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Cycles and the stockmarket

The paradox in inflation

There are two types of inflation, shall we say, good inflation and bad inflation.
Good inflation is there when prices are going up due to continued increased demand.
Bad inflation is when the stocks are low, and are not being replenished, and the shortage
continues, and what is there is offered at a higher price, like onions in India.
 
In the 1930s, bad inflation took over the world, especially in Germany, with hyperinflation
and the printing of currency notes of high denominations and the usage of wheelbarrows to
carry the money to buy a loaf of bread.  Such too was the situation in Zimbabwe not too long ago,
and there of course they did not even have wheelbarrows to carry the currency around.  People
had to be trillionaires to buy a loaf of bread. 
 
That shows an acute reaction to a model of currency issuance and control that leads to such a
grotesque situation.  Where people can think and calculate and issue rationally, such a situation
ought not to arise. 
 
In what was British India at that time, again in the 1930s, farmers stopped growing food because
it had to be sold at such high prices that people stopped buying as much as before.  Farmers became
poor, unable to pay the rents on their plots or their housing.  The zamindars could not collect their
rents, and consequently the whole system fell apart, the whole cycle of consumerism affected.
Such a situation causes bad inflation, where scarcity puts the prices up.  Shortages are created,
together with the ills of hoarding, wastage while people go hungry and a disillusionment with production. 
 
What was happening before the crash of 2008 and a hint of the 1930s in happening in India today.
Onions there are more expensive then the ones we buy in England, imported from the same region.
There is something quite wrong with the handling of the situation in India.  I firmly believe the loosening of monetary policy and the reduction of the benchmark repo rate would have helped greatly.
That is the opinion of industrialists and that of bankers, but obviously not of the committee that decides such matters in the Reserve Bank of India.  Today's hiking of the rate from 7.25 percent to 7.50
seems a step that will not help anybody. 
 
With an increased money supply and lower interest rates, the Western economies have weathered the sceptre of a prolonged recession.  By grace of God, with continuing production of crops and means to eat well, all other industries can do well also as consumerism gets a boost, a strengthening Recovery leading hopefully to a growing Prosperity. 
 
Such should too be the case in India.  Alas, if only they would listen and have faith.  In such a burgeoning economy which has huge potential of further growth, they must have confidence of investment from abroad, even if they reduce the interest rate. 
 
Today's interest rate hike indicates it was not welcomed by the financial markets.  Clearly peoples' hopes have been dashed for the meantime.  Hopefully, next month the situation may be more favourable.
 
Kind regards,
Duru-darshan.
 
 
 
 
 
 

Indian Rupee fall overdone

You know, there was a time when Twelve and a half Indian Rupees exchanged for a U.S. Dollar.
Today, the rate is 65 Rupees to the Dollar.  Hardly a month ago, it was 55 Rupees.
For a country with U.S.$277 Billion in reserves, and a debt to GDP ratio of about 27 percent, this is
clearly selling the Indian Rupee too cheap. 
What sort of policies have been in place that the currency has virtually fallen 400 percent against the greenback, in a period of less than two decades, when the growth in India has been quite healthy while the mature economies have structurally slowed down? 
What is the purpose of encouraging foreign inflows of capital which periodically take flight and cause a panic in the markets? 
Of course, with the Rupee at current levels, most overseas investors see this as a golden opportunity to invest in India.  And the Finance Minister, Mr P. Chidambaram, has confirmed that inflows have been very healthy, and as it is absorbed into the system, a healthy picture will emerge.  Growth for the 2nd half of this year is expected to be much improved, with exports increasing month on month.
Can't blame anyone for snapping up quality Indian goods at ridiculous prices, can you?
 
The Reserve Bank of India's repo rate of 7-1/2 percent is really responsible for the slight slowdown that Indian industry and consumerism have seen over the last year and a half.  When the picture is so healthy, why should the RBI offer such a high rate to attract overseas investment?  When compared to the mature economies, the differential is more than 5 percent and as much as Seven and a quarter percent.  Is anyone listening?  What is the logic of it?  When India has enough for good growth, why does she need foreign inflows which periodically make the currency bleed?
 
The best announcement is that the RBI will not take any policy measures to try and curb the current and temporary fall of the Rupee to the absurd level. 
 
On 5th September, the new Governor of the RBI will assume his office, and both Corporate India and the public wait with hope to see what path he follows to restore robust growth and much need relief for consumers in India.  More people wish to buy houses and cars, take out loans for education and travel.  India needs must add to the world economic growth story, and an orderly drop in the repo rate would prove the tonic.
 
Kind regards,
Duru-darshan.
 
 

What should we have instead of Austerity?

The I.M.F. has a good suggestion for Britain : to inject some capital into infrastructure projects.  That would of course create or maintain lots of jobs, as well as upgrading the infrastructure.
 
There may be a good argument to bring forward the house-building at the racecourses, refurbishing houses in the deserted towns in the regions, and perhaps assisting people to move away from the main areas and into these new areas, which could create a lot of economic activity as well as giving people better housing, jobs (in a new town you would need doctors, nurses, cinema ushers, porters, teachers, traffic wardens, salespeople, double-glazing companies, solar panel engineers, builders, drivers, electricians).
 
The shale cracking or fracking industry could be a viable alternative, once safety concerns have been ascertained, creating jobs, lowering energy bills, making Britain an affordable place to live in, and attracting more people to consider making Britain their home if they are suitably qualified to add to the economic life here.
 
The lending requirements in the housing sector are of the order of a £100 billion, and yet Bank of England Guvnor Sir Merwyn King is only backed by 2 of the 9 MPC members for an additional stimulus of £25 billion.  The other seven would probably like to keep Austerity measures, the snake that is squeezing life out of the European economies.  As the IMF has suggested, growth would be the alternative, and a stimulus is the required cash flow mechanism that must be utilized.  The U.S. quantitative easing policy has shown that it is a practical way to come out of recession, and both the U.S. and Britain are blessed in this regard in that they can issue their own legal tender.  The MPC board members can hopefully see the sense of it, and give Sir Merwyn the vote to issue a further stimulus before he retires.  It will be a blessing to the nation, and in time for the royal birth in June. 
 
What should we have instead of Austerity?  Well, of course, a jamboree and a celebration would be good, which will help people satisfy their reasonable demands of a growing prosperity.  The quicker it is put in place, the earlier the cycle of wealth creation can continue, which in turn will bring money to address the deficit, and the only really practical way of growth.  Can you imagine a shop-keeper without cash flow?  Nor should the MPC board members see Britain in such a light.
 
Kind regards,
Duru-darshan.
 
 
 
 

From 2008 to Recovery

The 2008 banking crisis and the collapse that followed could be summed up in a few vignettes:
 
The two major banks in Iceland, who had invested in two entrepreneurs who were buying up British retailers on the High Streets of Britain, went belly up, leading their Finance Minister to remark some time later that "perhaps we should go back to fishing".  The size of the hole was £61 Billion, many times the GDP of that nation.
 
Then came the blow up of the boiler houses like Bear Stearns and Lehmann Bros, whose chairman Mr Fuld had readied an exit strategy of taking a golden parachute of $300 million, totally oblivious to the small investors in India and Brazil and other places bereft of their investments of lifetime savings.
 
The stockmarkets at that time plunged hundreds of points.
 
The next initiative in the Recovery process was the meetings of the G7, then the G20, of discussions of ideas on how to climb out of the mess.  A new infusion of approximately $1.5 Trillion was put into the U.S. and  European economies, in emergency measures, and slowly, steadily some semblance of normality started to materialise.
 
Since then, the U.S. has put in a very necessary and prudent stimulus in the form of quantitative easing (QE I, II or III) and likewise the British economy has been blessed with measure of £375 Billion.  Currently the Bank of Japan is infusing $85 Billion per month, equalling that of the U.S., who have somehow put in a sequestration of one-twelfth of that, to reduce $85Billion over a year.
 
Still, there is plenty of money in the system.  The British banks like HSBC and Barclays are said to be flush with cash.  The stockmarkets worldwide look in a healthy shape, including Kenya and Ghana in the developing nations. 
 
This current week the markets will take a breather, as not much detail is available as to what the G7 and IMF M.D. Christine Lagarde have come up with from their recent meeting in Buckinghamshire.
While there is talk of the stimulus in U.S. being tapered off, the new U.S. Treasury Secretary seems to be calling for a resolution of the Debt Ceiling issue before Labour Day. 
 
Banks seem in robust shape currently, and risk appetite is growing, a good bullish sign in which it is hoped the banks will take courage and loan to small family businesses and young entrepreneurs, and help them transform that mountain of readies into wealth in the long term, creating sustainance for the people and taxes for the nations, and much happiness for all.  When people start to practice the law of generosity and become well-wishers to one and all, everyone will prosper.  For that I pray.
 
Kind regards,
Duru-darshan.
 
 

Time for the Presidential Prerogative, I believe

A time will come very soon when the U.S. debt clock hits 16.15 Trillion.  That is a self-reminder to the American nation to review its finances, and see what savings and improvements could be made, to eventually balance the National Ledger one day.  As is true of all sovereign nations, the national ledgers are very seldom balanced, thank God, for development, expansion, review and progress are activities that are forward looking. 
 
Nations which are having to balance their books and keep expenditure strictly under control due to lack of overseas support typically are tiny nations, with limited natural resources, who have exhausted their credits with other nations and thus become at the mercy of God and the goodwill of friendly nations.
 
With the U.S., it has plenty of natural resources, a nation that is influential in its friendship across the globe, and in spite of being one of the major developed nations still has plenty of scope for further development.  To wit, they are still building extensions to the railways in Pasadena, in California, and with the product developments there, the U.S. in my opinion is fully several years ahead of most other economies. 
 
Many fine houses were lying empty across the U.S. in the midst of a housing meltdown; that has now gradually and surely started to heal.  Every month the U.S. is creating more jobs, and the unemployment rate has started to go down.  The 165,000 new jobs created in April were something that cheered the markets, and took the DOW to over the golden 15,000 bar which I believed it would vault over (I wrote as much in early 2012). 
 
The only thing that remains is for the U.S. Recovery to continue is the Debt Ceiling II, the date for this seems to be around May the 18th. 
 
It is my assumption that the best course of action would be for the President to exercise his Prerogative in this regard, and sign in, with the full bi-partisan co-operation of Congress, a further figure of 1T.  This may even be modified to say 250B over 6 months from 18th May in view of the improving economy and creation of jobs on a wholesome budget.  That would ensure continuation of Recovery and happiness and welfare of people, together with creation of wealth through exchange of production and consuming thereof, and money swirling in the system and returning to banks and eventually to the Fed
(through financing and creating wealth). 
 
In about two years, when Prosperity appears in U.S. and the other nations which follow and further Peace, the name of the undersigned may be forgotten, but who cares? 
 
God is our Heavenly Father, and as He has so inspired capable men and women to administer the affairs of nations, He has so inspired scribes to give a helping hand. Today, it is my belief that everything will be fine by the grace of God, and the suggested course of action will lead to a greater Prosperity for all. 
 
I am always glad to hear from my Readers their comments and opinions, and any hints they wish to share with me.
 
Kind regards,
Duru-darshan.
 
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