The markets have had a fall of serious kind and that too without the bear side having the opportunity of unloading enough on gullible bulls as there were none such bulls to be trapped. The turmoil has been far too extended geographically as well as in terms of the perceived afflictions the prime borrower's trouble at meeting obligations, the companies' abilities at keeping the profit graph intact, the taxing power of the raw-material resource crunch, the aging population, the infrastructure weaknesses, the political stand offs, the loosely united EU without political unity, the financial onetrusts, the delay in recognising that the economic nucleus has shifted, the absence of a world currency that would not be subjected to be influenced by the short term needs of accommodation of one nation or the other, the restricted trade practices, the speculative mafia, the oil market, the bullion as hedge, the fund flows, the currency parities, the rating changes and timing, interest rate scenario, the soft and hard money policies individually applied, the inflation effect, the ceiling on foreign capital investments, the tax treaties, the favoured nationalities, the corporate governance, the political systems, the plethora of set of rules, the removal of barriers in communication, the spread of -information, concealment of right information, the cartel formation the extremes of poverty and riches, technological break-through, the job market, labour supply, the lack of training/competence and the list is end less.
All things mentioned above have come to be having bearing on the minds of people without the real grasp of issues and effects. This is now a world where there are too many factors in a state of constant change by requirement and by design. The time is such that there is an excess of capital and there is no safe pocket to keep. This extra-purchasing power will have to evaporate to some extent and the game is see that it should not evaporate from out of own hands for everyone .Now, since we are trapped inside a phenomena that throws up no simple answers, we need to pay attention to only very material things which can out-weigh a lot of others. We have to consider as to what may be attempt of authorities to ward off the financial failure of the ones who have large obligations. The European weak nations for example are required to be bailed out. The mighty say that they can not provide for the irresponsible spending and borrowing of the weaker ones. Since currency is common, its dilution can not be an answer for EU unlike USA. USA had a simple formula to mitigate the trouble of the borrowers and it was to resort to quantitative easing. This will be tried for another time as it did not hurt the Americans as much as it hurt the other nationalities including ours. It helped the world's economic activity to continue albeit that the recession is looking in face of some.
The sub-prime crisis could be weathered because the remedy killed two birds with one stone it saved the banking entities and it reduced the real value of the debt obligation of USA. Similarly an answer can be found by the Europe's biggies by allowing currency dilution by quantitative easing and buying up the debt paper of the weaker nations. The servicing of this debt may be postponed till the time the weaker nations regain economic health by curbing expenditure. This way the banks would be less stressed and the trouble will pass over but it will have hurt the people living on pension. Their woes will have to be taken care by other possible means and this will call for sacrifice from one and all. The next step should be to politically unite all Europe and UK. The sub-continents have to convert in to single nation-hood. It happened in case of India and China and it should happen for rest of the world too. The faster means of transport and communication have thrown-up this requirement .
What I discussed above will bode well for India and its markets as quantitative easing in one place will not diminish asset values any where. The bullion may go up as well but at some point in time the productive assets will have to command value particularly when investments in capital assets are now at a reduced level. The world as a whole has still some scope for fresh investment as some old and obsolete facilities have to be closed some where and newer ones have to come up else where. This will improve overall efficiencies and see the world as a whole prosper. This is for the interim period, ultimately the industrial enterprises will have to suffer on account of falling supply of minerals and energy sources. But that will happen rather late in the day and not so early. Our high rate of interest is constantly inviting capital to come in. By very nature when the rates go up the marginal return on capital will have to keep pace ie the profitability of corporate sector will have to improve. If it does not improve the banks will have a lot of capital to lend but without healthy borrowers. In such case banks will reduce rates of deposits. Reduced rates will spur consumption. In all possible scenario the Indian corporate world will have relief coming. This process seems to have already started as the bond yields have come down from peak to under 8.30pc even when the RBI has so far maintained hawkish stance. The third positive for India is reflected in response to call by Anna recently. It shows masses of students and middle class with enlightened attitude. They come from even from quasi-urban areas. They reflect a potential of India's economic power.
The prophets of doom forget that the the perceived scenario never unfolds. The devil strikes when no body is ready for it. Otherwise why the impossible seeming situation came suddenly and why afterwards when hopes were lost the resurgence happened. For a lasting uneventful economic era, the return to gold standard or a version of it will have to be ensured. I have already in one of my previous posts have discussed what may it be like...kbk
All things mentioned above have come to be having bearing on the minds of people without the real grasp of issues and effects. This is now a world where there are too many factors in a state of constant change by requirement and by design. The time is such that there is an excess of capital and there is no safe pocket to keep. This extra-purchasing power will have to evaporate to some extent and the game is see that it should not evaporate from out of own hands for everyone .Now, since we are trapped inside a phenomena that throws up no simple answers, we need to pay attention to only very material things which can out-weigh a lot of others. We have to consider as to what may be attempt of authorities to ward off the financial failure of the ones who have large obligations. The European weak nations for example are required to be bailed out. The mighty say that they can not provide for the irresponsible spending and borrowing of the weaker ones. Since currency is common, its dilution can not be an answer for EU unlike USA. USA had a simple formula to mitigate the trouble of the borrowers and it was to resort to quantitative easing. This will be tried for another time as it did not hurt the Americans as much as it hurt the other nationalities including ours. It helped the world's economic activity to continue albeit that the recession is looking in face of some.
The sub-prime crisis could be weathered because the remedy killed two birds with one stone it saved the banking entities and it reduced the real value of the debt obligation of USA. Similarly an answer can be found by the Europe's biggies by allowing currency dilution by quantitative easing and buying up the debt paper of the weaker nations. The servicing of this debt may be postponed till the time the weaker nations regain economic health by curbing expenditure. This way the banks would be less stressed and the trouble will pass over but it will have hurt the people living on pension. Their woes will have to be taken care by other possible means and this will call for sacrifice from one and all. The next step should be to politically unite all Europe and UK. The sub-continents have to convert in to single nation-hood. It happened in case of India and China and it should happen for rest of the world too. The faster means of transport and communication have thrown-up this requirement .
What I discussed above will bode well for India and its markets as quantitative easing in one place will not diminish asset values any where. The bullion may go up as well but at some point in time the productive assets will have to command value particularly when investments in capital assets are now at a reduced level. The world as a whole has still some scope for fresh investment as some old and obsolete facilities have to be closed some where and newer ones have to come up else where. This will improve overall efficiencies and see the world as a whole prosper. This is for the interim period, ultimately the industrial enterprises will have to suffer on account of falling supply of minerals and energy sources. But that will happen rather late in the day and not so early. Our high rate of interest is constantly inviting capital to come in. By very nature when the rates go up the marginal return on capital will have to keep pace ie the profitability of corporate sector will have to improve. If it does not improve the banks will have a lot of capital to lend but without healthy borrowers. In such case banks will reduce rates of deposits. Reduced rates will spur consumption. In all possible scenario the Indian corporate world will have relief coming. This process seems to have already started as the bond yields have come down from peak to under 8.30pc even when the RBI has so far maintained hawkish stance. The third positive for India is reflected in response to call by Anna recently. It shows masses of students and middle class with enlightened attitude. They come from even from quasi-urban areas. They reflect a potential of India's economic power.
The prophets of doom forget that the the perceived scenario never unfolds. The devil strikes when no body is ready for it. Otherwise why the impossible seeming situation came suddenly and why afterwards when hopes were lost the resurgence happened. For a lasting uneventful economic era, the return to gold standard or a version of it will have to be ensured. I have already in one of my previous posts have discussed what may it be like...kbk
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