Perspectives on the global economic meltdown

ramana · Post by **ramana** » 08 Mar 2009 05:09

Need a run on Swiss banks.

Singha · Post by **Singha** » 08 Mar 2009 09:44

ejatly.

Does Moody's know this?

they know all this, but will do what they are told to do. same for fitch and S&P. they are
little different than NDTV or Foxnews.

Singha · Post by **Singha** » 08 Mar 2009 09:49

the tent bashis over there seem to have microfiber clothes, coleman tents, bottled water and puma sneakers still. dunno about toilets but the govt must have provided some portable johns and combat showers as a courtesy. police are there to maintain law. its a lot better than a typical desi slum.

need to watch for people losing all that flab and getting lean on the bone, and that warm
plate of potato wedges growing smaller and replaced by a bread and boiled egg.

geeth · Post by **geeth** » 08 Mar 2009 10:33

Guys, one of friends have this query..

He has a fixed deposit of about 4000 UK pounds. He bought it at about 2$/pound. about a third is lost already..should he convert to some other currency or stick on...or buy something else..?

TIA for any suggestions

vsudhir · Post by **vsudhir** » 08 Mar 2009 16:57

Jobs scene in massaland is dire, seems like.

Ohio school gets 700 applicants for janitorial job.

MASSILON, Ohio - Evidence of the slumping economy is stacking up at an Ohio school which has nearly 700 applications for one open janitorial job. Officials at Perry Local Schools near Canton in northeast Ohio say they've extended the deadline until Monday to accommodate the overwhelming response to the week-old posting.

The full-time position at Edison Junior High School pays $15 to $16 an hour plus benefits. Superintendent John Richard says many applicants are laid-off workers with heart-wrenching stories about the tough economic times.

, More than 800 show up for one Water Meter Reader Job.

More than 800 people showed up to take a test for a job as a Tacoma, Wash., water meter reader. One job.

Tacoma Public Utilities spokeswoman Sonja Hall says 1,400 applications were received when the position was advertised. Typically the utility receives about 300 to 400 applications for such a job. About 1,300 of the hopefuls were invited to take an 88-question test.

On Wednesday, some 807 showed up. The job pays $17.76 to $23.56 per hour.

Wow. Moi did a part-time internship in some had number crunchy data anlaytics position in the pvt sector that paid $18 an hour in 2007. $23 an hou with benefits aint bad at all.

1,200 apply for 40 jobs to clear unemployment backlog.

Singha · Post by **Singha** » 08 Mar 2009 20:47

man its tougher than getting through in JEE!

vsudhir · Post by **vsudhir** » 08 Mar 2009 21:00

Hammer blow: Many pensioers will fall below the £151 a week poverty line

As many as half a million pensioners have been plunged into poverty by savage interest rate cuts, it was claimed last night. The country's 8.5m pensioners with savings have lost massively through the base rate collapsing from 5% in October to 0.5% yesterday.
Many of them rely on the income from their savings accounts for their day-to-day survival.

Last night, the country's biggest pensioner group warned that yesterday's cut would push a further 50,000 older people below the poverty line - bringing the total in the past six months to an estimated 500,000

Long live the Mervyn king, I guess.

vsudhir · Post by **vsudhir** » 08 Mar 2009 21:01

Hajaar funny comment happened...

"Bernanke: Fed will use all tools at its disposal"

"Tool" is "loot" spelled backward. And tools is stool more appropriately rearranged.

ramana · Post by **ramana** » 08 Mar 2009 21:59

You know guys w have a lot of articles posted here but no quick look summary of countries or regions. Can some one take the time to summarize UK, EU and Eastern Europe in that order?

Thanks, ramana

Singha · Post by **Singha** » 08 Mar 2009 22:09

the biggest looter of all time - the english royal family has vast holdings of precious artifacts, liquid cash and landed property both commercial and urban. in this time of danger the royals should step in to help the subjects and sell most of their land to the market to raise cash for a food stamp pgm for the poor. they can also downsize on the numerous palaces and country homes and privy purses.
prince charles could take a real job! - he's reached retirement age without ever holding down a real job like the avg guy on the street. atleast he can donate some of his organic farms produce to the local paki needies.

its a time to gather together under strong british values and ladle out the soup and sympathy to those most needy.

pakistan is imloding and UK should immediately grant special residency visas to 250,000
mirpuris to help their ally in war on terror

Raghav K · Post by **Raghav K** » 08 Mar 2009 22:17

More D&G.

Morgan Stanley predicts economic collapse worse than depression.

Morgan Stanley’s UK equity strategist Graham Secker painted a bleak economic picture for the United Kingdom. In his morning forecast, Mr. Secker warned that UK profits could fall by 60% in the current downturn - a worse performance than the great depression of the 1930s.

“We now forecast UK profits [will] fall by 60% across 2008 and 2009. While this sounds a rather draconian and hyperbolic downgrade, we believe it is realistic and incorporates the big losses that have come to light in the banking sector as well as a sharp drop in commodity prices (oil was $100 last September).

“Our forecasts assume that the banks sector makes around a £20bn loss in 2008 and 2009 and that the insurance sector makes no profit in 2008. The profile is much less severe if we strip out the banks – for example, our model suggests profits for the market ex-financials will fall 24% in 2009 post 15% growth in 2008.

“At this point we are also officially introducing a top-down 2010 earnings per share and dividends per share growth forecast of 0%. While this could be perceived as “fence-sitting”, we think it accurately reflects both our uncertainties about the future and an underlying bias not to want to invest in assets based on the expectation of any economic or profit growth next year.

“If our expectation of a 60% peak-to-trough decline in UK profits is correct, this would mark an even worse outcome than that seen in the early 1930s when our data suggests profits fell by around 57%. However we do not consider this forecast unreasonable – prior to this downturn, we saw the biggest 5-year increase in corporate profits in the history of our data and hence it is not unreasonable to also expect the biggest bust.

“As bad as a 60% fall in profits is, it would have been even worse were it not for a big foreign exchange benefit. In the last six months US dollar/pound has fallen from 1.8 to 1.45 and, given the prevalence of US dollar reporters in the UK, this has boosted UK market earnings by around £10bn. On a ‘constant currency basis’ 2009 earnings would be nearly 10% lower than we currently forecast and hence our peak-to-trough drop would be approaching 70%. The most obvious example of this can be found in the energy sector where profits are set to fall 70% in US dollar terms on our analysts’ forecast (oil price averages $35 this year), yet by just 50% in sterling terms.

“The sustained weakness in equity markets in recent months suggests that traditional equity valuations are rather irrelevant at the current time. In the second half of last year, this was partly due to the over-riding dominance of investor de-leveraging, in our view. In more recent times, however, we suspect that the irrelevance of valuations owes more to a complete lack of investor confidence in the correct level of earnings, dividends and even book value.”

You certainly can not accuse Mr. Secker of being early as UK stocks have already dropped 65% from their peak.

http://www.chartingstocks.net/2009/03/m ... epression/

KarthikSan · Post by **KarthikSan** » 08 Mar 2009 23:11

If that little POS island is going to go down they will at the least make a sincere attempt to take the whole world down with them. What are the chances our stiff upper lipped friends are going to engineer another war?

Singha · Post by **Singha** » 08 Mar 2009 23:16

there's nobody to fight unless they want to wage war on pakisatan. not even their baap has the gonads for that. beating up on someone like chad , mali or niger gains them nothing to save The City's troubles. its a internal problem and war cannot help create jobs unless its a WW2 type multi year effort that opens up vast new armament factories and expansion of the army.

they will go for the other strategy- run everyone down using media and ratings agencies, engineer worse financial and political crises in other hotspots of investment and project themselves as relatively a better bet to keep your money until the storm blows over.

then it will be back to business as usual with $700 bottles of wine for team luncheons.

vsudhir · Post by **vsudhir** » 09 Mar 2009 01:26

Meanwhile more death-wish fulfillment and revenge fantasia on open display in Ukstan...

Labor stakes its reputation on second gamble

The tactics, however, betray a nervousness in Labour circles that the public will simply not understand why there is a second tranche of help going to Britain's bankers, who have already received billions of pounds of loans, guarantees and capital. There is also a worry that Brown's inadvertent title as saviour of the world might be slipping.

Privately, something close to desperation is starting to develop inside government. After watching the slide in bank shares on Friday, one cabinet minister did not altogether joke when he said: "The banks are fcuked, we're fcuked, the country's fcuked."

Speaking at a Fabian Society gathering at the weekend, Lord Mandelson was typically and disarmingly frank. "I'm not going to say to you I think we've now at least reached a set of measures and actions that almost for sure are going to work."

You gotta give 'em spunk, if nothing.

ramana · Post by **ramana** » 09 Mar 2009 01:36

About Bank of England printing more money, a friend with Finance Phd from Stanford said in short term wont be inflationary as there is no money circulating. It will in long run bit not in the short term.
So watch the feds pull similar stunt.

Najunamar · Post by **Najunamar** » 09 Mar 2009 02:22

So, if inflation is on the cards, what is the normal Abdul/Ayesha to do? Go out and buy Gold/Silver? How can we protect what little value is left in the a$$ets in our possession? Any comments/gyaan from the Gurus?

John Snow · Post by **John Snow** » 09 Mar 2009 03:22

Effects of this money pumping/printing I had addressed about few pages and and few weeks backs in which I talked about long run and short run implications.

added later
Nanja Kumar keep your powder dry, the inflation will strike two to three years down the lane, but can be with in 1 to 2 yrs also depending upon how quick the money hits the street.

The best anology is it is is raining in th e wester ghats (monsoon) (the Feds and BE printing money and pouring into banks) once the water soaks the perched ghats (the books of banks being corrected and fixed) the banks will invite borrowers remember a cash in bank is a libility, it needs to replaced with IOU documents (good ones) on assets side, so once the waters reach the plains of Maharashtra AP Karnataka and TN for example, (ie money starts into consumers with jobs) and they spend the inflation will catch up.

Generally there is a lag between events in macro economics, so I see a wait of 12 to 24 months very optimistically for inflation to sart (also once markets know the money is pumping in anticpation inflation the prices may correct upwards wrt to money some what like anticipatory bail against a crime you are planning to commit

vsudhir · Post by **vsudhir** » 09 Mar 2009 04:59

ramana wrote:You know guys w have a lot of articles posted here but no quick look summary of countries or regions. Can some one take the time to summarize UK, EU and Eastern Europe in that order?

Thanks, ramana

Will try to find articles that summarize and excerpt relevant portions with (value-)added commentary. Would be easier than trying to write from first principles.

And yup, would have to recuse myself from summarizing the UK's shiny prospects due to emotional involvement with the subject onlee....

sanjaykumar · Post by **sanjaykumar** » 09 Mar 2009 06:42

About Bank of England printing more money, a friend with Finance Phd from Stanford said in short term wont be inflationary as there is no money circulating. It will in long run bit not in the short term.

Well you got us trumped there fella-we ain't got no friends with Stanford PhDs.

ramana · Post by **ramana** » 09 Mar 2009 06:44

No the poor abdul is looking for work!

JwalaMukhi · Post by **JwalaMukhi** » 09 Mar 2009 06:44

vsudhir wrote: Will try to find articles that summarize and excerpt relevant portions with (value-)added commentary. Would be easier than trying to write from first principles.

And yup, would have to recuse myself from summarizing the UK's shiny prospects due to emotional involvement with the subject onlee....

No no Sudhir garu, please do not constrain artificial shackles and gag on your thought process. Could be unpalatable to some, but that is also learning process for all the deeply concerned to take it in stride, absolutely when there is no un-civility involved. Your ideas are worth reading.

vsudhir · Post by **vsudhir** » 09 Mar 2009 06:54

Risks from a bustup in Europe

From the conomist rag.

Summarizes well (qualitatively, no hard numbers bandied) the genesis of the crisis in central and eastern europe and its spillover effects into western europe.

Yet if a country such as Hungary or one of the Baltic three went under, west Europeans would be among the first to suffer (see article). Banks from Austria, Italy and Sweden, which have invested and lent heavily in eastern Europe, would see catastrophic losses if the value of their assets shrivelled. The strain of default, combined with atavistic protectionist instincts coming to the fore all over Europe, could easily unravel the EU’s proudest achievement, its single market.

It would destabilise the euro—for some euro members, such as Ireland and Greece, are not in much better shape than eastern Europe. And it would spell doom for any chance of further enlarging the EU, raising new doubts about the future prospects of the western Balkans, Turkey and several countries from the former Soviet Union.

Well, yup. Could one say the reckless expansion of NATO, of carrot-dangling EU membership before all and sundry, of the dangerous Kosovo experiment in carving up existing state boundaries etc, was imperial overreach? Or is it too early still to call a spade a spade?

The political consequences of letting eastern Europe go could be graver still. One of Europe’s greatest feats in the past 20 years was peacefully to reunify the continent after the end of the Soviet empire. Russia is itself in serious economic trouble, but its leaders remain keen to exploit any chance to reassert their influence in the region. Moreover, if the people of eastern Europe felt they had been cut adrift by western Europe, they could fall for populists or nationalists of a kind who have come to power far too often in Europe’s history.

And likely will again. History may not repeat, but it sure has a tendency to rhyme.

But as their currencies slide, the big vulnerability for the Poles, Hungarians and Romanians, especially, arises from the debt taken on by firms and households in foreign currency, mainly from foreign-owned banks. What once seemed a canny convergence play now looks like a barmy risk, for both the borrowers and the banks, chiefly Italian and Austrian, that lent to them.

And the austrians are supremely confident the germans will *have to* bail them out just like TSP *knows* its anglosuxon sponsors will sorta have to bail them out as well.

Bailing out the same mythical Polish plumbers who just stole everybody’s jobs will be hard for Europe’s leaders to sell on the doorsteps of Berlin, Bradford and Bordeaux, especially with the xenophobic right in full cry. German taxpayers are already worried that others are after their hard-earned cash (see article). {And rightly so, IMHO}. The bill will indeed be huge, but in truth western Europe cannot afford not to pay it. {Question is, what if Western Eurostan cannot afford to pay it owing to mundane solvency issues, eh? Won't it depend on how big the bill really is, eh?}. The meltdown of any EU country in the region, let alone the break-up of the euro or the single market, would be catastrophic for all of Europe; and on this issue there is little prospect of much help from America, China or elsewhere. {you got that one right.}

ramana · Post by **ramana** » 09 Mar 2009 07:26

Vsudhir, Shyam Saran gave a very good speech which I highlighted in the Challenges thread. Take a look. He is thinking on our lines.

Singha · Post by **Singha** » 09 Mar 2009 08:36

isnt greece having a budget deficit of 90% of GDP?

Singha · Post by **Singha** » 09 Mar 2009 09:53

the plan has been set in motion...chipanda has no option - buy T bills or face howling million man mobs in beijing. container port traffic in china declined 17% in Feb YoY.
this time there is no lunar new year to blame.

NYT

A Rising Dollar Lifts the U.S. but Adds to the Crisis Abroad

By PETER S. GOODMAN
Published: March 8, 2009

As the world is seized with anxiety in the face of a spreading financial crisis, the one place having a considerably easier time attracting money is, perversely enough, the same place that started much of the trouble: the United States.

American investors are ditching foreign ventures and bringing their dollars home, entrusting them to the supposed bedrock safety of United States government bonds. And China continues to buy staggering quantities of American debt.

These actions are lifting the value of the dollar and providing the Obama administration with a crucial infusion of financing as it directs trillions of dollars toward rescuing banks and stimulating the economy, enabling the government to pay for these efforts without lifting interest rates.

And yet in a global economy crippled by a lack of confidence and capital, with lending and investment mechanisms dysfunctional from Milan to Manila, the tilt of money toward the United States appears to be exacerbating the crisis elsewhere.

The pursuit of capital suddenly seems like a zero sum game. A dollar invested by foreign central banks and investors in American government bonds is a dollar that is not available to Eastern European countries desperately seeking to refinance debt. It is a dollar that cannot reach Africa, where many countries are struggling with the loss of aid and foreign investment.

“Virtually all of the low-income countries are in very serious trouble,” said Eswar Prasad, a former official at the International Monetary Fund and a senior fellow at the Brookings Institution, the liberal-leaning research organization in Washington.

He went on: “This is the third wave of the financial crisis. Low-income countries are getting hit very hard. The flow of private capital to the emerging market has dried up.”

Private money invested in so-called emerging countries plunged from $928 billion in 2007 to $466 billion last year and is likely to fall to $165 billion this year, according to the Institute of International Finance.

Not that the United States is enjoying a great influx of money. Globally, investors are holding tight to cash and extracting it as quickly as they can from risky ventures.

In the United States, investments by foreigners have slowed markedly. But as Americans eschew foreign deals and keep their dollars at home, and as foreign central banks — especially China — buy Treasury bills, the United States is absorbing money that used to be scattered around the globe. And that is making money tighter elsewhere in the world.

The most immediate crisis appears to be in Eastern Europe, where investors borrowed exuberantly in foreign currencies — notably the euro and the Swiss franc — using those funds to build office towers and factories. Their debts are growing as their currencies decline in value, leading to bank losses and requiring government bailouts along with aid from the I.M.F..

Economists liken this episode to the financial crisis that assaulted much of Asia in the late 1990s. Then, as now, investors borrowed in foreign currencies. When investment left the region, local currencies plummeted, particularly in Thailand and Indonesia, setting off defaults and sowing job losses and poverty.

“Eastern Europe looks incredibly similar to Asia in the 1990s,” said Brad Setser, an economist at the Council on Foreign Relations in New York.

In one key regard, this crisis is more problematic: In the 1990s, the rest of the global economy was growing vigorously. Once danger abated, Asian countries were able to resume growth by selling goods to the United States, Europe, Japan and China.

Indeed, the very plunge in currencies that precipitated the crisis also provided a fix, making Thai, Malaysian, Indonesian and Korean goods that much cheaper on world markets.

This time, as many low-income countries again see their currencies fall, they are confronting a world beset by recession, in which demand for their products is weak and falling.

In a report released Sunday, the World Bank predicted that the global economy would shrink in 2009 for the first time in more than half a century and forecast that global trade would decline for the first time since the early 1980s.

“Depreciation isn’t enough now to offset the global contraction,” said Mr. Setser, noting that export powers like Japan, Korea, Taiwan and Brazil have had rapid declines in sales in recent months. “Everybody’s looking vulnerable. All commodity exporters are potentially subject to currency crises.”

Fears are growing that a much broader group of countries will plunge into trouble. Mr. Prasad’s list of potential danger zones includes Vietnam, the Philippines, Malaysia and Indonesia, as well as Pakistan and Ecuador.

In the Asian financial crisis, countries at the center of the storm were particularly vulnerable because the values of their currencies were mostly pegged to the dollar. Once central banks ran out of dollars to exchange for their own currencies, they lost their ability to influence the exchange rate. As a result, their currencies fell, turning already large debts into impossible debts.

Many more countries now allow their currencies to float with the whims of the market, removing this grim chain of events. Still, as economic activity slows and banks are stuck with larger losses, the damage could swell beyond the ability of governments to finance bailouts, said Kenneth S. Rogoff, a former chief economist at the I.M.F. and now a professor at Harvard.

“Debt collapses are going to wreak havoc with exchange rates,” Mr. Rogoff predicted. “A lot of countries in Europe are already on the brink of default.”

Only two years ago, many analysts were suggesting that the I.M.F. — created more than 60 years ago to rescue countries in financial distress — no longer had a clear reason to exist. Now, the fund is scrambling for contributions from developed nations to bolster its $350 billion war chest. Mr. Setser suggested it needed $1 trillion for all that might yet unfold.

Because worries are deeper nearly everywhere else, the United States and the dollar have essentially benefited from the worldwide panic. In the last year, the dollar has risen 13 percent against major foreign currencies after adjusting for inflation, according to Federal Reserve data. Foreign holdings of Treasury bills rose by $456 billion in 2008.

“It’s a huge safe haven effect,” said William R. Cline, a senior fellow at the Peterson Institute for International Economics in Washington. “The basic assumption that people are making is that the U.S. government will never default on its debt.”

As the dominant flavor of money used in business worldwide, the dollar has once again been affirmed as the global reserve currency.

Only last year, some analysts said that as the American economy sagged, foreign central banks would be reluctant to sink national savings into the dollar. That has been soundly debunked.

In ordinary times, the rise of the dollar would provoke American worries that it would crimp exports by making goods more expensive on world markets. But for American policy makers, what matters now is attracting enough buyers of American debt to finance the rescue plans, and if the dollar must rise along the way, that is a cost worth paying.

“The fact that we can still borrow at lower interest rates is saving us from much more severe adjustments,” Mr. Rogoff said. “We’re really still staring down an abyss.”

Singha · Post by **Singha** » 09 Mar 2009 09:55

Amirkhan will survive using deft plans like these. but I do wonder how badly UK will get damaged....their economy has more paki-ish characteristics.

svinayak · Post by **svinayak** » 09 Mar 2009 10:28

ramana wrote:Vsudhir, Shyam Saran gave a very good speech which I highlighted in the Challenges thread. Take a look. He is thinking on our lines.

I posted this on 3rd march

Acharya wrote:
Anujan wrote:
The chinese chose the route of accumulating reserves and it has essentially become a "who blinks first" game. The amri-khans on the one hand can threaten that if the Chinese offload their dollar reserves, the dollar would tank and be useless for the chinese anyway. The Chinese can threaten that thats exactly what they would do and tank the American economy.
I will try to change your thinking. What if China and US are both in this game and will screw the rest of the world. They can create protectionist trade barrier from other countries and trade between themselves.

The dollar will not be allowed to tank since they will make sure that other currencies will tank and dollar will become the currency of stability. They will coerce and create wars to tank other currencies.

Singha · Post by **Singha** » 09 Mar 2009 10:35

very perceptive of you Acharyaji to see through the good cop-bad cop game being played out.

Ananth · Post by **Ananth** » 09 Mar 2009 12:08

Folks, reading about the Eastern europe's "unintended effects of the debt binging" especially in the foreign currency, and the attended risks that was brought in, I was wondering about the negative effects of the ECB (external commercial borrowings) by the Indian corporates during the growth years of 2005-2007. Tomorrow, lets say a company like Suzlon tanks due to the liabilities incurred during REpower aquisition. Most of that money was raised through ECB route. Obviously Suzlon's assets will be taken over by its creditors. Will GoI be liable to any extent or it is just a matter between two private entities? I am hoping that there are no implicit or explicit guarantees by GoI and that those creditors gave the loans by blindly following the advice of the unholy trinity of the triple morons: (S&P, Fitch, Moodys).

Secondly, anybody has any rough idea of the consolidated ECB liabilities by Indian private companies? What is the figure like? Is it something like 50BUSD?

Suraj · Post by **Suraj** » 09 Mar 2009 12:47

ECBs are done through the FCCB (foreign currency convertible bond) mechanism via RBI. These bonds trade at a premium or discount, depending on various factors. With a number of FCCBs currently trading at discounts, the RBI recently permitted companies to buy back their FCCBs using Rupees based on certain circumstances, meaning RBI manages the foreign currency risk. Outstanding ECBs amount to just under 2% of GDP, or about $20-25 billion, very easy for RBI to pay out of its $250-255 billion reserves.

John Snow · Post by **John Snow** » 09 Mar 2009 13:06

I had mentioned way back that dollar will be allowed to appriciate rlative to other currencies in other words the world at large will especially developing countries for them to continue to export and feed the is economy to consult disproportiantely

joshvajohn · Post by **joshvajohn** » 09 Mar 2009 13:43

To recover the global economy we need trust of the people in buying shares. To get trust we cannot run self-regulated rumour based unethical rules for companies rather we need a reasonably ethical, semi-regulated and non-romour based companies which would claim to be trust worthy and labour supportive. Such initiatives would certainly help people to trust the companies and invest in them. When such companies increase in numbers - small or big with investment on infrastructure and other basic things then the global economy has a chance to grow.

vsudhir · Post by **vsudhir** » 09 Mar 2009 16:20

ramana wrote:Vsudhir, Shyam Saran gave a very good speech which I highlighted in the Challenges thread. Take a look. He is thinking on our lines.

O yes, I read that.

Astute thinking from Shri Saran.

The game is changing again as we speak. The US will now have to collaborate with its principal 'rival' of sorts to ward off a bigger threat (econ meltdown) to both these entities (shades of US and USSR colluding in defeating Nazi Germany, maybe?). Sadly, collusion between these two behemoths in a zero-sum environment can only come at the expense of the rest of the world.

But, but... the phenomena now at play are again transient - namely capital flight to a US safe haven simply because the sheer size of US bailouts will eventually put pay to even the current zero returns scenario. Every grand success carries within it the seeds of its own destruction. This cosy US-PRC tango arrangement is likewise at risk from actual or perceived USD inflation (w.r.t commodities, not likely w.r.t other currencies; but then commodities may not be a free mkt soon) will destroy value of USD investments and result in 'safe' losses for the same set of investments pouring in now.

Further, the pressure on western retirement systems (pension funds, primarily) to garner positive, nay high positive, returns will soon return to bladder-bursting levels we'd seen recently only. Pension funds investing in Hedge funds and madoff schemes was the result then. This time, it will be a gingerly venture back to where the growth is or can be - the non-islamic developing world. Other fund types in the west shall follow suit, IMHO.

Saran has been understandably general and perhaps the specifics are yet to be worked out but some indications as to the direction and desired goals already stand clarified:

-Buying up assets when cheap abroad (like they are now, though I see far more frenetic activity from PRC in this regard than from Dilli),
-developing domestic tech for alternative energy sources (Thorium cycle, where art thou?),
-getting our star export industries (IT primarily, but also I believe Pharma R&D) to focus on the domestic mkt (under favorable terms I believe; its no secret that access to the Indian mkt remains a potent weapon in GoI's hands and signs are GoI knows that),
- And a chankiyan move towards a MacArthur-Monroe combination under the South Asia Econ Relief program that will ultimately bring our strategic periphery (as brihaspati saar would call it) under the stabilizing hand of the INR.

GoI is not sitting idle. Better still, they are not hurtling down the wrong road. We are in sober hands, I trust.

vina · Post by **vina** » 09 Mar 2009 16:35

What hands? . There is no one at the wheel at Dilli. No 1 Mantri, the Poojya Pradhan Mantri is convalescing from a by pass surgery and is out of action and can just squeak and do nothing else.

No 2 Mantri : The Poojya Grih mantri. We had an absolute excuse for one until recently and he got replaced (after head stuck in the sand/Musharraf and H&D issue thingy all along to accept that they made a bad choice ) with another one , who got a "rousing welcome" in Gauhati and is in running fight with Karnataka on some absolutely venal issue /pissing contest of who is more important , him or the CM on protocol and who has the right to cancel meetings at last minute.

No 3 Mantri : - The Poojya Vitth Mantri : We actually dont have one. So we have No 4 mantri to do part time

No 4 Mantri : - Now No4 is jack of all trades and does everyone else's job except his own (he has no time for that you see). He plays No 1 , No 2 and No 3 as and when the occasion and Raj Mata demands it.

So you say "Govermund going on right path" . Where is the Govermund ? There is none. The damned thing is just hurtling down a straight line with no one at the wheel. If there is a curve, it is going to go off the cliff for sure.

vsudhir · Post by **vsudhir** » 09 Mar 2009 16:48

Vina saar,

Am referring to the thought processes not of the political GoI but of the bureaucratic one - India's 'permanent establishment' if we had one. Peace.

Plunging assets cost $50,000bn

Writing $50 trillion would've been easier, IMO. But maybe wise heads at FT think 50,000bn is more dramatic.

Falls in the value of financial assets worldwide might have reached more than $50,000bn, equivalent to a year’s global economic output, the Asian Development Bank will warn on Monday.

Asia has been hit disproportionately hard, the bank will say, in a report that warns of many Asian stimulus plans lagging behind those of the leading global economies.

Hmmm.

What part of this asset shrinkage is from PRC?

Western conomies suffer indigestion from excess debt whereas Asian ones don't quite. So same stimulus program can't be the remedy for both, or can it? Why worry about Asian stimulus lagging the western one then? Asian stimulus is needed to buy up excess export sector production or what? How sustainable is that into the medium term?

World is plagued by overcapacity, hence shrink will happen. World is also plagued by excess debt driven asset price inflation, so deflation will have to happen. Things are unwinding after being overwound, and govts trying to order the tide back don't help too much.

JMTs, of course.

Meanwhile,
Japanin record current account deficit

First shortfall since 1996. Export sector has all but collapsed.

Hedge funds turn to gold

Well, well. Can't go wrong with that one now, eh?

Singha · Post by **Singha** » 09 Mar 2009 17:04

govts come and go but the core thought processes of the senior bureaucrats in each ministry and their upcoming proteges do not change much. we already know how resilient the "south asia paradigm" is in SD/pentagon hues.
ministers are generally not experts in what they are given (except few isolated cases like
PC or MMS) and are given briefings and guidance by the reports....thoughts and worldviews
can be 'shaped' unless its a dogmatic communist type minister like karat sahib or yechury-ji.

thats the hallmark of institution building - you no longer need a charismatic genius like rommel or rokosowsky to get results, the plans and chain of command has to be in place...

most successful/prospering democratic nation states have put that in place.

Arya Sumantra · Post by **Arya Sumantra** » 09 Mar 2009 21:50

Singha wrote:“It’s a huge safe haven effect,” said William R. Cline, a senior fellow at the Peterson Institute for International Economics in Washington. “The basic assumption that people are making is that the U.S. government will never default on its debt.”

Because they would rather print money than default. They owe you a (real)dollar and they pay you a (nominal)dollar. Nothing more nothing less

.

Here’s my take:

The khan, UKstan and Euronion (Your-opinion union), all three, will try to print their way out of the problem.

Inflation
Inflation from printing would hurt uro backers more since being more protectionist they would not be able to export their inflation to the countries exporting to them.

Khan’s economy being open, the moment inflation takes the prices higher someone will export to khan and bring down the prices. Only property price inflation, if and when it happens, cannot be prevented.

UKstan will be either intermediate or worse off then Euronion.

Scenario:
Khan<UKstan<Euronion
or
Khan<Euronion<UKstan

Joblessness
The issue will be how they handle joblessness.
Khan's people have always lived in fear of layoff so they will have resilience. But since they have to control inflation through cheaper imports the jobless scene won’t improve atleast in the low and medium end manufacturing.

Euronion will see non-uniform joblessness that will be a true test of their cohesion. With much of the exports/manufacturing income coming from non-labour intensive premium goods industries, the goverments will have to distribute monthly government hand-outs to large part of population.

With incomes largely generated by financial services and defence manufacturing exports, UKstan will be largely soup-kitchen economy for large swathes of unemployed not employed by limited local manufacturing. Expect plenty of nationalization and reverse-thatcherism to create and save local jobs.

Joblessness Scenario
UKstan>Khan>Euronion

In the long run, expect lot of people with choppy resumes as they accept available jobs in one area then get laid off and take up another job in another area. Maintaining specialized work experience would be most difficult for individuals especially in non-protectionist economies. After 10 years finding experienced specialists would be very difficult in all these nations unless working in public sector or in better protected healthcare sector.

I have seen this even among yindians who migrate for better paying jobs in non-unkil lands(uae, oz, nz, sing a pore). Once there they find out that companies in their area of expertise are so few that if they leave one and join another they have to learn from scratch in a new area and leave the previous area. For better monthly salaries in short run people end up sacrificing opportunity to build a resume showing sustained learning curve-one that would promise good senior position and salary @ >= 40 yrs age which a choppy resume cannot provide.

Currency Value Preserving Proposition:

Khan: Oil trade in dollars, Largest market available for export, defence equipment exports

UKstan: a rub money investments channeled through their investment banks. Local assets/clubs available for acquisition with halal money from developing world.

Euronion: World’s largest exporter(Planes, Cars, Precision engg., Premium Brands)

Currency Value: Dollah > Uro> Stree-ling

JMT

sanjaykumar · Post by **sanjaykumar** » 09 Mar 2009 22:24

Writing $50 trillion would've been easier, IMO.

I think trillion is reserved for a billion billion in Britain, not a thousand billion.

vsudhir · Post by **vsudhir** » 09 Mar 2009 22:27

Kindly ensoi this graph saars.

It shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

Another way of looking at the graph is that the higher the red and blue lines go, the lower goes the credibility of rating agencies. AAA rated means little these days thx to the scores of AAA rated subprime securities still out there that are now effectively illiquid and buyerless.

IMO, its time Des built its own rating agencies for global securities and sovereign debt ability. Make a start, so what if it sounds absurd now. Won't look as ridiculous 10 yrs down, I wager.

Link

vsudhir · Post by **vsudhir** » 09 Mar 2009 22:31

sanjaykumar wrote:Writing $50 trillion would've been easier, IMO.

I think trillion is reserved for a billion billion in Britain, not a thousand billion.

Hmmm.
Well, in that case, billion too is misleading coz the Ukstani billion=million^2 and not 1000*million onlee.