"I'm not a serious person, and
I don't like serious people."
-Ray Bradbury (American, 1920-2012)
Word for the day
Burble (n)
An excited flow of speech.
(Source: Dictionary.com)
Malice towards
none
The government should make
it mandatory for all vendors to mention prices of their stuff in US$ terms.
$1.5/kg for Onion may feel
much better than Rs100/kg.
It's not like any time before
The market movement of past few days indicates that the markets
have perhaps become immune to quantitative easing (QE). The remedy that worked
wonderfully well during the global financial crisis (GFC) of 2008-09 is least
likely to work today.
After six years, billions of dollar of additional liquidity, even
higher public and private debt, slower economic growth, and severe deflationary
pressures, the world economy and markets appear intrinsically as weak as they
were prior to the infamous Lehman collapse; or perhaps even weaker.
Infusion of billions of dollar in market liquidity through
unconventional policy measures has though ensured that markets are not frozen,
unlike during GFC.
The unprecedented QE in the wake of GFC has successfully pushed
the world into deflationary spiral. The global cooperation seen during GFC has
proved ephemeral and given way to intense currency and trade conflicts.
There could be little doubt that without QE the global economic
slowdown could have been much more painful and disorderly. Now it is painful
but orderly so far.
The economic historians may like to find precedents of current
global economic crisis in 1930s great depression, or deflation in mid 1990s
that saw China devaluing CNY at a time when US was beginning to tighten
monetary policy, or may be in other episodes of global economic slowdowns.
In my limited knowledge, the current situation is fundamentally
unprecedented.
First, I believe it is a global economic crisis, and
not just a cyclical slowdown. It is therefore cannot be wished away in
few quarters. It will take years of structural changes in global trade
paradigm, before the things come to order. The sooner it is realized, faster we
can embark on the path to recovery. Remember, unless the realization dawn upon
people immediately, protectionist like Taspiras and Trump would continue to
gain even higher acceptance, which may not be exactly desirable at this stage
of the crisis.
Second, the usual Keynesian solution to wriggle out of
deflationary conditions may not be available to most economies this time, given
their already precarious fiscal conditions and near zero rates. Chinese
government for example can invest only a little more in infrastructure
building; Europe cannot offer more tax relief, US may not want another round of
sub-prime credit, and Japan may have run out of all fiscal options.
Third, the markets are completely dematerialized and globalized
this time, unlike in 1930s, 1970s or 1990s. The spread of contagion could
therefore be much faster and deeper.
Fourth, with US, EU, Japan and China - all big economies
struggling and emerging markets slithering, there is no strong leader to pull
the global economy out of crisis. The recovery therefore will be slow and long
drawn.
Last, The world is still not out of the latest stock market
bubble. Historically, such bubble have been engineered to pull markets out of
crisis. This tool may not be available this time as even the current
tech/e-comm bubble is still not over.
Where does India stand in this? - later this week.
No comments:
Post a Comment