Wednesday, October 20, 2010

My Name is Kahn !

    
    We all know how much the U.S. is pissed off with China at pegging its Renminbi (RMB) i.e. the yuan to the $ or, at the most, letting it grow at a snail's pace relative to the $ after pegging it against a basket of currencies, instead of allowing it to float freely (subject to economic forces like growth, productivity, forex surplus, interest rate etc.) which would have resulted in a much stronger yuan. US legislators, in retaliation against the manipulation (deliberate undervaluation) of the yuan by the People's Bank of China, are threatening to punish China by imposing anti-dumping and other anti-trade bills to make Chinese imports to U.S. costly. And some time back, Japan and Brazil too resorted to devalue their currency for a short period to promote their exports . 

    Dominique Strauss-Kahn, the IMF head, views this global situation as a “currency war” and has enjoined China, almost beseechingly, to give up its “policy weapon” of currency. It’s almost like he is saying to China “Look pal, by freeing your currency and letting it climb, your people will benefit by greater purchasing power, better household incomes, less inflation and lead to a better standard of living in your country. Oh, and in the process, it will also help solve the global imbalances and distortions. See, a win-win situation for all!” He is reiterating the same thing at all IMF and G7 meetings now, as if he desperately wants to be heard to the Chinese. But the question comes, what does China stand to gain in keeping the value of its own currency low in the first place? And why the hell is Uncle Sam poking his nose with what China does to its domestic currency and the IMF bitching about China's protectionist mercantile policies? After all, the yuan is “China’s sovereign concern and should not be discussed in international circles” as noted by a few Chinese officials. The thing is, we're living in a global village, and anything China does indirectly affects the global economy, more so, the U.S.


    China, being the last stop of almost every manufacturing process that happens in the world, is a purely exports-driven economy and this decades-old Chinese practice of artificially keeping its currency weak unarguably gives it a trade advantage of damn cheap exports. The 3 major problems that U.S. blames China for, are:
1. its huge trade deficit with China ($173.4 billions from Jan 2010 till Aug 2010)
2. the colossal foreign reserves that China has accumulated ($2.6 trillion)
3. the growing unemployment in America due to its shrinking manufacturing industry. (9.6%)

    Five years back, pressurized by the mounting international political tension and the straining sino-US relationship, China decided to pour oil on troubled waters by de-pegging yuan to the $, allowing it to rise by 2.1% and then doing the "tortoise-run" with a basket of currencies – steady appreciation, but very slow. They allowed a narrow-margin oscillation of the yuan wrt to $ and the result till 2008 was a net appreciation by almost 22% from its value in 2005. But alas! The Recession struck, thanks to the credit crunch in America, and China, in a natural state of shielding itself from the global meltdown, fell back to the fixed exchange rate regime, again initiating the depreciation process. However, the net effect still stands at a 17% appreciation in the yuan from 2005. But now, China is not willing to bow down to political pressure from the U.S.

Chinese authorities, atypically vocal about their stand this time, have several comebacks.

Firstly, they say, re-pegging the yuan to $ in 2008 was a "special" policy to safeguard themselves against the global meltdown. 

Secondly, they argue, their trade surplus with the U.S. is due to growing self-sufficiency from its economies to scale owing to the huge surge of industrialization in the last 2 decades, leading to decreasing imports from U.S.; not due to some stratagem against U.S. which gives them an enormous comparative advantage in trade.  For instance, they still have to import raw-materials from a few Asian countries with which they do have trade deficits. 

And thirdly, the excess of foreign reserves, that the U.S. keeps talking about, is, according to the Chinese (I couldn't agree more), the "hot money" capital influx in China on speculation of an accelerated revaluation of yuan. This is happening as a direct result of a concept which I'd like to call "Converse of the International Fisher Effect"if you will, which goes something like: an expected appreciation of RMB relative to $ might reduce inflation in China, which is likely to pull up the relative interest rate in China , leading to interest arbitrage opportunity for investors.

    Ben Bernanke, the Fed Head, recently hinted the likelihood of QE2 i.e. a second bout of quantitative easing (stimulatory monetary policy of the Fed to print money just to buy mortgage-backed securities and government bonds from banks via open market operations, which would lower their yield and lure investors to switch to stocks, thus injecting liquidity, raising the business capital and fueling the economy). The World Bank is apprehensive that this loose-money policy adopted by the U.S. could lead to a capital flight to higher-yielding emerging markets in developing countries as theirs, creating excess liquidity, which would, ofcourse, be short-lived. As soon as the money-flow takes a U-turn, it'll leave behind inflated asset bubbles to rip open disastrously, very similar to what's happened in Japan in the 90s.

Tim Geithner, the U.S. Treasury Secretary, who wants to accentuate more on the currency issue at the G20 meeting to be held in Seoul in mid-November, is inadvertently reminding China of the bitter Japanese experience that followed the 1985 Plaza Accord, which set in motion the creation of a series of property bubbles and its explosion into the so-called Lost Decade in Japan. By the way, the agreement has done practically nothing till date to improve the U.S. trade deficit with Japan, which was its primary goal. The last thing that China wants is having to sign a Plaza II and "cross the Rubicon" the way Japan did 25 years back (when it agreed to let the greenback drop against the yen, indirectly leading to the asset price bubble)

The economic implications of the revaluation of yuan is complex and hard to tell. However, the immediate loser of the yuan appreciation would be the American consumer, no doubt, who used to buy "made-in-China" products so cheap in Wal-Mart, even though it might mean a job for one of his friends at a firm looking to revive its business in the "American-made" labelled goods. Many U.S. industries which are dependent on China for inputs will be hit badly. The cost advantage and total value added will decline drastically. And quite obviously, this currency adjustment will deteriorate the export industry in China on which majority of its population thrives. The most important question that comes up is: While helping to create jobs in America, why should China accept the sudden transfer of the unemployment burden from America's shoulder onto theirs, when most of this unemployment came from the financial crisis that U.S. instigated 2 years back?

The real culprit that the U.S. is conveniently overlooking is its meagre domestic savings, which is inadequate to feed its domestic investments. Americans must learn to stop living off plastic money and minimize usage of resources. Prudent fiscal policies, rather than rash monetary ones will better help U.S. to address its domestic problem. Yuan appreciation is not their only way out, though it will definitely make things easier for them and, at the same time, give a chance to other ASEAN countries to fill in the gap in exports that China would have left, thus scattering the benefits globally.

Let's accept it. America has its own problems, which the politicians are trying to hide under the curtain of the yuan. "It is always easy to have scapegoats" as Mr. Strauss-Kahn rightly puts it.













Monday, July 26, 2010

Heaven Can Wait


Time flies away
Deep into sweet darkness
And you never realize
The reason for being

Death rings its bells
In a moment of despair
Helpless and hopeless
You shiver and stare

You fear it the most
Though a necessary end
It comes when it comes
Never know how it's penned

Life is a journey
You begin in the womb
And tread the sands of time
You end it in a tomb

It's a choice
Every breath you take
To hate or to love
To burn out or fade away

What lives is honour
And the respect you gain
The love of mankind
Everything else inane

To a man thus
Who lived to love
And rose above,
I salute and say:

"If tears could build stairs
And memories a lane,
I'd ascend my way to heaven
And bring you back again"


RIP,  KK Dugar.

Friday, July 2, 2010

Dancing to MJ song "Money" | Desitara

Dancing to MJ song "Money" | Desitara

Thursday, June 24, 2010

RIP MJ

Dear Michael,

You left us on this day a year back. How can we ever forget that day? We miss you a lot, Michael. And we are proud to say, you are the greatest entertainer and most loving human being that ever stepped on earth. You made millions of us smile. You made us believe in magic. You taught us to dance and enjoy life to its fullest. You stretched boundaries and defied the laws of Physics. You created legendary videos and evergreen music. And you helped millions of disadvantaged children live the life they could never imagine. Here’s a poem for you from one of your devotees on your 1st death anniversary:



O Loved one!
O Gloved one!
The avatar of Nataraj
The energy of the Sun

The beat in your heart,
The chord of a maverick
It’s the rhythm of the Universe
And the sound of all music

You slid and you moonwalked
Like a wheel on the roll
You are so rightly called
The King of Pop, King of soul

Healing the world
Your music and You
Spreading love and joy
And your magic too

You’re not black,
You’re not white
For us you’re God
Rays of Divine light

Not only Billie Jean
We all are your lovers
We pray for your soul
Not curse like the others

Accused and abused
By the tabloid junkie
Beat it! We know better,
You were not at all crazy!

You’re not a smooth criminal
Neither dangerous, nor bad
You’re just invincible
Which makes some people sad

You did everything possible
For the poor and fragile
Didn’t really care for money
Valued a child’s smile

Your human nature
Was always a mystery
But you sure were a thriller
The greatest in history

With every move of yours
You epitomized perfection
The fluidity in your dance
It’s music in motion

You popped and you froze
Like a dancing machine
You proved Newton wrong
With the anti-gravity lean

Oh! Why did you stop?
Didn’t get enough of you;
We rocked with you
Just can’t stop loving you

We’d scream and we’d cry
For your every track
Though you’ll be there forever
We want you back!

You’re out of our life
You were gone too soon
We shall never ever forget
This fateful date of June!

Your passion for your art
Is impossible to compare
The heaven is blessed
For Michael Jackson is there!


We love you, Michael
RIP


P.S. The titles of albums/songs used here (modified or otherwise) are:

1. Heal the world
2. Music & me
3. Black or white
4. Billie Jean
5. Tabloid junkie
6. Smooth criminal
7. Dangerous
8. Bad
9. Invincible
10. Smile
11. Human nature
12. Thriller
13. History
14. Dancing machine
15. Don't stop till you get enough
16. Rock with you
17. I just can't stop loving you
18. Scream
19. Cry
20. I want you back
21. I'll be there
22. She's out my life
23. Money
24. Beat it
25. Gone too soon

The Great Indian Mirage



The recent 3G auction has fetched the Government more than 3 times the sum it had imagined it would get. The Government is expressing its happiness by saying that this astronomical amount would greatly reduce its burden of fiscal deficit looming at almost 6% of GDP for quite a while. Sorry, I beg to differ. According to me, this is just an illusion; more like a smoke-mirror installed by the Government that the public is not able to see through. Virtually, the economy is hardly better off, if not worse off, with these biddings. This can be explained by applying some basic principles of economics.
   
    Technically put,
Fiscal deficit = Govt. spending - Tax revenue
  
    To fill this crack, the Government makes use of 2 direct tools:


  1. Passing the parcel (borrowing more and pouring into the treasury to cover up the current deficit)
  2. Encashing on family gold (selling its assets for liquid money)

 
    Both of these ways alow the Government to reduce the negative balance in its current account with similar effects. It can go either way, whichever is more convenient at a given point of time. However, there is another concept which might have escaped our respected FM Mr. Pranab Mukherjee’s sharp acumen. This identity, a more realistic measure of the country’s financial scenario, is:
 
Networth of Govt. = Assets - Borrowings
 
      The 3G auction was an implementation of the 2nd tool of combating the fiscal deficit. The Government sold bandwidths in return for cash. But hey! What difference did it make to the networth? Nothing! The equation remains exactly the same:
 
New Networth = (Assets - 106k crores) - (Borrowings - 106k crores) = Old Networth
   
    The Government just has the benefit of escaping the embarrassment of seeking funds from domestic sources or fiddling with the balance of payment accounts via foreign credit. Nothing more. The FIIs and HNIs (punters) of the share bazaar seemed to have been tricked too. They have been more than generous in buying enormous bulks of stock and pulling up the Sensex like a rocket just after the auction results. They think that the banks would now have more money to lend to industries rather than to the Government, which will push the economy even further.   In reality, there is no positive effect on the liquidity influx in the system due to less borrowing by the Government from the banks, as many seem to believe. In fact, quite the opposite. Now, the Government has ensured that the telecom companies borrow from the banks to pay for the spectrum, which will be extracted from the customers indirectly through tariff hikes and hidden costs. The Government, either foolishly, or very cunningly, has passed the buck to the telecom companies, who obviously will, in order to retain profits, pass it further to the common man. The Government has just shuffled up the cards on the deck. The pack remains the same.
   
    It’s a similar story with the Government’s decision of selling minority stakes in PSUs to private players. Only if majority stakes were sold so that private companies are given full autonomy, it would have effectively dealt with the evils of corruption and red-tapism that the Government managment is stained with. But our Government seems to think otherwise.
    
    One may ask, “Ok, so what could have been done other than bid for the spectrum? Gifting them to top telecom companies (as done in the case of 2G spectrum) is unfair and capitalistic!” My answer would simply be, “Revenue in the form of a sustainable flow of money over a period of time is always better than a once-for-all jackpot.”
    
    What the Government could have done is conduct auctions at regular intervals for certain percentages of the spectrum every time. Firstly, this would have generated gradual, but steady revenues every year instead of an overwhelming lumpsum amount at one go. Secondly, It would have also provided sufficient time to the telecom companies to test the 3G in the market and break even sooner to further finance the spectrum buys. Thirdly, it would have not put the huge liability on the telecom companies to repay the loans to the banks and the associated interest cost. Fourthly, and most importantly, it would have averted the danger of a liquidity crunch and the fear of bank collapse in case the 3G fails to live up to its expectations.
    
    The broadened tax slabs in the recent budget made has made people happy. But we don’t understand that the money we’ll pay for using the 3G technology is a form of indirect tax to the Gvernment, just in a more capitalisitc way. What the people seem to overlook and the Government doesn’t seem to care about, is the fact that the underlying problem of Government overspending is the villian here. The Government should look to contain the overspending by:
 
  • Completing infrastructure projects on time and saving on the interest cost
  • Putting a stop to the ever-increasing subsidies
  • Dealing strictly with the Government servants and officers and making them more accountable
  • Cutting down on administrative and compliance costs by reducing the paperwork and shortening the levels of beaureucracy in the electronic era
  • Not diverting the taxpayer’s money to political campaigns illegally
 
    In short, Government overspends knowingly, we overpay unknowingly. But, I suppose, the Government finds fooling us easier and more convenient than bring in the above mentioned reforms.

Wednesday, June 9, 2010

Development at what cost?

India is one of the emerging economies of the world and could easily become the 3rd richest 5 years down the line. The GDP growth rate of India is unprecedently great. India is posed to become the next hot manufacturing hub after China. India has the maximum number of millionaires and billionaires globally. We are flooded with these optimistic & positive news about India everyday. But are things really that rosy?

I stay in Mumbai, one of the costliest cities in the world in terms of real estate, the commercial capital of India & one of India's most developed cities. But I do not get a basic necessity such as drinking water from the BMC. I do not have space to walk without rubbing off someone's shoulder with every step I take. I feel suffocated in the explosing population & increasing pollution. I do not need malls as much as I need clean drinking water. I do not need a car as much as I need some space to walk comfortably. I do not need luxury treatment in South Mumbai hotels as much as I need an assurance that I am safe.

I feel a deep pity for the thousands who were "murdered" in the Bhopal Gas Tragedy 26 years back. And I feel a deeper pity for the survivors who got their hopes murdered a day back. The criminals of the first murder are the millionaires & billionaires of Union Carbide India Limited who, in an excitement of making more bucks, neglected all the safety measures that could have avoided this calamity. They, deliberately, had kept the gas chambers unrefrigerated, to cut "fixed costs", due to which the chambers, finally after half a year, gave in and exploded, releasing the toxic gas all over the city. Indians will never forget two nights. One night is the one when we got freedom, and the other night is when we were again captured by the worst industrial accident in the history of the world.

And after years of delay and postponement, when the final verdict is out, India again faces another black-out. That of a law that is gradually diminishing to void. Everybody knows that not a single accused is behind the bars, let alone a death sentence. This is what we call justice in India.

India, surely, is developing. But at what cost?