What if Adam Smith was wrong? The problem is not with capitalism being better or worser than socialism. The problem is with the science of economics.

For what its worth: What is worth?
Wealth builds nations. Nations build wealth. A palindrome that sums up the 1208 pages that make the greatest book written on economics. The four factors, land, labor, capital and the entrepreneur get returns as we carry out economic activities in the name of living. What about earth. What is its return? Surely this is an unsustainable model that we expect every country to develop. Of course its a dream. To see the whole world developed. But we need to redefine development. Development is not getting a bigger GDP. For that is converting natural resources into monetary wealth. And the faster you can do that the better acccording to the economy that we have learnt about and lived in. Convert trees into wood. Water into Juice. Just sell, sell and sell. In the name of making jobs. The argument is, people wont have jobs if companies didnt make money. And companies wont make money if they didnt sell. Dont people get this crazy chain of events that we are indulging in in order to carry forward our nation. But is there an alternative. Should we still have a 'Zombie Economy' that will only work if people buy things.

Of course there is. We need to collaborate upon it. Not debate on wealth distribution. But debate on wealth. Or more importantly 'worth'? Can we keep printing money from thin air. Can we still have millionaires who can afford anything they want in any number. The answer probably lies in the animal kingdom. Or maybe in myth. Or maybe going back to barter, a place where people wont inherit wealth. Where wealth cannot be stored as money. Where people would share things for things. Or wealth itself never existed and worth never needed to be paid for. Yes we can still think of an alternative system.

I would like to imagine a model where the ignored factor of production: EARTH. Gets a return. Yes! Just like labour gets wage, capital gets interest and the risk taker gets profit. Well economists may argue; land gets rent. But who is land. Some guy who owns a paper saying he owns that place because his father did or because he got it using his purchasing power. Either way. The land as in earth doesnot get benefitted. Whether people are going deeper on it to get a mineral, or building houses to create an asset bubble like we saw recently.

And yes about the asset bubble. Everyones blaming the bankers arent they. What about the marketers. Those men and women who sit in their offices and think of an ad campaign. Those men and women who call you up and ask you if you need something you never want. Yes, the marketers, the mascot of corporations. Who have managed to induce consumerism as a fad. And the economists like I said earlier support them by saying. Well if General Motors doesnot sell another car then they wont be able to make money. And when they dont make money they will have to lay off people. I think we need more of Joseph Schumpters Creative Destruction. If GM thinks it can keep selling cars to people. Its wrong! And if neo-economics tells us that corporations must keep selling or else we wont have jobs. Then they are wrong too. And maybe profit is wrong. Why do developing nations need capital from developed nations. Since they have the labour why dont they themselves start organising and using their resources. Why Capital? Can we make incentives internally?

Since my idea is in its chaotic form, I have put an analogy below for better understanding.
You find a mango tree. You get a mango from the tree. You eat the mango. The seed from the mango? Respect it. Dont throw it in the bin. Dig it in your backyard. Or throw it on a piece of land where you know there is atleast a small possibility for it to grow up. The throwing the seed in the bin approach is what the world is doing in the name of development. Same applies if you've bought grapes from the market. Throw the seeds onto your yard! Thats the concept of this fancy sounding greedy word''quid pro quo'' isnt it. Why do you think fruits were designed to be delicious. So that we would use our intelligence in picking it from the tallest trees. And once we eat it, we would show the same intelligence by giving the seed a chance. I think even monkeys throw the seeds on a good patch of land once their done. Give a return for nature. This is just a small example of how individual people can help make an economy that respects nature rather than exploits it.

Heres a great deed on the same lines that is popularly done by environmentalists.  For every tree cut, a sapling is grown. Can such ideas be applied. For every fish fished? Or For every home built, shirt stitched or train gone? Carbon trading also if its done is a neat step forward.

Lets understand worth or forget all about it; but in the end lets make this world a better place.
Where trade would be called share
Where nations would rise and the earth shall be!

Ive always wanted to know why America is what it is. In my analysis of nations, i couldnt quite figure out how it all began. A big piece of land(kind of looks like an island, wonder why people dont call it one). Columbus finds it. Colonization starts. The Britishers arrive. Natives dont feel like natives. George is not from washington, but washington became the name of the place. And then the hub of innovation. The nation embraces capitalism. Open to immigration. Magnet for the best from every part of the world. The chain. Once the hub is set. More and more of the best minds flock. Innovation breeds. Standard of living improves and abracadabra.. The United states of America. with the USP of the American Dream is real.

The missing piece of my dilemma is what happened in the three weeks of a June in a place called Bretton Woods. A league of gentlemen changed the way the world would trade money...  (more on this once im done with all the papers on bretton)

If I was the Prime Minister of India. I would have looked straight at the camera and said these words.

''We donot want to know who you are. We are a nation of a billion names and faces. And eventhough we see your face we will not recognize your race. Today. You sprayed bullets in our city. But you can never tear our hearts. You ripped the love of families. But the whole nation shares their grief. Today, you put tears in our eyes. But we will not fear you.

You should know that you can never paralyse this nation with bullets. You have lost.

You should know that you cannot poison the minds of our citizens. Hindus, Christians, Muslims , Sikhs will embrace each other today. Though you may have a Muslim name. Our people donot recognize your affiliation to the religion of Islam. We understand that no religion on earth defines your action. The brotherhood of this nation is far greater than the pettiness of your hatred and anger. We will not fight each other. You have lost.

Though you may bear passports of our neighbours. We the citizens of India know that no nation shall breed you. You do not belong to anywhere. We will not point our fingers today and make a script of blame frames. Instead we will remember today as a testament to our resilience as a nation. You have lost.

However, you made us realise that we have failed. Not as people but as government.Today,  We the government have failed to protect our citizens. We failed to recognize your existence. Our thoughts were on foreign trade and nuclear deals. Our thoughts were on numbers and zeroes that made this economy. We undermined our domestic security. And, my government will take measures to correct this. Domestic security will and should be the priority of any government. And I would like to apologize to my people for failing to understand this earlier.

Our heroes are braving their lives to capture you today. And I am sure that this collective thought and spirit of my country will kill the rest of you. Your purpose will always be defeated in this country and in any country in the world.

  Today we will support our heroes

Today we will embrace ourselves..

Today we will sing our national anthem

Today we will pray, in the unity of the hymns of all religions that make this nation. For the souls that have departed.

We are one.'' Jai Hind.

Miswin

I am twenty. Exactly in between the tug of war between fifteen and twenty five. From the dreamer of fifteen to the anybody of twenty five, its not at all just numbers that become years that become ages. It is about the I in the me. On the day the date became the tangent of my life I exclaimed casually to a dear friend that i didnt feel the enormity of the number that has just become my age. I was told to wait.

I didnt have to wait too long. Different was on its way. My handwriting has changed. Its become more horizontally illegible rather than the previous vertically hyper sharpened lines that looked like some egyptian script which was really beautiful to see from far, but from near could only be comprehended by moi. Next, i suddenly find the color orange very attractive. No more purple or violet. hmm. what was the difference, one is light one is dark..blah..ive been told again and again.ok then where does indigo fit in to all of this. someone needs to stop calling colors by its name, and just describe how the color makes you feel. and not only the favourites. everything. Maybe there are still a lot of colors that i havent seen to truly have a favourite. But in total accordance to who i know i am, i will never have a favourite color. All colors make the world i know. And i love the world i know.

And then the shocker. We've got to choose our area of specialization next semester. And i have decided to choose marketing. No more finance. Well heres the reasoning, on turning twenty i realised what i would be doing if i were in the field of finance. probably become an investment banker like id wanted to become and then what... Ive only got less than a hundred years to live and I AM NOT going to spend that crunching numbers for some rich guy.. yes thats what investment bankers do.. they can never sleep.. they make bets on other peoples money.. they have to make money from money.. and if they dont they are fired.. no wonder they get paid really high.. its not that i no longer love risk... I will risk only for myself. eg. if i still get a chance to become a sailor. i would. Even if the risk element in the form of the somalian pirates are there, that would be classified as a challenge and not a rrrrrrisk..Simple point.. i wont waste my emotions... for someone else.. ive only got a hundred years to live.. repeatez.. But this doesnt mean i dont want to become the finance minister of this country.  and not its not the 15 year old winning the tug. If qualified in public policy and given a chance. I would certainly accept the post, the only caveat being that the communists must come back  to power.

I am going to choose something that ive always loved. Advertising. And it is my conviction that given the economic conditions at the time I graduate , marketers will be the ones that will be needed to pull the economy from the abyss, not people who can cuddle numbers. They are for the times of prosperity. And that is when?

My thanksgiving day is today. To the heroes who made my performance possible. My dream team of mentors.

Mum, Dad : The true masters of my endeavour.

Mr. Gautam Puri: For teaching us to solve geometry using the admit card as a scale and coins of 50 paise and 1 rupee for circles.

Mr. Chandramoli, for helping us build the thought algorithms needed to think logically. Sir, you puzzled us as much as you taught us.

Ms. Geeta, for the endless gyaan on the language. Who told us not to learn the rules of grammar, but to read so much that you would become a grammar auditor and discover the audacity of words when they become sentences.

Mr. Govinda, The gardener in our college: for letting me sleep on the grass and study, especially when he does such a hard job everyday tending it so that beautiful species of butterflies and squirrels can be invited.

Mr. Victor, for all the times he slapped my wrist and took the fiddle from me. Who kept telling me that I am no good with the instrument. Who was never satisfied with what i played(rather how I played). Telling me that my notes were never close to perfect and when i somehow managed to get the notes right tell me that i had no emotion in it. paradox of perfection. Notwithstanding you never tuned my ears only to play another bach or another mozart. You tuned me to play my own song.

My coach on the field, you taught us more than football. You taught us to face our deepest fears. uncensored performance. to compete without recognizing the enemy. win without knowing you are winning.

Friends: the champions of my life.. who inspire me to inspire myself.

The list is endless.... i could go on and on from the ice cream factory that made the ice creams that i ate to hike my emotions when i was feeling low, the artists who sung the wonderful songs outlandish 'walou". david cook ''time of my life'.. switchfoot 'dare you to move'''. paulo coelho for producing an amazing book that never ceases to inspire. I would like to end with a quote from his book that helped me cool my nerves today:
"The warrior smiles because nothing frightens him and nothing holds him. With the confidence of one who knows what he wants, he opens the door''                                                                                                                                   

THANKYOU! THIS DAY WOULD HAVE BEEN IMPOSSIBLE WITHOUT YOU ALL!

Change is constant. Can Obama become a constant. Maybe, ofcourse, goodbye, hello. Im so lucky theres no television around. Only good old youtube (old??). So I didnt have to see repeated images of journalists trying to prove that they supposedly have a greater job than the next president of the United States. Telling us how to think and blink. Im talking about the analysts who rip our minds of all the personal convictions that we could have otherwise formed. Journalists who look straight at you, with gelled hair and fingers with muscles (they make the inverted cups of nothing as they try to place an issue on the table).

So heres a soliloquy from someone who watched today without a tv.
One. Americans had to lose more than a trillion dollars, watch their banks go broke and homes get sold, to realise that Bush had messed up. They didnt realise it in 2004 when they were dropping bombs in Iraq, torturing people in Guantanomo or making money out of thin air.

Two. Impact on India and the rest of the world. Millions of young Indians who would have watched obama  today would have realised what a leader really is. That is if the television channels bothered to translate his speech to the vernacular. I am sure they didnt. And im sure that they instead must have focused on some IT honcho telling that jobs wont be shipped to India anymore and created a drama out of it. Obama is more than americas november santa claus. He is a gift to every young person in this country and the rest of the world. The gift of inspiration. Rather than wondering if we are living in a democracy, they would have looked at themselves in the mirror and decided that they too could become leaders of new India. One that can lead the new breed of Indians that are eager to become everything and anything.

The last time i became overwhelmed with tears was seeing Ussain Bolt sprint in Beijing. Today was a testament to triumph. However the challenge that lies ahead requires more than leading a nation with a microphone...

Money. where art thou go? Money is running and its not a marathon. Unlike people, for money fleeing is not the only way to escape. It escapes by hugging assets. People with degrees call it investment avenue. When the economy is in spring mode, money bounces. We see money hugging equities and other capital market instruments. When we see the reverse happening, we see money flowing out of equity and going into debt instruments.. Well this was how money behaved. But right now, at this recessionary moment. Money is just not hugging anyone. Money has started spinning across continents, and making economies spin. And instead people are running after it. But even money in the form of money isn’t safe for anyone as currencies are depreciating faster than you can get hold of them. Ask the Japanese yen or the Korean won whats happening, that is if you can find them.

You know the thing about liquidity. It condescends finance for being the brain of the economy. It makes finance seem like a zero sum game of confidence. Confidence branded as pessimism and optimism. Confidence can murder risk and elope with trust. But at the end of the day money hath no emotions. It doesn’t  know the millionaire that has it or the beggar that gets it. I miss barter!!

I hate the airlines in India. But i like to fly... and i used to think that the only bad guy was gravity. Of course nature gave gravity a monopoly on earth. But then  there exist many species of our feathered friends who defy it. but not us. and if we here in India really want to do so then we need to get on to those titanium things that are supposed to fly..alright it does fly.. but my point is.. the domestic aviation sector here is truly crowded.. when sensex was at 22,000(ok the whole thing was crazy).. but the craziest was the fact that the Jet Airways stock was trading at 660 and deccan too had a decent valuation in the market.. They were making loses to the tune of crores per day .. airline companies are not profitable because they are too many. Domestic aviation doesnt need a one rupee air fare.. total ripoff since they put in those surcharges for fuel this and fuel that and make you believe that the price is actually going to some oil company.. yea right.. and they complain of high oil prices when the rupee was being powerful day by day.. remember the good old days when it was 39. Ok so now they are forming an oligopoly and laying off stewards. Jet and Kingfisher are roping in good old air india to form a cartel in the sky. So that they can kick the weaker guys out. Do some real pricing ... show what flying actually costs to the Indian traveller and be in the green. Do that my friends!!! and you will see how prudent the Indian consumer is. Lalu prasads railway revenues will have an extra digit this year and people will unconciously give him a nobel prize for being a business person with great acumen(thats another story). QED. Domestic aviation is a bad business model.. and I dont have to invent teleportation to prove my point.

Causality. The relation between causes and effects. No not science. Wait a minute. I think it can be called a science. I am referring to conspiracy theories. A few documentaries that suggest that what we know is wrong because of how we know it. The conspiracy theory on 9/11, the timeline on man actually landing on the moon. Are these deceptive attempts or subliminal thoughts. An alternate view is always applauded. But cynics of cynics, the ones who are neutral that is and donot form a part of those being termed as malevolent or more in perspective the conspirator argue that they have an adverse effect on society. I recently read and article on spiked titled why facts won't demolish conspiracy theories. The thing is things have moved so far away from the centre of what we used to call normal. Violence, Hatred exetra are not proportionate to the humanity that we rejoice of. We would like to make sense of it all. And the facts in the media dont seem to suffice although they are true enough. We also like reason. And not all reasons can do. Only the ones that make you believe that it could have been controlled. Prevented is the political lingo for it, especially if you are from the other party. It also arises from the increasing feeling of powerlessness felt by the citizens of the rest of the world. And conspiracy theories help suffice such convictions with an a priori hail of fatalism. Loser are we? Already! More than we thought. On two accounts. One on the loss. And the other on the others gain on the loss. Its best not to go in for the theories then. But still we like to believe that nine eleven was caused by concerted efforts who had vested interests in the aftermath. And that the landing on the moon was faked in order to chaff the cold war adversary's technological prowess. We may as always never know. But there is no harm in knowing all sides. Atleast we will not qualify to be naive. And not being naive certainly gives you the escape door from feeling powerless.

This is the requiem for the last stock trader. I dedicate these words to the investment banks that got melted by toxic finance.

In the boulevard of greed
Where faith is burnt
And fear is wasted
On Numbers that dont stand still

The stock trader wakes up
To find he is dead
It wasn't too late to wish
That he wasn't somebody else

Before he woke up
And after he died
There was a dream
Where coffins were bought
And souls were sold

Please don’t look at the picture above. Before we inhale the shame of our nation. I would like to pronounce a political hypothesis. We will no more have a pure form of government at the centre. From hereon, coalition governments shall make, break and fake the arithmetic in our parliament. As our socio cultural minorities get empowered. Our majority will truly represent the diversity of our nation. Combine diversity with democracy; we find that a single political party even with maximum multiple ideologies cannot exponate the aspiration of every citizen.

 

Coalitions aren’t bad, they are the test of the crudeness of our democracy and the testament of our diversity.

 

The MP or the leader (choice is your discretion) will be the person who understands the dynamics of the newly empowered electorate. The potential politician shall scout for a niche in our demography. And try his best to cater and represent them better than the previous majority party. Just like an entrepreneur scouts for a niche in the market to exploit and create a market share for himself. If he is successful in telling them that he represents and identifies with each of them. A new party with a new permutation of abbreviations is formed and he becomes an MP. And once he becomes an MP. He uses gunboat diplomacy (power politics) to stress the coalition. Wait for a trust vote. Ask a price for his consent, dissent or abstinence on a vote on public policy. The fairy tale of quid pro quo and probably a caveat emptor for the voting public. (the picture is conclusion)

                                                                     

College Students would probably start wondering whether clearing an entrance exam like the Common Admission Test is more difficult than becoming an MP. The payoffs may be skewed in opposite directions morally and monetarily. But the latter is definitely the hardest way to make an easy living.

I cant believe such a poem was written on the eve of my semester exam. Hurrah! for the exam and the syllabus i must say, if at all it contributed. Probably it gave me time to think as i sat with a book on the table, wondering what i was doing. Hey, atleast i tried to study!!(PS.the exam went well).  And i name it my first anthem.

First Anthem
Days; I couldnt think
All night without a blink
I would Mirror my soul
And find sound for dream
As thoughts reflect sleep

MUTING THE MALTHUSIAN KARAOKE

Inflation, the metronome of the nations pulse and purse is at 7.41%. Same is the case globally with these figures being higher and breaching the quadrant of food security among the masses. This sounds like the karaoke of the prognostics; speculated by the English economist; Thomas Malthus. Who stated that in the absence of moral restraint; population tends to outstrip the available means of subsistence.

 

Ugly economics: Calorie versus Salary

Without doubt a competition is being hosted by inflation at the expense of people from all nations. The consequences are huge. It is not merely the energy producing potential in food that has been pitted against the income of the salaried people of this country. Prudence in consumption will be exhibited by the middle class as they hug every unit of their salary. But the graveness of the situation is amplified as soaring food prices are threatening the subsistence of millions of people living below and merely above the poverty line. Data released by the World Bank shows that the surge in food prices threaten to make at least 100 million more people hungry. Riots have sparked across the globe from Haiti to Philippines. Citizens are holding their governments accountable for the spike in food prices. Governments are rightly liable, but should not deserve all the blame. Powerful economic forces from all corners of the globe have crippled even the most carefully articulated monetary and fiscal policies that were designed to streamline and sustain the economy towards prosperity. On the demand side, economists and political leaders in the west are pointing towards the economic growth in India and China as one of the prime factors contributing to global inflation. Increasing economic prosperity in India and China has allowed more people to consume meat than ever before; changing the dynamics of acreage under production from cereals to animal fodder. Classic biology tells us that calorie derivation from intake of cereals and food crops is more productive per acre than producing food by feeding animals. Vegetarians may stop applauding as there are more reasons to costly food. Supply side constraints have been highlighted with draughts in major food producing nations like Australia. Other exporting countries such as India, Vietnam and China have placed a cap on exports; in order to contain domestic prices and satiate heightened internal demand. This has further exacerbated global food prices. The falling dollar is also contributing to rise in food prices, as commodities traded in the international market with price tags denominated in dollars become expensive. The fallout from the sub prime crisis is also attributed as cause for increase in commodity prices. As hedge funds and retail investors withdrew money from capital markets and poured it into commodity markets. Speculation in the commodity bourses may have resulted in the rise in price but the medium term growth of supply is not able to attenuate it. Oil prices have been sleeping above 110$ per barrel for a long time and this has had its impact on agriculture in the developed nations which rely on oil guzzling, technology intensive methods of production. In the developing nations oil prices have been factored in as fuel prices involved in logistics

 

A tale of two causes: Bio fuels in the US and agricultural productivity in India

Here is a brief insight on the problems faced by policy makers in the United States and India. Bio fuels were introduced as a tranquilizer to the problem of excessive consumption of oil. But it was soon realized that it was a double edged sword.. The highlight of the dilemmas is the tug of war between energy security and food security. The International Monetary Fund says that the use of crops such as corn for bio fuels accounts for about 20 per cent of the rise in prices over the past couple of years. As the acreage of corn used to produce ethanol for fuels increases; the opportunity cost of producing food meant for human consumption ascends more rapidly. Policy makers are caught in a vicious circle circumscribed around them by bio fuels. They have to encourage bio fuels in order to reduce consumption of oil and thereby bring prices down. And on the other hand they have to discourage the use of bio fuels; in order to increase the area under agriculture  meant for human consumption. The tension of these policy makers is heightened as the global cause for inflation spotlight falls on them.

In India the monsoon forecasts this year have promised adequate amounts of irrigation vouchers to the Indian farmer. But Indian agriculture is faced with a graver problem. There has been an increase in migration of the rural population towards the urban regions of the country. Thereby accentuating labour shortage in the agriculture sector. In the state of Punjab, there is delay in procurement of agricultural produce. Incentive for agriculture is bleak despite the rise in prices as most of it is shaved off by the middlemen. Farmers don’t even breakeven on their investment on seeds. There is also an acute shortage of warehouse facilities. The lack of silos and cold storage is destroying supply as produce is being wasted due to rodents and spoilage. Indian policy makers are responding to inflation by maneuvering monetary and fiscal policy. An anti inflation public finance policy is hampering growth in this emerging economy.

 

Green revolution version two

Policy measures, such as the recent CRR hike by 25 basis points are just helpful in absorbing excess liquidity which may be funding demand. This may help in the short run. But in the long run India needs to step up efforts to revolutionize agriculture .If I were a policy maker this would have been my suggestion. Use India’s burgeoning forex reserves in creating a Sovereign Wealth Fund. A sovereign wealth fund that does not invest in companies abroad but in India itself. The quintessential logic is why invest abroad when we need the capital, this also applies to the practice of RBI investing in US treasury bills (that are currently generating negative returns because of the falling dollar). The funds will be used to create a PSU Construction Company called the Indian Agriculture Infrastructure Developers (IAID), a commodity exchange called the National Commodity Exchange of India (NCE) and grants for research in bio technology. IAID will build warehousing facilities phase by phase in select rural locations based on proximity to agricultural land holdings. These warehousing facilities will have connectivity to the commodity exchanges and will also engage in distributing (if need be) subsidized fertilizers to the farmers directly.  The commodity exchanges will procure produce directly from the farmers and allow them to participate in the process of price discovery by linking them to the national commodity exchange. By making price discovery transparent on a commodity exchange that will be regulated by Forwards Market Commission of India. Farmers will be able to reap benefits of the actual price of the commodity and also hedge their products.  Also by constantly monitoring the demand requirements as projected by the commodity exchanges the farmers will have first hand information in maneuvering supply to meet demand. Since one of the reasons for low agricultural productivity is the fragmented farm holdings, a system will be introduced which encourages farmers to form partnerships among themselves while producing food. Agricultural Cooperative Societies will be formed with the guidance of Village Panchayats. These Agricultural Cooperative Societies will educate the farmers on the working of the commodity exchange and also reap the synergy of consolidating farm land. Government investments in bio technology are the way forward. Agricultural productivity can be increased manifold using bio engineered seeds. Just as developments in Information Technology has heralded the growth of India as a service producing hub for the world. Bio technology shall herald green revolution version two in this country.  I believe that phase two of the great Indian growth story will see the empowerment of farmers. Apart from being self fulfilling Indian agriculture has the potential to feed the world as well. There is no doubt that a massive induction of bio technology in agriculture and the systematic improvement of our agricultural framework will kill the Malthusian proverb once and for all.

Capitalism, democracy et al

Cynics have long been arguing that globalization is the cannon of capitalism. They propagandize their view by citing the reality of inequality in wealth distribution among the citizens of the flat world. Meanwhile, Pakistan hopes to install democracy. And Iraq is experiencing the side effects of being presented with a plagiarized democracy.  The cogency of the cynics argument and the rhyme of democracy are examined in the following article under the limelight of economic turbulence.

 

A tale of two crisis’s

A farmer in India who has taken a loan which he cannot repay because his crops have failed to yield is pondering whether he should buy pesticides to poison himself with the last units of what is left of the money he has borrowed. Besides adding to the toll of farmer suicides in the country it is an excerpt from the agrarian crisis blossoming (no pun intended) under the shadow of the emerging India story. Meanwhile, an investment banker in New York is starring at a computer screen displaying ditto blobs of numbers in red besides names of securities that can only be pronounced with the verbose of financial jargon. He had taken home several fat paychecks for making these instruments by dicing loans and priming notional money. Notwithstanding the difference in the zeros behind the numbers that show the credit acquired by the Indian farmer and the American banker, they are equal in their grief. Yet, only a modicum of equality in the face of the chasm created by capitalism between the have and the have-nots. Are the cynics of capitalism still right?

 

Panic Engineering or Political Maneuvering

The 60,000 crore farmer loan waiver announced by the Indian finance minister, is designed to attenuate the agrarian crisis the country is facing. The possibility of its potential to make a difference the in the tally of farmer suicides has been impugned and applauded. The farmer who starred in the beginning of my article will be relieved. In the United States, a stimulus package denominated in billions of dollars has been announced. The Federal Reserve has bailed out an investment bank and inveterately cutting interest rates. The government in both these instances is simultaneously involved in panic engineering and political maneuvering. One color, two paintings.

 

Universal Insurance and Insouciant Citizens

The people who have been bailed out of misfortune must be eulogizing the might of democracy. For it has provided a cushion for the giants of Wall Street to fall upon. A cushion for the farmers of India to sleep upon. The taxpayer’s money is being used to fund the bail. The main purpose of a public financed bail is to rescue the financial system from corroding the economy. However, I believe that the utilization of public funds in this manner is a strong testament to the power of democracy. It is an act that should remind citizens that the state has insured them. It annihilates egoism among citizens, and promotes tacit altruism. Taxpayers may not be fascinated by the idea of their government acting like Robin Hood, but that is the price one has to pay for being able to be insouciant citizens of the republic. The alphabets of Democracy certainly have an opportunity to regain the goodwill it has lost in the Middle East.

           

While Washington was busy putting the United States in an invidious position by creating rancor in the Middle East, the Federal Reserve was busy cutting interest rates fuelling the cupidity of investors at Wall Street and sowing the seeds of stagflation in the economy. Both the government and the central bank of the United States were accentuating its own interests.

 

Newspapers and Commentators have not spared the economy with any euphemism while referring to the possibility of a recession in the United States. At this point of the year, the credulously nostradamic tautology of the fate of the economy by the pessimists and the optimists who run the media has become belligerently banal.

 

Ben Bernanke, the invisible Santa Claus

6 year old kids around the world may not know who Santa Claus is. But investment bankers from New York to Mumbai know for certain that Ben Bernanke isn’t. Though he delivered yet another interest cut to the financial world. This time the market euphoria was evanescent. In fact; the writing is already on the wall. This could very well be the last time the Federal Reserve would cut interest rates. One more interest rate cut and you could see the gulf countries pulling their currency peg with the dollar. The dollar has recently touched the support level of their sentiments. They had been steadfast on removing the peg; even when Washington was fighting a war with their neighbor. The governments resisted local pressure to remove the peg; even when the Fed’s monetary policy was creating inflation in their economies. The removal of the peg would mean the end of petrodollars. The very fiber that is supporting the fabric of the weakening dollar from tearing apart.

 

The sequence of interest rate cuts have helped to procrastinate an economic calamity by muffling falling house prices. He may not have provided a pillow for Wall Street banks to fall on to. But he has certainly provided them with a trampoline by buying them time and making money cheap. Investment bankers were given time to induce euthanasia on their mortgaged backed securities. Markets wanted double the amount of the Fed cut in order to celebrate Christmas. The macroeconomic focus of the Fed and the profit orientation of the market players may after all have more in dissimilarity than snow and rain. But 25 years from now, the 6 year old kids that I referred to earlier will consider Ben Bernanke as the invisible Santa Claus. Either because he gave a pill of catharsis to the economy or because he gave it a parachute to perdition. 25 years from now this parachute to perdition would have created a new economy that would emerge without the debris of the current mess. The infallible trade cycle would have used the dynamics of a positive sum economy to flip it from recession to prosperity by then. And these 6 year old kids would thank the invisible Santa Claus of 2007 for not prolonging the bout.

 

Einstein, Robin Hood and the Bank that lost another billion. Money doesn’t just disappear does it? The billion dollar losses that the mighty investment banks have reported may be worth moaning about. But the money wasn’t burnt was it? Crudely speaking, it flowed from the coffers of these wealthy banks to a John Doe who needed money. These investment banks were busy being greedy and careless. Lending money to the sub prime category and creating exotic investment instruments to pass out and leverage the risk. The delinquents were given artificial purchasing power in order to lead a good life. Macroeconomic translation equal to economic consumption. And their consumption must have invariably created revenue for many businesses. And these businesses must be having one of these investment bankers as their merchant bankers. The point is; money doesn’t burn. If these banks are lucky they can expect for a boomerang in the year 2008. Delinquents may pay back, real estate prices may bounce bank with some help of demand dynamics and the aforesaid businesses may save and plough back money into their coffers. Robin Hood visited the financial markets in the year 2007. And he showed everyone; how investment bankers who have made billions of dollars in revenue all this while are finding it hard to swallow losses and abstain from cooking dividends. The same people for whom millions are pennies. Einstein’s theory of relativity at its best.

Money denominated in millions of rupees, dollars and currencies representing the notional wealth of nations have been burnt as the markets waltzed off the cliff of economic utopia. The dynamics causing the divorce of the stock traders rationality and quixotism has been invariably discussed by eminent economists and decision makers. Their commentary have been appearing in various media and a majority of deductions form part of a superset that includes the words recession, unemployment, sub prime lending and the federal reserve. One can imagine a trader sitting down after a day of snit at the exchange and trying to seek solace in the explanation given for the prevailing quandary. Amidst all the chaos at the exchange, and the deductions and predictions published by popular media, there exists an implication never mentioned. An implication that is ineffable for the capitalist who reads the business paper nevertheless narrated in the lines below. Lets hope I am not Cassandra but I make my disclaimer implied so that capitalists don’t tear this sheet after reading my conclusion.

 

Carcass of greed and the optimism of fear

For the purpose our discussion lets assume that the decoupling theory is true. And that the bad sentiment in the Indian market is solely because of domestic factors.  Factor one being corporate results for this quarter were not as glamorous as the previous quarter. Factor two starring the RBI governor who is walking the tight rope balancing foreign currency inflows, inflation and growth by keeping interest rates unchanged. Investors are disappointed with the balance sheets. To inchoate their disappointment profit margins and growth in net profit in percentage terms is declining. Emotion of fear is hyperbolized in the same way as greed is. And therefore a crash. There’s nobody to buy companies at the current price earnings ratio. Shares of companies fundamentally strong are belching with speculative acidity. Earnings are no longer the fancy of investors. But the premise of their sentiment can be proved baseless. One has to take into account that the previous quarters were periods of dream run for Indian companies. Therefore previous quarter results are on a high base for comparison. Such high levels of growth are hard to sustain. I believe investors will have to learn to live with (no not volatility, that’s cliché) not so handsome balance sheets in the coming quarters. The vindication being this; the Indian BPO industry was able to generate income in large proportions due to the availability of cheap labour in this country and the fad among western corporates to outsource their operations in order to reduce their cost. But now, the cost of talent (labour) has increased. Sadly, Indian companies have not moved higher on the value chain and they still leverage the fact of low cost for getting orders. Therefore, if they are to continue receiving orders, stay competitive and retain talent they will have to cut back on their profit margins. Notably, the first part of globalization was appropriated with the dynamics of capital arbitrage. Capital sourced from destinations where procurement was cheap. And capital was flying to destinations where returns were high. The mantra was that if you had money, you could make even more money. By letting investment banks grow your wealth or by investing in companies and fighting for every rupee lost at an AGM, even though ones capital has appreciated multifold in the stock market. Now, it is the advent of labour arbitrage. Labour will cost more as the cost of living increases because of inflation and talent becomes as rare as a smiling stock trader during these times. Also because of the aspiration bar that has been shifted higher. Corporates are still trying to maintain margins by laying off employees. Such a resort is aimed at pleasing shareholders. Eventually they will realize that compromising on margins was a better option than inhibiting growth. Bottom line: Investors can and should stop dreaming of sky high returns on every unit of their money tagged with the sobriquet of capital.

 

Crash  catharsis There is a change happening in the tectonics of factors of production in economics. Capital which has occupied the prime position in production since the advent of the industrial revolution is finding it hard to sustain its berth. Arguably, the owners of capital have always reaped more benefits than the other owners of production in the post industrial revolution era. The recent crash in stock markets is the sign of a revolution. Consumption may still drive corporate results once the recession melodrama is over. But net profit margins and other financial indicators may not be able to sustain such high levels any longer. Corporates will no longer leech out higher profit margins at the cost of underpaying employees.  The best an investor can hope for in order to generate the optimism needed to pinch the bull would be a sustained and moderate growth rate in corporate earnings. Suddenly the question of whether the economy will slip into recession sounds like a euphemism. The real question is whether we are about to witness a harbinger for communism or just another subterfuge of capitalism