An Unexpected Part 2 !! I hope it does not turns into a trilogy !!
Back in December 2008, I wondered and mused whatever is happening to global economy, but the political and financial leaders are not taking the necessary, bold, corrective steps in time. Unfortunately the world leaders kept on salvaging the old stalwarts of Wall Streets, left, right and centre, perhaps that was the only option left. Unfortunately not many people are punished for committing financial crimes of by over leveraging in a hope to make quick buck and multiply the effect of that quick buck several times.
Low interest rates in developed world for decades and the compulsion of printing T Notes and Bonds and Currency, especially in the United States caused the Public and Private debt to grow into a monster, beyond control of almost anybody!
A temporary blip happened in the market sentiment in later half of 2010 and once again gold, crude, stock prices started going up, baring Real Estate! In ability of EU to create jobs, high spending habits of the people and the government led to massive accumulation of enormous public and private debt, utlimately causing the economies of whole countries such as Greece, Spain and Portugal to collapse. Now the fears are that of collapse of Euro, because the comparatively better off economies of Germany and France cant bear the burden of Italy, Spain, Portugal for a very long duration.
If Euro did collapse in coming months, years it will once again ensure the Numero Uno position of USD ( it is even now, but at least Euro had some chance) and another failed attempt (earlier being Japanese Yen and Chinese Yuan). What an irony once again ! Couple of years ago OPEC was contemplating of switching from USD to Euro and now we are wondering whether Euro will be dead alive in 2012 !!
An amazing war, conspiracy, symbiotic and parasitic relation is developing between the current and future no.1 country (on the basis of GDP). In order to compensate for reducing wages and unemployment, US still wants cheap Chinese imports of day to day items and perhaps luxury items as well ( habit! dont change overnight), despite what so ever anti-dumping laws, hue and cry in the public ! China's love affair for Exports ensures that it keeps accumulating USD from USA and from several other regions from all over the world. And with surplus USD in their kitty and a possible fall of Euro, they are left with nothing but investing in US bonds every now and then. So by printing more Currency on one hand US is receiving wrath of OPEC and on another of China, but the irony is both (all) of them cant do anything about it!
Sudden demise of Euro can increase the demand of USD and can strengthen the $ thus reassuring China and OPEC! So while fall of Euro will be really unfortunate, it can bring windfall profits to somebody else in seemingly unrelated relation!
So being poor and underdeveloped for decades finally started paying India in unexpected manner! We are resilient to global shocks and crisis, because we have far too many internal problems to solve. Fortunately, we have lots of gold and silver reserves hidden deep inside but in safe custody of our Lazy Gods for centuries!
So to summarize, I would like to repeat and age old adage especially in rural India -' Sab kuch Bhagwan bharose hai' ( Everything depends on the mercy of gods!), finally worked really well for us, in a way which even our Bhagwan would have never imagined thousands of years ago :) !!
that's interesting and informative article..
ReplyDeleteThanks Sub
ReplyDeleteDo you realize that in this world today everything is INDEED bhagwan bharose.
ReplyDelete1. Currency. All currencies in this world as FIAT currencies. That means there is no underlying security or reserve to back the currency.
The One Indian rupee is arbitrarily defined by the RBI, and the RBI keep changing the monetary policy to make this one rupee more or less accessible based on its own belief.
RBI regularly prints new currency which is much higher than the value of goods/services earned by India overall.
The best part is that ALL reserve banks across the globe do the same - what do you think this leads to over a long period of time?
2. All the business are built upon mountains of ever increasing debt. The same is with govt expenditures too.
Debt for a business activity. In the hope that tomorrow the returns from the business will pay off the debt.
But then we don't stop there. We earn profits, re invest these profits, increase the debt, and this goes on ad infinitum.
Ppl giving debt are greedy, ppl taking the debt are greedy. Greed feeds greedy cycle is broken only when someone becomes sane and says I want it back!
Then we have ppl running helter skelter, because no on actually has money to pay back all the debt.
On top of that - the money that you hold is worthless, because it is govt fiat. And they believed that they are doing public a good by financing projects from worthless paper money that loses its value each and every day (vis-a-vis actual goods and services).
So who gets shafted at the end?
Public in both cases. Public which invests it hard earned meager money.