Perspectives on the global economic changes

Austin · Post by **Austin** » 29 Jan 2014 15:48

http://news.xinhuanet.com/english/busin ... 076489.htm

Among BRICS 2013 FDI Stastics

Brazil - $63 billion

Russia - $94 billion

India - $28 billion

China - $127 billion

South Africa - $10 billion

Source: http://unctad.org/en/PublicationsLibrar ... 4d1_en.pdf

Austin · Post by **Austin** » 29 Jan 2014 21:38

UK economy posts fastest growth rate in 6 years

Britain's economy in 2013 recorded its fastest annual growth since the financial crisis, data from the UK government’s Office for National Statistics showed Tuesday. The quarterly GDP figure took the UK’s full-year growth for 2013 up to 1.9 percent, from just 0.3 percent the year before, Reuters said. This is the highest GDP growth since 2007. However, total output is still 1.3 percent below the pre-financial crisis peak reached in the first quarter of 2008. GDP rose by 0.7 percent in the fourth quarter of 2013. The rate of growth could influence the Bank of England’s decision on when to raise record-low interest rates.

Suraj · Post by **Suraj** » 30 Jan 2014 00:07

So the Fed announces another $10 billion taper to $65 billion. Sounds like Yellen is starting with some breathing room to keep the stimulus stable in the next policy meeting after a long cold winter. With Obama's MyRA proposal, they're already lining up another set of buys of T-bonds, so the stimulus taper would probably tie in with that - lower the Fed's balance sheet and simultaneously move the debt into the populations hands. The new ownership society, except that they own their government's debt

member_26147 · Post by **member_26147** » 30 Jan 2014 01:57

Holding government debt with tax savings and percentage return is still better than the cyclical currency devaluation problem India is facing due to gold hoarding. And most of US debt is still held by Americans contrary to popular belief.

People keep buying gold -> no investment by savers giving capital returns -> industry has to borrow in USD -> FDI -> India takes on external debt -> vulnerable to pullback -> currency devaluation -> people keep buying gold.

History of Indian Rupee devaluation:

The Indian currency has witnessed a slippery journey since Independence. The Indian rupee, which was on a par with the American currency at the time of Independence in 1947, has depreciated by a little more than 65 times against the greenback in the past 66 years.

When India got freedom on August 15, 1947, the value of the rupee was on a par with the American dollar. There were no foreign borrowings on India's balance sheet.

To finance welfare and development activities, especially with the introduction of the Five-Year Plan in 1951, the government started external borrowings. This required the devaluation of the rupee.

After independence, India had chosen to adopt a fixed rate currency regime. The rupee was pegged at 4.79 against a dollar between 1948 and 1966.

Two consecutive wars, one with China in 1962 and another one with Pakistan in 1965; resulted in a huge deficit on India's budget, forcing the government to devalue the currency to 7.57 against the dollar.

The rupee's link with the British currency was broken in 1971 and it was linked directly to the US dollar.

In 1975, value of the Indian rupee was pegged at 8.39 against a dollar.

In 1985, it was further devalued to 12 against a dollar.

In 1991, India faced a serious balance of payment crisis and was forced to sharply devalue its currency. The country was in the grip of high inflation, low growth and the foreign reserves were not even worth to meet three weeks of imports. Under these situations, the currency was devalued to 17.90 against a dollar.

1993 was very important. This year currency was let free to flow with the market sentiments. The exchange rate was freed to be determined by the market, with provisions of intervention by the central bank under the situation of extreme volatility. This year, the currency was devalued to 31.37 against a dollar. The rupee traded in the range of 40-50 between 2000 and 2010.

It was mostly at around 45 against a dollar. It touched a high of 39 in 2007.

The Indian currency has gradually depreciated since the global 2008 economic crisis.

In 2013, the Indian rupee extended falls to a new low of 65.50 to the dollar as heavy demand from importers along with weak domestic equities continued to weigh on sentiment.

While I can understand why people in India value Gold (the Indian government led by Congress cannot be trusted and devalues the Rupee at the drop of the hat), it also retards development growth in the country that matters more for the future of its citizens. This cannot continue forever because India is not a developed economy and need to secure its energy and industrial equipment needs through imports which together accounts for a net deficit in trade.

Running a net deficit while devaluing currency should cause alarms because it will cause flight of FDI capital from India at the same time where its own savers run to buy gold. This will cripple India's Industrial economic development and the emerging middle class will shrink reducing the GDP growth India has had in the last decade.

Not to mention that this is what happened in the past. Hording Gold and 'Sone ki Chidiya' status that India had while giving up on technological progress and innovation came to bite it in the behind where the gold was looted by foreigners thus forcing India to start from the utmost bottom.

Only recently has India been able to achieve technological parity and that too is threatened due to the brain drain because of poor governance and corruption. Only because a few expats saw an opportunity of cheap labor combined with a sense of patriotism started up IT-VT did India start showing up on the world map and being compared to China. The next generation that got pulled up from IT-VT needs to understand all this and focus on changing the country from the grass-roots.

"È finita la cuccagna!"

Suraj · Post by **Suraj** » 30 Jan 2014 02:26

DhruvP: you're absolutely correct about the issue with gold holdings. However the fundamental reason is that India has had chronically high inflation, while lacking either a concerted attempt to minimize inflation, or a credible inflation indexed treasury paper. If GoI demonstrates the ability to maintain high growth and low inflation, then citizens will be more open to holding debt. As things stand, their desire for gold as an inflation hedge is a logical act.

member_26147 · Post by **member_26147** » 30 Jan 2014 02:49

Suraj wrote:DhruvP: you're absolutely correct about the issue with gold holdings. However the fundamental reason is that India has had chronically high inflation, while lacking either a concerted attempt to minimize inflation, or a credible inflation indexed treasury paper. If GoI demonstrates the ability to maintain high growth and low inflation, then citizens will be more open to holding debt. As things stand, their desire for gold as an inflation hedge is a logical act.

Yes, I agree gold holding is an effect of chronic inflation and periodic currency devaluation. But that does not mean that it is the solution as some BRF members here suggest. That was the point I was trying to make. That did not work in the past and it will not work in the future. To sustain growth and maintain independence, technological parity is essential. To achieve that, innovation and improvement in science and technology is essential even if it is to play catchup with US/Europe where capital flows into constant improvement and innovation. This requires capital investment which means all of India's savings cannot be locked into precious metals. If it is locked, be prepared for another invasion and be ready to lose everything again.

Suraj · Post by **Suraj** » 30 Jan 2014 03:00

It definitely will not sustain growth because it's a sink of capital. However one should ask, is it the people's job to be sacrifice explicitly in the face of chronic ~10% price inflation, without attendant robust economic growth, job security or rapid development in the quality of life ? No, the peoples' imperative is to safeguard their savings. It's the job of the elected government to ensure price stability and growth via prudent policymaking. If you look back at the gold discussion sometime last summer/autumn in the Indian economy thread, I had stated as such - GoI should curtail gold consumption because it's unproductive and they need to target savings into productive avenues, but that they will fail in the exercise if it doesn't also implement structural reforms to generate growth, jobs and greater investor confidence. We may be better off continuing in the Indian economy thread, since there was a several-pages long discussion on this there a few months ago.

member_26147 · Post by **member_26147** » 30 Jan 2014 03:08

Suraj wrote:It definitely will not sustain growth because it's a sink of capital. However one should ask, is it the people's job to be sacrifice explicitly in the face of chronic ~10% price inflation, without attendant robust economic growth, job security or rapid development in the quality of life ? No, the peoples' imperative is to safeguard their savings. It's the job of the elected government to ensure price stability and growth via prudent policymaking. If you look back at the gold discussion sometime last summer/autumn in the Indian economy thread, I had stated as such - GoI should curtail gold consumption because it's unproductive and they need to target savings into productive avenues, but that they will fail in the exercise if it doesn't also implement structural reforms to generate growth, jobs and greater investor confidence. We may be better off continuing in the Indian economy thread, since there was a several-pages long discussion on this there a few months ago.

The people elected their government, ergo, it is their responsibility ultimately as a nation to control inflation albeit indirectly.

I find it mind-boggling that a party that constantly was responsible for India's periodic devaluation of currency while at the same time appearing helpless in the face of massive inflation in basic necessities recurrently was even allowed to exist let alone win elections for 55 years of its existence out of the 60 years it existed!

If you want, you can move my post over as a moderator to the Indian economy thread but it is equally relevant in this thread where people are not at all worried about India's economy and think the US economy is about to implode which is the recurrent theme of this thread.

Suraj · Post by **Suraj** » 30 Jan 2014 03:11

People deserve the government they elect. Nothing new there

Yes I may copy these recent posts into the Indian economy thread, though I understand it matters in the US too. However, what passes for inflation in the US is still nowhere near as crippling as it is in India, either in duration or scope. If inflation in US mirrored India's, gold would probably be at $5000/oz in short order.

chanakyaa · Post by **chanakyaa** » 30 Jan 2014 08:18

...
I find it mind-boggling that a party that constantly was responsible for India's periodic devaluation of currency while at the same time appearing helpless in the face of massive inflation in basic necessities recurrently was even allowed to exist let alone win elections for 55 years of its existence out of the 60 years it existed!
....

Why blame a party? If you and me let them exist, they are happy to stick around little longer (i.e. another 50 years). It is very easy to find a person to blame, just look in the mirror.

On the topic of inflation, there are several variables in the economic literature that attempt to quantify inflation. To me India has the potential to significantly reduce inflation by reducing corruption, following and strictly enforcing contract and civil laws. I'm sure there many other areas. I'm not even talking about advanced subjects such as employment, productivity, and output. Any improvement in those areas is icing on the cake. Otherwise, it would be very difficult to come out of self inflicted inflation wound. Powerful countries have strong incentives to keep India constantly under inflationary pressures. It raises interest rates and cost of funds for new investments.

Christopher Sidor · Post by **Christopher Sidor** » 30 Jan 2014 14:07

6 years after Lehman went bust and AIG forced the markets to freeze and then collapse in spectacular manner, the dark days are coming over the horizon. When we look back at these 6 years what will we see? What has been achieved?

Neshant · Post by **Neshant** » 30 Jan 2014 22:38

The only thing that has been achieved is a transfer of liabilities from banking goons to society and the transfer of wealth from savers, wage earners and pensioners to private banks via money printing, "stimulus".

There's also an alarming trend of blatant bank fraud which goes unprotected and settled with small out of court fines. It's the clearest indication that banking goons have hijacked the justice system lock, stock and barrel. It's definitely a sign of things to come.

Austin · Post by **Austin** » 31 Jan 2014 20:27

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the print, taper, print, taper talk that has led to the economic and financial chaos that finds the Financial Times opining that one should do like the Bundesbank did and demand physical delivery of your gold before your wealth becomes pixellated. In the second half, Max interviews John Mauldin, author of CODE RED: How to Protect Your Savings From the Coming Crisis, about money printing, inflation/deflation, gold prices and wages.

http://rt.com/shows/keiser-report/episo ... eiser-355/

panduranghari · Post by **panduranghari** » 31 Jan 2014 22:38

DhruvP wrote:[..........think the US economy is about to implode which is the recurrent theme of this thread.

Link

The Chicago Tribune headlined a news story: "Chicago pension tab: $18,596 for every man, woman, child." That's pretty scary. Fortunately my Chicago public school teachers taught me about fractions and denominators. That is what is missing here.

The key point is that Chicago does not have to pay this money tomorrow or even over the next year. This is a liability over the next 30 years. The relevant denominator then is Chicago's income over the next 30 years. I don't have the time to check the city's income data just now, but if we assume that disposable (after-tax) per capita income is the same as for the country as a whole ($40,000 a year), we get that the discounted value over the next 30 years will be roughly $1.1 million. (This assumes 2.4 percent average annual growth and a 3.0 percent real discount rate.)

I also don't have time to review the basis for the $18,596 pension tab, which puts the unfunded liability at around $50 billion, almost twice the official figure.

5000000000 dollars short fall as of this month for Chicago onlee.

How does this look at the national level?

Solution;
1. Invade another country
2. Conduct cavity church of everyone in the white house so that they can find come hidden dollars
3. Print dollars

Or invest in technology to do what?

Neshant · Post by **Neshant** » 31 Jan 2014 23:42

Theo_Fidel · Post by **Theo_Fidel** » 31 Jan 2014 23:53

Not to be contrarian, but.... ..I'm not sure this inflation narrative is entirely correct. Both SoKo and JP burned with vigorous inflation during their rapid growth periods. SoKo in particular ran at 20%-30% annual inflation for long periods till as recently as the 1980's. As another resource starved nation, esp. WRT population, India will always run a higher inflation rate. Probably 5%+. This is not entirely bad as it lowers the rupee/$ ratio and forces us to export more and to invest every dime or loose it to inflation. Which is what the intention was in SoKo & JP as well.

Compared to the chaotic inflation of the 1960's-1970'-1980's present inflation is relatively tame and GOI deficit is not quite as out of control. Inflation back then was almost impossible predict or control. A single crop failure in one state would see inflation raging at 20%+ in a matter of weeks as hoarders bid up prices. Bank interest rates were often 20% or 30% per annum for safe commercial loans. The high interest would trigger bankruptcies and regular lockouts

Goes without saying that some inflation is always good. The alternative makes one shudder.

panduranghari · Post by **panduranghari** » 01 Feb 2014 00:36

A comment from telegraph-

Deflation isn't a bad thing. Traditional economists fear deflation more than anything because they are locked into the mentality that mild inflation is a sign of economic growth and that deflation will cause demand to fall, pushing economies into a downward spiral. How, then, do they explain the booming tech sector, which experiences massive deflation as a matter of course? If money represents a stable unit of value, then it should deflate by the rate of productivity. Inflation represents government stealing money.

That said, the world is in a precarious debt trap. With so many economies running debt to the brink of collapse, they are one natural disaster away from collapse. Even without that, their voters, who demand 1.5 benefits for 1 unit of taxes will go to the point of riot when that hits a 1:1 ratio

Neshant · Post by **Neshant** » 01 Feb 2014 00:42

Inflation is the destruction of purchasing power and its always bad. Nobody (except useless bankers who don't produce anything) can argue that stealing money from the productive economy is good.

Trying to claim that inflation stimulates demand or exports is what's known as the "broken window fallacy". That is, the economy would improve if some one went around vandalizing peoples' houses. The logic being since their house is now damaged, they will have to earn more & spend more to fix it thus improving the economy.

However all these idiotic Keynesian theories are headed for the garbage can. Destroying the value of peoples' possessions only serves to drain them of what surplus they could otherwise have deployed for productive (read wealth creating) purposes as opposed to merely sustaining their existence.

That aside, the notion of some "wise man" central banker sitting up top meddling around with trillions of dollars by inflating & fiddling with interest rates is absurd. Exactly how is that capitalism? Inevitably when the curtains are pulled back, society finds these idiots have destroyed a phenomenal amount of wealth pretending to be able to predict supply & demand.

Another name for deliberately inflating the currency is price fixing.

Neither inflation nor deflation is good/bad as long as the market (as opposed to market meddling) is what sets prices.

Theo_Fidel · Post by **Theo_Fidel** » 01 Feb 2014 00:53

Neshant,

Not sure if you are addressing me but I'm limiting myself to a rapidly growing resource starved economy. For such an economy exports will be necessary to acquire the life sustaining imports. Not a clue what all this has to do with what you posted. Are you talking about money , possessions, supply demand, etc. And the 'broken window' does not make sense here.

A little inflation is necessary to most economies.

Austin · Post by **Austin** » 01 Feb 2014 21:29

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss accounting fraud as the new opium for China and how it is that we keep roundtripping to financial crisis because every time we get to tomorrow we’ve already spent it yesterday. They also discuss raining the marmite of fraud on a 10-foot-tall Janet Yellen. In the second half, Max interviews Mitch Feierstein of PlanetPonzi.com about the unintended consequences of money printing, the China mirage where the GDP statistics are for “reference purposes only” and about later this year when Greece will also “roundtrip” its way to a 3 percent GDP growth mirage.

http://rt.com/shows/keiser-report/episo ... eiser-478/

Neshant · Post by **Neshant** » 03 Feb 2014 15:38

Theo_Fidel wrote:Neshant,

A little inflation is necessary to most economies.

Necessary for what/who?

panduranghari · Post by **panduranghari** » 03 Feb 2014 15:50

Inflation is 'Necessary' for the governments to keep deficits and then to steal without people noticing the theft. Make promises and then get elected and then keep the cycle going. And we know what long term socialism leads to!
People imagine this is how it will be

but it is actually this way

Suraj · Post by **Suraj** » 03 Feb 2014 20:50

The problem with a dogmatic view of inflation and deflation is that it brings in emotions into the picture on one side alone. A central bank has to deal with managing deflation - which destroys economic activity - as well as inflation - which destroys the value of inactive capital. They usually go the way of managed inflation because the holders have ways to stay ahead of inflation, but by investing in riskier assets. Deflation management has no easy mechanism. It's easier policywise to manage inflation than to manage deflation; the latter runs the risk of a catastrophic deflationary spiral, or a breakdown in monetary policy due to a ZIRP regime. On the other hand, inflation management has more hands on monetary control. What it lacks is the ability to control where the inflation occurs and when. That's not to say that inflation management cannot spiral out of control. It definitely can. However central banks have more experience managing an inflationary regime than a deflationary one.

Theo_Fidel · Post by **Theo_Fidel** » 03 Feb 2014 21:40

Neshant,

For economies trying to grow and increase productive activity.

For those who are already wealthy and are only focused on wealth preservation, things like gold make sense.

For the rest of us who depend on economic expansion for wealth accumulation, some inflation helps the economy grow and invest.

RoyG · Post by **RoyG** » 04 Feb 2014 09:18

Theo_Fidel wrote:Neshant,

For economies trying to grow and increase productive activity.

For those who are already wealthy and are only focused on wealth preservation, things like gold make sense.

For the rest of us who depend on economic expansion for wealth accumulation, some inflation helps the economy grow and invest.

How?

Neshant · Post by **Neshant** » 04 Feb 2014 11:56

The vast majority of the poor and middle class (which end up as the working poor) are typically destroyed through inflation.

The second problem with inflating is that its used as a means to transfer the gambling losses of those who sit atop the money pyramid to the masses below. The ones doing the printing have an agenda that benefits their buddies, and not society. It changes capitalism into cronyism and worse yet promotes corruption of the political system to keep the racket going.

Third, if printing money is good, why don't we all get to do it. Would I not be stimulating the economy if I fired up my laser printer and started producing 100 bills for my family & friends. Why is it illegal for me but legal for the politically connected and wealthy to use the print button to their advantage.

panduranghari · Post by **panduranghari** » 05 Feb 2014 15:32

Suraj wrote: They usually go the way of managed inflation because the holders have ways to stay ahead of inflation, but by investing in riskier assets. .

Yes thats true saar. But a big BUT. People inherently are savers. Not investors or gamblers. Why should someone like say my mother or your grand mother be constantly chasing a return when they have other more pressing issues? The game being rigged as it is has made the ordinary folks into what they do not want to be.

If and when I retire, why should I be chasing a return on my money to stay ahead of inflation? The problem has been recognised for centuries only thing different this time around is the experiment has lasted for more than 40 years which is usually the life span of a currency system.

There are people who have surplus capital to put to whatever use. But that group surely does not include me who just works for a living. Perhaps there are many like me on this forum too. But the need to ensure the inflation does not erode what you have earned, you have to chase a mirage where returns are nothing but nominal. The real term returns will never be seen by the sheeple. The TBTF will always win in this as they are the ones making the policy.

Suraj · Post by **Suraj** » 05 Feb 2014 22:11

panduranghari wrote:Yes thats true saar. But a big BUT. People inherently are savers. Not investors or gamblers. Why should someone like say my mother or your grand mother be constantly chasing a return when they have other more pressing issues? The game being rigged as it is has made the ordinary folks into what they do not want to be.

There's no 'but' involved here. You're talking about the individual's imperative. I'm talking about the central bank's imperative. Inflation will progressively erode one's purchasing power. Everyone knows that - even the illiterate. But it happens by stealth, and the human psyche is that people tolerate a slow loss longer than a sudden change to their circumstances.

The latter is what would happen in a deflationary spiral, because business activity would rapidly contract, throwing society out of order. Few deflationary spirals have been managed or extended over a long time, with the notable exception of Japan, which still faced a lot of economic and social pressures over a 2-decade period anyway. Thanks to Volcker, central banks at least have a copybook on how to handle an inflationary spiral. They don't have one for a deflationary spiral. So they'll by default pick managed inflation - it's the more stable socio-economic option.

TSJones · Post by **TSJones** » 05 Feb 2014 22:25

I don't know what the mission of India's reserve bank is, but the US Federal Reserve Bank the mission is basically two fold:

1. Preserve and maintain the integrity of the US commercial banking system.

2. To promote the employment of the residents of the US.

That, by its very definition is to fight deflation w/o crushing the currency's valuation with inflation. That is a very tricky proposition.

Suraj · Post by **Suraj** » 05 Feb 2014 22:32

I don't think there's any debate on what the mission of the RBI, or for that matter any central bank, is. They're all doing exactly the same thing, with various measures of success under different circumstances. All that's different is the number of options available in the arsenal, or the extent to which the government can compel the central bank to focus on nominal growth over inflation targeting.

For example, for currency exchange rate management through stabilization, central banks use sterilization bonds. This can either be issued by the finance ministry / treasury dept, or by the central bank itself, or both. The US and India, as far as I know, require such bonds to be issued by the finance ministry / treasury dept, who's the sole authorized entity. Of course, the US really doesn't need to issue them because it holds the reserve currency. PBoC in China on the other hand, has (limited ?) authority to issue sterilization bonds independently of their ministry of finance, since exchange rate stability is a central theme of their economic policy framework.

Theo_Fidel · Post by **Theo_Fidel** » 06 Feb 2014 04:05

Neshant,

I don’t necessarily disagree with points 2 & 3. Maybe by becoming aware the system can be changed to stop this. But at moment all the economic success stories in India are some form for capitalistic cronyism. This includes the Delhi, TN, MH, GJ, KA & HY’s of India amongst others. All are crony capitalists with their own favorites and high level favors and ‘special access’. Historically these crony types can be put to work and then turned into global successes too. Samsung was once a crony SoKo Chaebol after all….
----------------------------------------

But let me take point 1 which the most critical one. That inflation burns the poor the most. I'm conflicted on this one. First the poor have no cash savings at all. Most are deep in debt IME. For most poor inflation could actually reduce the debt burden, of course this debt always comes with usurious rates of 20%-30% PM or annual. What the poor really want is plentiful jobs and a wage rate that stays ahead of inflation. This can only happen if economic activity is constantly accelerating.

My own view is that as a deeply resource starved nation, relative to population, trying to grow out our industry, growth should take first priority to inflation fighting even. We don't gain anything by starving our corporates/businesses of low cost capital. Which in essence is the only thing the RBI set interest rate does. We have tried clamping on the brakes hard and harder and it has had almost no effect on inflation. Our companies must have access to 5% type capital. If we have to print money to make this possible, maybe the trade is worth it, to some extent. Right now we have low growth and high inflation. Stagflation. The bad step child of high growth high inflation SoKo style. 'Groflation' if you will.

chola · Post by **chola** » 06 Feb 2014 04:43

Theoji is absolutely right. Some inflation is a must for any growing economy. Remember, demand drives growth. When there is demand, you always need to pay more because there are more people looking for the same resources. Also, you want government to print more more paper to sop up this demand so work is actually done. For example, you're a farmer who needs a new shed built. But without a money supply, you'd need to wait for crop to grow, harvested, etc. so you can barter that for work. But if you can get a loan then you can build against that future crop.

It is the job of government to provide paper for that loan so that house gets built. Of course printing money will create inflation and if there are many farmers building new sheds then demand for the material will create inflation as well.

Of course, it would be paradise to have no inflation with an inflating money supply to do work! But it is nearly impossible to create that kind of perfect union. It is simply too hard to do though that is the job of the US Fed (and most of other national banks.) Create growth (for jobs) while at the same time tamping down inflation. These are two diametrically opposed mandates.

Traditionally, fighting inflation was the far more powerful mandate until very recently when growth became all important. Because historically, inflation is a destroyer of nations while recessions or even depressions are merely painful.

So a mature economy which is already built up can spend far more time lowering inflation, Young nations, especially India and even the US, want to grow so the balance for the RBI should be geared more towards allowing a higher level of inflation.

svinayak · Post by **svinayak** » 06 Feb 2014 06:12

Inflation with crony capitalism will not work.
With a large poor population this method should be not be the best option

Christopher Sidor · Post by **Christopher Sidor** » 06 Feb 2014 14:11

GPIF’s $709 Billion Bonds a Lost Opportunity, Utsumi Says --- Bloomberg Dated 6-Feb-2014

GPIF = Government Pension Investment Fund, Japan.
Total Japan's Debt = 1000 trillion Yen (Year 2013).
Total GPIF Portfolio = 124 trillion Yen
GPIF's investment in Japans bonds = 69 trillion Yen (approx, 56% of total GPIF's Portfolio)

There are two entities who can buy a sovereign issued bonds especially when the sovereign is on a bond printing speer.
1) The Central banker of the sovereign, like US Fed, India's RBI or PRC's PBoC
2) 3rd party semi-independent financial institutions like GPIF or LIC in case of India.

In case of Japan the bonds issued by Japanese Sovereign have been bought in significant quantities by GPIF. In case of Central banker , the money can theoretically held till eternity or like US Fed has to invest the proceeds/interest earned on US Treasuries back into US Treasury. In case of 3rd party the bonds have to redeemed and money returned to the investors. In case of GPIF it will be the pensioners. The problem is that current sovereign of Japan has an inflation target of 2%.

With 2% inflation, if an entity's (i.e. GPIF) has over 56% of assets in low yielding bonds, it creates problems. Especially if the money is being paid to people drawing pension. They will not get paid sufficiently to beat inflation. Now Japan's population is declining and graying. With the graying part being more rapid. So GPIF will have to pay bulk of its money out in the next few years and decades. This has to be coupled with the fact that the Japanese have a high life expectancy.

Neshant · Post by **Neshant** » 07 Feb 2014 09:03

Theoji is absolutely right. Some inflation is a must for any growing economy. Remember, demand drives growth. When there is demand, you always need to pay more because there are more people looking for the same resources. Also, you want government to print more more paper to sop up this demand so work is actually done.

All that is textbook nonsense from bankers who profit from their monopoly over the printing press.

The US went through an entire century with zero inflation and clocked some of the fastest real growth. The vast majority of things should be falling in price due to advances in production and economy of scale. If certain things are rising in price, it should be due to market demand only, not due to some pretend "wise man" central banker sitting up top printing money aka stealing wealth from society supposedly to benefit society. An absurd circular logic.

Inevitably the power to print money causes corruption & delusions among those "wise men" ordained to have a finger on the print button. They start to believe they have some greater insight into the market than others and are entitled to steal and re-distribute wealth as if they are some all knowing oracle. That is until its revealed (as was the case with Bernanke) that he's just a clueless individual with no more insight than anyone else about what's in a bubble and what isn't.

The corruption aspect is the re-distributing wealth from the poor and middle class to a narrow politically connected bunch of private banking crooks up top under the guise of "stimulating" the economy or "monetary policy" or some other fancy name. Its just cronyism.

It is the job of government to provide paper

Says who?

The free market should be the one to decide the type of monetary system that should exist, not bureaucrats nor bankers. The people who EARN the wealth should decide what they want as a store of wealth and a means of transaction. That is capitalism where the market selects the money. Anything else is cronyism no matter how much the "wise man" professes his ability to foresee the future or for that matter represent the interests of the people instead of his cronies.

Suraj · Post by **Suraj** » 07 Feb 2014 11:59

In which century did the US have zero inflation ? Not the last one, for sure.
Historical US inflation

The 'free market' as a reference to a national, or even a subnational economy - not some minor trade in a single commodity or basket of things - is a rhetorical construct. It exists nowhere at all. Not in oil, where you have OPEC. Not in gold, where central banks hold gold and distort prices.

chanakyaa · Post by **chanakyaa** » 09 Feb 2014 07:19

http://www.forbes.com/sites/steveschaef ... n-in-2014/

Why Panic-Prone Emerging Markets Are Breaking Down In 2014

It wasn’t too long ago that emerging markets were seen as the saviors of the global economy. In 2009, when advanced economies’ gross domestic product (GDP) fell 3.43 percent, emerging market economies grew 3.1 percent. Capital poured in – from investors looking for the only place they could actually grow their money to multinational corporations investing directly in facilities and equipment.

But investors don’t invest in emerging markets like they do in developed markets. Capital rushes in when the economy is hot; when the economy cools, investors dump their local currency holdings. That leaves piles of devalued local currency which the central bank is hard-pressed to prop up. (In developed markets like the U.S., United Kingdom, Japan, in contrast, investors are more willing to hold on to the currency.)....

These arguments generally seem very intuitive. What amazes me is that debt ridden economies of the west (and Japan) print their way out of recession keep interest rate artificially low, and also benefit as they start winding down money printing. As in last couple of weeks, the Fed taper action strengthened currencies and lowered rates for debt ridden economies of the west. Looks like they benefit regardless, with respect to EM, whether they print money or not. Sometimes I wonder if this phenomenon is even possible in isolation, without geopolitical interventions.

Neshant · Post by **Neshant** » 09 Feb 2014 08:13

Suraj wrote:In which century did the US have zero inflation ?

..and keep in mind the CPI has been watered down time & again by the Federal Reserve aka private banking cartel to understate their theft. In reality, the graph is even steeper.

Suraj wrote:The 'free market' as a reference to a national, or even a subnational econ

A free market is one in which those who EARN the wealth select the medium of exchange in their best interest. This is unlike the present fiat money system where banking goons enter into an alliance with govt (which has a monopoly on the "legal" use of violence) to force productive society to use their toilet paper.

In a free market, it matters not who is trying to manipulate prices. This is because those trying to manipulate prices cannot compel the extortion of wealth from the productive class through violence.

The only entity in society which has a "legalized" claim on the use of violence is govt. It can confiscate (tax) and imprison individuals if they refuse to pay taxes with the toilet paper issued by private banks. This ensures society's enslavement to private banks. This is whole reason private bank cartels aim to enter into partnership with govt (e.g. Federal Reserve) to enforce their agenda.

Any economy where people are free to choose their medium of wealth storage in the absence of violence will see the demise of worthless paper money.

Suraj · Post by **Suraj** » 09 Feb 2014 09:43

^^ That graph does not show anything regarding zero inflation. Further, you should post the corresponding per-capita GDP figure, which was just as flat during the entire 1800s. See

. Per capita income went from ~$1000 in 1800 (in fixed 2004 dollars, i.e. real income, not nominal) to $4000 in 1900. A quadrupling of income in 100 years corresponds to a real per capita income growth rate of 1.4% . That is not an example of what one can call

and clocked some of the fastest real growth

Here's what was probably the fastest real income growth ever seen over a sustained period, in Japan (note that the graph is logarithmic, so the curve is much steeper):

Even the 1800s inflation data is questionable, because the US did not track economic statistics with the kind of rigor it does today, until the Great Depression.

Neshant wrote:A free market is one in which those who EARN the wealth select the medium of exchange in their best interest.

I said something else besides requesting a definition - that it doesn't exist anywhere at all, except in a very very narrow context for the limited exchange of one or more goods or services. In fact I would argue that it has never existed in any formal economy.

Neshant · Post by **Neshant** » 09 Feb 2014 11:20

Suraj wrote:^^ That graph does not show anything regarding zero inflation.

That graph shows exactly what zero inflation is.

Further, you should post the corresponding per-capita GDP figure, which was just as flat during the entire 1800s.

Now lets see what the per-capita debt looks like. Could it be the exact same graph? Also lets strip out the ponzi scheme accounting where 100:1 leverage is used to goose the GDP numbers. Finally, lets ask - is this debt going to be repaid and if not, who eats the massive loss.

Per capita income went from ~$1000 in 1800 (in fixed 2004 dollars, i.e. real income, not nominal) to $4000 in 1900. A quadrupling of income in 100 years corresponds to a real per capita income growth rate of 1.4%.

On a pure post 1971 fiat standard, the per capita income is falling, not rising. A person is in per capita terms worse off today than a person in 1971 which was when the fiat standard began in earnest. Once his share of the enormous debt is factored in (which surely won't be paid) and the real rate of inflation is used, he is even more worse off. Now ask why does the graph continue to show a line that keeps going up. All that graph is doing is showing bogus accounting.

No longer does the income of one man working a blue collar job with minimal education (i.e. no student debt) sustain a family as it did in the 50s. Why is that so if standards of living aka per capita income is rising?

That is not an example of what one can call clocked some of the fastest real growth

The period of 1800s to 1914 was indeed the fastest REAL growth the US ever experienced.

Even the 1800s inflation data is questionable, because the US did not track economic statistics with the kind of rigor it does today

You must be kidding. How is it with all this rigor Bernanke did not see what will surely turn out to be the largest financial bubble in history while sitting atop it in 2006? In fact there are video clips of him even claiming there was no bubble. He could be forgiven for not seeing a couple of billion or two that got vaporized. But this guy almost oversaw the entire liquidation of the financial system and with it the GDP per capita leveraged pyramid scheme he's *still* trying to keep upright with more debt. Exactly what criteria is supposed to signal that trillions of debt is not going to be repaid in whatever financial model is in vogue?

Secondly, if this is all so kosher, why is so much deception used to sell it. More than anything else, its the power & the authority that gravitates into the hands of a club of "wise men" sitting at the top that bothers me.

I said something else besides requesting a definition - that it doesn't exist anywhere at all.

It exists anywhere people have the right to choose the means in which they store & transact their wealth without coercion. It existed in parts of the US excluding the 3 times (including the present)when private banks created a central bank to suck wealth their way. It existed in India which made it a magnet for thieves seeking the riches of the East.