Perspectives on the global economic changes

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Neshant
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Re: Perspectives on the global economic changes

Post by Neshant »

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Re: Perspectives on the global economic changes

Post by Vamsee »

Up...

Once in a while a reset button is pressed and the old world order dies and a new world order is born. World War II is a good example. ChinaVirus is probably one of those reset buttons.

Key question is who will rise and who will fall after the reset?
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Re: Perspectives on the global economic changes

Post by panduranghari »

Image
Probably the most important chart this month.

For the sake of perspective:

Image

Image
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Re: Perspectives on the global economic changes

Post by Ambar »

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That's a mind boggling amount of money which is being spent to support the economies globally ! For the economic gurus here i have a naive question - how is fed able to generate a whooping 6 trillion dollars in new money and not usher in a devastating collapse of dollar and hyperinflation ? Where as countries like India struggle with chronic inflation and devaluation even without these vodoo economics ?
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Post by Suraj »

A very simple, but also simplistic answer: Debt

A government can pay for things different ways:
a) tax revenues
b) loan from banks, repaid with interest using tax revenues
c) debt

Federal tax revenues are $3.5 trillion. Total outstanding US debt is ~$45-50 trillion. The power to issue and sell extensive amounts of debt ensures that the actual transactions that impact inflation on the ground isn't substantial. Most of the QE money isn't sent out as cheques to people. It buys up the existing debt off the books of entities under fiscal pressure, and is simply a balance sheet transfer exercise whose impact is transparent to the public except in the form of interest rates remaining low due to the liquidity.

Given that the situation right now is extremely deflationary (high unemployment, rampant business closure) the impact of inflationary measures will in any case be a counterbalancing one, unlike in India where inflation is a chronic issue due to high cost of money (driven by weak ability of the government to finance activities with debt) even as the economy is growing.
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Re: Perspectives on the global economic changes

Post by Ambar »

Thanks for answering but even if fed is mostly (a) monetizing the debt by buying treasury bills and (b) helping balance sheets of entities by buying MBS, junk bonds, munis etc. don't those very action infuse fresh capital into the economy which should result in high inflation and currency devaluation ? I know the current pandemic maybe suppressing spending and there by keeping inflation in check but my question is mostly what happens when this ends ? Also, between 2008 to 2018 the fed balance sheet bloated from 400 billion to around 4.2 trillion before they started tapering in later 2018 but yet kept the inflation in check and instead of dollar weakening it remain very strong..really odd.

This is more of a general question given the times we live in - how is new money created by the governments ? Do you subscribe to credit creation theory or fractional reserve theory or the financial intermediation theory ? I sometimes wonder if there are enough eligible borrowers , then the amount of credit created could be endless..how long can this last in a world of finite resources but infinite money supply ?
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Re: Perspectives on the global economic changes

Post by Suraj »

Ambar wrote:Thanks for answering but even if fed is mostly (a) monetizing the debt by buying treasury bills and (b) helping balance sheets of entities by buying MBS, junk bonds, munis etc. don't those very action infuse fresh capital into the economy
They don't quite add new capital and activity. They simply keep alive existing financial structures and linkages. The ability to discharge debt - personal and corporate - fairly easily through bankruptcy proceedings, also helps. There's a significant volume of latent capital that can pick up distressed assets while the central bank simply buys out tranches of debt and expands their own balance sheet using their lender of last resort power.

Can RBI do the same ? Sure, but the Indian debt market lacks the depth and breadth of the US one, or that present in most developed markets in general. Even China has a massively bigger debt market.
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Re: Perspectives on the global economic changes

Post by kumarn »

Very interesting suraj ji. Sorry for the noob question. Why doesn't India have a larger debt market? What will enable India to create a larger debt market? Would really appreciate if you could please help in understanding
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Re: Perspectives on the global economic changes

Post by chola »

^^^ Debt is created by the ability of a nation to print IOUs until the interest on that IOU is inflated to the point that the publishing country no longer finds it worthwhile to print.

So what constitute demand for that IOU? Interest of course is one but the ultimate arbiter is the usefulness thous security of that IOU. Because at the end of the day you need to be able to cash that IOU in for something tangible. For Cheen because they produce everything you have your pick of manufactured goods.

For the US, you have the goods and services of not just the US but the whole world since it is the global currency of trade. That is why the US can seemingly print money and debt with abandon. It is basically backed by the goods of the entire globe.

For India to develop a comparable debt market, it needs to 1) make more things for trade and 2) make the rupee more popular as tender for trade.
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Re: Perspectives on the global economic changes

Post by Ambar »

Can't GoI just issue debt and have RBI and all the banks buy it ? What stops the Indian govt from playing the same game US and EU play by issuing endless amount of debt and keep the printing press 24x7 ? After all as long as the debt is in rupees, there should be no threat of default , correct ?
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Re: Perspectives on the global economic changes

Post by nandakumar »

Ambar wrote:Can't GoI just issue debt and have RBI and all the banks buy it ? What stops the Indian govt from playing the same game US and EU play by issuing endless amount of debt and keep the printing press 24x7 ? After all as long as the debt is in rupees, there should be no threat of default , correct ?
The rich in all parts of the world want to park their surpluses in the US and the EU. The appetite for investing in India is not that high. So India doesn't have that luxury.
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Re: Perspectives on the global economic changes

Post by Neshant »

Someone will end up eating a big loss with all the money printing.

As fiat money is all about cheating people out of the fruits of their labour, its just a question of who this loss will be transferred to.

Its a dangerous time to be storing all of one's life's earnings in a pot of govt or corporate IOUs.

That being said, the stock market could still continue its journey up since its disconnected from reality and is now but a simulation.
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Re: Perspectives on the global economic changes

Post by Rahulsidhu »

Ambar wrote:Can't GoI just issue debt and have RBI and all the banks buy it ? What stops the Indian govt from playing the same game US and EU play by issuing endless amount of debt and keep the printing press 24x7 ? After all as long as the debt is in rupees, there should be no threat of default , correct ?
Yes, this is correct.

It's a popular and unfortunate misconception that govt bond interest rates are dependent on credit risk as defined by rating agencies. The demand mostly comes from Indian banks (to fulfill SLR quota + park excess cash) and they can always load up on more as it carries no credit risk. The reason they don't do so is because of interest rates risk.

In Industry parlance: Local currency govt bonds are an interest rate product, rather than a credit risk product.

If the RBI wants, it can always drive interest rates lower through buying bonds and it does so often. Another technique is to incentivize banks to do this work by supplying them with funding (with the bonds as collateral).

So, should the gov. issue endless amounts of debt that the RBI buys? My answer: depends on what the govt does with the cash. The RBI buying is not the problematic part.

Consider a situation where govt pays Rs 1lakh to every adult citizen in India. That is a lot of Rupees. What would be the effects of such an operation?

On the plus side, demand for domestically produced goods and services would be through the roof, generating a lot of jobs, investment. this has the potential to turn into a virtuous cycle as more income leads to still more demand and so on.

On the minus side, some (much?) of this demand will be for foreign products. In India's case, a lot of it would be spent on Chinese manufactures and foreign oil. This would mean a depreciating rupee. Furthermore, wages will probably spike too. All this could lead to inflation and further loss of competitiveness.

In fact, as long as India remains a difficult place to do business, the negative effects will outweigh the positive.

If I were advising the govt. on a fiscal strategy therefore, I would suggest a humongous fiscal package, not bothering about the size of debt etc, but ensure that it is targeted so that nearly all of it gets spent locally and boosts productivity. Examples could be infrastructure programs, tax cuts, local defence procurement. IMO India is a large enough and diverse enough economy to be able to do that.
Last edited by Rahulsidhu on 10 May 2020 14:26, edited 1 time in total.
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Re: Perspectives on the global economic changes

Post by Rahulsidhu »

Ambar wrote: sometimes wonder if there are enough eligible borrowers , then the amount of credit created could be endless..how long can this last in a world of finite resources but infinite money supply ?
Just wanted to point out that your premise here is incorrect. You are right that the amount of credit (money) could be endless, but you are wrong that the "resources" are finite. Most of the wealth today is in the form of intellectual property, and this fraction only keeps going up with progress. And human inventiveness is infinite, just like fiat money :)
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Re: Perspectives on the global economic changes

Post by chola »

No, no, no! The idea that an endless supply of money can be had is extremely dangerous. It leads to runaway or hyperinflation. It has destroyed economies before. Think Argentina or Zimbabwe.
Image

And doesn't happen to only third world nations. One of the cases we learn early in economics class on hyperinflation is Weimar Germany. That history is engrained in Germans to this day. This is why they are always fighting extra printing of the Euros even during the worst days of the PIIGS crisis.

It comes down to this: money must be backed by a reasonable amount of goods that the IOU (legal tender) can be exchanged for. Too much IOUs chasing too few good means the funny money you see above. Once confidence is broken then panic will set in with people offering more and more notes just to get something tangible! This is where you see the images of wheelbarrows of notes being exchanged for a loaf of bread (which actually happened in Germany.)

NOTHING can destroy an economy like this thing. Not even Depression comes close.

Again, why the US and EU (and Cheen/Japan to a smaller extent) can do this is the amount of goods that can be traded for in their currency. The US can print the most because goods everywhere even those in China can be exchanged for the dollar.

Right now, no one internationally will take the rupee unless they can exchange it for US dollars from Indian banks. We do not produce enough goods and services that the rest of the world wants.

If our intention is simply to print with abandon for Indians onlee then we risk Argentina or Weimar Germany. A most dangerous game.
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Re: Perspectives on the global economic changes

Post by Ambar »

Thanks Suraj, RahulSidhu and Cholaji for this thought provoking discussion ! So the general consensus seems to be even if held in local currency India cannot print money the same way US/EU can because of our inherent structural deficiencies and the fact that rupee does not have enough goods/services to trade upon. However, the Indian government can create new money and use it for infra spending, defense procurement, help MSMEs etc. Will US/EU ever have a day of reckoning when the money they create far exceeds the goods/services that are traded on USD/EUR and it creates a Argentina/Weimar Republic like situation for them ?
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Re: Perspectives on the global economic changes

Post by kit »

Rahulsidhu wrote:
Ambar wrote:Can't GoI just issue debt and have RBI and all the banks buy it ? What stops the Indian govt from playing the same game US and EU play by issuing endless amount of debt and keep the printing press 24x7 ? After all as long as the debt is in rupees, there should be no threat of default , correct ?
Yes, this is correct.

It's a popular and unfortunate misconception that govt bond interest rates are dependent on credit risk as defined by rating agencies. The demand mostly comes from Indian banks (to fulfill SLR quota + park excess cash) and they can always load up on more as it carries no credit risk. The reason they don't do so is because of interest rates risk.

In Industry parlance: Local currency govt bonds are an interest rate product, rather than a credit risk product.

If the RBI wants, it can always drive interest rates lower through buying bonds and it does so often. Another technique is to incentivize banks to do this work by supplying them with funding (with the bonds as collateral).

So, should the gov. issue endless amounts of debt that the RBI buys? My answer: depends on what the govt does with the cash. The RBI buying is not the problematic part.

Consider a situation where govt pays Rs 1lakh to every adult citizen in India. That is a lot of Rupees. What would be the effects of such an operation?

On the plus side, demand for domestically produced goods and services would be through the roof, generating a lot of jobs, investment. this has the potential to turn into a virtuous cycle as more income leads to still more demand and so on.

On the minus side, some (much?) of this demand will be for foreign products. In India's case, a lot of it would be spent on Chinese manufactures and foreign oil. This would mean a depreciating rupee. Furthermore, wages will probably spike too. All this could lead to inflation and further loss of competitiveness.

In fact, as long as India remains a difficult place to do business, the negative effects will outweigh the positive.

If I were advising the govt. on a fiscal strategy therefore, I would suggest a humongous fiscal package, not bothering about the size of debt etc, but ensure that it is targeted so that nearly all of it gets spent locally and boosts productivity. Examples could be infrastructure programs, tax cuts, local defence procurement. IMO India is a large enough and diverse enough economy to be able to do that.
Curtail and reduce Chinese imports, spend and spend internally , defence capital expenditure, infrastructure expenditure MUST be indian. All PSU s must mandate indian make and manufacture. Release funds to medium and small scale industries to capture global markets, now is the time.
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Re: Perspectives on the global economic changes

Post by chola »

Ambar wrote:Thanks Suraj, RahulSidhu and Cholaji for this thought provoking discussion ! So the general consensus seems to be even if held in local currency India cannot print money the same way US/EU can because of our inherent structural deficiencies and the fact that rupee does not have enough goods/services to trade upon. However, the Indian government can create new money and use it for infra spending, defense procurement, help MSMEs etc. Will US/EU ever have a day of reckoning when the money they create far exceeds the goods/services that are traded on USD/EUR and it creates a Argentina/Weimar Republic like situation for them ?
The EU/US day of reckoning comes when trade begins to be done in significance percentage in other currencies. For example, if Argentina can buy goods directly in China with the Peso instead of the US dollar then suddenly a currency that was worthless a few years ago becomes a powerful IOU because importers everywhere in the world can hoard it for their operations. And the US dollar becomes just a little bit weaker because people can hold something else to get what they want. Now imagine, energy producers like OPEC accepting the Pesos too.

Cheen and Russia are working for that day. They don't want to use US dollars that puts them under US control, under US laws and threats of embargo.
kit wrote: Curtail and reduce Chinese imports, spend and spend internally , defence capital expenditure, infrastructure expenditure MUST be indian. All PSU s must mandate indian make and manufacture. Release funds to medium and small scale industries to capture global markets, now is the time.
Actually as I described earlier with the peso, if we deal with the chinis and we can buy directly from Cheen with the rupee then the Indian currency would suddenly be backed by the industrial might of China. It would become a powerful forex overnight. This is something that would have been unthinkable two years ago because the chinis hoarded dollars like everyone else. The trade war has changed that perhaps permanently.
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Re: Perspectives on the global economic changes

Post by suryag »

I like the idea of 1Lakh to every citizen towards boosting consumption of Indian made goods. Suppose blockchain is implemented in an effective manner, the citizen can be provided with a credit card which when swiped at a counter or online purchase tells you how much of this money can be redeemed based on the products that they are buying. For ex: I buy various items for 6000 on Amazon and then swipe this PM credit card and the website based on blockchain technology tells me that items worth 2300 which are produced in India(the GoI can fix the %age of value add done by Indian companies/suppliers) can be redeemed from the card and for the rest the person can use his personal credit card. This would boost up consumption considerably in all sectors. For instance, I can buy cement for my home to be constructed and redeem almost all the cost using this card.
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Re: Perspectives on the global economic changes

Post by kit »

suryag wrote:I like the idea of 1Lakh to every citizen towards boosting consumption of Indian made goods. Suppose blockchain is implemented in an effective manner, the citizen can be provided with a credit card which when swiped at a counter or online purchase tells you how much of this money can be redeemed based on the products that they are buying. For ex: I buy various items for 6000 on Amazon and then swipe this PM credit card and the website based on blockchain technology tells me that items worth 2300 which are produced in India(the GoI can fix the %age of value add done by Indian companies/suppliers) can be redeemed from the card and for the rest the person can use his personal credit card. This would boost up consumption considerably in all sectors. For instance, I can buy cement for my home to be constructed and redeem almost all the cost using this card.

That could be a precursor for a "universal income scheme" , but who will pay for this state or central Govt ?.. there are still gaps in id registrations in some states., i would say 50 percent by central govt and 50 by state govt who are willing to chip in .. would reduce chances of fictitious accounts and skim off by states as duplicitous as Kerala or w Bengal as far as "schemes" are concerned.
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Re: Perspectives on the global economic changes

Post by Neshant »

India should also expand its maritime claims so far as the UN's Law of the Sea permits.

Hope the babuz are not asleep on the issue before the 20201 deadline passes.

There are literally thousands of islands within the Union Territory that have low lying continental shelves which should have either strategic and/or mineral/metal wealth of some kind.

Map the full extent of the continental shelf by sonar and start filing claims or risk losing all those rights.

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

Portugal plans to double its territory

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Re: Perspectives on the global economic changes

Post by panduranghari »

Ambar wrote:Can't GoI just issue debt and have RBI and all the banks buy it ? What stops the Indian govt from playing the same game US and EU play by issuing endless amount of debt and keep the printing press 24x7 ? After all as long as the debt is in rupees, there should be no threat of default , correct ?
No one can play the same game like the US because the US accidentally discovered the game and then decided to run with it.

While US was on the gold standard, there was actual shipping of gold from everywhere to everywhere. That ended when Bretton Woods gold exchange standard came into being. Gold was linked directly to the dollar and was exchangeable only in dollar. Sterling was given a special place by the US permitting all other currencies to be exchangeable into dollar or sterling. When the world was on the gold exchange standard, things were not working as well which allowed foreign commercial banks to hold dollars as a liquid float. It was unofficially called eurodollars. And these eurodollars were what the commercial banks in US and the west discovered as a easy way to bypass the need of the liquidity injections of the central banks. The 2008 crisis was a banking crisis because the eurodollar supply almost stopped. To overcome this US central bank set up swap lines with banks in Europe and Japan. Since 2008 the world is on PhD standard and the eurodollars are still a problem so late last year (September 2019 precisely), when the overnight US repo rate went to 10% from 0.1% the US central bank set up swap lines with all the G20 central banks. This is to provide emergency dollar liquidity.

China cant do this nor can Europe. Remember many central banks already hold euros and even then its not possible for EU to do something like USA. Forget about RBI. Besides why would you want India to do this? Did you know until 1973, gold purchases within US were illegal.

The last statement of yours - 'After all as long as the debt is in rupees, there should be no threat of default ' is what is called modern monetary theory(MMT). It was heavily promoted by people like Kelton, Steve Keen et al who all supported Bernie Sanders in 2016 and recently. It is already happening right now. How do you think the governments around the world are able to support these huge bills for COVID19.

Don't be fooled by Modern Monetary Theory- its neither modern nor new. Adding word theory to it does not give it any real scientific value. In real terms its a modern counterfeiting scandal.
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Re: Perspectives on the global economic changes

Post by vera_k »

The quality of Chinese financial markets looks to be where India's was in the 90's. Also shows the extent to which US regulators were in bed with the Chinese. This has the potential to let the air out of the bubble created in Chinese listings since 2008.

Chinese Companies Could Be Forced to Give Up U.S. Listings Under Senate Bill
At the heart of the dispute is China’s unwillingness to grant routine access to audit records sought by American regulators. Companies that sell shares publicly in the U.S. are legally required to be audited by firms that are inspected by the Public Company Accounting Oversight Board, an audit watchdog.
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Re: Perspectives on the global economic changes

Post by Ambar »

This should have been done soon after the 2008 crisis. So many fly by night Chinese company owners and promoters became overnight multi millionaires and billionaires by creating fictional 10Qs and 10Ks and then vanished. So many investors including myself lost a lot of money "investing" on chinese solar and agricultural companies that turned out to be complete duds later.
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Re: Perspectives on the global economic changes

Post by vera_k »

Harvard making progress to matching JNU's illustrious standards -

Delisting Chinese companies plays straight into their hands
The proposed trading ban could make things even worse for shareholders. Assuming Beijing continues to bar inspections, the SEC will announce a ban, causing a rout in a barred company’s stock as investors dump shares before they become non-tradeable. The Chinese controller can then use a take-private to cash out investors at rock-bottom, while blaming the delisting on the US government. The trading ban will play straight into the controller’s hands.
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Re: Perspectives on the global economic changes

Post by Ambar »

Any thoughts on the incredible stock market rally since March 18th ? S&P 500 has had the best 50 days in history, this is while the world in general and US in particular continue to suffer from a global pandemic and its fallout, 43 million unemployed in the US, protests and riots across US, major retailers filing for bankruptcy. Even in the heights of 2005-06 asset bubble, i don't think i've seen markets so disconnected from the mainstreet.
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Re: Perspectives on the global economic changes

Post by yensoy »

vera_k wrote:Harvard making progress to matching JNU's illustrious standards -

Delisting Chinese companies plays straight into their hands
China has deeply infiltrated America, and this has been going on over the past 30 years, probably even since Nixon's famous trip. American universities run on Chinese money these days. They have strong linkages with Chinese universities for summer programs, language immersion programs, executive MBA type courses and some even have full-fledged branches in China. There is a lot of money involved here, prestige and even the survival of the brand name.
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Re: Perspectives on the global economic changes

Post by chanakyaa »

Ambar wrote:Any thoughts on the incredible stock market rally since March 18th ? S&P 500 has had the best 50 days in history, this is while the world in general and US in particular continue to suffer from a global pandemic and its fallout, 43 million unemployed in the US, protests and riots across US, major retailers filing for bankruptcy. Even in the heights of 2005-06 asset bubble, i don't think i've seen markets so disconnected from the mainstreet.
Three things -- (1) Potentially over-correction led by shutdown, (2) Hope from Lockdown Relaxation, and (3) $4-$6 trillion of new digital debt money

Values can drop significantly because stock prices are derived by earnings multiple. If little or no earnings, means value can be as much a guessing game as wind direction. In such market, large institutional traders will bring the value way way down to leave room for earnings surprise. Relaxation of lockdown means earnings are back and the recovery of price multiples. One big factor that drove the confidence was the Fed stabilizing the credit markets. Once the credit market stabilizes, the equity will come back. 40+ million are unemployed but govt is paying them (in some cases more than they made in job) to stay home. As soon as the payments end (June), market will go in the other direction (unless more digital money is printed/created). For now markets definitely appear disconnected from real economy. Soon, all the newly created digital money will end up in the stock market and run up in the market is pretty much telling the same thing. It will change soon as the payments to unemployed stop. Until then enjoy the ride. Eventually it will go up much higher.
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Re: Perspectives on the global economic changes

Post by vimal »

^^ Most of the folks who did not lose their jobs dumped their stimulus checks in stocks, plus institutional investors also pushing the markets. But there will be an end to this rally and correction.
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Re: Perspectives on the global economic changes

Post by disha »

^wrong conclusions.

1. Going into shutdown, the average American household was far more stable (better quality debt) than previous cycle. For example, debt of the average US household was in personal loans, car loans, home mortgage, education loan and medical loans (partly financed by personal loans)

2. The stimulus checks by 98% of the households were used to 'run the house' (groceries), cut costs, and actually paying down the debt! It was not used for aspirational purchases like TV or vacations or on weddings.

3. Most of the job loss was in the economic segment where the median income of the avg. household was $40k. Even though this might have been 20% of the US workforce (or whatever significant number), this segment did not matter in the overall scheme of things. That is the ugly truth. This population is not going to go out and buy Tesla's or enjoy vacation in Florida keys.

4. The labor market was very tight going into shutdown. Extremely tight.

5. It is difficult now for businesses to justify sourcing goods and services from China. Businesses are looking at replacing some (if not all) of their supply chain outside of China and they are getting good deals and outcomes. For example look at Vietnam and India (here India is emerging as one of the largest producers of PPE in the world!)

As the economy opened up even slightly, people got back to work. It shows in the job numbers. Current oil prices are ultra-low. Inflation-adjusted, the oil prices seem to be below $20 per barrel!

Add in the massive influx of capital. And voila you have just fertilized the ground for a booming economy. Now here is the kick, next year in 2021 spring US stock market has to hit a wall.

On deflation, think food, clothing & shelter. Water, electricity, and transport. Other then clothing and shelter, all are more correlated to energy, and energy prices are low. Other than shelter, there is no inflation in any of the other items. Even the inflation in shelter is iffy and concentrated in large metropolis areas.

So where is inflation? Yes, there is inflation if you want to buy jimmy choos shoes. The price of a Jimmy Choo on sale handbag is now around $350. Yes, just 10 years back it was around $275. The inflation even after sale is high in the luxury segment!
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Re: Perspectives on the global economic changes

Post by Ambar »

For those of you who live in GCC countries or have friends and families there how has this unprecedented chain of events unleashed by the global pandemic effected the local economies and lives ? After the spectacular crash in oil prices in March-April, it now seems to have recovered to a point where most of the oil producing countries can break even. However despite the price stability there seems to be less demand, and with many people continuing to work remotely or putting off their travel plans indefinitely there is no guarantee when the demand will start increasing again. With the drop in demand for energy and low oil prices, i am reading that its not just the oil producing gulf countries but also the "mirage factories" like Dubai and Doha that are seeing serious cracks in their economy. Dubai, for reasons only some seem to know, has been a prime real estate destination and it is one of the biggest components of its economy. Even before the pandemic some of its more signature developments had seen prices drop by 25%-35% since peaking in late 2013, and now another 10%-15% seems to have dropped post pandemic. It is resulting in business closures, debt defaults and a mass exodus of foreign workers.

Similarly, the heavily oil dependent kingdom of Kuwait has seen its economy come to a screeching halt, and a new bill was recently introduced in Kuwaiti national assembly to severely cut the number of foreign workers in the coming days, and there are fears that other sheikhdoms will do the same either through new regulations or by tightening the existing regulations.

Although the region remained relatively unperturbed by the "arab spring" of last decade, there are 3 raging fires that are still burning close by that may blow up the entire region someday, there are the neverending civil wars in Syria and Yemen, and a worsening relationship with Iran and its proxies including Qatar. Then there are "new generation" princes like Mohd.Bin Salman aka MBS of Saudi Arabia and Moh.bin Zayed aka MBZ of Abu Dhabi who are proving to be disruptive but ambitious.

What does all this mean for the whole region near and long term ?
Are we witnessing the beginning of the end of the spectacular rise of these oil kingdoms ?
What does it mean for India and Indians who make up significant portion of expatriate population ? And that the GCC countries form the highest chunk of our foreign remittances.
Besides real estate what other business threats exist to these countries ? Will their airlines and enormous airports be next ? If yes, what can India do to get some of this business and turning our airports into major transit and trade hubs ?
If the oil prices remain relatively low for long what impact would it have on their prized sovereign wealth funds ? Can it sustain its expensive social programs for its mostly illiterate and unemployable native population ?

https://www.globalpropertyguide.com/new ... loomy-4066 - Qatar's crumbling housing market

https://www.bloomberg.com/news/articles ... ault-scare - Dubai property market crash

https://www.ft.com/content/b2d8b670-8fd ... c74302805e - UAE shaking up the government

https://www.reuters.com/article/emirate ... SL4N2DD08F - Dubai recession and increasing hold of Abu Dhabi over Dubai

https://www.thenational.ae/world/gcc/ku ... -1.1044807 - Kuwait workers quota bill approved
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Re: Perspectives on the global economic changes

Post by chanakyaa »

X posting from strat dhaaga

The Fraying of the US Global Currency Reserve System
Since autumn of 2019, I’ve been bearish on the dollar, meaning I have a longish-term outlook towards a weaker dollar.

This view began forming when the Federal Reserve cut interest rates in summer 2019, and then the view solidified with a catalyst after an overnight repo rate spike in September 2019 forced the Fed to begin supplying repo liquidity.

In my October 2, 2019 article, “The Most Crowded Trade“, I said to look for a weaker dollar in 2020, and also stated that the Fed would likely start expanding its balance sheet by buying Treasuries in 2020 or perhaps as early as that quarter in 2019 due to oversupply.

Days later, the Fed indeed announced that they will begin buying Treasuries, and as of this writing well over a year later, they haven’t stopped.
The Structure of the Global Monetary System
* Gold Standard Pre-1944
* Bretton Woods System 1944-1971
* Petrodollar System 1974-Present
The Great Petrodollar Bull/Bear Cycle
* Causes for the Cycle
* 1980s Dollar Cycle
* 1990s/2000s Dollar Cycle
* 2010s/2020s Dollar Cycle
The Fraying of the Petrodollar System
* A System Without a Purpose
* Shrinking US Share of Global GDP
* Multi-Currency International Trade
* China Subverting the System
* Eating Our Own Cooking
* Triffin’s Dilemma Unfolds
The Intermediate-Term Outlook
* The Dollar vs Other Currencies
The Long-Term Outlook
* The Slow Restructuring Option
* The Fast Restructuring Option
What the Next System Looks Like
* Decentralized Energy Pricing
* Digital Global Bancor
* Digital Regional Bancors
* Gold as a Reserve Asset
* Bitcoin as a Reserve Asset
Summary Thoughts
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Re: Perspectives on the global economic changes

Post by chanakyaa »

Article talks about Digital Euro, but if could be any currency....

The Dangers Lurking behind a Digital Euro
Neosocialist China does it, Sweden does it, and many other states want to do it, too: to issue digitized central bank money for everyone. The European Central Bank (ECB) is also working on such a scheme. It wants to launch “digital euro central bank money” as soon as possible. Many economists praise the project as an “innovation,” as an important and indispensable step in an increasingly digitized world.

The ECB is also keen to make its intentions known, declaring that a digital euro will be accessible for everyone, robust, secure, efficient, and compliant with applicable law. However, it should be clear that the path to becoming a surveillance state regime will accelerate considerably if and when a digital euro is issued. But let’s not get ahead of ourselves.

A digital euro is not “better money” than the euro that is already in circulation today. The planned digital euro is fiat money, just as much as euro cash and euro bank balances represent fiat money: they are all created “out of nothing” by the ECB, which has the monopoly of euro production. Just as is the case with the existing euro, the quantity of digital euros can be increased at any time, it is backed by nothing, and the digital euro carries a 100 percent risk of devaluation. As noted earlier, a digital euro would be a fiat euro...(more)
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Re: Perspectives on the global economic changes

Post by Ambar »

With US recently passing the 1.9 trillion dollars in additional covid stimulus (on top of 6 trillion+ dollars of economic relief in 2020), and the federal reserve continuing to maintain interest rates at historic lows, maybe its time to revive this thread. When the original thread was created back in 2010, we were in the middle of a great recession with millions out of job, consumer and corporate bankruptcies, failing banks and local governments and unprecedented quantitative easing by central banks to stop the whole system from collapsing. Somehow since then central banks have become the star in this seemingly never ending party of cheap money. Just to put things in perspective, US has now spent 27% of its annual GDP on covid related economic relief, Germany has spent 20%, France 16%, India 10% and Japan a whooping 55% !

With such level of unprecedented, never seen before levels of debt creation, we must think of the short and long term repercussions. We are already seeing a global food and fuel inflation which is bringing back painful memories of 2009-2012 period. We are also seeing stock markets that are extremely frothy (Sensex is now up close to 475% since its 2008 low) mostly aided by cheap money. India has seen close to 30 billion dollars in the last year come in form of FII, and the FPI inflow has undoubtedly pumped the sensex over 50000 points now.

As we emerged from the great recession in 2009, we saw a very shaky world, a tumultuous period with a jittery society and some of this social unrest ignited the arab spring which burns to this day. In a way the same crisis ( and some of our own crisis ) ended the UPA regime. What are the short and long term implications of the current crisis ? What kind of a socio-economic world will we live in where there is increasing debate on debt forgiveness, more quantitative easing, permanent low interest rates, and countries creating new debt worth 15%-20% of their GDP every year. We are, in my opinion, entering a very interesting period in history . We have already seen a major fallout of this pandemic in the US where the incumbent govt lost . We have seen a economically stronger but politically weaker China emerge from the crisis. India has so far done really well not just handling the pandemic but also handling its economy but now we are beginning to see signs of an overheating real estate and stock market, and an alarming rise in food and fuel inflation. As a whole i think its worth debating where we are headed in 3, 5, 10 yrs time, and how will all this dam burst of money supply benefit or hurt us.
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Re: Perspectives on the global economic changes

Post by Ambar »

Uttam wrote:@Amber. I hope you can share some hard data to back your arguments. I am not doubting that gold was not used as currency for a long period of human history. I am just not convinced it is an inflation hedge or that its prices capture the true inflation. I encourage you to find relevant data and share it with the group.

Regarding the base price of 79-80 for gold: It just calibrates all other prices assuming 100 for the base year. Changing the base year does not affect relative movement in prices. The shape of your curve will be similar and have the same volatility if you choose some other base year. The entire curve will move up or down for a different base year.
Responding here because the discussion may not be pertinent to Indian economy thread.

Today roughly 20% of the world's sovereign bonds return a -ve real interest rate. The value of the total unfunded pension funds in Eur and US alone is crossing 100 trillion dollars, add another 53 trillion in unfunded medicare and 38 trillion for social security in the US of A and we are looking at decades of money printing with unprecedented intensity. The western world baring few examples of pre-euro high inflation have had relative stable currencies and relatively lower consumer price inflation compared to countries in asia or latin america, but with every bubble-burst cycle, the size of QE has increased and this has already resulted in massive asset inflation be it in housing or stocks or collectibles. This cheap money has also resulted in rampant speculation in agriculture and fuel commodities resulting in high to very high food and energy inflation in Asia , Africa and Latin America, sure as always the wealthy countries will absorb such inflation better than poorer nations. In such an environment gold works as a preserver of wealth and depending on where you live, also an excellent hedge against inflation.

Because of of its 6000+ yr history gold is used to draw comparison against everything from inflation to investment performance in real estate or bonds or stocks. An 80 yr old person living in the US may not yet need to reach for his gold coin collection to buy food or medicine (yet) but there are plenty of people else in the world who have/are selling gold just to survive . Venezuela currently and Yugoslavia in the 90s are excellent examples when people lost complete faith in their paper currencies where a box full of paper notes couldn't buy a loaf of bread, so people sold their gold bracelets and rings to buy essentials, which makes gold an insurance against economic instability. Here's a good article on how people are relying on gold to just survive in Venezuela :

https://www.caracaschronicles.com/2018/ ... nd-silver/

So we see gold is a unit of account, a medium of exchange anywhere in the world and above all it is a store of value. I can hide that 1 oz gold coin for the next 100 years and i am sure my grandchildren will be able to buy something with it but i cannot say the same about $100 or Rs 2000 paper note.

Image

Using your graph and overlaying it with money supply please see the correlation, barring short periods of variance, gold prices have risen with the money supply. 1980 and post recession metal euphoria of 2010-2011 aside when speculation in metals resulted in abnormal increase in gold prices, the value of gold has remained steady to overall money in the system. There was a brief period between late 90s and mid-00s when gold fell below the money supply per capita thanks to a booming stock market, normal interest rates and a steady money supply. So a CPI to gold price comparison in one country does not give a full picture of the usefulness of gold.

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Re: Perspectives on the global economic changes

Post by Uttam »

[quote="Ambar"]


Thanks for taking the time to gather data and sharing it with us.

The fears of money supply increasing inflation are not unfounded. All else equal, the money supply would have fueled a huge amount of inflation. The keywords are "all else equal." But the world we live in is affected by many more powerful forces than just the money supply. Changing technology that increases productivity gains, and changing demographics that are rapidly changing the consumption basket are just two of many factors that affect inflation. The demographics of rich nations are shifting to older people, who consume less and therefore these countries are facing deflation. Examples are Japan, most of Western Europe, and the US will be if there is no immigration. Changing tech. is rendering a lot of previously cherished items worthless and many new goods and services become more valuable, thus changing the consumption basket. Therefore, we cannot look at inflation exclusively through money supply.

Next, the question about gold as a holder of value. Indian history is particularly filled with examples where this did not hold. Ask all the residents of Delhi as to what happened to their gold holdings when Nader Shah visited them. Nader Shah killed about 20,000, took about 10,000 as slaves, and plundered about USD 120 Billion (in today's dollars) worth of wealth for Delhi alone (most of it in form of gold and precious stones). I am sure there were some who survived/thrived using their gold that was hidden deep underground but most others had to give it away to avoid rape and murder of their family members.

This story was repeated 100s of times throughout India for almost 1000 years.

Indians worked hard, produced goods cherished by the entire world, sold these goods for gold, enjoyed for a few decades before some murderous aggressor came and ravaged the entire subcontinent. If you talk about looking at the long history, Gold did not protect India, it was the cause of numerous plunder. Those murderous aggressors did not invade India for its great culture and traditions. They came for gold.
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Re: Perspectives on the global economic changes

Post by Suraj »

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Re: Perspectives on the global economic changes

Post by Cyrano »

German low cost retailer Aldi announces price hikes of 20 to 50% on grocery items in the coming weeks.
https://www.rtl.de/cms/massive-preiserh ... 46368.html
Some stores are putting up notices saying 1 item per shopper only on most consumed items.

Europe's strongest and richest economy showing cracks barely 6 weeks into the sanctions on Russia they were party to imposing is an alarming sign. Fuel prices have risen, but real food shortages are expected only months from now. So what is causing this?

Is it commodity trading of food and non food items ?
Is it hyper optimised supply chains and logistics that have squeezed out not just inefficiencies but all resilience out of businesses?
Is it the threat of a future fuel crisis though no fuel supply disruptions have actually occurred in Germany and Europe?
US is also witnessing rising fuel prices and inflation.

Does this indicate tough times for global economy that has barely begun recovering from Covid slump?

Lots of questions to ponder about...
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Re: Perspectives on the global economic changes

Post by Manish_Sharma »

https://twitter.com/MumbaichaDon/status ... imRXg&s=19
Global government debt about to explode – research

British asset manager Janus Henderson said that global sovereign debt is expected to surge by 9.5% this year to a record $71.6 trillion. The increase in debt will primarily be driven by the United States, Japan and China.

(1/2)

China’s debt rose fastest & by most in cash terms by $650billion

Among developed economies, Germany saw biggest increase in % terms,with debt skyrocketing by 15%,almost twice average global pace

US will NOMORE able to print indiscriminate Currency as before to repay debts
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