Perspectives on the global economic meltdown

ramana
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Perspectives on the global economic meltdown

Postby ramana » 05 Dec 2008 23:32

Please discuss this topic over here. I start with ss-roy's post int eh global economy thread. Our member rvaidya had written one prespective and I will post it here.
Thanks,ramana

PS: I might move it to the strat forum so we can have a more encompassing discussion after it gains some critical mass.

ss_roy wrote:I am not sure that most of you comprehend the full extent of this self-inflicted disaster. If you do, I am sorry for repeating it.

The facts-

1] The entire western banking system is insolvent- not illiquid, just plain insolvent. Extensive governement intervention is the only reason banks are still operating in the western world.

2] The mechanisms of self-regulation and credit rating has been shown to be fraudulent. Many financial sectors like IBs, Hedge Funds and even plain insurance companies are f**ked. Inter-institution trust has collapsed. Banks are hoarding money and the effects of credit contraction on non-financial businesses are starting to get ugly.

3] The financial system in the west will never be the same again. To date they have lost 4 times the amount of inflation adjusted money they have made since 1400 AD . The 600 year old business model of western banks is therefore essentially dead. Lots of reasons. The reincarnated version of western banks will look a lot like nationalized banks in India.

4] This collapse has destroyed trillions of notional wealth and will destroy trillions more. Pensions in the western world are DOA. Many professions like doctors, lawyers are starting to realize that they will never make the same amount of money again.

5] The financial shell games and ponzi schemes of the last 30 years have come back to haunt them- all at once!The demographic profile of the west is not good. They have too many baby boomers who had hoped to retire but now find themselves unable to retire.

6] Don't believe westerners who say "it will come back". That is PR and wishful thinking. Read more about the real causes of this crisis and why it will essentially end the dominance of the west.

7] The west has not yet officially capitulated, but it will have to..

What it means for India.

1] China is toast! Unless they pull a rabbit out their behinds, their progress will start to unwind. They built an economy that was too dependent on exports, and they discouraged their citizens from consuming their own stuff. The debt based export market has collapsed, and local consumption has not yet caught up with production. Expect massive job losses and widespread civil unrest.

2] Pakistan is DOA. Hopefully they (fundies) will pull of a stupid stunt with loose nukes in the west. It would be very desirable if the US nuked them in retaliation.

3] The main leverage of the west over 'colored' countries like India is gone! They need you much more than you need them. But you guys have to realize that and take advantage of this calamity. Expect them to line up and sell you high tech stuff- nuclear reactors, missiles, avionics, aircrafts, technology- anything you desire. Their socioeconomic system requires new consumers, they are old and tapped out- you are not.

3] If India plays it's cards right, it could position itself as the biggest growth market in the world. We still have well run and transparent banks and people who do not save too much like the chinese or too little like the americans.

4] I hope that any new government in India (2009?) will not be full of geriatrics. Hopefully, they will also stop being obstructionist, petty and let people become rich. I have always believed that politicians and bureaucrats in India conspire to hinder progress and keep people poor.

I could write in much greater detail, but it might make it harder to grasp the big picture.

If could post links to blogs that have been following this story for the last 3 years, if you want..



ss-roy please do post the links over here.

Thanks, ramana

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Re: Prespectives of the global economy meltdown

Postby Nandu » 06 Dec 2008 07:33

I do not believe ss_roy's post contains any insights that is worth a separate thread to discuss.

All that happened is that the financial system lost touch with reality, i.e. the underlying real economic assets for a while, and lax oversight by the powers that be allowed it to spiral out of control. The correction is now well underway. Has probably another three or four years before things stabilize. Even if there is a bust on the scale of the great depression - and that is very unlikely -, the US and the West will still have economies that dwarf India's, and India will not be immune from such a downturn.

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Re: Prespectives of the global economy meltdown

Postby abhischekcc » 06 Dec 2008 10:19

Nandu's, this thread is not just ss_roy's commetns.

We need to discuss the collapse separate from the global economy, because this collapse is both a financial and philosophical challenge to the west.

They cannot push 'free-markets' any more like they used to. Coupled with that, the idea of an 'invisible-hand' guiding the markets is also dead. Note, that the 'invisible-hand' philosophy is also the founding principle of democracy.

So, it is right to ask whether democracy itself is insolvent.

---------

ss_roy, do you have any ideas/links about whether a usury/interest rate based financial system is the root cause of the collapse?

I have been trying to get my head around this idea for some time, and I would to have inputs.

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Re: Prespectives of the global economy meltdown

Postby KarthikSan » 06 Dec 2008 12:02

A good read on the corruption and stupidity of Wall St. Too long to post an excerpt. So I'll just post the link

The-End-of-Wall-Streets-Boom

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Re: Prespectives of the global economy meltdown

Postby vsudhir » 06 Dec 2008 15:13

Fareed Zakaria wrote somewhere that there are contradictions in Govt's optimal role in modern democracies. The welfare-state vs the low-tax high-freedom one. Govts in the west and esp those in the US at all levels - city to federal, attempted to square this circle by taking on debt. To keep taxes low enough for investments to continue to occur but offer services and welfare/social security benefits to an increasingly ageing and jobless popn.

That debt strategy was unsustainable from the word go (even for the hyperpower that prints the global reserve currency) and the chickens are now coming home to roost. City, municipality and state level finances in the US are a royal mess. They are all broke and will take down a lot of what accounted for the artificially high standard of living recently witnessed in the west.

The point isn't that India will b impacted. Of course it will. The question now is how best to insulate our growth story from the global mess. It has increasingly become clear that India is among the few nation states around that has the critical mass in both production and consumption terms to continue growing sustainably for a long time to come despite low global trade share.

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Re: Prespectives of the global economy meltdown

Postby abhischekcc » 06 Dec 2008 16:52

I hate saying this, but I have to.

Nehru's look home policies may have bred an inefficient apparatus, but it did prevent India from becoming overly dependant on exports as an economy. This has prevented Indian economy from imploding like the Chinese is doing right now. (US has already imploded)

India herrow, Unkil zerrow, Panda bhi zerrow :mrgreen:

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Re: Prespectives of the global economy meltdown

Postby ramana » 06 Dec 2008 21:38

ot really. Thought out history, India was a giant local market and that is what sustained it.

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Re: Prespectives of the global economy meltdown

Postby svinayak » 06 Dec 2008 21:59

abhischekcc wrote:I hate saying this, but I have to.

Nehru's look home policies may have bred an inefficient apparatus, but it did prevent India from becoming overly dependant on exports as an economy. This has prevented Indian economy from imploding like the Chinese is doing right now. (US has already imploded)

India herrow, Unkil zerrow, Panda bhi zerrow :mrgreen:


After Independence India did not join the British trading system

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Re: Prespectives of the global economy meltdown

Postby Shivani » 08 Dec 2008 23:20

abhischekcc wrote:India herrow, Unkil zerrow, Panda bhi zerrow :mrgreen:


This is like a diseased, old beggar rejoicing the fact that the rich Sethji in "his" colony is so poor that he now gets chauffeured in a Camry instead of his E-Class Mercedes.

Doesn't matter. You are still a beggar who lives along the road.

Our ability to delude ourselves about our own shortcomings is unmatched. This line of thinking might be acceptable for Pakistanis but I'd prefer higher standards for ourselves.

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Re: Perspectives on the global economic meltdown

Postby ramana » 09 Dec 2008 00:39

X-posting...
1)
http://www.ritholtz.com/blog/2008/12/bo ... nce-blogs/

Very cool article in the Sunday Boston Globe: A field guide to economics and finance blogs:

“As the bailout plan unfolded, the bloggers offered historical context along with cutting critiques of the proposal. More important still, they offered counterproposals: direct capital injections into banks, for example, or direct purchases of mortgages. Many of their readers began badgering their senators and representatives to oppose the plan. A few weeks later, Congress rebuffed Paulson, sending shockwaves through global financial markets.

Though it’s still unclear how much credit the blogs can take for shaping Washington’s response to the crisis, it’s already evident that policy makers charged with monitoring and fixing the markets are no longer operating alone. A fast-moving, highly informed economics blogosphere now tracks and critiques their every move. The result is that this may be the first national crisis to be hashed out by experts in full public view.

The blogs offer a rolling crash course in economics as authoritative as any textbook, but far more accessible. It’s a conversation that’s simultaneously esoteric and irreverent, combining technical discussions of liquidity traps and yield curves with profane putdowns and heckling headlines. In the process, the bloggers have helped to democratize policy making, throwing open the doors on the messy business of everything from declaring a recession to structuring the most expensive government bailout in history.”

And here’s the list of blogs discussed:

The Big Picture
ritholtz.com/blog

Brad Setser’s Follow the Money
blogs.cfr.org/setser

Calculated Risk
calculatedrisk.blogspot.com

Credit Slips
http://www.creditslips.org/creditslips

Economist’s View
economistsview.typepad.com

Freakonomics
freakonomics.blogs.nytimes.com

Marginal Revolution
http://www.marginalrevolution.com

Naked Capitalism
http://www.nakedcapitalism.com

Nouriel Roubini’s Global Econo-Monitor
http://www.rgemonitor.com/blog/roubini



2)
ss_roy wrote:Sure, however you should understand a few things-

1] Bill McBride (http://calculatedrisk.blogspot.com) is a good general blog, but it is somewhat conservative in it's assessments.

2] Mish Shedlock (http://globaleconomicanalysis.blogspot.com) has made good predictions, but implementing his ideas would destroy civilization.

3] Yves Smith (http://www.nakedcapitalism.com) is a good blogwriter, but the writer believes that there too many people (non-whites).

4] Nouriel Roubini (http://www.rgemonitor.com/blog/roubini) was another good commentator, but he is now part of the main-stream.

5] Ben Jones (http://thehousingbubbleblog.com/index.html) is probably the best blog on the real estate scandal in north america

But above all, remember this-

All of these commentators and most of their blog readers are unwilling to accept the obvious demise of the west. They are all looking for magical ways to prop up a rapidly aging population that has lost the will to innovate and take risks. Their system cannot survive without new consumers. This is why it is important for indians to drive very hard bargains with the west. They are going to be collapse anyway- if they do not cooperate with emerging economies they will implode in less than 2-4 years. If they cooperate they will fade away in 20-30 years.

I wish that India had more youthful leaders that did not scrape and bow to the ailing west.


abhischekcc wrote:ss_roy,

It would be very nice if you could share some of your info with us.


----


3)
Acharya wrote:
ss_roy wrote:I thought so.. and you are right in that UK was the center of world finance for a very long time, but it lost a lot of control after WW2. It did gain some control back in the 1980s, but recent events have destroyed its position.

I think if India played its cards right, it could seize some part of the emerging control mechanisms. But we have to first get rid of our chamchas who will bow to anyone with a white skin.

I am talking about financial market and how it has developed with UK being the center for a long time.

That is correct. UK lost control only in Mid 1980s during the jehad war in afghanistan. But Recent crisis was also triggered by the invisible hand from the London banking system. i.e. George Soros.

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Re: Perspectives on the global economic meltdown

Postby enqyoob » 09 Dec 2008 06:14

I am spamming this all over, no apologies. ACT!
OK, folks, please propagate this one far and wide. It hits the right spots.


Please Don’t Use My Tax Dollars To Fund Terrorism
http://www.petitiononline.com/NoPak/petition.html

SIMPLE MESSAGE: STOP FUNDING PAKISTANI TERRORISM: THE LIFE YOU SAVE MAY BE YOUR OWN, OR THAT OF SOMEONE YOU LOVE!

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Re: Prespectives of the global economy meltdown

Postby ss_roy » 09 Dec 2008 06:59

The west has adverse demographic profiles. Their system requires growth to survive and they cannot grow or survive for long without their newest consumers- YOU

Nandu wrote:I do not believe ss_roy's post contains any insights that is worth a separate thread to discuss.

All that happened is that the financial system lost touch with reality, i.e. the underlying real economic assets for a while, and lax oversight by the powers that be allowed it to spiral out of control. The correction is now well underway. Has probably another three or four years before things stabilize. Even if there is a bust on the scale of the great depression - and that is very unlikely -, the US and the West will still have economies that dwarf India's, and India will not be immune from such a downturn.

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Re: Prespectives of the global economy meltdown

Postby ss_roy » 09 Dec 2008 07:09

No, the fundamental cause of the collapse is that the west has run out of new consumers/ workers (not enough kids to replace older folk). They have made promises to their retirees that they cannot fulfill. They leveraged themselves to obscene levels. They created an economy based on shuffling IOU notes rather than making things and developing better technology.

The current crisis is the logical endpoint of greed and hubris. The west stopped growing in the 80s, however they kept up appearances with bigger and bigger scams.

It is your job to exploit this weakness.

abhischekcc wrote:Nandu's, this thread is not just ss_roy's commetns.

We need to discuss the collapse separate from the global economy, because this collapse is both a financial and philosophical challenge to the west.

They cannot push 'free-markets' any more like they used to. Coupled with that, the idea of an 'invisible-hand' guiding the markets is also dead. Note, that the 'invisible-hand' philosophy is also the founding principle of democracy.

So, it is right to ask whether democracy itself is insolvent.

---------

ss_roy, do you have any ideas/links about whether a usury/interest rate based financial system is the root cause of the collapse?

I have been trying to get my head around this idea for some time, and I would to have inputs.

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Re: Prespectives of the global economy meltdown

Postby ss_roy » 09 Dec 2008 07:12

No, Sethji requires you to take over his business or at least manage his business. If you do not help Sethji, his household will start falling apart.

Shivani wrote:
abhischekcc wrote:India herrow, Unkil zerrow, Panda bhi zerrow :mrgreen:


This is like a diseased, old beggar rejoicing the fact that the rich Sethji in "his" colony is so poor that he now gets chauffeured in a Camry instead of his E-Class Mercedes.

Doesn't matter. You are still a beggar who lives along the road.

Our ability to delude ourselves about our own shortcomings is unmatched. This line of thinking might be acceptable for Pakistanis but I'd prefer higher standards for ourselves.

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 09 Dec 2008 10:27

Everyone knows by now that emporor is naked but rest are naked too and there is simply no other alternative today - unkil has and will make sure of that.

No world leader has any gumption to even talk about alternative so after a few months of drama, things will go back to normal and business as usual.

In the doom and gloom, let's not scare people so much as it is unkil who will benefit from falling asset prices by buying them cheaply - access to capital is that much easy. For folks in US, it is all paper money anyway..take large bets and if screwed up, there is always a "rescue".

Only by systematic reaction and making certian selective buying decisions (euphemism for you know what), can one bring the whole edifice down. Chances of that evolving or coordinating that are close to zero.

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Re: Perspectives on the global economic meltdown

Postby ramana » 09 Dec 2008 10:35

Satya, Every one is naked. But due to particular circumustances someone can cover up quickly and prevent others from getting the cloth. SS_Roy is talking about that someone.

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 09 Dec 2008 21:07

ramana wrote:Satya, Every one is naked. But due to particular circumustances someone can cover up quickly and prevent others from getting the cloth. SS_Roy is talking about that someone.


Of course. I didn't mean to discourage discussions on this. In fact I believe we need to spread this awareness as much as we did to show TSP's true colors and of the whole wahabi cult. We need to say this over and over again and in different flavors but essentially convey that the said system is shallow. When people (at least in the investment, business and political community) at large recognize that they will be able to drive hard bargains.

Look at this piece: Paul Krugman uvacha

comments /color coding is mine.

The scenario I fear is that we'll see for the whole world the equivalent of Japan's lost decade in the 1990s, that we'll see a world of zero interest rates and inflation and no sign of recovery and it will just go on for a very, very extended period," he said.

"On top of that, we'll have a series of extremely severe crises in particular countries in trouble {connect the dots}," he predicted, pointing out that "we certainly see the roots of ... Argentina- or Indonesia-style crises ... particularly in the European periphery.{distraction}"


The system is shallow and it will take time but meanwhile the priority of 'you know who' is to ensure things are in control. So, expect the $hit like Mumbai etc happen now and then on economic centers around the world (where controls are required to be placed) and to derail those country's focus and economy. Already the whole of finance ministry of India will be in "silo" now that PC is ensurign "homeland security" while PM does his usual.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 09 Dec 2008 21:50

I do not think that our highly interdependent world can function for a lost chaotic decade. If this goes on for more than 2 years, we are all in very deep trouble.

The scenario I fear is that we'll see for the whole world the equivalent of Japan's lost decade in the 1990s, that we'll see a world of zero interest rates and inflation and no sign of recovery and it will just go on for a very, very extended period," he said.

"On top of that, we'll have a series of extremely severe crises in particular countries in trouble {connect the dots}," he predicted, pointing out that "we certainly see the roots of ... Argentina- or Indonesia-style crises ... particularly in the European periphery.{distraction}"

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 09 Dec 2008 23:23

ss_roy wrote:I do not think that our highly interdependent world can function for a lost chaotic decade. If this goes on for more than 2 years, we are all in very deep trouble.

The scenario I fear is that we'll see for the whole world the equivalent of Japan's lost decade in the 1990s, that we'll see a world of zero interest rates and inflation and no sign of recovery and it will just go on for a very, very extended period," he said.


One little problem is that of our definition of "world" and that of the said expert's and other innumerable talking heads' definition of that word. We know that we will take hit on the amount of growth but it will be growth nevertheless.

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Re: Perspectives on the global economic meltdown

Postby ramana » 10 Dec 2008 00:54

Satya, The financial crisis has merged both the worlds. Earlier they were different and the West could look at the others with disdain typecasting them into Second and Third world, and Africa etc. Now all are in the Third World. Krugman wants to claw his way out.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 10 Dec 2008 03:02

Exactly! This is a situation that is loaded in India's favor (demographic profile + new consumers). If we do not use this to our full advantage we have only ourselves to blame.

ramana wrote:Satya, The financial crisis has merged both the worlds. Earlier they were different and the West could look at the others with disdain typecasting them into Second and Third world, and Africa etc. Now all are in the Third World. Krugman wants to claw his way out.

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Re: Perspectives on the global economic meltdown

Postby arnab » 10 Dec 2008 07:57

ss_roy wrote:Exactly! This is a situation that is loaded in India's favor (demographic profile + new consumers). If we do not use this to our full advantage we have only ourselves to blame.

[]


I think the 'demographic dividend' without productivity effects is a lot of hot air. Sub saharan africa and the muslim world have even better demographic profiles (pakis for instance). I think the latest Economic Survey got it right when it stated that India's demographic dividend can easily turn into a demographic nightmare.

Incidentally here is stiglitz's take on the US crisis -

http://www.vanityfair.com/magazine/2009 ... litz200901

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 10 Dec 2008 11:06

Well, countries with certain majority religion/culture/ethnic combinations are beyond hope. Even if those countries were sitting on, say 40% of the known oil reserves, they would always end up blowing it without any real lasting progress.

Productivity can be improved by "changing" government/bureaucrats. It is easier to achieve such change than changing religion/cultures. And yes, if indians keep electing governments run by congress, regional parties and leftists- they are screwed.

One of the biggest advantage for India is that indians are not seen as people who live in sweden or england and demand that the majority treat them as their superiors (unlike those originating from a neighboring nation).

PS- Keep on believing the c**p (reports/studies) written by the same people ("professional economists") who touted the last 30 years of western economic growth as a "new sustainable paradigm".

I hope that one day Indians will believe in their own abilities and competence without requiring some white guy to pat them on the head.


I think the 'demographic dividend' without productivity effects is a lot of hot air. Sub saharan africa and the muslim world have even better demographic profiles (pakis for instance). I think the latest Economic Survey got it right when it stated that India's demographic dividend can easily turn into a demographic nightmare.

Incidentally here is stiglitz's take on the US crisis -

http://www.vanityfair.com/magazine/2009 ... litz200901

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Re: Perspectives on the global economic meltdown

Postby arnab » 10 Dec 2008 11:26

ss_roy wrote:Well, countries with certain majority religion/culture/ethnic combinations are beyond hope. Even if those countries were sitting on, say 40% of the known oil reserves, they would always end up blowing it without any real lasting progress.

Productivity can be improved by "changing" government/bureaucrats. It is easier to achieve such change than changing religion/cultures. And yes, if indians keep electing governments run by congress, regional parties and leftists- they are screwed.

One of the biggest advantage for India is that indians are not seen as people who live in sweden or england and demand that the majority treat them as their superiors (unlike those originating from a neighboring nation).

PS- Keep on believing the c**p (reports/studies) written by the same people ("professional economists") who touted the last 30 years of western economic growth as a "new sustainable paradigm".

I hope that one day Indians will believe in their own abilities and competence without requiring some white guy to pat them on the head.



you really need to read up a bit more on how productivity enhancement are brought about. Your rant about 'belief in their own abilities' betrays a slightly bollywoodish approach to economics - kind of world where 'belief' and a 'will to win' can overshadow a 'lack of talent' or sundry other problems. Lagaan comes to mind.

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Re: Perspectives on the global economic meltdown

Postby abhischekcc » 10 Dec 2008 12:27

Arnab, perhaps you are too young to remember how PARAM was made.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 10 Dec 2008 13:38

I am well aware of how those productivity enhancements were brought about and that is precisely what bothered me when I first saw it years ago.

Genuine productivity enhancements such as use of IT, better management of supply chains, outsourcing or innovation were never the major drivers behind the 'progress' seen in the last 30 years (crunch the numbers and you will see what I saying).
The biggest drivers were

1] Massive leverage (often exceeding 100:1)
2] Low interest rates (below increases in money supply- M1, M3 etc)
3] Rescuing criminals (LTCM rescue)
4] Cooking government stats (google U3 and U6 unemployment rates, hedonistic adjustment)
5] Ponzi schemes (dot com boom, commodities boom, emerging markets boom, ethanol boom, agribusiness boom, oil boom)
6] Outright fraud (how can medical insurance cost more and cover less?)
7] Debt based financing (how many people (%) in the west can survive for 6 months after job and maxing out UI?)
8] Changes' in accounting practices (Level 3 assets, Mark to 'Model')
9] Underfunding of liabilities (Pensions, Benefits, Future Healthcare Costs)
10] Poor underwriting of debt (commercial bank loans) and Securities (Moody, Fitch, S &P)
11] Exotic financial instruments (derivatives, CDOs, CDSs, CDO-square, SIV, ABCP, MBSs, Multiple tranch cloned MBSs, Commodity Derivatives, Mixed Hedging (Buy CDS for shorts and Go Long, or short with 50: 1 leverage on non-existent money and so on..)
12] P/E ratios of over 10:1
13] Using Pension fund money to leverage in high risk deals.

I could go on and on..

It all started gradually in the early 1980's. By the time I moved here in the late 90s, it was so ingrained in their society that they could not see it as illogical (or chose not too).

Look,the real problem that the west has been facing for some time is fewer replacement workers/ taxpayers. They have also as a culture become more risk averse and regulated. Most of the new technology in the last 30 years was either discovered before the late 80s (most blockbuster drugs, monoclonal antibody drugs) or occurred in areas that were new and poorly regulated (computers, IT, anti-HIV drugs). Remember that most of the new shiny technology used in fields from drug discovery to space travel has failed to deliver the goods.

I could write in much more detail on the reasons behind this too.

Everyone kept on kicking this time bomb down the road. It finally blew up on Sep 15, 08, though there was a near miss in Aug 07.

PS: If you believe that the superiority of the west in the last 30 years was due to to anything other than your belief in their scams, I feel sorry for you.

And yes, the greatest achievements of the west (pre 1980) were due to the belief that they could do it. Whether it is setting up the first chemical plants, building the first computers or doing something nobody has ever done before, they believed in themselves and gave it their best (and well funded) shots. Promoting competent people and reducing the number of bureaucrats also helped.

Indians have a rather unrealistic belief that everything they do must succeed on the first try. They often blame it lack of resources though I have a more unpleasant explanation. If you are not prepared to fail gracefully, learn and keep on trying you will never be the best. It is your choice- I have already made my choice.


you really need to read up a bit more on how productivity enhancement are brought about. Your rant about 'belief in their own abilities' betrays a slightly bollywoodish approach to economics - kind of world where 'belief' and a 'will to win' can overshadow a 'lack of talent' or sundry other problems. Lagaan comes to mind.

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Re: Perspectives on the global economic meltdown

Postby ramana » 10 Dec 2008 21:42

SS-Roy, I think the real scam started after the Steelworkers strike that JFK broke in teh early 1960s. I think a conscious decision was made to move from industrial to service econmy in that time period. There were strategic reasons too for this. And the ponzi/speculative/boosting/leveraging schemes began from that era and started implementing in the 70s and went full throttle in the 80s.

What do you think of Galbraith's "Post-Industrial Society/age" book?

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 10 Dec 2008 21:47

SS Roy,

Awesome analysis, perspective, insights. Thanks again!

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Re: Perspectives on the global economic meltdown

Postby Satya_anveshi » 10 Dec 2008 22:26

arnab wrote:you really need to read up a bit more on how productivity enhancement are brought about. Your rant about 'belief in their own abilities' betrays a slightly bollywoodish approach to economics - kind of world where 'belief' and a 'will to win' can overshadow a 'lack of talent' or sundry other problems. Lagaan comes to mind.


I know we have whole bunch of admins to warn us of things but can we all please keep an environment that encourages discussion? If you have something to offer, can you explain in detail so folks like us can learn from both perspectives.

Thank you for your cooperation.

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Re: Perspectives on the global economic meltdown

Postby paramu » 11 Dec 2008 03:00

ss_roy wrote:I could write in much more detail on the reasons behind this too.

Please do.

Also it will better if you give more information or details on data points you refer to rather than just hints. I believe there are a lot of guys who are not that much familiar with what you talk about.

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Re: Perspectives on the global economic meltdown

Postby vsudhir » 11 Dec 2008 03:56

deleted OT
Last edited by vsudhir on 11 Dec 2008 04:39, edited 1 time in total.

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Re: Perspectives on the global economic meltdown

Postby ramana » 11 Dec 2008 04:26

Please read what I wrote again. Nixon only implemented what was already decided earlier decade.

Lets see what ss_roy has to say.

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Re: Perspectives on the global economic meltdown

Postby arnab » 11 Dec 2008 04:41

ss_roy wrote:I am well aware of how those productivity enhancements were brought about and that is precisely what bothered me when I first saw it years ago.

Genuine productivity enhancements such as use of IT, better management of supply chains, outsourcing or innovation were never the major drivers behind the 'progress' seen in the last 30 years (crunch the numbers and you will see what I saying).
The biggest drivers were

1] Massive leverage (often exceeding 100:1)
2] Low interest rates (below increases in money supply- M1, M3 etc)
3] Rescuing criminals (LTCM rescue)
4] Cooking government stats (google U3 and U6 unemployment rates, hedonistic adjustment)
5] Ponzi schemes (dot com boom, commodities boom, emerging markets boom, ethanol boom, agribusiness boom, oil boom)
6] Outright fraud (how can medical insurance cost more and cover less?)
7] Debt based financing (how many people (%) in the west can survive for 6 months after job and maxing out UI?)
8] Changes' in accounting practices (Level 3 assets, Mark to 'Model')
9] Underfunding of liabilities (Pensions, Benefits, Future Healthcare Costs)
10] Poor underwriting of debt (commercial bank loans) and Securities (Moody, Fitch, S &P)
11] Exotic financial instruments (derivatives, CDOs, CDSs, CDO-square, SIV, ABCP, MBSs, Multiple tranch cloned MBSs, Commodity Derivatives, Mixed Hedging (Buy CDS for shorts and Go Long, or short with 50: 1 leverage on non-existent money and so on..)
12] P/E ratios of over 10:1
13] Using Pension fund money to leverage in high risk deals.

I could go on and on..

It all started gradually in the early 1980's. By the time I moved here in the late 90s, it was so ingrained in their society that they could not see it as illogical (or chose not too).

Look,the real problem that the west has been facing for some time is fewer replacement workers/ taxpayers. They have also as a culture become more risk averse and regulated. Most of the new technology in the last 30 years was either discovered before the late 80s (most blockbuster drugs, monoclonal antibody drugs) or occurred in areas that were new and poorly regulated (computers, IT, anti-HIV drugs). Remember that most of the new shiny technology used in fields from drug discovery to space travel has failed to deliver the goods.

I could write in much more detail on the reasons behind this too.

Everyone kept on kicking this time bomb down the road. It finally blew up on Sep 15, 08, though there was a near miss in Aug 07.

PS: If you believe that the superiority of the west in the last 30 years was due to to anything other than your belief in their scams, I feel sorry for you.

And yes, the greatest achievements of the west (pre 1980) were due to the belief that they could do it. Whether it is setting up the first chemical plants, building the first computers or doing something nobody has ever done before, they believed in themselves and gave it their best (and well funded) shots. Promoting competent people and reducing the number of bureaucrats also helped.

Indians have a rather unrealistic belief that everything they do must succeed on the first try. They often blame it lack of resources though I have a more unpleasant explanation. If you are not prepared to fail gracefully, learn and keep on trying you will never be the best. It is your choice- I have already made my choice.




You are comparing how the 'innovation' in the west ( I presume you mean the US) became geared towards hype rather than substance over the last 30 years and then your conclusion appears to be that India is well placed to take advantage of this because of her fantastic demographic profile. I disagree with this proposition. Before listing out a litany of Wests failures please also list out where India stands with respect to those factors.

We have reports saying that barely a fifth of our college graduates are actually employable in industry. The state has abdicated its responsibility towards health and social security (compared to the very limited social security that the US provides. Europe and Australia are far superior). Bailing out the rich is not the exclusive preserve of the US - India does it and more often (our honourable President is the beneficiary of such bailouts). The Tata project in Singur was provided at such attractive terms - that in reality the Government was paying them for acquiring the land. The benifts provided to Reliance need no exposition. Pharma cos like Dr Reddys and Ranbaxy chose to free ride on research provided by the West.
It does not mean that India is the only nation that does it - Japan, China, South Korea all do it including the West. It is also a fact that various Ponzi schemes continue to flourish in India (chit funds).

My argument is that India is not in a position to take the place of the West simply because our 'demographic dividend' would not be able to sustain the level of consumption required for the world economy to grow at respectable levels.

Similarly, some individual exceptions not-withstanding, the bulk of India's research output (in physical and social sciences) is poor.

Finally - productivity is a deep determinant of growth - it stems from education (r&d), health and institutional capability (legal and security framework). In none of these we are top notch. So to look at this financial crisis and extrapolate it to a fundamental demise of the 'western paradigm of growth' (whatever that means - Marxist, Keynesian, Monetarist, Classical, Neo-Classical?) and the rise of India if she plays her cards right - is flawed.

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Re: Perspectives on the global economic meltdown

Postby paramu » 11 Dec 2008 05:13

arnab wrote:The state has abdicated its responsibility towards health and social security (compared to the very limited social security that the US provides. Europe and Australia are far superior).

I am personally against social security and government provided health care benefits in India. They are not sustainable over long term. Politicians and babus will swindle those money as they have done to provident funds. Let Indians rely on what they did for thousands of years. Take care of your parents / grand parents and children. Govt. has zero role in that. Let it provide tax benefits if there are more dependants. I will even support joint family system, if we can revert to that.

My argument is that India is not in a position to take the place of the West simply because our 'demographic dividend' would not be able to sustain the level of consumption required for the world economy to grow at respectable levels.

I also do not want India to be a mass consumption economy like US.

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Re: Perspectives on the global economic meltdown

Postby arnab » 11 Dec 2008 05:33

paramu wrote: I am personally against social security and government provided health care benefits in India. They are not sustainable over long term. Politicians and babus will swindle those money as they have done to provident funds. Let Indians rely on what they did for thousands of years. Take care of your parents / grand parents and children. Govt. has zero role in that. Let it provide tax benefits if there are more dependants. I will even support joint family system, if we can revert to that.


So you correctly believe that something that is inherently good should not be provided in India because of institutional factors (corruption). Fair enough. Taking care of parents will still require you to take them to hospitals. If government does not provide - the private sector (and health insurance) would provide. Again the 'western model' I'm afraid. Or we need a doctor in every family.

I also do not want India to be a mass consumption economy like US.


Very true. But then somebody has got to buy the goods that your massed arrays of 'productive manufacturers' are going to produce. So how does India replace the west? The current global system is geared towards US being the engine of consumption and China being the engine of production. What do you want India to be?

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 11 Dec 2008 06:43

The increased consumption in the west over the last 30 years was largely based on scams. The people who ran those scams know that well. They also know that the only way for them to survive in the future is to create more consumers (non-western). If you can convince them that indians are prepared to consume more they will cooperate with you. If , on the other hand, you keep on harping about how "indians are always going to be poor" and "indians cannot consume more" they will ignore you for someone who is prepared to play their scam.

Do you believe that money is real or life is a zero sum game?

My argument is that India is not in a position to take the place of the West simply because our 'demographic dividend' would not be able to sustain the level of consumption required for the world economy to grow at respectable levels
.

That is because we as a society have underfunded research. We do that for many reasons-

1] We can escape "criticism" from the west (stop playing gungadin!).
2] We a society do not respect knowledge (an unpleasant truth).
3] Almost every indian traditionally has tried suck up, debase themselves and follow the lead of a white guy. Thankfully that is changing fast.
4] As a society, we do not respect/support our own competent people. Instead, we try to promote incompetent people with the full knowledge that it will lead to disaster. The west has nepotism, but they also understand that incompetent people in power require competent people to run the show.

Similarly, some individual exceptions not-withstanding, the bulk of India's research output (in physical and social sciences) is poor.


Yes, I know that very well. But no country that every became a first world country started out as a 'top notch' country. You have to start from somewhere!

You might want to read some history about life in western countries between 1600 and 1910. Every single problem that you consider to be an "indian" problem was present in these countries to the same extent as contemporary indian society. But that did not keep them stagnant- maybe because they believed they deserved better.

But you are free to believe that you do not deserve better. It is your choice.

Tell me something- if a famous white guy from a prestigious university told you that a glowing hot piece of metal was cold, would you believe him? Or would you want definitive proof?

All of your posts till now have merely regurgitated the c**p written in famous books by dead people who made horribly wrong predictions. Have you ever tried to follow the rationale in all of these books and test their validity? Most of these people have only touched on their version of reality- not unlike the story about six blind men and the elephant.

I do not claim to understand the full form of the elephant, but I know that many of those "famous" people based their theories on very selective evidence. They saw less than I did, and that is what matters.

You know, maybe I should just change my name, use a whitewashed picture, get a degree by being a chamcha. Then you might consider my c**ppy theories to be the 'real truth'.

Finally - productivity is a deep determinant of growth - it stems from education (r&d), health and institutional capability (legal and security framework). In non(whatever that means - Marxist, Keynesian, Monetarist, Classical, Neo-Classical?) and the rise of India if she plays her cards right - is flawed.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 11 Dec 2008 06:54

Well, that is partially true. However the real 800 pound gorilla in the room is a simple fact - mechanization reduces the number of people involved in production. The only way to sustain such a post-industrial society is to encourage meaningless consumption.

I will write a much more detailed mini-article on that subject.

They did not make the decision. Reality (not other men) forced it upon them. The other option was a combination of semi-perpetual war, poverty, social collapse and anarchy.

We will have to change the very definition of money and capitalism, if we have to survive this "episode". Galbraith was partially right, however he was still ideologically a leftist. I prefer to be agnostic about economic theories.

SS-Roy, I think the real scam started after the Steelworkers strike that JFK broke in teh early 1960s. I think a conscious decision was made to move from industrial to service econmy in that time period. There were strategic reasons too for this. And the ponzi/speculative/boosting/leveraging schemes began from that era and started implementing in the 70s and went full throttle in the 80s.

What do you think of Galbraith's "Post-Industrial Society/age" book?

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Re: Perspectives on the global economic meltdown

Postby arnab » 11 Dec 2008 07:14

ss_roy wrote:The increased consumption in the west over the last 30 years was largely based on scams. The people who ran those scams know that well. They also know that the only way for them to survive in the future is to create more consumers (non-western). If you can convince them that indians are prepared to consume more they will cooperate with you. If , on the other hand, you keep on harping about how "indians are always going to be poor" and "indians cannot consume more" they will ignore you for someone who is prepared to play their scam.

.....
1] We can escape "criticism" from the west (stop playing gungadin!).
2] We a society do not respect knowledge (an unpleasant truth).
3] Almost every indian traditionally has tried suck up, debase themselves and follow the lead of a white guy. Thankfully that is changing fast.
4] As a society, we do not respect/support our own competent people. Instead, we try to promote incompetent people with the full knowledge that it will lead to disaster. The west has nepotism, but they also understand that incompetent people in power require competent people to run the show.

....

But you are free to believe that you do not deserve better. It is your choice.

Tell me something- if a famous white guy from a prestigious university told you that a glowing hot piece of metal was cold, would you believe him? Or would you want definitive proof?

All of your posts till now have merely regurgitated the c**p written in famous books by dead people who made horribly wrong predictions. Have you ever tried to follow the rationale in all of these books and test their validity? Most of these people have only touched on their version of reality- not unlike the story about six blind men and the elephant.




Boss, I'm sorry - I do not understand what your argument is. Is consumption good? or is it a 'scam'? Should India 'co-operate' with the west and consume more? or will it inevitably have to consume more because of her demographic profile?

Similarly why would we underfund research to escape criticism from the west?

I'm not sure what c**p from what famous books I have regurgitated - but if you feel a society can progress without education, health and good institutions then to repeat your favourite phrase 'it is your choice' :)

It is not a question of whether I feel I deserve 'better' - sure I do, but to 'deserve better' you have to climb out of the ditch instead of hoping that the other person falls in as well. Similarly, don't you think this bogeyman of the 'west' is becoming as ubiquitous as the 'foreign hand' suggested by Congress governments in the 80s?

However, I think I have said enough and would like to return to the 'learning' mode :)

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 11 Dec 2008 07:22

I could not resist taking a few more shots.

I can also buy some expert to "prove" that you are an idiot. Does that make you an idiot?

We have reports saying that barely a fifth of our college graduates are actually employable in industry.


At least, they are honest. The west has screwed up by promising its aging citizens lifestyles that they cannot deliver (once the baby boom gets older).

The state has abdicated its responsibility towards health and social security (compared to the very limited social security that the US provides. Europe and Australia are far superior).


Yes, I know. But guess what, it creates jobs- primary, secondary, tertiary. It is easier to tax working people than corporations. I think that such actions reflect well on our politicians. Maybe they are learning something.

Think of it with this example- A state government gives 10,000 crore in subsidies. Plant creates 1 lakh primary jobs, 2-5 lakh secondary jobs, and helps support 5-10 lakh tertiary jobs. Do you think that the increased revenue does not cover the initial subsidy (often in as little as 5 years). Tata and Ambani can escape taxes, their workers cannot!

Bailing out the rich is not the exclusive preserve of the US - India does it and more often (our honourable President is the beneficiary of such bailouts). The Tata project in Singur was provided at such attractive terms - that in reality the Government was paying them for acquiring the land. The benifts provided to Reliance need no exposition.


Because they choose to! Do you realize that over 20% of all scientists in major pharma and biotech companies (in the west) are indians. Almost every biotech company has a few indians on its board of directors. Why can't they do that in India? Attitudes?

Pharma cos like Dr Reddys and Ranbaxy chose to free ride on research provided by the West.


Yes, but we can learn from the mistakes of others.

It does not mean that India is the only nation that does it - Japan, China, South Korea all do it including the West.


I don't think you fully comprehend the extent of the our current problems. There are approximately 1000 Trillion dollars (notional value) of derivatives based on a global GDP of about 60 Trillion Dollars (real) . Even a small fraction of these derivatives or even their underlying financial instruments can destroy the worlds economy - if we start honoring those bets.

Look at the body language of Hank Paulson and Ben Bernanke- compare their interviews/ testimony from 2005 and 2008. They are s**t scared!

It is also a fact that various Ponzi schemes continue to flourish in India (chit funds).


1 Trillion = 1 x 10 to the power 12 or 1,000,000,000,000

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 11 Dec 2008 07:36

Consumption is good, because we have no option. I will explain why in some detail in a future post. Consumption is a scam- but it is a scam that is not as harmful as the options.

Boss, I'm sorry - I do not understand what your argument is. Is consumption good? or is it a 'scam'?


Yes and Yes. But on our terms!

Should India 'co-operate' with the west and consume more?or will it inevitably have to consume more because of her demographic profile?


Why don't you tell that to indians who are trying to explain (to the west) that chandrayaan-1 was not a waste of money. Why are indians trying to explain how they want to spend their own money!

Similarly why would we underfund research to escape criticism from the west?


A society can only progress if people feel that progress is possible. Otherwise nobody cares about the future! Education, health and good institutions are possible only if people believe they have a brighter future.

I'm not sure what c**p from what famous books I have regurgitated - but if you feel a society can progress without education, health and good institutions then to repeat your favourite phrase 'it is your choice' :)


Sometimes it is necessary for the other person to fall into a ditch *S*

It is not a question of whether I feel I deserve 'better' - sure I do, but to 'deserve better' you have to climb out of the ditch instead of hoping that the other person falls in as well.


No, I am telling you to use your advantages to overcome your disadvantages and become an equal!

Similarly, don't you think this bogeyman of the 'west' is becoming as ubiquitous as the 'foreign hand' suggested by Congress governments in the 80s?


If you are interested, I would be happy to recommend more material.

However, I think I have said enough and would like to return to the 'learning' mode :)


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