitimising them. The commission would be less of an impartial referee and more of an active player in domestic politics. Gauging competitiveness is a murky business, with no obvious benchmarks. In any case, balancing spending and taxes, deciding the level of wages and reforming labour markets ought to be tasks for elected leaders, not appointed bureaucrats. Will Mr Barroso and Olli Rehn, the commissioner for economic and monetary affairs, really tell the likes of Christine Lagarde, Wolfgang Schäuble, Giulio Tremonti and George Osborne what to do, and fine them if they refuse? The next time protesters hit Brussels, they may not just march past the commission, but right into it.

Hari Seldon · Post by **Hari Seldon** » 03 Oct 2010 14:41

The inimitable sri Hugh Hendry in a radio interview (mp3 broadcast).

Awesomely entertaining. Recommended listen, janta.

Hari Seldon · Post by **Hari Seldon** » 03 Oct 2010 15:21

Airbus looks to India to bridge skills gap

Airbus, the world's biggest aeroplane maker, will carry out a greater proportion of engineering work in India in the future as a direct result of a dearth of qualified engineers in the UK, Germany and France.

...

The company's board will decide this week whether to go ahead with its next development programme, a new engine for the single-aisle A320 plane that generates much of Airbus's profit.

The programme, known as NEO (new engine option), may yet be put off or abandoned because of a lack of engineers, said Tom Enders, chief executive.

The company's technical expertise is tied up with getting the A380 superjumbo ready for full production and developing the new A350, made with a greater share of composites than any of Airbus's previous planes.

"Airbus has never made a secret that our engineering resources are stretched thin," Mr Enders said during a two-day visit to Airbus's Indian operations in Bangalore last week.

"We're taking this decision very seriously because we cannot afford that other programmes, especially the 350, should suffer."

There is an 80pc chance that Airbus will go ahead with the new engine, according to reports last week, but the plan still needs approval from Airbus executives and EADS, its parent company.

At its base in Bangalore, Airbus has 160 engineers working on the A350 and A380 programmes in conjunction with staff in France, Germany and Britain.

The company plans to have 200 staff at the engineering centre by the end of the year and 400 by 2013.India produces around 350,000 engineering graduates a year, about 25pc of which Airbus describes as "employable".

Airbus expects to do around $1bn (£632m) of business in India in the next decade, with local companies such as Tata, Mahindra and state-owned Hindustan Aeronautics. The last two are also joint-venture partners of BAE Systems.

Airbus has no plans for now to build a final assembly line in India like the one which opened in Tianjin, China in 2008.

Airbus expects India to need around 1,000 new planes over the next 20 years, compared with 3,000 in China. Air traffic has expanded by 16pc in India this year.

Ignore the BS about there being a dearth of qualified engineers etc in the TFTA emerged economies.

The real reason is for the shift of core engg functions to the sdre turd world is market power. Those with demand call the shots in an increasingly overcapacity world. Am sure there're commercial offset agreements etc with airbus that x% of the business should be spent in India among Indian industry only. Hence the mental gymnastics.

Singha · Post by **Singha** » 03 Oct 2010 17:47

airbus does not make engines - they offer rolls royce and CFM(GE_snecma) engines presumably. presumbably its a lack of cash to subsidize the new engine development within these other cos.

Hari Seldon · Post by **Hari Seldon** » 03 Oct 2010 18:55

UN Agency Warns of Unemployment-Related Unrest through 2015

The United Nations work agency today warned of a long “labour market recession” and noted that social unrest related to the crisis had already been reported in at least 25 countries, including some recovering emerging economies.

Crisis-hit Spain faced its first general strike in eight years this week as unions protested against the government’s austerity measures and labour reforms. The strike on Wednesday coincided with protests in Greece, Portugal, Ireland, Slovenia and Lithuania, as well as demonstrations in Brussels by tens of thousands of workers from across Europe as part of a European day of action against public spending cuts.

“Fairness must be the compass guiding us out of the crisis,” said ILO director general Juan Somavia. “People can understand and accept difficult choices, if they perceive that all share in the burden of pain. Governments should not have to choose between the demands of financial markets and the needs of their citizens. Financial and social stability must come together. Otherwise, not only the global economy but also social cohesion will be at risk.”

Raymond Torres, lead author of the ILO’s annual World of Work report, published today, warned governments against withdrawing fiscal stimulus measures while the economic recovery was still weak.

Torres said there were two main reasons for the bleaker outlook facing many countries: “The first is that fiscal stimulus measures that were critical in averting a deeper crisis and helped jump-start the economy are now being withdrawn in countries where recovery, if any, is still too weak,” he said. “The second, and more fundamental factor is that the root causes of the crisis have not been properly tackled.”

Meanwhile, Joseph Stiglitz: the euro may not survive (Telegraph)

My d&g meter seems to indicate a rise in buzz after a definite lull. IS something coming up (or going down?). Sri Stiglitz pleads for more keynsian stimulus. And for once maybe he's right. Withdrawing stimulus for austerity won't end well, IMHO. A double dip is double certain. Gubmints have to act not by withdrawing help for mango people but by raiding the banks en masse and nationalizing the industry for, say, the next 1 year, in which time a clearing house for orderly dissolution of their largest and worst debts can be organized and forced through. The alternative will be terrible, I fear.

ArmenT · Post by **ArmenT** » 03 Oct 2010 22:17

Singha wrote:I have a simple question on perceived worth to society and role models.

warren buffet and rakesh jhunjhunwalla - both very famous among gora and desi investors.
feared, lionised, revered, has media eating out of their hands , people hanging on to every burp to derive 'meanings'

what do they actually PRODUCE that is of long term value to society?

Well, they do make chaddis for all the budding pee-chaddis, normal TFTAs and SDREs. One of Berkshire Hathaway's subsidiaries is Fruit of the Loom. They also own Russell Athletic brand + a few high end shoe companies. Actually, Berkshire Hathaway does own a bunch of non-financial and non-insurance companies. For instance, See's Candies and the Dairy Queen chain are both now part of the Berkshire Hathaway group, as are a bunch of brick-and-mortar companies (I do really mean "brick-and-mortar", they do really make bricks and mortar and concrete and other such building materials.) They also recently acquired McLane Inc., a company which is a giant in the distributions and logistics field. Wonder how all the candy and chips you find in most US gas stations get to them, or how meat, flour and veggies get to taco bell, KFC, pizza hut etc. -- that's mostly done by McLane's distribution trucks. Berkshire Hathaway also owns significant stock in Coca Cola, American Express, the Washington Post Company (they publish Newsweek magazine and the Washington Post newspaper) etc.

Satya_anveshi · Post by **Satya_anveshi** » 03 Oct 2010 22:48

China's Wen supports stable euro ahead of EU summit

China, at loggerheads with the United States over the yuan and likely to face similar complaints during his tour of European countries this week, emphasised its willingness to cooperate with the 27-nation EU. CNY=CFXS EUR=.

"I have made clear that China supports a stable euro," Chinese Premier Wen Jiabao said during a visit to Greece at the start of a one-week European tour. "We will not reduce the holdings of European bonds in our foreign exchange portfolio," he added.

China has said it needs to diversify its foreign currency holdings and has bought Spanish government bonds. Chinese state entities have been generally conservative about investing in foreign financial markets and the Chinese government faces domestic political criticism over losses they incurred during the global financial crisis

Beijing has rejected any international discussion of its own foreign exchange policy to date. It even blocked an attempt by G20 leaders in June to praise its decision to allow greater flexibility in the yuan's exchange rate.

"Global economic recovery is a journey with many turns and a full exit from it requires joint efforts," Wen said on Sunday. He made no comments on the yuan. On Saturday he said he was willing to work with the EU to confront the financial crisis and reform the international financial system

"Greece is China's best friend in the EU," Wen said at a meeting with Greek opposition leader Antonis Samaras. Bilateral trade volume should double to $8 billion euros a year in 2015 with Greek traditional exports, such as olive oil, increasing.

"A few months ago, (we) signed an agreement to purchase 290 tonnes of Greek olive oil," Wen said. "Last night, for the first time in my life, I dipped a bite of bread in olive oil . It tasted very good." (Writing by Harry Papachristou; Editing by Jon Loades-Carter)

Now, this isn't/wasn't exactly what US/Fed may have thought would be the best use of their toilet paper in foreign central banks; They would be most happy if they remain toilet paper and never to comeback to US or hinder their ability to *rescue* nations across the world. This is a game changer.

Carl_T · Post by **Carl_T** » 03 Oct 2010 22:52

Berkshire is different from all the hedge funds and mutual funds etc. in the sense that they are really more of a conglomerate than an investment firm, they make everything from See's candies to insurance to railroads. BRK has a huge investment portfolio but most of its value is from the companies it owns outright.

Satya_anveshi · Post by **Satya_anveshi** » 03 Oct 2010 22:56

Try to get a hold of their 10K and review, their significant business remains (and profits come from) insurance and reinsurance (and now enhanced holding in banking & financial services). Not for nothing the Jain guy on his team was rumoured to be his rightful successor (even by Warren Buffet's account in one of their 10Ks). yes they own several businesses for diversification purposes..but core one remain in, like Neshant would like to call, bull$hitting industries. Overall Singha saar's comment is correct..the $hit does not produce anything worth mentioning.

Singha · Post by **Singha** » 04 Oct 2010 08:28

my intent was not to blame any two people or cos, just a general rant using whatever examples came quickly to mind. thanks for all the info though.

Carl_T · Post by **Carl_T** » 04 Oct 2010 08:31

What is amazing though is that a man with pretty much no technical skills or developed any particular product to sell has built up one of the world's largest business empires.

Neshant · Post by **Neshant** » 04 Oct 2010 08:56

Interesting clip from the movie Trading Places starring Eddie Murphy from 1981 I believe. Movies like this is where the younger generation back then got the idea of getting rich quick by playing the stock market.

Had anyone invested in commodities back then, they would have missed out on the DOW boom of the 80s and NASDAQ boom of the 90s. Gold was a terrible investment to make for 2 decades straight,

Love the clip though :

http://www.youtube.com/watch?v=g4Uv4ftekaI

abhischekcc · Post by **abhischekcc** » 04 Oct 2010 09:15

Gold rises with uncertainty. Lat two decades saw stable growth in the large economies, hence no rise in gold prices. However, Indian gold prices rose as the Rupee declined over theat wrt the major currencies. It would have been good investment in India.

OTOH, gold is great for the coming couple of decades as the old world order is destroyed and a new one takes its place.

China is assumed to be a big player in the gold market. They claim to have had big jumps in domestic production AND consumption.

But like all Chinese stats, this one is also a farce.

I have a filter which helps me determine which Chinese stat is a lie and which might be the truth: If the stat is produced by a Chinese authority and is not verified by a non-Chinese source, it is a lie. And vice versa. The results are even more suspect if they support China's strategic objectives.

These gold stats are not verified by a non-Chinese souce and support the idea that China is a big power - hence are suspect.

abhischekcc · Post by **abhischekcc** » 04 Oct 2010 09:37

Hari Seldon wrote:Meanwhile, Joseph Stiglitz: the euro may not survive (Telegraph)

My d&g meter seems to indicate a rise in buzz after a definite lull. IS something coming up (or going down?). Sri Stiglitz pleads for more keynsian stimulus. And for once maybe he's right. Withdrawing stimulus for austerity won't end well, IMHO. A double dip is double certain. Gubmints have to act not by withdrawing help for mango people but by raiding the banks en masse and nationalizing the industry for, say, the next 1 year, in which time a clearing house for orderly dissolution of their largest and worst debts can be organized and forced through. The alternative will be terrible, I fear.

And thus ends Germany's third attempt to conquer Europe!

Germany will walk out of the Euro when it will be forced by its people - IOW, as Germany democratizes, the Euro project will become increasingly difficult to sustain politically.

Germany is the main source of subsidies to the rest of the continent - sometimes I wonder whether Germany is the conqueror of Europe or its colony.

Neshant · Post by **Neshant** » 04 Oct 2010 11:22

interesting..

US Retail
http://www.youtube.com/watch?v=RFGC63STcvY

Chinmayanand · Post by **Chinmayanand** » 04 Oct 2010 16:36

America on the brink of a Second Revolution

Gus · Post by **Gus** » 05 Oct 2010 01:42

akashganga wrote:http://financialsense.com/contributors/ ... y-finished

Please give a description on what that link has. A summary will also be appreciated.

akashganga · Post by **akashganga** » 05 Oct 2010 02:59

Gus wrote:
akashganga wrote:http://financialsense.com/contributors/ ... y-finished
Please give a description on what that link has. A summary will also be appreciated.

Summary from the article itself:

In Summary: Our debt and our inability to revive capitalism and cut the waste in government will be our demise. Sadly, the only glimmer of hope I see is that Corporatocracy will destroy itself. I say sadly because it will destroy the average American citizen like some parasite that kills it's host.

Capitalism is dead and that is why we are totally screwed.

In Summary: My faith in the 5Gs: (G*(religious edit)d, Gold, Guns, Grub & The Government Will Continue to Screw It Up) remains strong.

Neshant · Post by **Neshant** » 05 Oct 2010 07:40

Bernanke is the kind of guy who farts in a room and pretends he did not do it.

He wants taxes to be raised to pay for unending bailouts of his non-productive banking cartel goons. The working class is going to take it up the arse that's for sure.

------------
Fed boss: Threat from deficits 'real and growing'
Bernanke says deficits pose 'real and growing' threat to economy, calls for plan to cut them

http://finance.yahoo.com/news/Fed-boss- ... et=&ccode=

"Bernanke steered clear of making recommendations on the best way to reduce the deficits, saying those tough decisions are best left to the nation's elected officials."

Neshant · Post by **Neshant** » 05 Oct 2010 09:14

Can't remember if i posted this earlier and lord knows i'm too lazy to check so here it is (again perhaps)

Prechter expects large declines in the stock market

http://www.youtube.com/watch?v=OlmT6eRCEyQ

Neshant · Post by **Neshant** » 05 Oct 2010 09:45

WWII Donald Duck cartoon propaganda on Paying your Taxes

http://www.youtube.com/watch?v=lL4y8yD33tk

svinayak · Post by **svinayak** » 05 Oct 2010 10:03

Carl_T · Post by **Carl_T** » 05 Oct 2010 10:08

Looks good, TARP was an overwhelming success. Props to the Bush administration for pushing that through. Personally I would have preferred if they had liquidated some of the banks, but this is ok too.

Ambar · Post by **Ambar** » 05 Oct 2010 10:30

Carl_T wrote:Looks good, TARP was an overwhelming success. Props to the Bush administration for pushing that through. Personally I would have preferred if they had liquidated some of the banks, but this is ok too.

Overwhelming success? How? Big banks got the money,called it 'excessive reserve', parked it back at the fed,got 2%+ on it,made more public offerings there by growing bigger than they were before and unloaded a part of this free loot back to the govt.I am not sure about the morality part of it,but it definitely sounds like a overwhelmingly successful ponzi scheme to me.

Carl_T · Post by **Carl_T** » 05 Oct 2010 10:45

I don't find anything particularly immoral about that. The purpose of the act was to ensure stability in the banking system by injecting a large dose of liquidity and keep the banks well capitalized. Considering the situation they faced in fall of 08 when large banks failing was a serious possibility, I think they did pretty well.

Hari Seldon · Post by **Hari Seldon** » 05 Oct 2010 10:57

Well, this is directly from the horse's mouth.

Capital controls not needed for now: FM

Finance minister Pranab Mukherjee has ruled out any control on overseas fund flows for now as asset markets are not in a bubble zone yet, even as economists worry about a widening current account deficit and its effect on soaring prices.

Policymakers would be vigilant to prevent any destabilisation, but would not rush to decisions that would compromise economic expansion even if short-term factors hurt exporters, and the poor in the form of high food prices.

“We are watching the inflow of funds,” said Mr Mukherjee in an interview with ET NOW, this paper’s news channel. “But I do not think it’s time to put any restriction on it. I feel we do not need to be panicky but should be careful and cautious.”

Inflows will only strengthen in the coming moons, IMHO. Maintaining a 'loosely stable' exchange rate will require massive sterlization from the RBI -> more money supply & liquidity -> asset bubbles and speculation -> core inflation in addition to asset inflation. Vicious cycle. Just wait for 'e, emerged ekhanomy pensions funds to rush in on the ETF route to see what a real capital inflow flood feels like.

Else, without aiming at a stable exchange rate band for the INR, we endup with a massively stronger rupee - perhaps in the mid 30s range in as little as 6 months - exports dropping like a stone -> imports surging outta control -> deficit widening to crisis levels -> etc.

The only sane option, IMHO, is to impose capital controls. Start small and cautious, perhaps, like Brazil is currently doing. But there's NO alternative to taking and keeping some semblance control of the ekhanomic interactions with the external front. IMVVHO, of course.

India has received the highest inflow of foreign funds—nearly $19 billion—into equities this year since it opened the doors to overseas investors nearly two decades ago. Citigroup forecasts it to rise to $25 billion as yield-chasing investors are lured by the 8.5% economic growth, a far cry in developed nations. But that has forced the rupee to appreciate against the dollar, hurting exports and boosting imports, leading some to fear about a possible currency volatility.

The inflows have, however, helped benchmark Indian equity indices to scale near-record levels even as many emerging market peers such as China and Russia are still a distance away from their all-time-high levels. The Sensex, after rising 81% last year, is up about 17% this year, probably the highest among major developing economies.

This gain has triggered some fears that the markets, including real estate, may be in a bubble, which if it bursts could blow the hopes of sustaining 8.5% economic growth.

Even Messrs greenscam and bernanke haven't been able to spot asset bubbles under their noses. IN fact, the biggest such in the world came up and their main defense was 'no one could have known' only. Short of avoiding bubbles altogether (impossible, given the nature of markets and human nature), the next big thing is to have small bubble bursts at regular intervals rather than have really big ones develop. IMVHO, of course.

“Always the fear of having some sort of a bubble would remain,’’ said Mr Mukherjee. “I do not think that it’s time to put any restriction on it. One of the reasons of this upswing is that robust recovery expected in North America and Europe has not yet taken place and IMF forecast has also been revised.’’

Oh, all the right notes and noises from Pranab babu. I still fret about the 'ruling out' of the capital controls options entirely. or perhaps, thats DDM only. The option remains on the table. And our regulators at the helm have to be extra careful watching for that iceberg out there. The seas will get stormier in the days to come.

PS
In the offline version of this article, it is mentioned that the RBI doubled the cap for FIIs to invest in Indian govt debt instruments. Very important and impactful decision. Can't locate it in the online version though.

Ambar · Post by **Ambar** » 05 Oct 2010 11:15

To me it sounds like a zero sum game.They could have just given them free money instead of this vicious cycle called 'TARP'. But then again, free money would have invited the ire of tax payers,where as all the jargon in TARP makes it beyond comprehension of a regular joe.Plus, TARP gives the govt to harp about the fictional profits they apparently made from this loan.

The banks were never adequately capitalized by TARP. If they were, they wouldn't have made overnight changes to mark-to-market accounting rules, nor would the banks issue more public offerings.They are still holding those MBOs and ABS under 'TALF'. And how can we ever know the true value of those junk CDOs that were held under TARP when they are masked because of a fictional market value?

ShivaS · Post by **ShivaS** » 05 Oct 2010 14:33

Acharya ji>> You sure are man of few words and lot of letters and pretty pictures...

Chinmayanand · Post by **Chinmayanand** » 05 Oct 2010 17:16

Got this in mail .
----------------------

http://www.debtdeflation.com/blogs/2010 ... etary-act/

Don't count me as one of the "gold is money" gang - a finite money supply in a developing world would constrain growth. There seems to be a burgeoning online industry pointing out the ills of credit money and very little pointing out the ills of backing money with a commodity in short supply. The conspiracy gang have got carried away with themselves.

Do however count me cautious of over-extended credit. Sure, the money supply needs to grow to integrate China and India into the world economy (there has to be some notion of money supply per capita), but the point remains there is always a tendency to over-extend credit in the good times and over-ration it in the bad.

Keynes was self-evidently right about salting something away in the good times, but it seems we've come to believe that "stimulus" can achieve the same so there's no need for saving. So whenever there's a crisis, lower interest rates and open the monetary spigots, which simply starts another cycle of feeding the banks first at everyone else's expense, because the banks are the first people to get their hands on the new money.

Virtually every neoclassical economist I talk to at present is in despair, but the monetarists are also somewhat struggling for answers. They feel that their discipline is in crisis.

I was therefore impressed by this presentation which focuses more on credit as a cyclical/dynamical system than the idea that credit-money is bad per se.

http://www.debtdeflation.com/blogs/wp-c ... rashes.swf

Hari Seldon · Post by **Hari Seldon** » 05 Oct 2010 17:21

Very interesting (if somewhat unsettling) graph here from the economist rag:

Self-explanatory and all that.

Hari Seldon · Post by **Hari Seldon** » 05 Oct 2010 18:53

Some technical analysis mumbo-jumbo. But the basic numbers are right and am putting forth what seems like sensible analysis before the technical pattern-specialists take over. TIFWIW.

The trend rate of bank lending and money supply ex incremental annualized government spending implies that the private sector probably decelerated to around 0% or slightly negative early in Q3 and is poised to contract again hereafter.

Consider what real final sales/demand would have been had the government not borrowed and spent 30% of private GDP over two years.

{wow. imagine indeed.}

The average trend rate of real final sales since the secular '00 peak is 1.6% vs. the average long-term trend rate of 3.4%.

This means that the US economy has experienced a 14-15% decline (24-25% per capita) in real final sales/demand below what would have otherwise occurred had the long-term trend rate continued from the secular peak.

{wow again. Though you can clearly see the assumptions pile up here - such as *if* the trend continued etc.}

Were the trend to persist through the rest of the decade, as the secular LW (Long-Wave) debt-deflationary precedent implies, the loss of US real final sales/demand from the long-term trend rate will be 30% (~40% per capita), which is likely to be the level at which the US labor market underutilization rate eventually reaches.

link

Hari Seldon · Post by **Hari Seldon** » 05 Oct 2010 19:12

Meanwhile, in an unusually bold and daring move, the IMF admits that the West is stuck in near depression.

AEP again. Yup yup. Worthwhile read. As usual. TIFWIW but ensoi either way.

If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.

The allahramism is on in full force yet again..... fasten your seatbelts!

More hometruths tumble outta the IMF closet. Gosh, who could have thought they'd be this brave?

"Not all countries can reduce the value of their currency and increase net exports at the same time," it said.

Captain obvious to the rescue, again.

"A fall in the value of the currency plays a key role in softening the impact. The result is consistent with standard Mundell-Fleming theory that fiscal multipliers are larger in economies with fixed exchange rate regimes." Exactly.

Good point. Those whom the high tide of currency pegs lifts high, the low tide of trade war amid global slowdown also pulls down mighty fast indeed.

The IMF report – "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation" – implicitly argues that austerity will do more damage than so far admitted.

Normally, tightening of 1pc of GDP in one country leads to a 0.5pc loss of growth after two years. It is another story when half the globe is in trouble and tightening in lockstep. Lost growth would be double if interest rates are already zero, and if everybody cuts spending at once.

Read it all.

ramana · Post by **ramana** » 05 Oct 2010 20:09

Hari, Bloomberg was reporting a number of countries: Brazil, Soko, Japan et al taking steps to keep parity with $ to ensure their economies dont get imapcte. Wheile its ego satisfying to see the rupee raise against the $, if it harms the Indian economy its downright negligient to rule out anything.

ShivaS, Can we back off? The picture speaks for itself. I dont see any gain in fratricide.

Carl_T · Post by **Carl_T** » 05 Oct 2010 20:52

There is no real benefit to a rising rupee other than ego. Unless you're an Indian visiting abroad. A stable currency is best for the nation.

But a rising rupee, an inflating Sensex...are Indian corporate yields dropping too? It could be foreign capital just seeking greener pastures in India, sounds like a bubble rising.