"Everybody gets so much
information all day long that they lose their common sense."
—Gertrude Stein (American,
1874-1946)
Word for the day
Eurhythmic (adj)
Characterized by a pleasing
rhythm; harmoniously ordered or proportioned
Malice towards none
Besides Rakhi Sawant, Rahul
Gandhi is the only person seems to be
thoroughly enjoying his stint in politics, regardless of election results.
First random thought this morning
Imagine, schools shut in Cherrapunji due to rain, in Leh due to
low air pressure, in Helsinki due to snowfall, or Congo due to heat wave.
Obviously, children in these places will seldom get to go to school.
Why is that Children in Delhi are made to feel so weak and
insecure that they are told not to come to school if it is too cold, too hot,
or too dirty?
The better course would be to guide children about the risks and
train them to weather these risks. Hiding them behind doors will only make them
escapist and materially weaken their survival instincts.
In the wake of global financial crisis (GFC) in 2008-09, almost
all big central bankers chose to follow what is now popularly known as
non-conventional monetary policy. They expanded their balance sheets at
exponential rates, by buying government as well as corporate securities; maintained
rates at close to zero level (some even went below par and used negative
rates). The objective was threefold: (a) To stabilize the financial markets and
(b) to support sustainable faster growth; and (c) improve employment.
Most central banks were extremely successful in stabilizing the
financial markets. Many large financial institutions which were at the brink of
failure have revived and even strengthened their positions.
The objective of faster growth has so far been met with partial
success only. There are pockets like US where growth has recovered but peaking
at much below the pre-crisis level highs, whereas many other economies are
still struggling to return to a sustainable growth path.
Employment conditions have improved materially in US and a few other
places. But elsewhere there is not much evidence of any sustainable improvement
in employment levels.
But if we see on global basis, the economic growth has not been
encouraging as the large emerging economies (BRICS et. al.) that were racing
fast during the crisis have slowed down considerably, since then.
Another thing that has not seen any material improvement is the status of
indebtedness in various economies, especially those which were at the core of
the problem. Their debt profiles have in fact worsened over past one decade.
A number of analysts has expected a hyperinflationary situation in
the wake of extraordinary liquidity pumped into the global financial system as
a result of quantitative easing (QE) program of various central bankers. It did
surprise many that despite trillions of dollar being pumped into the system,
inflation failed to pick up. Most developed world central bankers are still
struggling to meet a modest 2% inflation target.
It is therefore reasonable to conclude the following from the
above:
(a) The additional
liquidity and fiscal profligacy since GFC has been used mostly to support
markets and service the debt; and not create additional capacities or generate
demand.
(b) It has perhaps been in
the best interest of the debt laden governments to keep the cost of capital
(interest rates) low, so that they can service the humongous debt without much
difficulty.
(c) The employment levels
may have improved in quantitative terms, but qualitatively there is not much
improvement. Wage levels continue to remain poor and job certainty low.
Consequently, higher employment levels are not reflecting to the desired levels
in household demand for consumption and investment. On the contrary household
leverage has risen past the pre crisis level in most economies.
(d) Since the entire effort
since GFC has got mostly constricted to the financial markets and transactions,
the demand for real goods, and therefore inflation, has lagged. The spurt seen
in commodity prices in recent times can be attributed more to the supply
restrictions (due to shut down capacities or scaled down production) rather
than any pickup demand or liquidity issues.
But things may change going forward. New capacity additions and
changing technology in automobile sector and popularization of renewable may be
leading to rise in demand for few commodities like copper and aluminium etc.
This brings us to the our main topic of implications of the recent
developments on Indian economy and the changes needed in investment strategy.
In my view, the following global trends shall have meaningful impact on Indian
economy in next few years:
1. The growing influence
of right wing nationalism shall lead to more restrictions on trade, capital
flows and labor movement. Active currency management may also gain currency
even with many free market economies.
2. Higher (if not hyper)
inflation shall occur and stay for long.
3. Electric mobility and
renewable power shall gain popularity much faster than a majority of analysts
are predicting today. Peak oil demand may also occur much before OPEC's
forecast of late 2030s.
4. The geo-political
tensions shall remain at higher level, even if it does not materializes in a
conventional war. The cold war could be intense and protracted this time too.
India so far has tried to maintain a balance, playing ball with both the
potential groupings. This however may not be a sustainable strategy and Indian
may eventually end up in a US led group. Worsening of relations with China,
Russia and other major trade partners could have serious economic implications
for India...to continue tomorrow.
Also see
No comments:
Post a Comment