Indian Economy - News & Discussion 27 May 2012

[Theo_Fidel]

Since India holds about $1 Trillion worth of gold and the drop was 10%, we lost about $100 Billion dollars in one day!!

[Singha]

NYT has a photo of this, which I cannot access...shows a pile of bunks, old truck tyres etc.

Indentured Servitude: A Way Of Life In Gulf -- Many Foreign Workers Are Mistreated
By Tom Hundley
Chicago Tribune
KUWAIT CITY, Kuwait - When Kuwait's newspapers ran banner headlines proclaiming the emirate's return to "democracy" after parliamentary elections earlier this month, a small notice tucked deep inside the papers told a different story.

Beneath the passport photo of a young man, the caption read: "WARNING. Velan Rajah, a Sri Lankan laborer, has left his place of work and never returned. We warn anyone from hiding or employing him. People who know his whereabouts are requested to inform the nearest police station."

Indentured servitude died out in the United States almost two centuries ago, but in the oil-rich states of the Persian Gulf, it remains a way of life.

Westerners who work in the Gulf - usually in professional or highly technical positions - are paid premium wages and live in comfortable residential compounds, but they are the exception.

The vast majority of foreign workers are low-skilled or unskilled Asians and Arabs toiling for miserable wages and often living in appalling conditions with virtually no legal protection.

Before the Iraqi invasion in August 1990, Kuwait had 600,000 Kuwaiti citizens and 1.4 million foreign workers. About 1 million foreign workers left during the Iraqi occupation; after the country was liberated in February 1991, Kuwaitis vowed they never again would be so dependent on imported labor.

NUMBERS CREEP BACK UP

But already the numbers have started creeping back up. There are now an estimated 700,000 foreign workers in Kuwait.

In Saudi Arabia, the most populous state in the region, about 7 million foreign workers do the heavy lifting for 6 million Saudis. In the United Arab Emirates, foreign workers represent 70 percent of the population.

From Egypt, Yemen, the Sudan and Bangladesh come legions of construction laborers and oil-field workers. The Philippines and other east Asian countries supply taxi drivers, housemaids, waiters and hotel workers. Hundreds of thousands of East Indians, Pakistanis and Sri Lankans also work in the service sector in jobs ranging from the menial to midlevel white collar.

Although wages are low, for most it is a chance to earn more than they could hope for at home.

The $450 a month that an Egyptian construction worker might make in Kuwait looks good against Egypt's $630 annual per-capita income. For such an opportunity, a worker will gratefully surrender his passport and virtually all of his rights to his local "sponsor."

Mansour Jebril, a 33-year-old Egyptian father of five, has been a construction worker in Kuwait for 12 years. He lives in a cramped, windowless room with six other laborers in what is known here as bachelor housing.

The kitchen consists of a sink in a janitor's closet and two hot plates in the hallway that are shared by at least 30 other men in the building. Toilets are outside.

Jebril says compared to what others have, these accommodations are "five star deluxe" and points to the working ceiling fan. In a place where summertime temperatures routinely exceed 120 degrees, it hardly would matter.

The stunning contrast between the wealth of the Kuwaitis and the poverty of their indentured servants brings a wry smile to Jebril's lips. "What can we do?" he shrugs. "In Egypt there is no work, so we must come here and work for our Arab brothers."

Manolo, 39, a Filipino auto mechanic, feels no brotherly sentiment toward his Kuwaiti boss. He came here five months ago on a contract that promised $510 a month. He says he received half that the first month, and nothing since. He walked out on the job a month ago and has taken refuge in the Philippine Embassy.

Manolo - he is afraid to give his last name - is trying to scrounge enough money for a plane ticket back to Manila, but the immediate problem is his passport. His Kuwaiti boss has offered to "sell" it back to him for $1,000.

Among the Gulf states, Kuwait has the worst reputation for mistreating its foreign workers. Its labor laws afford little protection to foreign contract workers, and virtually none to the tens of thousands of Filipinas and Sri Lankan women who work as maids.

A recent report by Middle East Watch, a human-rights group, outlined "a significant and pervasive pattern of rape, physical assault and mistreatment of Asian maids that takes place largely with impunity." The report documented numerous cases of women who attempted suicide to escape repeated instances of sexual abuse and beatings.

About 200 women have taken sanctuary in a small villa inside the fenced compound of the Philippine Embassy. They are awaiting a return flight to Manila.

Speaking through the fence - embassy officials would not allow formal interviews - the women spoke bitterly of beatings and sexual harassment that ranged from offers of money in exchange for sexual favors to outright rape.

More typical, however, were complaints of fraud and inhumane working conditions.

MANY DEALT WITH AGENTS

Many of the women dealt with agents in their home countries who promised jobs as sales clerks or hotel receptionists abroad in exchange for hefty fees. Instead, the women were placed in private homes with salaries far below what had been promised.

Erlina, one of the young women who spoke through the fence, said she handed over all of her savings to an agent who promised a $500-a-month job as a nursing assistant in Dubai. Instead she found herself in Kuwait working as a maid for $150 a month. She had no days off and lived on a diet of bread, rice and leftover vegetables.

During Kuwait's recent election campaign, candidates spoke of the need for a "Kuwaitization" plan - to make the country less reliant on foreigners. But so far the only changes have been to eliminate free health care for foreign workers and adopt a new law that makes it nearly impossible for Asian workers to bring their families to Kuwait.

[RoyG]

Theoji,

How much have we made over 15 years?

[vishvak]

Is dollar $$ linked to gold. Not sure but recent decrease in gold prices is also because people may want to reduce debt while at the same time people with liquidity in $$ may buy more gold! So rich people may buy more gold now likely while debt forces people with no money to sell gold. In this whole scenario it is indeed striking that $$ isn't linked to gold.

[nachiket]

An economic disaster is brewing in India

Ajay Chhibber

Rising CAD, low growth & inflation may spark off an economic crisis in India, says Ajay Chhibber.

The word "stagflation" is being used to describe India's macroeconomic predicament.

While India is not stagnant, its growth rate has steadily declined, and with persistent inflation, the policy makers were already facing difficult choices.

Now, a surprisingly high external deficit suggests a perfect storm could be brewing.

India's current account balance recorded a historical deficit of 4.2 per cent of the gross domestic product (GDP) in financial year 2011-12.

Recent quarters have seen a further deterioration. For the first three quarters of 2012-13, the deficit stood at 5.4 per cent, and in the last quarter, it reached a record high of 6.7 per cent of GDP.

The history of financial and economic crises from Latin America in the 1980s to Asia in the 1990s, and plenty of industrialised countries in between, clearly shows that large and persistent current account deficits (CADs) can precipitate financial and, subsequently, economic disasters.

A CAD of over five per cent of GDP is considered a red line among policy makers and financial markets.

India was stuck at GDP's "Hindu rate of growth" of three per cent for almost three decades after Independence.

In the 1980s and the 1990s, the growth rate stepped up to five to six per cent on average, and then soared to eight to nine per cent from 2002-2007.

India, some experts said, was on the "golden turnpike of growth".

With the global financial crisis, growth fell to around six per cent in 2008-09, but when India recovered quickly after that with growth picking up to nine per cent in 2009-10, it seemed the country truly was back on a "golden growth turnpike".

But since 2009-10, the growth rate has shown a persistent decline.

While some thought we would step down to the five to six per cent growth rate of the 1990s, we now run the danger of going further back to the so-called "Hindu growth rate".

A large CAD with a decade-long low GDP growth add to the concern that if these trends are not quickly addressed, India runs huge risks.

Since mid-2012, foreign inflows have financed CAD, but if growth were not to pick up, they could dry up and even reverse - causing a sharp and destabilising slide in the rupee.

Lower growth and high inflation are ultimately linked to the high fiscal deficits for the last three years. But that is not the complete story.

The lack of competitive exchange rate and structural and administrative reforms have contributed heavily, making manufacturing uncompetitive.

The country's private investment rate as percentage of GDP has fallen from 28.1 in 2007-08 to 24.9 in 2011-12.

When the rupee fell to Rs 58 to the US dollar last June, exports looked up, but as the rupee again appreciated back to Rs 55, manufactured imports - largely consumer goods, not capital goods - have soared.

There is a misguided debate in India on the causes of inflation - is it structural or demand-induced?

As the famous Nobel Prize-winning economist Milton Friedman observed, the immediate cause of inflation is always excess demand.

What causes excess demand needs to be looked into and could be triggered by a combination of macro and structural factors. But the persistence of inflation suggests an accommodating macro policy, even if the trigger is structural.

For example, public distribution system (PDS) policies can lead to inflation, but the mechanism needs better understanding.

Higher procurement prices increase the cost of procuring grain and reduce the amount of grain available in the market - increasing grain prices.

If the procured grain is not released and stocks accumulate, it increases the food subsidy Bill in the Budget - the bulk of PDS costs are owing to storage and transport of grain.

This must then be financed by increasing public debt or inflationary financing.

Higher petrol prices owing to reduction of fuel subsides, similarly, are considered inflationary, because they increase the costs of transportation and production.

But it has been shown that higher petrol prices in the short term can lead to higher overall prices, but can lower inflation in the medium term if fiscal deficits are thereby reduced.

Direct cash payments to poor in lieu of lower petrol prices - with deregulation of petrol prices - can reduce the deficit, mitigate the pain to the poor, and lower inflation.

Some have suggested that the heavy expenditure on welfare schemes, such as MGNREGA, causes inflation because it increases the purchasing power of rural poor and thus, food demand in rural areas. But only a small part of this expenditure actually reaches the poor.

Much is cornered by non-poor. And even the part that "trickles down" to the poor cannot be the cause of our macroeconomic difficulties.

We should not blame the poor for higher inflation when they consume more food and overcome malnutrition.

Instead, we should ask why food prices are rising when we have had a period of good agricultural growth over the last three years.

The answer is that much of the increased production has been procured to increase food stocks to a record level, while food prices rise and the food subsidy Bill soars.

Bringing fiscal and trade deficits under control will require not only smart coordination between the government and the monetary authority, but also a multi-pronged strategy: further reductions in the fiscal deficit, a competitive exchange rate, and attracting more foreign direct investment.

Other large emerging countries, such as China and Indonesia, have excelled in these aspects through continued administrative, financial and structural reforms.

There is a coordinated chorus of business and policy makers looking at the Reserve Bank of India to lower interest rates to revive growth.

But if increased demand spills over into even higher import Bills and manufacturing does not revive, it could set us down a dangerous path of even larger CADs.

The finance minister has taken steps to improve the fiscal situation and promote economic growth. But with the elections looming and coalition politics again raising demands, India faces a tough period ahead.

Serious structural reforms combined with fiscal consolidation are needed, but these may have to wait till after the elections. To avoid the perfect storm, India must act now.

The author is UN Assistant Secretary-General, UNDP Assistant Administrator, and Director of the UNDP's Regional Bureau for Asia and the Pacific.

[Theo_Fidel]

Business Standard editorial page fingers the collapse of exports as our main problem....

http://www.business-standard.com/articl ... 607_1.html

Remember, the collapse of India's exports is as potent a driver of the current account deficit as anything else. New Delhi must continue to try and recover India's industrial sector, so that exports grow.

The whole sad saga is displayed in this chart.

[Prem]

http://www.nytimes.com/2013/04/16/busin ... .html?_r=0

India, Long the Home of Outsourcing, Now Wants to Make Its Own ChipsBy NEW DELHI — The government of India, home to many of the world’s leading software outsourcing companies, wants to replicate that success by creating a homegrown industry for computer hardware. But unlike software, which requires little infrastructure, building electronics is a far more demanding business. Chip makers need vast quantities of clean water and reliable electricity. Computer and tablet assemblers depend on economies of scale and easy access to cheap parts, which China has spent many years building up. Dell computers at a plant in the state of Tamil Nadu. Dell assembles products in India, but does not make components there. So the Indian government is trying a new, carrot-and-stick approach. In October, it quietly began mandating that at least half of all laptops, computers, tablets and dot-matrix printers procured by government agencies come from domestic sources, according to Dr. Ajay Kumar, joint secretary of the Department of Electronics and Information Technology, which devised the policy. At the same time, it is dangling as much as $2.75 billion in incentives in front of chip makers to entice them to build India’s first semiconductor manufacturing plant, an important step in building a domestic hardware industry. But like so much of India’s economic policy, it’s doubtful that either initiative will have the impact the government is intending. “Nobody disputes India’s need to build up manufacturing. Not doing so would be fiscally irresponsible,” said Gaurav Verma, who heads the New York office of the U.S.-India Business Council. But Mr. Verma said that India’s efforts to force international companies to manufacture in the country are futile. “The government needs to not mandate this, but create an ecosystem.” The domestic purchasing mandate, known as the “preferential market access” policy, seeks to address a real problem: imports of electronics are growing so fast that by 2020, they are projected to eclipse oil as the developing country’s largest import expense. India’s import bill for semiconductors alone was $8.2 billion in 2012, according to Gartner, a research firm. And demand is growing at around 20 percent a year, according to the Department of Electronics and Information Technology. For all electronics, India’s foreign currency bill is projected to grow from around $70 billion in 2012 to $300 billion by 2020, according to a government task force.

“Computer makers contacted for this article declined to discuss how the new policy would affect their sales. The big fish the government would like to land is a factory to produce microprocessors for computers. A computer processor typically accounts for 25 to 35 percent of the total cost of a PC or laptop. India hopes that such a plant, which could cost as much as $5 billion to build, would help spur a bigger high-tech manufacturing industry, said Dr. Kumar. According to Indian media reports, two consortiums have been in talks with the government to build microprocessor foundries. The first is led by the Jaypee Group, one of India’s largest construction companies, which built the country’s Formula One track in Uttar Pradesh. It has partnered with I.B.M., which will provide the technology. The second bid is from the Hindustan Semiconductor Manufacturing Corporation, an American company that, despite its name, does not manufacture any chips. It has partnered with the .
But Ron Somers, president of the U.S.-India Business Council, said he doubted that India could provide a new chip-making facility with the basic infrastructure it needed to even keep the lights on. There have been several failed attempts to set up chip plants in the past. The most recent was in 2008 by SemIndia, a United States company run by Indian-American entrepreneurs. It ended acrimoniously when a dispute arose over the terms of the agreement between the company and the state of Andhra Pradesh where the plant was to be housed.
Critics warn that India’s efforts to encourage a high-tech revolution may come to naught once again unless it reduces some of the barriers to doing business in the country. In the case of some electronics, the import duty on a finished product is cheaper than on the component parts, said Mr. Menon. Costs are also higher because of a lack of reliable power and the extra time it takes to move goods on the country’s poor roads. Spurred by the new “Buy India” requirements, Dell, the largest PC retailer in India, explored the possibility of setting up manufacturing facilities there. Dell assembles computers in India, but does not manufacture any components. “They flew in their suppliers from China and Taiwan to see if they could set up facilities. They said no,” said an industry official, who requested anonymity since he was not authorized to speak on behalf of the Texas-based company. “The market is too small, and logistically it is a nightmare.” Dell declined to comment.

[Theo_Fidel]

Folks are not holding back on the gold Bubble.....

http://blogs.reuters.com/felix-salmon/2 ... le-bursts/

The total amount of gold in the world, according to Thomson Reuters, is 171,300 metric tonnes, or 5.5 billion troy ounces. What that means is that every time the price of gold falls by $100 an ounce, as it did on Friday and it has done again today, the value of the world’s gold falls by more than $500 billion.

Gold is the classic zero-coupon perpetual bond: an asset whose industrial value is a tiny fraction of its cash value, and which represents, as Joe Weisenthal says, a costly failure of markets to efficiently allocate capital to where it is best invested. Goldbugs are by their nature defeatist and pessimistic; get enough of them together at the same time and they become self-fulfilling. (That’s why they tend to be so evangelical about their beliefs.)

Still, there will be pain — pain which is necessary to break the gold fever. It’s important that goldbugs are seen to not only have silly beliefs, but also to have lost a substantial amount of money. Gold is a fear trade rather than a greed trade — it’s defensive, and defensive investors are always particularly loss-averse. If you lose money betting on high-flying tech stocks, that’s much more likely to be money you can afford to lose than if you lose money after putting your life savings into precious metals. (Silver, as befits its status as the “B” share of gold, is also being hit badly today.)

The biggest problem in the markets right now is that they’re still far too risk-averse. Fear-based assets like gold, Treasury bonds, and cash are in high demand, while there isn’t enough money flowing through greed-based assets like stocks and bank loans and into the economy as a whole. Even if the stock market is expensive, the number of primary and secondary offerings remains low; similarly, banks are not expanding their loan books nearly fast enough.

What the system needs, then, is a stark reminder that fear-based assets can be just as risky as greed-based assets. Rising interest rates can eat away the value of your bond portfolio, inflation can erode your cash, and as for gold (or bitcoins, for that matter), well, it can plunge in value literally overnight.

My hope is that the price of gold will continue to fall, that goldbugs will look increasingly silly, and that as a result Americans with savings will conclude that the best thing to do with those savings is to put them to work in a productive manner, rather than self-defeatingly trying to protect what they have.

At the end of the 1990s, and again in the mid-2000s, we had greed bubbles. Both those bubbles burst, and the weird result was a fear bubble, which manifested itself in negative risk-free real interest rates and a soaring price of gold. Let’s hope that what we’re seeing right now is the fear bubble bursting. It’s what the world needs.

[RoyG]

Yeah yeah, those who still think gold is a bubble have a flawed view of economics. They only look at short term trends ignoring long term monetary debasement. Gold doesn't change in value. The currency does.

[RamaY]

^^ that logic can be applied to anything.

A $1 fall in a oil price per barrel means $1.73T loss to humanity. A Rs 1L fall in housing price will mean India's net wealth falls down by Rs 7.86T rupees and so on.

Someone's loss is someone else's gain. People are buying gold at $1700/ounce and they are buying gold at $1000/ounce.

[Theo_Fidel]

Today Gold went through another dead cat bounce. There is money to be made here playing the market. Undoubtedly billionaires are being made and unmade as we watch....

http://finance.yahoo.com/blogs/daily-ti ... 31722.html

Eventually, when all of the petals have fallen off the rose, the price of the asset usually ends up back near where it started. And those who bought into the story--the theory that something was "different this time," that this asset was special--have to console themselves by learning from their experience.

Over the past decade, the asset that has transfixed investors more than any other is gold.

In the early 2000s, after drifting to a two-decade low below $300 an ounce, gold prices began to creep higher. At first, those who had been seduced by gold in the prior 20 years only to have their hopes dashed remained skeptical. Gradually, however, as gold kept marching higher, they became believers.

Gold's endless bear market was finally over, the story went. Gold would now resume its normal trend upward. Gold, the only true "store of value" in a paper-money world, would increase its owners' wealth while stocks, bonds, real-estate, cash, and other popular asset classes destroyed it.

Gold had a naturally limited supply. Gold was beyond the reach of meddling politicians. And the "hyper-inflation" caused by the frantic "money-printing" of the world's governments could not touch gold. As the value of paper money collapsed, gold prices would soar, and those who had invested their fortunes in the shiny, permanent, coveted element would inherit the earth.

Alas...

In the past several months, gold prices have tanked.

The key observation...

On an inflation-adjusted basis, gold has not even regained the euphoric high it hit around 1980, the last time investors temporarily fell in love with gold.

It's also important to compare the performance of gold over this period with the performance of other assets--such as stocks. On a pure price basis, after adjusting for inflation, gold has performed a lot like stocks.

But that's not the whole story. Unlike gold investors, stock investors don't get returns just from price. They get returns also from dividends, and the dividend payout from the S&P 500 over the past 40 years has added at least 3% of performance per year. So even after the recent gold price spike, and the lousy performance of the stock market for the past 13 years, once you add that 3% dividend payout to the price performance, stock returns have left gold returns in the dust. And stocks, it should be noted, also provide protection against inflation.

Stocks are a real asset. Thanks to their dividends and earnings streams, they protect long-term investors against the "debasement" of paper money. Thanks to the success of free-market capitalism, they also usually, in aggregate, provide a long-term return that is significantly more than inflation. So they provide almost everything that gold is supposed to provide--and then some.

About the only scenarios in which gold would permanently outperform stocks would be:

a situation in which industrial demand permanently outstripped supply, or
a collapse in civilization, in which free-market capitalism and property rights disintegrated and governments fell. (And the utility of gold in this apocalyptic future might also be open to question.)

If investors really think one of those two things is likely to happen, then, yes, they might be well-advised to own a lot of gold.

If they don't, however, they might consider the possibility that it's not, in fact, "different this time" and that gold prices will eventually come tumbling all the way back down.

[shyam]

If gold is so useless stuff, why did CME raise the margin requirement for precious metals? In fact, they reduced it some months back, and now do the reverse. Of course, it looks like a planned strategy to create bubble and then crash to scare away the skeptics who joined gold race.

CME Hikes Gold, Silver Margins By 18.5%

Actually, people have to understand this subtle game, play it to profit, and get physical gold in their custody. When US is printing like no end, Japan joining the race with a big blast that could prompt China and Korea also to join the game, the current fall of Gold will only remain temporary. Wait for the day India joins this race, the Indians who bought gold will have the last laugh.

BTW, India's Response To The Gold Sell Off: A Massive Buying Frenzy

There are few genuine cases where gold price could crash. (1) They, especially the US, stop printing money and (2) increase the interest rate to market level. But when any of that happens, value of all other assets people hold (like stocks, bonds, real estate, income) would go down the drain at much faster rate than the depreciation in the price of gold. In fact this depreciation of gold price in that condition should be appreciated because at that time fiat money is really emulating the property of gold. But gold will never go to '0', while everything else could. Even real estate that is not easily maintainable could become a liability.

[Neshant]

India needs many design schools.

Watch the video to see how Germany managed to raise the deisgn & quality of their products from a very low base.

The design and quality of Indian products tend to be very shoddy unfortunately.

[subhamoy.das]

http://en.wikipedia.org/wiki/List_of_se ... ion_plants

List of countries with chip factories. See how Russia has only 1. Yet they have world class electronics but focused on mil and not consumer. Most of the factories are located in US and asia pacific with Europe having some who are mass manufacturer of widgets. India has always worked in "import subsitution mode" to save forex and chips are no exception. But the bigger question is that India is able to generate jobs to drive so much consumption of chips that it warrents import subsitution. Interesting.....

[Theo_Fidel]

But gold will never go to '0', while everything else could. Even real estate that is not easily maintainable could become a liability.

This is not entirely correct. Gold has no intrinsic value and very little industrial value. It is just a metal. Real estate has intrinsic value, it produces food, produces housing, rent, transportation, etc.

If everything else goes to zero gold will go to zero.

The best case study is what happened in Alaska and California during the gold rush. Miner would hand over a oz of gold for a cup of coffee. Gold is only as valuable as people want it to be.

[RamaY]

^ same as any currency. That is why Gold has better value as a currency, efficient or inefficient model it is. People cannot just print gold as they do with paper.

Coming to e-currency, it is even worse than paper currency, because without stringent monitory systems, there is lot of place for manipulation.

I wonder how banks reconcile on a daily basis to ensure there is no foul play. What if a bank goes about its cash holdings within a day to make money out of Day-trading.

[shaardula]

heard about this last night on radio.
an apparently very famous economics study about public debt loads and growth has been found to contain fundamental computational errors*. this study was used as the word to argue for austerity that has resulted in massive cuts in social spending and unemployment and hence discomfort in a lot of western countries.

http://economix.blogs.nytimes.com/2013/ ... nd-growth/

i dont know a whole lot about economics. perhaps gurus here can help understand this good debt, bad debt business.

ps: there is a major movement in our field for all papers to make data and code public and open. so that any results claimed can be verified. you would imagine, something as consequential as economics they would do the same.

[vishvak]

In Indian economy thread there has been many a discussions over this, and nothing new there. In fact many countries are buying gold- Japan to the middle east, including Shari Lanka and China. Wondering from where the gold is sold. Cyprus sold less than 20 tons so who all sold rest 400-500 even more tonnes under excuse of Cyprus selling gold. Are Americans buying too

The global crisis has reduced exports which is major problem, the banking/financial crisis has not reduced debt completely for first world people to import more.

[RoyG]

But gold will never go to '0', while everything else could. Even real estate that is not easily maintainable could become a liability.

This is not entirely correct. Gold has no intrinsic value and very little industrial value. It is just a metal. Real estate has intrinsic value, it produces food, produces housing, rent, transportation, etc.

If everything else goes to zero gold will go to zero.

The best case study is what happened in Alaska and California during the gold rush. Miner would hand over a oz of gold for a cup of coffee. Gold is only as valuable as people want it to be.

It does have intrinsic value. It is rare, lustrous, doesn't rust and does have many industrial uses especially in chips. Gold has been valued for the past 5000 years. While fiat currencies have come and gone gold has stayed. You must understand that the cost of gold has steadily climbed b/c the value of fiat has declined. This is why central banks all around the world are buying the metal. It's not tradition sir.

[shaardula]

vishvak, since you spoke of gold. really curious, how does thing work. when we exchange gold we are still exchanging it for currency arent we? so if it takes lots of money to buy small quantity of gold, and if the rice seller is also referencing gold, then in real terms, how much rice is he going to sell for an ounce of gold?

[vishvak]

Not an expert myself so two sikka only

Gold is social-streedhan, industrial usage, holding of reserves, Jewellery industry- no one can say it is gold only to demean its value. For example in past barbaric invaders looted people after claiming its gold only while ignoring everything else as justified civilized behavior.

On the other hand, UK and USA also perhaps has bullion markets of gold with outright price fixing too. When the say German government wants reserve gold back it helps the bullion gold traders if prices of gold fall, to buy gold off market and send it to Germany, while good financial deal may be offered when price increases for gold to country like Germany.

About currency part - gold for rice - value of money may decrease over time in which case over time more rice?

[Prem]

Oil Finally Helps India's Trade Deficit
http://www.forbes.com/sites/kenrapoza/2 ... e-deficit/

India’s trade deficit fell to a two-year low of $10.3 billion in March, significantly below the $17.9 billion average deficit in January-February 2013, and the similarly large $16.6 billion average deficit during April 2012-February 2013.
The improvement came predominantly from lower import costs, which fell 2.9% yearly. Exports rose to an 11-month high, at 7% growth in March compared to last March.Of course, the big help came from oil. India’s oil imports dropped to $13.3 billion versus a monthly average of $14.1 billion so far this year.Despite Thursday’s trade data, India’s trade deficit remains high.As such, recent trends in trade flows and the balance of payments suggest that the current account deficit for this fiscal year will likely reach a record of about 5% of GDP before narrowing closer to 4% next year. Recent declines in gold and oil, if sustained, could continue helping this deficit problem in the coming months, Barclays Capital analysts led by Siddhartha Sanyal said today.The recent drop in commodity prices should have a positive impact India’s external trade balance and could cut the current account deficit by almost 1% of GDP, based only on falling oil and gold prices, Sanyal said.The Wisdom Tree India (EPI) exchange traded fund was up 1.5% with an hour to go in the session. EPI is down 6.56% year to date.

[Austin]

OPEC is already cribbing of falling oil price and are talking of production cuts , Saudi needs atleast $ 94 price ( WTI ) to keeps its promised social obligation ....so expect the drop in oil price to be temporary.

[Neshant]

gold just shot up.

$1424 approx

The bull market in gold is moving extremely well from a technical prespective. Rising up, consolidating, pulling back and springing forward. Its not moving straight up like a fad or a rigged game (i.e. stock market). Rather it is moving cautiously with checks and pull-backs along the way.

Also the constant comments about the bull market in gold being over everytime it falls is a great contra-indicator that there is no euphoria bubble (yet) signalling a top.

Hope I'm reading this market right because if I'm right, gold is going to go a lot higher than 2000.

[Altair]

gold just shot up.

$1424 approx

The bull market in gold is moving extremely well from a technical prespective. Rising up, consolidating, pulling back and springing forward. Its not moving straight up like a fad or a rigged game (i.e. stock market). Rather it is moving cautiously with checks and pull-backs along the way.

Also the constant comments about the bull market in gold being over everytime it falls is a great contra-indicator that there is no euphoria bubble (yet) signalling a top.

Hope I'm reading this market right because if I'm right, gold is going to go a lot higher than 2000.

Neshant,

Today is Friday. No sane head will keep open long positions this weekend. People will short sell today. I would guess they are just building a bull trap. My money is not in for long position in Gold futures. Its too risky.

JMT
Altair

[vishvak]

Any information who all sold hundreds of tons of gold and who all bought. Thanks.

[RamaY]

Since India holds about $1 Trillion worth of gold and the drop was 10%, we lost about $100 Billion dollars in one day!!

Look at the bright side...

Today I read a Telugu news paper editorial (Suryaa.com) which argued that if the current price levels of Gold and Oil (down by 5-10% in this quarter) and other commodity prices (they too are falling) for some time (didnt say how long) that India would save Rs 1,00,000 crores ($25B) in trade deficit, bringing it to 3.2% of GDP, making PC happy

[Theo_Fidel]

The bull market in gold is moving extremely well from a technical prespective. Rising up, consolidating, pulling back and springing forward. Its not moving straight up like a fad or a rigged game (i.e. stock market). Rather it is moving cautiously with checks and pull-backs along the way.

In other words, this time it is different....

[shyam]

Even though gold prices are low, there are reports that physical gold is not available at the current market price. Even in Dubai there is scarcity for gold at current price. It indicates that it is the paper gold that has crashed.

[vina]

Even though gold prices are low, there are reports that physical gold is not available at the current market price. Even in Dubai there is scarcity for gold at current price. It indicates that it is the paper gold that has crashed.

Dude. Believe me. You try going and selling your family gold back to the neighbourhood jeweller, the price per gram will be the current price after the crash. No one is going to pay you the pre crash prices. Whatever wampum paper is, you need that paper for exchange and yes, the moment you go from physical to paper, you will be hit hard by reality.

[vina]

There were two ideologues , Kenneth Rogoff and Carmen Reinhart who put out a paper that was very influential, and basically said that if the debt to GDP of a nation exceeds 90%, then growth is toast and then is hellfire and damnation after that. The anti debt chorus went rah rah and was warning of doomsday on the strength of that paper.

No one could replicate that until recently, for a good reason, there was coding error in their spread sheet and some hokey assumptions and exclusions of data! Think of it. The anti debt nutter brigade's fundamental arguments were based on math error!

Now come back to India . The ISI/DSE/JNU/Planning Commission ding dongs and their hare brained ideological nutter experiment that drove India to ruin until 1990s was based on some hokey "4 factor model" (cooked up by the ISI ding dongs), who proudly claimed that they have a "16 factor model in the works" that will run on a Kampooter etc. Fundamentally wrong stuff if you go back with the wisdom of hindsight and know that you can never have complete information on everything to micro manage everything. For eg, even today with very high power parallel clusters and very powerful datamining software and stuff and advances in math, how many companies in the world can get something very simple as a sales forecast for the next season right ? Quant shops run models of the stock markets with 40 factors and upwards and get their a**es handed back to them. With such power and sophistication, you cannot adequately model a very small part like the stock market, HOW TF did the ISI/DSE/JNU ding dongs get away with the snake oil that they could model something of orders more complexity as the economy, and by virtue of that , create a Stalinist Orwellian nightmare , where economic freedoms were trampled. No matter, the JNU ding dongs like Prabhat Patnaik and CP Chandrashekar still indulge in their modeling and economic tin pot dictatorship wet dreams and other master bayshuns.

But I digress, posting Krugman's Op-Ed

In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase’s “London Whale” venture went bad in part because modelers divided by a sum instead of an average . So, did an Excel coding error destroy the economies of the Western world?

The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt,” that purported to identify a critical “threshold,” a tipping point, for government indebtedness. Once debt exceeds 90 percent of gross domestic product, they claimed, economic growth drops off sharply.

Ms. Reinhart and Mr. Rogoff had credibility thanks to a widely admired earlier book on the history of financial crises, and their timing was impeccable. The paper came out just after Greece went into crisis and played right into the desire of many officials to “pivot” from stimulus to austerity. As a result, the paper instantly became famous; it was, and is, surely the most influential economic analysis of recent years.

In fact, Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact (same thing with the ISI ding dongs and their socialist planned model). For example, a Washington Post editorial earlier this year warned against any relaxation on the deficit front, because we are “dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” Notice the phrasing: “economists,” not “some economists,” let alone “some economists, vigorously disputed by other economists with equally good credentials,” which was the reality.

For the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around, with poor economic performance leading to high debt. Indeed, that’s obviously the case for Japan, which went deep into debt only after its growth collapsed in the early 1990s.

Over time, another problem emerged: Other researchers, using seemingly comparable data on debt and growth, couldn’t replicate the Reinhart-Rogoff results. They typically found some correlation between high debt and slow growth — but nothing that looked like a tipping point at 90 percent or, indeed, any particular level of debt.

Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet — and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these oddities and errors, and you get what other researchers have found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”

In response, Ms. Reinhart and Mr. Rogoff have acknowledged the coding error, defended their other decisions and claimed that they never asserted that debt necessarily causes slow growth. That’s a bit disingenuous because they repeatedly insinuated that proposition even if they avoided saying it outright. But, in any case, what really matters isn’t what they meant to say, it’s how their work was read: Austerity enthusiasts trumpeted that supposed 90 percent tipping point as a proven fact and a reason to slash government spending even in the face of mass unemployment.

So the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policy makers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses (exactly, like the well being of a billion people was sold on false ISI/DSE/JNU/Planning Commission hokum). For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of G.D.P. But “economic research” showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on.

(same here. The Patnaiks, Chandrashekars and other Ding Dongs of JNU (ISI hopefully goes back into being true scholars and statisticians and not snake oil salesman) and DSE in Dilli will continue beating the same old drum. truth, objectivity, scholarship, experience and epistemology be damned.. they are not scientists and seekers of truth, but spin doctors and intellectual charlatans).

[Theo_Fidel]

Vina,

Good post there.

The underlying assumption of the ‘4-factor’ model was that India is and always will be a ‘shortage’ economy. So the idea was to allocate resources in the most efficient manner. Never mind that this as you have pointed out is a failed system and it is impossible to track the economy in real time. Something like our college entrance exams. There are 100,000 applicants for 100 engineering seats, how do you allocate the seats? This is not a bad question but on the scale of a national economy it produced sclerosis and paralysis.

So why did this sort of nonsense proliferate, mostly because it sounded cool.

There is a theory out there that the human brain privileges ideas that appear to align with common sense or ideas that go against the grain. I can’t recall the paper right now. The prevailing common sense back then was that modernity means being able to measure and quantify every piece of data out there and predictability was better than the vagaries of the economy.

Now the prevailing theory out there is that one should live within ones means, whatever that is and whatever that means. The entire gold bug promotion is over this exact thing. The prevailing ‘common sense’ is that all debt is bad, never mind that we get into debt to buy houses, get an education or even a car. The ideology does not differentiate between the two. This is common to all ideologies in that they ignore reality and refuse to change with the circumstances. The standard reaction is to find a scape goat or two and shoot then and if that doesn’t work descend in foul language and personal insults. You can see this in the response from the ideology crowd to Krugman who has been consistently correct for decades now, with a few bloopers in the middle but mostly correct. Compare that to the unrestricted disasters the center-right crowd has produced and one is almost nostalgic for the JNU crowd  but not really!! I tend to fall in the Krugman camp that the real scandal is decoupling of income from production in places like Cyrus and Greece and Spain.

The question right now is what is good debt and what is bad debt. The center-right crowd should focus on this IMO. To my mind in this calculus POL is mostly good debt, it keeps our industry and production going, gold is mostly bad debt because it does neither. But it does have it positive effects as well though IMHO at present the negatives are far outweighing the positives. Even consumer purchases of equipment can be good IMO. Did you know for instance diabetes monitoring equipment is classified as a consumer purchase by GOI? Even a bottle of imported perfume produces intangible improvements in the life and performance of real people. These are good things. Things like the MNEGRA are bad. As long as you stick to this limited criticism everything is fine. The problems come when opposition then trends towards all debt.

[shyam]

Even though gold prices are low, there are reports that physical gold is not available at the current market price. Even in Dubai there is scarcity for gold at current price. It indicates that it is the paper gold that has crashed.

Dude. Believe me. You try going and selling your family gold back to the neighbourhood jeweller, the price per gram will be the current price after the crash. No one is going to pay you the pre crash prices. Whatever wampum paper is, you need that paper for exchange and yes, the moment you go from physical to paper, you will be hit hard by reality.

Dude, I'm not talking about 22 carrot gold ornaments with labor cost added to it. I'm referring to gold bullion.

[vishvak]

So it means that no more gold bullion is available even at a price? Or is it that bullion are not averse to not make gold available as per demand or not when prices are low.

Interesting tidbits and important 10 things about gold
It says that 265 tonnes of Indian gold is in vaults of BoEngland and BoInternational Settlements!

[vina]

Dude, I'm not talking about 22 carrot gold ornaments with labor cost added to it. I'm referring to gold bullion.

Ok. Trade your bullion (biscuits/ coins) and see what price you get . Surely it wont be the pre crash price!

[RamaY]

Why would anyone give pre-crash rate for anything? Even Russian rubles and US$ would face the same fate...

[KrishnaK]

Things like the MNEGRA are bad. As long as you stick to this limited criticism everything is fine.

But Krugman uses that article to support social security.

[Theo_Fidel]

Social security is indeed a public good. Keeps the working pool young and healthy. Allows the old and low productive folks to have some peace and quiet at the end.

[Neshant]

SS is a textbook ponzi scheme.

Those being forced to pay in will collect far less (if anything) compared to those who are collecting today.

When SS first started out, there was something like 44 workers for every 1 recipient. Now the ratio is more like 3 to 1 and soon it will be 1 to 1. Eventually if you saved in a 401k or IRA, you will be told you are too rich to collect SS and some guy who blew all his money on vacations is more deserving of that SS.

[Theo_Fidel]

Neshant,

I note you don't offer an option. Offer an option and then you can criticize, till then it is pointless.

We had this argument over ponzi scheme a few months back. This claim is easily discredited.

Your claim is straight from Rush Limbaugh right down to the guy who takes vacations. It is simply wrong. The vast majority of Americans do not make enough money to save. The number is even higher in India. There was statistic sometime back that some thing like 60% of the american working population has not taken a paid vacation in 10 years. I suppose you would prefer this turn into 20 years.