"One has to be able to
count if only so that at fifty one doesn't marry a girl of twenty."
—Maxim Gorky (Russian,
1868-1936)
Word for the day
Schmatte (n)
An old ragged garment;
tattered article of clothing.
(Source: Dictionary.com)
Malice towards none
The law has no place for
opinion of the public.
—Mumbai HC Judge
First random thought this morning
If we go by the popular maxim
of Eldridge
Cleaver, the entire political spectrum in India would appear part of the
problem.
As a common man I fail to understand why politicians are always
busy highlighting the problems. Someone needs to remind them that no one needs
to tell us the problems we face in our day to day life. Tell us the solutions.
If you know any politicians telling the solution for rise in price
of pulses to the government - please do let me know.
Next week US FOMC is scheduled to take a much awaited decision on
ending the zero rate regime, prevalent since past few years.
Many readers have asked for my views on the market scenario once
US Fed begins to hike. I feel I am thoroughly incompetent to comprehend the
implications of this event at this point in time.
I have been repeatedly saying that it is not merely a routine
policy decision (see
here). It goes much beyond that.
However, here not going into political implications of the
decision, I would focus on the economic implications only.
In my view, to forecast the market impact of Fed rate hike, it is
critical to first assimilate the background in which rates were brought to zero
in the first place. Rates were brought down to Zilch to fight deflationary
pressures that resulted from collapse in demand due to burst of leverage bubble
created by ultra-accommodative monetary policies of Greenspan and Ben Bernanke.
The collapse left US financial (and consequently global) system
and government's fiscal balance shattered. By allowing the government to borrow
at Nil or negative rate to fund the fiscal correction; and US corporates like
GM to borrow free of cost so that they could buy back their stocks and the
stock market bubble by giving a feeling of "all is well".
Lower rates were also needed to weaken the mighty USD to help the
US economy, especially US lenders. As highlighted in the latest quarterly
report of BIS (see here),
"Since 2008, dollar credit has grown more rapidly outside the United
States than inside. Although there is only one dollar yield curve, the two
stocks of dollar credit behave differently. Dollar credit to non-US residents
grew faster owing not only to more rapid growth in emerging market economies
(EMEs) over the last six years. Dollar credit also expanded owing to its
substitution for local currency credit given favourable dollar interest rates
and exchange rate expectations as EME firms leveraged up. Dollar credit to
non-banks outside the United States reached $9.8 trillion at end-Q2 2015."
Post Lehman collapse, it appeared that the US is becoming a
marginal force in the emerging global order. Emerging economies like BRIC,
South Africa. Mexico, Indonesia etc. asserted themselves as leaders in a new
multipolar world. G-20 was formed to undermine the supremacy of US led G-3, G-8
etc. The global multilateral financial and development institutions also saw
rise in influence of these countries in their affairs.
US has successfully transmitted the sub-prime disease to these
resurgent emerging economies and rescued its financial institutions. Most
emerging economies, especially India and China are now struggling with huge
sub-prime assets with no clue as to how to get rid of these. US banks are now
inarguably amongst the strongest global financial institutions....to continue
next week
