Perspectives on the global economic meltdown

Hari Seldon
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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 04:39

AkshayM wrote:
Hari Seldon wrote:Under the Fractional Reserve Banking (FRB) system, regular pvt banks and not central banks were the ones minting credit that looks like money and injecting untold loads into the system.


At the most fundamental level, private banks have the deposits to lend and create credit. The only other way is they borrow from central bank. So indirectly central banks are still involved, isn't it?


In some sense, yes. And that is where the monumental stoopidity or myopic greed or diabolical conspiratoriality whatever comes into the picture.

A string of legislation and regulation had been carefully put in place after the lessons of the great depression had become inescapable.

Many of the blunders that led to the current mess were only possible because of the systematic rollback, nay deliberate withdrawal, piece-by-careful-piece of most of that shield of legislation, regulation and checks-and-balances under Clinton-Greenspan and then GWB-Greenspan-Bernake. Case in the point - dismantling of Glass-Steagell. Then the great lobbying success achieve, one dingy December Tuesday in 2004 in some basement in DC, in getting the SEC to revise and remove restrictions on how much leverage banks and FIs could take on. In one swoop, leverage ratios went from 12-1 to 30-1, in effect setting up the system to fail - making subprime and other poison possible and widespread, securitizing that poison into CDOs and passing it around to FIs around the world and so on.

So yes, under FRB, the Fed lost control over money (actually credit) creation in the system, of sorts. All sorta banks were out lending money they never had - in effect 'creating' money out of nowhere, on steroids. Now that that system has tripped, deleveraging has started, and the depth scale scope and vastness of the impossible loans made, derivatives cut, mexican standoffs and soosai bum planting among the top FIs has become clear. The shock is gone. Taking stock is here.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 29 Oct 2009 04:44

Karthik:
Thanks for the encouragement. You are free to contribute and take it to the next level too. We all learn by sharing, no?

Doom-time fear mongering is phrase clearly from the Western or American perspective. Unfortunately this is like the "puli varadhu kadai". When the tiger finally arrives nobody is going to believe. I am no trained economist as well and no expert or guru. Just a lowly BRFite.

But I clearly belong to the camp that thinks there are finite resources on this planet; China and India have started to raise in the past decade(s); American spending and consumption are unsustainable; and if the West needs to meet its current standard of living remarkable scientific achievements have to be made (I don't know what they will be though). All these factors pitch these countries in an arena where they compete or collaborate. Since West is already high up, it has more probability of going down and China/India have more probabilities of going up.

How low or how high? Well I am not going to make those guesses.

So if you resonate with other school of thoughts, it would be nice if you can share why my thoughts are invalid.

As far as strategies go, I have implied it many times - India needs balance. There is no overnight magic that will work for India. It has to be slow and steady progress. There are countless problems India faces, and we are slowly progressing.

**********************
ps: We should calm down and not get overly agitated or use words that will result in admins flying over and phyrring us. Admins have zero patience these days, let us not get this thread deleted or not get ourselves banned.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 05:04

KarthikSan wrote: Hindsight as they say is always 20-20. Would I be wrong to say 10 years from now if things change for the better, "Difficulty, missed signs and lingering doom-time fear mongering all contributed to inaccurate predictions" ?


No you wouldn't be wrong at all. If things changed for the better in 10 yrs, sure, we can all cheer and celebrate and some D&G somewhere in some obscure corner of the web wouldn't matter. Wouldn't you agree?

BTW, if I may, changed for the better w.r.t what baseline? Oct 2007? sept 2008? any point of time in 2009-10?

This thread started with the prediction of the downfall of the economic systems of the West and China and how India is in a great position to take advantage of this situation to take it's rightful place among the powers of the world.


Fine. So what? Threads evolve, revolve and devolve all the time. Events force discussion sometimes, lack of events do so at other times. Big deal.

This thread IMHO was about collecting perspectives from sources that weren't as widely heard, read or propagated as some POVs in the gubmint sanctioned corporate media (watched CNBC lately?).

IMHO, there was no claim to all-knowingness at any stage on the thread - just a series of perspectives and opinions - all subject to change with fresh data coming in.

I'm not a trained economist. I'm just a lowly electrical engineer that is trying to learn how India could use this situation to it's advantage. But the experts here on BRF seem to be happier than ever to predict and rejoice in the fall of the West than strategies to help India. Sort of like, " I lost both my eyes but my enemy lost one of his!"


Another attempt at misplaced modesty or what? electrical engineers are lowly now? What does that make boor mechanical engineers, i have to wonder.

And why this assumption that regulars here don't care about India or rejoice at someone's misery (other than, rightfully, Pakistan's)? You swoop in today to pass judgement that this thread and its regular contributors are "ok with losing 2 eyes". I mean, wow.

And where were you all this time on this thread, saar? Would it not have been better to have posted your thoughts on a more regular basis, or try to shape the flow of discussion on the thread previously if you saw it as that misguided, delusional, unpatriotic, wrong headed, takleef-causing, etc?

I see a lot of that happening suddenly, btw. Janta waltzing in wagging fingers on how this thread is soooo this and that. Fine, opinions and perspectives are what this thread is all about, I guess.

Blanket generalizations about ekhanomic systems is one thing, I've happily indulged in opinions like that. But that about the pro-Indian-ness of posters on BRF is quite another. Losing 2 eyes indeed.

There are a lot of learned people here who can provide more insight than just empty predictions. Please take the discussion to the next level. How do we use the learning from this meltdown to improve Indian economic systems?


Kindly help take it to the next level. Rather than demand, even if politely, that someone else do it for you. TIA.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 05:30

All Debt is Not Created Equal: Government Debt is NOT the Same as Private Debt

Some excellent points made that bear repetition.

A major shortcoming in an otherwise thoughtful post by DoctoRX on deficit spending is a traditional mistake in which analysts seek to analogise the expenditures of government with that of a private household or business. The government is sovereign. This fact gives to government authority that households and firms do not have. In particular, government has the power to tax and to issue money. The power to tax means that government does not need to sell products, and the power to issue currency means that it can make purchases by emitting IOUs. No private firm can require that markets buy its products or its debt. Indeed taxation creates a demand for public spending, in order to make available the currency required to pay the taxes. No private firm can generate demand for its output in this way. Neither of these statements is controversial; both are matters of fact. Nor should they be construed to imply that government should raise taxes or spend without limit. However, they do imply that federal budgeting is different from private budgeting, and should be considered in its proper, public context.


All bases covered, interesting start. The bolded portion is the kind of reverse absurdity that only fiat systems can effectively create.

It simply means that the government does not “need” money to “fund” its operations. It seems counter-intuitive, but the public actually needs the government’s money to pay its taxes rather than the government needing taxes to pay for highways, bridge repairs, schools, national defense, etc. For the household, paying back debt means they have to sacrifice current consumption (spending). For the government, no such financial constraint is imposed. Its ability to spend now is independent of how much debt it holds and what is spending was yesterday. That situation can never apply to a household or business firm.

Because the government is the only entity that gets to create money, it can “buy” whatever is for sale in terms of its money merely by providing that money to the public, which opens up a huge range of policy options. Putting this in concrete terms, the government–‘buys’ a new highway or a new aircraft carrier, as long as the construction materials and workers’ wages can be paid for in its own currency.


Seductive line of argument but would be wary of extrapolating it to illogical conclusions. Re the bolded part, am sure Sri Mugabe thought so too.

As a matter of conceptual clarity, it makes no sense to say that a government ever “builds up a store of savings” that allows for higher spending capacity in the future. The government neither has or doesn’t have any dollars; it simply makes computer entries on a bank’s balance sheet, as Federal Reserve Chairman Bernanke described in the “60 Minutes” interview above.

It spends by changing numbers upwards in our bank accounts. Think of this like a football game. Awarding 6 points for a touchdown doesn’t “use up” some stock of points held by the stadium. It is “electronically credited” via the scoreboard. Nobody asks that the 6 points be “repaid” somehow.

You don’t “save” what you have the option of creating or not creating (i.e. fiat currency). Not spending, not “creating currency” via crediting bank accounts, simply means less present day economic output.

We all learned this as the paradox of thrift.

There is nothing to “save”. The government is never revenue constrained.
...
The debate therefore should not be focussed on “affordability” but on what our the national priorities of our government? The political process, not a non-existent gold standard, determines that if we want more killing toys then the national government can always meet those expectations in a fiscal sense, unless we run out of real resources. Likewise if we desire universal health care, in a manner where the government provides this as a national right, rather than foisting it on business as a marginal cost of production (remember, businesses are constrained in a way that governments are not).
...
The consequences of overspending might be inflation or a falling currency, but never bounced checks a government creating its own currency can never go broke. Government spending limits ought to be set by our policy makers by considering what we, as a society, want, like universal healthcare, full employment, a well-functioning economy and our ability to accomplish this—not out of some preconceived notion of what is “affordable”.


Interesting. Almost convincing. And certainly reassuring and inspiring.

Its no secret that gubmints can never go bankrupt on debt issued in their own currency. The issue is bankruptcy of credibility, the willingness of pvt entities to finance gubmint debt by buying bonds. And the interest rates they will demand should gubmint credibility (of the protection of current currency as a store of value in material terms) sink a notch.

BTW, would also question why gubmints have to 'sell' bonds at all, if indeed all they needed to do is order moneybags from thin air. Is it just to circulate the monies? Wouldn't crediting comm banks pro rata to deposit base do the trick? Just wondering. Maybe we will get there too, who knows?

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 29 Oct 2009 05:48

>>>(watched CNBC lately?).
Oh man, I never could take the freaks and pompous anchors and reporters on that show. Last year I could not take Larry Kudlow for more than 5 mins. Finally I switched Bloomberg TV; I at least get a better coverage of Asia and different stories - +ve and -ve. Gives a global perspective. CNBC is more like snake oil sales man.

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Re: Perspectives on the global economic meltdown

Postby arnab » 29 Oct 2009 06:04

Hari Seldon wrote:[

BTW, would also question why gubmints have to 'sell' bonds at all, if indeed all they needed to do is order moneybags from thin air. Is it just to circulate the monies? Wouldn't crediting comm banks pro rata to deposit base do the trick? Just wondering. Maybe we will get there too, who knows?


Isn't it because it gives the Government two 'instruments' to control the economy? Monetary policy and Fiscal policy? if the Government was just freely handing out money to people - it would only have the option of using fiscal policy (tax) to control the economy?

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Re: Perspectives on the global economic meltdown

Postby AkshayM » 29 Oct 2009 06:17

ramana,

It is extraordinary in scope and sinisterness the way the WS (Wall Street) has been bailed out. What is even more peculiar is the way GS has been beneficiary in the entire saga. The week of Bear Stearns liquidity crisis, when Fed and JPM extended credit to BS via JPM they were supposed to be for up to 28 days (beginning day of Friday that week). Already by Friday evening Alan Schwartz (then CEO) received call from Paulson/Geithner duo to find a "stabilizing alternative" by Sunday before Asia opened. The only viable option on the table was JPM but Bear Strarns had to find at least one more suitor to sell itself to. The only other credible alternative at that time was private equity headed by Chris Flowers, who happens to be ex-Goldmanite, but more famous for purchasing Japan's Long Term Credit Bank and making billions off of it. The BS executives felt they were shoved in to the arms of JPM who, although skimmed .20 on every dollar it forwarded to BS, probably wasn't too keen on it either. Although, JPM had somewhat of a better idea on BS collateral as JPM was BS clearing agent. In the meantime, JPM started to give .80 out of $1 and keeping .20 for itself. It is one thing to feed from carcass but this one act was eating it while it still lived. The ways of WS I guess. Dog eat dog etc.

The not so strange aspect to BS was that the rumors and innuendo and lack of confidence completely engulfed BS and they were seeing the rug slipping away right under their feet. But they couldn't do anything. At that point, customers, brokerage clients, hedge funds, counter-parties and lenders are pulling out money and deals fast and furious. It was classic run on the bank. But it could have happened to any of the big WS investment bank. Most of the investment banks probably fund themselves in short term through repo market and commercial paper. This could have happened to any of them. But the reality is that out of the top ones 3 are already gone. When Chris Flowers & Co did the due diligence on BS's balance sheet he was pleased with the balance sheet. In other words, the assets on BS balance sheet were good.

In the context of making whole all the counter parties to AIG especially GS, there was no reason to do that. Apparently NYFed (read Geithner) took over negotiations from AIG on unwinding the CDSs. Of course, AIG was trying to negotiate with counter parties to accept .40 on $1 on the CDS deals. There was no reason for NYFed to step in, at taxpayers expense make them whole. This is $80B we are talking about of tax payer liability. And in March 2008 Fed was alright with wiping out BS shareholders and letting Lehman file for bankruptcy.

Between counter-parties payout via AIG bailout, granting commcercial status to GS and Morgan, Paulson meeting GS board in Moscow (unofficial), TARP and no reforms on Wall Street it is bound to happen again.

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Re: Perspectives on the global economic meltdown

Postby AkshayM » 29 Oct 2009 06:22

By the way, it is not funny how the financial crisis in the US is similar to that of Japan. Japanase banks were loaded with bad loans. They did not write it off, they did very little to raise capital, they did not sell themselves, no restructuring of any kind, just more loans to pay for those loans. With the political instability of government in power and their financial policies Japan was hamstrung in doing anything structural. Tim Collins and Chris FLowers with Volcker and others as advisors tries to pull off what was never done earlier. Buy Japanese bank at that time and turn it around. From investment perspective the private equities probably made good returns.

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Re: Perspectives on the global economic meltdown

Postby ss_roy » 29 Oct 2009 10:00

KarthikSan,

The west is the biggest purveyors of BS, lies and scams in our age.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 10:04

arnab da,

arnab wrote:Isn't it because it gives the Government two 'instruments' to control the economy? Monetary policy and Fiscal policy? if the Government was just freely handing out money to people - it would only have the option of using fiscal policy (tax) to control the economy?


The question was rhetorical. I am aware of the fiscal and monetary levers central banks can theoretically wield to stave off economic crises.

In the context of the current crises, take a look at what the knights in shiny armor have been doing. The BoE kick-started the grande Quantitative Easing program by actually having the BoE buy bonds the treasury issued. Neat, no? Why even require pvt bidding for bonds at all, one wonders. Why have bond auctions from germany to Lithuania literally 'failed' or close to it? Why would gubmints subject themselves to such ignominy, eh? The Fed in the US clearly admitted to intending to following the BoE example.

There are persistent rumors (and admittedly rumors are all there are when such secrecy and opaqueness exists all around what the world's largest central banks are and do) about what the Fed is upto. Some nasty rumors say that the Fed is funding some pvt trading desks that ensure equity mkts don't crash beyond some thresholds and that bond auctions are well attended (in any case all Primary Dealers or PDs are required by law to submit bids for treasury bond auctions - its a condition on which their trading licenses are issued. So there is little chance of a failed bond auction in the khanate anyway.)

But all that is moot. We have to go with what is publicly known and what is being pushed as the truth on financial media seem overly rosy.

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Re: Perspectives on the global economic meltdown

Postby ramana » 29 Oct 2009 10:13

Are we having private socialism from Wall street instead of state socialism of DC?


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Re: Perspectives on the global economic meltdown

Postby KarthikSan » 29 Oct 2009 10:54

Hari Seldon wrote:BTW, if I may, changed for the better w.r.t what baseline? Oct 2007? sept 2008? any point of time in 2009-10?


Changed for the better, meaning the Western financial system does not collapse completely like some predict and the Chinese don't become "toast". All this would mean that they'll drag the entire world with them and we'll all be in a world of hurt. Widespread civil unrest in China does not look like a security threat to India?

Another attempt at misplaced modesty or what? electrical engineers are lowly now? What does that make boor mechanical engineers, i have to wonder.


No misplaced modesty here. When it comes to economics I'm just a lowly electrical engineer. If you want to discuss semiconductor manufacturing then that's a different story. Each one of us has their strong points and interests in other subjects that we try to learn from others.

And why this assumption that regulars here don't care about India or rejoice at someone's misery (other than, rightfully, Pakistan's)? You swoop in today to pass judgement that this thread and its regular contributors are "ok with losing 2 eyes". I mean, wow.

And where were you all this time on this thread, saar? Would it not have been better to have posted your thoughts on a more regular basis, or try to shape the flow of discussion on the thread previously if you saw it as that misguided, delusional, unpatriotic, wrong headed, takleef-causing, etc?

I see a lot of that happening suddenly, btw. Janta waltzing in wagging fingers on how this thread is soooo this and that. Fine, opinions and perspectives are what this thread is all about, I guess.


I'm just expressing my opinion on what's been discussed here for several months. As for the second question, I'm not as prolific a poster you are but I post here when I find something useful to everybody. In fact I posted on the first page of this thread and have been following it since the beginning. Let's just say that I'm a passive participant in the discussions.

This was my attempt to shape the flow of discussion. I took the step only when I felt that there was nothing more new being added as we have already seen the corruption and rot in Wall St. multiple time. But apparently you think that it is uncalled for. I'll stop at that.

Kindly help take it to the next level. Rather than demand, even if politely, that someone else do it for you. TIA.


Yes, I will. When I see something that I can provide insight on I will do it (this is also my answer SwamyG's question). If you take my request to be a demand then so be it.

My last post on the subject and I'll be on my merry way till I come across something that adds to the discussion. Peace!

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Re: Perspectives on the global economic meltdown

Postby kmkraoind » 29 Oct 2009 11:36

Exaggeration found in number of jobs created by stimulus

Washington - A Colorado company said it created 4,231 jobs with the help of President Obama's economic recovery plan. The real number: fewer than 1,000.

A child-care center in Florida said it saved 129 jobs with the help of stimulus money. Instead, it gave pay raises to its existing employees.

Elsewhere in the U.S., some jobs credited to the stimulus program were counted two, three, four or even more times.

The government has overstated by thousands the number of jobs it has created or saved with federal contracts under the president's $787-billion recovery program, according to an Associated Press review of data released in the program's first progress report.


The art of messing with statistical numbers, is US taking a leaf from China.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 15:30

Ilargi at Automatic Earth is scathing. And these are knowledgeable folk with no agency conflict in presenting realistic rather than rosy pictures. Which is what is worrisome all the more because they ain't being bears for the heck of it and have gotten their market calls more right than wrong. The rosy picture painters turn out to be sourcing data from agency conflicted media organs or less than stellar gubmint organs (BLS anyone?).

A Halloween beyond your nightmares

It's not entirely clear to me why the Brits are suddenly so determined to break their too-big-to-fail banks into pieces - the little man inside says it's the EU that makes them do it, and the EU only- but it's certainly a wise move, even if it's too late to stave off all out economic disaster. If you go down anyway, why do it telling blatant lies till the bitter end and cheating every grandma you can put your sweaty palms on, including your own, out of every penny they own? Have these folks no pride?

In Washington, they certainly don't.


OK rhetorical flourish apart, does anyone else notice a streak of panic?

So tell me, how ridiculous does it have to get? The mortgage and building lobby manages to get its homebuyer tax credit extension through, despite fierce resistance, by having a bunch off their Capitol Hill lackeys bundle it with that other extension, the one for unemployment benefits for people who’ve been out of a job for over year, and are by now deeply miserable. They're really a group of fellow citizens over whose backs you want to get your pet projects financed, ain't they? That's the sort of deal that makes one sleep well at night.


Read it all. A tad rhetorical but nonetheless right on the 'facts' of sort.

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Re: Perspectives on the global economic meltdown

Postby Abhijeet » 29 Oct 2009 16:05

ss_roy wrote:Abhijeet,

You are confusing technological progress with economic growth, they often occur together- but are not the same.

Technological progress = using an iPhone to search for local restaurant listings.
Economic growth= being able to eat more often at more expensive restaurants.


I'm not, but you are confusing true productivity enhancers with electronic toys.

Technological innovations really do raise productivity, and make it possible for even developed countries to grow continuously richer while their populations are mostly stagnant. The claim that no real growth has occurred in the West in the last 30 years - a time when some of the most potent productivity enhancers in history have become widely available - is extraordinary, and needs to be substantiated. I'll ask you again to post the data on the basis of which you make this claim.

It's a measure of the standards of this thread that such a claim is not only unchallenged, but actually posted in other "strategic affairs" threads, by the same people who are comfortably enjoying the fruits of that supposed non-growth in the West.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 29 Oct 2009 17:10

Technological innovations really do raise productivity, and make it possible for even developed countries to grow continuously richer while their populations are mostly stagnant. The claim that no real growth has occurred in the West in the last 30 years - a time when some of the most potent productivity enhancers in history have become widely available - is extraordinary, and needs to be substantiated.


Would mostly agree on this one.

Its indefensible to say that *no* productivity surge happened in the last 30 yrs. Thats obviously not true.

However, the dotcom boom that eulogized this productivity surge with ridiculous numbers and fueled an asset and (mal)investment boom that until then was among the biggest ever was based on foolishness and plain deception. An accounting miracle, if you will, that justified valuations that neither could have been nor should have been believed. So its not an outright falsity to say that plenty of fraud, deception and outright cheating happened that inflated GDP numbers and productivity stats to higher than they ought to have been.

The subsequent bust, now a painless memory am sure, forced the Fed's hand in keeping interest rates too low too long (now universally admitted to, even by mortgage associations) and led directly and indirectly to the housing crash wherein the present crop of probs have found release from obscurity.

Well, so what, one may ask. Turns out this fraud-deception and profiteering off asset bubbles is a template for wider, bigger and deeper holes to come, perhaps. A pensions crisis of gargantuan proportions brews, a social security and local gubmint bankruptcy of humongous proportions looms and other such ugly stuff.

All this and rhetorical excess are standard tools in the repertoire of ekhanomic discussions. So should some noble prudish sentiments have inadvertently been hurt, like in this litany:
It's a measure of the standards of this thread that such a claim is not only unchallenged, but actually posted in other "strategic affairs" threads, by the same people who are comfortably enjoying the fruits of that supposed non-growth in the West.


Too bad, I guess.

One mistake IMO that this thread (and others) should not make is to take itself toooo seriously. "Highbrow circles", the great n^3 once called 'em. Symptoms- 400% unable to chill or have fun, ever ready to pass peremptory judgment and ever trying to piss into the swimming pool.

Have fun, indulge in ideas, ideals and opinionated discussion, try not to get personal against anybody even in idle banter - moi image of a good time on BRF.

Enjoyed Arnab's discussions - nice and fiesty as well as ss_roy's inimitable rhetorical style and no-prisoners-taken opinions. Why should it rankle and rattle anyone so much as to crib righteously about 'thread standards' and such makes a pleasant Agatha Christie, I guess.

Cheers!
Last edited by Hari Seldon on 29 Oct 2009 17:23, edited 1 time in total.

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Re: Perspectives on the global economic meltdown

Postby Tanaji » 29 Oct 2009 17:23

I think people are taking this thread too seriously. The topic is "Perspectives..." and this thread is open to all ones. It is just that there is a pre-ponderance of D&G type articles and view points. However, one must understand that this is *just* a view point. If you are thinking that the West is going to go down, the $ will crash and hordes of unemployed will cause anarchy in the EU, then you have only yourself to blame. If you think that India will come out unscathed in all this, and are going to sell all your $ and invest in Rs. and hope for growth, then again, its your gullibility.

This thread is a great resource for articles that are normally not visible in the main stream media. Yes, they are negative. But no one is saying you should make strategic or even tactical financial decisions based on this thread. You will be a fool if you did so.

It's a measure of the standards of this thread that such a claim is not only unchallenged, but actually posted in other "strategic affairs" threads, by the same people who are comfortably enjoying the fruits of that supposed non-growth in the West.


You challenged it did you not? And that is the purpose of the thread.. "perspectives". Just because someone posted something doesn't mean its the gospel truth of BR and its readers!

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Re: Perspectives on the global economic meltdown

Postby Abhijeet » 29 Oct 2009 17:48

Fair enough. I generally expect more from BR economics-related threads than just light-hearted banter (that should be confined to the Strat forum :P), but to each their own, I guess.

I do think that the forum is better when people making grandiose predictions, as opposed to just posting articles, back what they write with data.

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Re: Perspectives on the global economic meltdown

Postby Tanaji » 29 Oct 2009 20:13

Abhijeet, have you taken a look at the other economic threads, specifically the one related to Indian economy? It is much more serious than this and there are a few economists on there as well that provide insightful commentary.

IMHO, this thread is like chaat/snacks that you eat , but is not the main course.

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Re: Perspectives on the global economic meltdown

Postby Singha » 29 Oct 2009 20:39

the avg inflation adjusted income of americans has grown or not grown in the last 30 years?

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Re: Perspectives on the global economic meltdown

Postby ldev » 29 Oct 2009 20:53

Singha wrote:the avg inflation adjusted income of americans has grown or not grown in the last 30 years?


Cannot consider inflation adjusted income without deflation adjusted purchasing power especially for imported manufactured goods, cost of computing power per unit, telecom services etc. It is the net effect which will determine actual increases/decreases in standards of living.

There is an interesting chart in one of the linked articles in this thread in the recent past which shows inflation adjusted asset prices divided into manufacturing assets vs financial assets over the last 60-80 years. That is the root issue. At the most fundamental level, even listed shares are *derivatives* because the value of the current share price is derived from the underlying potential cash flows of the future.

The question is why has this shift to financial asset inflation as opposed to manufactured asset inflation happened? Is it a conscious shift because of shifting demographics or an accidential evolution of capitalism with financial asset managers currently in the ascendant? Truly understanding this is a PhD level dissertation IMO and cannot be reduced to rhetorical one liners to suit the idealogical bent of any poster/admin.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 29 Oct 2009 21:33

Abhijeet:
We need to break down the though processes to check if what, some of us, write has backing or not.

If you remember in school/college when we did our Chemistry lab experiments. We tabulated the experiments under 3 columns: Experiment, Observation and Inference. Akin to this, in real life, we perform those actions; and from inferences we create new ideas or theories. We put those theories/ideas as inputs to other experiments and we draw inferences. There is a cycle, and 'Observation Errors' or 'Measurement Errors' can have an impact on the Inference. Similarly there can be 'Inference Errors' that can end up creating faulty theories or ideas. These faulty theories and ideas can be verified by the other experiments.

BRFites body of knowledge can come from 2 sources:
1) Experts opinion
2) Individual opinion

It is valid to ask for backing/sources or to prove what one says. Generalizing, nobody desires to be proved wrong, let alone chewed up by fellow BRFites.

A valid question regarding Experts opinion is "The Experts did predict/opine earlier this 'fall' would come. They have been wrong. So why are they correct now?" I have asked and been asked the same question. I see other experts asking the experts similar questions. It has such a complexity that we include biased information or exclude legit information. It is a giant exercise, and hopefully experts are finding the differences. It there is no difference, then it is valid to exhibit cynicism over the inference. To my mind, 2 big differences from then are 1)China 2)India. The 60s, 70s or 80s did not see two emerging nations rising the way they are rising now. Two countries with 2+ billion population need to be factored. Are these really factors that can influence is a good question. We see several reports that it is the case. And there is hard proof that India is growing - we have several BRFites who can attest to that fact. India is growing unlike what it was growing pre-1991. That in itself makes things different from the past.

As more experts join the bandwagon, we as BRFites can not ignore the bandwagon just because they were proved wrong in the past. It is quite possible that the earlier cries in the 60s-90s period would have influenced corrective measures which would have prevented the predicted end results. So one thing we have to consider is has the situation crossed beyond a point!

Several BRFites live outside India or have been exposed to non-Indic cultures and lifestyle. Their everyday life experiences shape their individual opinion. For example: the spending of people above their earning potential. Are our experiences invalid? Maybe our inferences are biased.

We might not have neat tabular columns and linking all dots, but I don't think our inferences are plucked out of thin air without backing.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 29 Oct 2009 21:37

>>>lots of discussion going on here. i take a 24 hour break and there's a whole new page of posts.
Yup, I am surprised at the sudden surge of posts. It just means more admin are scrutinizing what we write. Bachon, abhi grammar teek karo! Aur saghe BRFite ka aadr karo! And remember we are bhai-bhai. I will respond little later to your post.

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Re: Perspectives on the global economic meltdown

Postby ramana » 29 Oct 2009 21:39

Were the changes to Glass-Steagall and the credit ratios put in place to ensure economic expansion? The real lesson in economics from the Great Depression-> New deal I & II-> WWII- > Oil shock on 1970s, is that it was the gradual expansion of the economy that provided the rising tide that lifted the people. And the negative thing was there were no controls as the political and financial elite thought they had laddoos in both hand and mouth. Why bother?

Many of the blunders that led to the current mess were only possible because of the systematic rollback, nay deliberate withdrawal, piece-by-careful-piece of most of that shield of legislation, regulation and checks-and-balances under Clinton-Greenspan and then GWB-Greenspan-Bernake. Case in the point - dismantling of Glass-Steagell. Then the great lobbying success achieve, one dingy December Tuesday in 2004 in some basement in DC, in getting the SEC to revise and remove restrictions on how much leverage banks and FIs could take on. In one swoop, leverage ratios went from 12-1 to 30-1, in effect setting up the system to fail - making subprime and other poison possible and widespread, securitizing that poison into CDOs and passing it around to FIs around the world and so on.

So yes, under FRB, the Fed lost control over money (actually credit) creation in the system, of sorts. All sorta banks were out lending money they never had - in effect 'creating' money out of nowhere, on steroids. Now that that system has tripped, deleveraging has started, and the depth scale scope and vastness of the impossible loans made, derivatives cut, mexican standoffs and soosai bum planting among the top FIs has become clear. The shock is gone. Taking stock is here.


--------------------

I dont understand the superior attitudes of members, including old timers, who come and interrupt the thought flow claiming all that was posted earlier is baseless without themselves providing any contributions. Same thing happening in the Mil Forum also. This attitude forces everyone to stick to nukkad and not venture out. This is a forum not a rubber stamp bulletin board.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 29 Oct 2009 21:45

ldev wrote:There is an interesting chart in one of the linked articles in this thread in the recent past which shows inflation adjusted asset prices divided into manufacturing assets vs financial assets over the last 60-80 years. That is the root issue. At the most fundamental level, even listed shares are *derivatives* because the value of the current share price is derived from the underlying potential cash flows of the future.

Is that why they say, the share price always factors the future growth of a company (and/or a sector) ?

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Re: Perspectives on the global economic meltdown

Postby ldev » 29 Oct 2009 22:18

Is that why they say, the share price always factors the future growth of a company (and/or a sector) ?


SwamyG,

It is supposed to in a perfect market but market knowledge is never perfect. Also "animal spirits" can lift expectations of companies/sectors beyond what is realistically possible such as during the dot.com boom. What are commonly now referred to as derivatives may be actually described as second function derivatives such as options on share prices.

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Re: Perspectives on the global economic meltdown

Postby ldev » 29 Oct 2009 23:04

The chart I referred to earlier was actually from Bill Gross'sNovember newsletter posted on the PIMCO website:




Image





Having said that, let me introduce Chart 2 a PIMCO long-term (half-century) chart comparing the annual percentage growth rate of a much broader category of assets than stocks alone relative to nominal GDP. Let’s not just make this a stock market roast, let’s extend it to bonds, commercial real estate, and anything that has a price tag on it to see if those price stickers are justified by historical growth in the economy.

This comparison uses a different format with a smoothing five-year trailing valuation growth rate for all U.S. assets since 1956 vs. corresponding economic growth. Several interesting points. First of all, assets didn’t always appreciate faster than GDP. For the first several decades of this history, economic growth, not paper wealth, was king. We were getting richer by making things, not paper. Beginning in the 1980s, however, the cult of the markets, which included the development of financial derivatives and the increasing use of leverage, began to dominate. A long history marred only by negative givebacks during recessions in the early 1990s, 2001–2002, and 2008–2009, produced a persistent increase in asset prices vs. nominal GDP that led to an average overall 50-year appreciation advantage of 1.3% annually. That’s another way of saying you would have been far better off investing in paper than factories or machinery or the requisite components of an educated workforce. We, in effect, were hollowing out our productive future at the expense of worthless paper such as subprimes, dotcoms, or in part, blue chip stocks and investment grade/government bonds. Putting a compounding computer to this 1.3% annual outperformance for 50 years, produces a double, and leads to the conclusion that the return from all assets was 100% (or 15 trillion – one year’s GDP) higher than what it theoretically should have been. Financial leverage, in other words, drove the prices of stocks, bonds, homes, and shopping malls to extraordinary valuation levels – at least compared to 1956 – and there could be payback ahead as the leveraging turns into delevering and nominal GDP growth regains the winner’s platform.

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Re: Perspectives on the global economic meltdown

Postby Katare » 29 Oct 2009 23:50

Recession is officially over in US after 4 quarters of negative growth.

US economy grows 3.5% in Q3

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Re: Perspectives on the global economic meltdown

Postby ldev » 29 Oct 2009 23:52

For those interested in another hard hitting regular, Eric Sprott of Sprott Asset Management is good. His October newsletter titled ,"Surreality Check......Dead Government Walking", is a must read. Very difficult to counter the logic of his numbers.

Why the walk down memory lane? The equity market performance in November 2007 masked the underlying problems plaguing the financial system at the time, and it’s blindingly apparent that it is doing the same again today. The government has assumed most of the financial system’s liabilities in a giant game of ‘kick the can’. The calls for a new bull market are coming fast and furious. Market participants are bidding up the stocks of companies that are demonstrably bankrupt, and government balance sheets have ballooned to unforeseen levels. As respected market commentator David Rosenberg recently wrote, “the stock market is divorced from economic reality”.1 It’s time for another surreality check, but this time it isn’t the publicly traded companies that deserve attention, it’s the governments that have saved them. Make no mistake – the dead men are still walking – they’re just a lot bigger now than they were two years ago, and they don’t generate earnings – they print money and tax their citizens.

In case you failed to catch it in our previous articles this year, we thought we’d state it outright for our readers this month: the United States Government is on a trajectory to default on their obligations. In its current financial condition, it will not be able to fund its forecasted budget deficits and unfunded Social Security and Medicare promises on top of its current debt obligations. This isn’t official yet, and we don’t know when the market will react to it, but there is no longer any doubt about the extent of their trajectory. There simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending.

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Re: Perspectives on the global economic meltdown

Postby Ameet » 30 Oct 2009 01:54

The greatest theft in American history

http://theautomaticearth.blogspot.com/2 ... ft-in.html

Highlights:

In the past, I have repeatedly talked about the perverse role the US government plays in the domestic housing market, through government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which have total mortgage portfolio's of between $5 trillion and $6 trillion on their books, as well as an unknown amount and degree of "involvement" in mortgage-backed securities, and whose common and preferred equity were recently assessed as "worthless" by an analyst team at Keefe, Bruyette & Woods. Which of course only confirmed a poorly hidden secret.

Earlier this week, a story made the rounds of a 20-year old girl of Salvadorian origin who holds 3 jobs and bought a $155,000 home (and got a $34,000 "embellishment" extension on top of that) with an FHA-guaranteed loan with a 3.5% down payment. That story had subprime written all over it right from the start, and loudly begged the question what on earth moves the US government to move into (make that induce) subprime lending.

But that was just the first chapter of the tale. In chapter 2, we see that the damsel in distress didn't just see her loan guaranteed by the Obama administration. Crucially, she also qualifies for the $8000 tax credit for first time home-buyers.

Please pay attention. Now it gets interesting.

$8000 may not seem like a lot compared to the $155,000 purchase price. But that's not the way to look at it. You see, the government allows those who qualify for the credit to use it towards their down payment. And now the picture changes dramatically.

Remember, our protagonist needed to put down only 3.5% of her loan. 3.5% of $155,000 is $5425. Hence, she still has $2575 left on her $8000 credit. So she adds $34,000, which brings the total loan to $189,000. 3.5% of that is $6615. So even with the embellishments, she still has $1385 left.

In the end, if we focus only on the government involvement in this particular situation, she actually gets paid to get a mortgage loan for her home. In effect, she gets a 105% loan. Of course, if we look beyond government involvement, the mortgage lender which "approved" her will slap an avalanche of fees and bills on her, and she's still sure to be made to pay and bleed through the teeth.

But the principle has been established. The US government has silently and secretly entered a situation in which its presence is even far more perverting than it was before, when its involvement was channeled through Fannie and Freddie.

all solely for the benefit of the one and only party that stands to profit.

That is, the banks. Which can unload repossessed properties at much higher prices, given the tax credits. Which can keep properties and loans at greatly elevated prices on their books, which allows them to fool their shareholders and depositors into thinking they are far more healthy than they would be without government involvement. Who can use the artificially raised "values" on their books for highly leveraged financial wagers that if they pay off allow for multi-billion dollar bonuses, and if they don't can be channeled back to the taxpayers' account.

Why is this so important for the government? Why does Barney Frank proudly declare that the nation has a solemn commitment to those alleged "stable" housing prices?

Because without them, a huge chunk of America's 8000+ banks will be toast. More importantly, much of Tim Geithner's speed-dial list will be gone. He'll have no-one left to talk to before breakfast.


There are many of us who feel offended by the bank bail-outs and the bonuses paid with the bail-out money. But there is nothing that perverts America more than its government's housing policies. Take away Fannie, Freddie, Ginnie and the FHA, and you bankrupt the entire financial system with the stroke of a pen. The entire far too highly leveraged structure of loans, securities and derivatives in the end is based on the US housing market. That's why Obama and his people do what they do. Losing a million jobs a month is much less important than average home prices falling by $10,000 in that same month.

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Re: Perspectives on the global economic meltdown

Postby AkshayM » 30 Oct 2009 03:03

The repeal of Glass-Steagall was more due to steadfast belief in "free markets" and "market efficiency" primarily by Alan Greenspan. The ongoing economic expansion mostly with easy credit reinforced the ideology that markets were efficient to the extent that Greenspan would have none of the contrarion views. It was hubris of sorts. There was of course concerted lobbying effort as well by the banks. But the key to the repeal was the regulators (Greenspan, Rubin, Summers et al) truly believing the system did not require regulation. I think the most successful act of deregulation or pre-empting regulation was not Glass-Steagall repeal but the lobbying by ISDA (International Swaps and Derivatives Association) to keep derivatives unregulated and opaque. The massive leveraging was enabled due to derivatives contract. AIG did not understand how much risk it was accumulating by selling the swaps. It was collapse of risk management. There was fundamental agreement that house prices will keep going up. In the highly leveraged business the loss of value in the assets or the default results in very very limited time to live to fight another day, if the business can manage to do that in that very limited time window.

It was not as if there were no instances of big failures prior to 2007 wind down. Japan has more or less stagnated in last two decades whose root goes to the baking crisis. There was of course S&L in the 80s but more importantly to the contemporary financial engineering was the collapse of Long Term Capital Management in 1998. LTCM was massively leveraged like most existing banks today and could not function without capital. It demonstrated how dangerous derivatives can be.

By the way, Jamie Dimon of JPM said that the bank failures were not due to derivatives but due to unsustainable leverage and lax regulatory oversight. Quite clearly he has skin in the game to spin the failures. Everyone thought they are hedging with derivatives without clearly understanding how exactly.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 30 Oct 2009 04:18

Government and spending! It is sad that analysts jump to point out how Government spending continues to increase. But baring a few, nobody wants to point out the out-of-hand spending by the aam admis. A society that continues to look only at Government spending and considers aam admi's outlandish spending as a virtue or necessity is destined for some shock. The entire system, in the West, revels in the precarious behavior of consumers.

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 30 Oct 2009 07:11

Deflation Threat Looms in Japan

As the world resumes economic growth after the steep global downturn, a familiar problem may keep Japan from following: deflation.


Irving Fisher had analyzed the debt-deflation dynamics in a now-refamous tome back in 1935(?). The third part of the dynamic 'depression' was left unsaid. BUt that was the era of the gold standard and it took FDR's devaluing the USD 40% against gold overnight that seem to have helped matters somewhat back then.

Thankfully, in the 21st century, social safety nets have gotten better since then and the stark misery and visible poverty of the 30s in the first world has not seen a repeat.

Now, in an era of fiat currencies where the USD standard has replaced the gold one, one has to wonder which way debt-deflation will play out. Japan's trajectory is a must watch. It leads the rest of the G7 on many parameters in the race towards the edge of the cliff.

As to where things are heading, well, one increasingly plausible possibility is wholsesale default on G7 gubmint debt down the line. Debt jubilees are another. Or maybe all this speculation is just a storm in a teacup onlee. Time will tell. Lezsee.

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Re: Perspectives on the global economic meltdown

Postby Neshant » 30 Oct 2009 22:44

With the ineptitude of the bernanke practically sleeping his way into the crisis, he's lucky to even keep his job! He wants to invent a new role for the federal reserve as market regulator now that its old role of fiddling with interest rates and printing money is seen as a scam. Really the whole banking & bullsh&tting industry is a scam.

The federal reserve should be done away with and its powers transferred to an elected authority - that is the first step to any financial reform.

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Re: Perspectives on the global economic meltdown

Postby SwamyG » 30 Oct 2009 23:49

^^^^
Here is a good video to watch Just a few minutes that talks about Thomas Jefferson's fear about Banks taking over Governments.

Does Walmart sell "Banker" costume? I can send my son as a "Banker" for trick or treating tomorrow. :mrgreen:

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Re: Perspectives on the global economic meltdown

Postby Singha » 31 Oct 2009 08:31

^^ you dont want him to come to any harm...collecting fees from bankrupt households :((

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 08:43

Singha wrote:^^ you dont want him to come to any harm...collecting fees from bankrupt households :((


Pitchfork Watch: Couple Charged With Torturing Suspected Mortgage Fraudsters

We’ve been waiting for vigilante justice to start against those who profited from the financial crisis, but it should have occurred to us that it would be the foot soldiers, not the kingpins, who’d be the prime targets.

As Los Angeles housing advocates launched a campaign warning of mortgage rescue scams, a couple hit by foreclosure are charged with torturing two loan-modification agents they suspected of fraud, authorities said on Monday.

The couple, Daniel Weston and Mary Ann Parmelee, and three other people are accused of luring their two victims to an office where the men were tied up, held for hours and beaten, a spokeswoman for the Los Angeles County district attorney said.

Police were called after one of the victims managed to escape, said the spokeswoman, Shiara Davila-Morales. The incident occurred on Wednesday in the town of Glendale, just north of Los Angeles.

Weston, Parmelee and the three other defendants each were charged with two counts of torture, two counts of false imprisonment by violence and two counts of second-degree robbery, according to a criminal complaint filed against them….

“The two allegedly sought loan modification assistance from the victims but believed that nothing was being done and wanted their money back,” a statement from the district attorney’s office said….

Weston and another man, who previously served time for assault, are accused of carrying out the beatings in front of their three co-defendants, who prosecutors say had prior business ties with the two victims by having funneled loan-modification referrals to them.

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Re: Perspectives on the global economic meltdown

Postby Rahul Mehta » 31 Oct 2009 10:24

Neshant wrote:The federal reserve should be done away with and its powers transferred to an elected authority - that is the first step to any financial reform.


You mean : Fed Chief should be elected by commons?

And in same was, should we elect RBI-chief too?

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Re: Perspectives on the global economic meltdown

Postby Hari Seldon » 31 Oct 2009 12:07

The ekanomist mag oozing advice on how yindia should go about managing its capital controls regime. If you can ignore the TFTAn condescension and patronizing BS,not a bad read at all, IMO.

Raining on India's parade

IN INDIA, drought sometimes turns to deluge. This summer the country suffered its worst monsoon since 1972, which left half its rural districts parched, followed swiftly by floods that inundated two states. In recent years India’s economic policymakers have confronted a similar phenomenon. A once-sheltered economy is now increasingly open to foreign capital, which rained down on the country in 2007, only to evaporate last year. The rains are now returning: foreigners have invested $13.8 billion in India’s stockmarkets since April, having withdrawn $8.6 billion over the same period last year.


On October 27th the Reserve Bank of India (RBI) held its key policy rate at 4.75%, even though it is anxious about rising inflation. It is wary of attracting even more money from foreign investors, who are looking for high returns in a world of meagre yields.


Many emerging economies are reluctant to impose such controls. They fear such an infringement on economic freedoms will cast doubt on their commitment to market-friendly policies. Brazil seems almost apologetic about its taxes, which it insists are meant only to prevent excesses. India, by contrast, is less bashful about these things. It is proud of its “carefully calibrated” easing of capital restrictions over the past 18 years. It has no need to impose a tax on foreign investment in bonds, because such purchases are still banned beyond a fixed amount. Indian firms can raise money abroad, but the RBI sets limits on the amounts, rates and purposes of this borrowing. Foreign-direct investment (FDI) is welcomed enthusiastically, except in some industries, where it is spurned as an alien intrusion on the Indian way of life.


OK. so dilli is proud and less bashful about protecting the yindian peoples from external sector capital flow vagaries. So what? I'd say they earned it, the past 2decades of global ekhanomic history show. Turns out this point is by now so widely known and appreciated that even the mighty TFTA ekhanomist magazine cannot brush it away. LOL. But count on them to inject massive doses of condescension to overcompensate..... watch the decosntruction of this para....

Having avoided the Asian financial crisis in the 1990s and escaped the worst effects of the most recent meltdown, India’s cautious liberalisers feel they have won the argument this time around. It is hard to disagree. :((
{so far so good, the Conmist has actually uttered the unforgibavle - that dilli got it right on a conomic matter! OMG....need to 'balance' this perception now....LOL}
It is a pity emerging economies cannot enjoy a shortcut to prosperity by importing capital reliably from abroad; it is a pity they must rely so heavily on their own savings to finance their urgent investment needs; it is a pity, in short, that the liberal case for the free movement of capital faltered. But falter it did.


Sala, baat bada bada karta hai, in true tfta tradition. Its not as if the conomist homeland of UK-stan is overflowing with capital that it zimbly needs to reliably export onlee. O yes, now i recall, everything from their pension funds to healthcare to social safety are broke and desprately need returns merely to stretch pretend-reality a while longer. And the very structure of the high-cost, high-debt, low-growth high-liability burdens that the emerged conomies currently are and evermore will become in the yrs ahead ensures those returns won't happen there anymore. Even the wall street types are at a loss as to what new bubble to spin to fool the world's capital into flowing into the hard-asset productive areas of emerged markets now. So, the tftas do the next best thing - create suitable perception top mask unseemly reality. Spin their necessity as a favor done to the emerging world onlee. Make 'green rules' to impose arbitrary protectionism on their own mkts and clamor for opening up and easing of controls in emerging mkts. Nice game, eh?

Must say it again - dilli must keep and maintain tight capital controls onlee. Market access to the lucrative yindian mkt must not be doled out cheap to the same powers that plied arms, money, drugs and nukes to chronic parasites like TSP.

The spin and condescension continues. Must really gall these UK-stani types to have to tolerate a vibtrant and growing yindia despite their resentment, moi sometimes feels.
[Full Disclosure: I have zero goodwill, zero, for UK-stani establishment types. I take every UK-stani word as psy-op and every UK-stani establishment action as being naturally unhelpful if not actively hostile to Yindian interests until proven otherwise.]

If the Asian financial crisis was not enough to give pause, eastern Europe’s present travails should. Yet there are better and worse ways to impose capital controls to avoid inflating bubbles or becoming overdependent on foreign lenders—and India’s are worse.


Of course, how can yindia's be better onlee saar? If yindia's become better what'll happen to the tfta salaries the ekahnomist and anal-yst types are currently drawing in emerged mkts and delivering relatively suboptimal results, eh?

Here, the moralizing starts in full swing and spin. Look at the righteous earnestness oozing outta each word....

For starters, they are needlessly complex, because India’s policymakers like to retain as much room for manoeuvre as possible. They police capital flows by banning some trades, imposing quotas on others, lifting a price control here or tightening a registration requirement there. This makes life needlessly difficult for foreign investors. The rules are hard to interpret and changes are impossible to predict. One private-equity fund and its investors reckon this confusion and ambiguity cost them $8m in lawyers’ fees. This accomplishes the policymakers’ aim of deterring foreign capital, but not quite in the way they intended. By raising the cost of doing business, the regulatory thicket acts as an implicit tax on investing in India. Its policymakers could achieve the same effect through simple rules and explicit taxes. The $8m that is now spent on lawyers could be given to the Indian government instead.


As if the tfta ekhanomist rag doesn't know why the rules are as complex as they are. Replacing the implicit obstacles with explicit obstacles only makes it easier for deep-pocketed phoreners to lobby and remove those obstacles much more easily than now. What does dilli gain in having that happen, eh? Much better to gothe prc way and keep things deliciously ambiguous such that domestic firms, industries and players benefit more and first, IMO. Its not as if emerged mkts are barrier free. Look at the Eu for a few examples.

Brazilian taxes are not the only way to put a price on inflows. Another, in a similar spirit, is to auction the right to borrow abroad. That would allow the RBI to set an overall cap on foreign fundraising, while letting borrowers themselves decide how much extra they are willing to pay for the privilege. Ministries which still impose an FDI ceiling on the industries they oversee should also abandon them. Few are justified.
{Yindian FDI restricted are unjustified. Must be true. Ekhanomist says so. No?}

Why, for example, does India permit 100% FDI in the manufacture of hazardous chemicals and industrial explosives, but 74% in telecoms, 26% in insurance and none at all in supermarkets?


Because yindia is a democracy, dude. It will work its way through these issues on its own time, than you. I'd rather domestic companies, headquartered here and paying taxes here, be the ones to get first and preferential access to these lucrative sectors like telecom and organized retail. Sure, do some tie ups and JVs for tech and such but no unfettered access to the phoreners here in sensitive sectors. Its not as if SBI will be allowed to open up hajaar branches in the US or the UK to compete with the bruised Citis and HSBCs, now, will it?.

Disclaimer: 400% moi 2 cents and IMVVHO onlee.


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