global issues

Dominique Strauss-Kahn Case May Exemplify Zeitgeist of American Values

2011-05-19T02:47:00.000-07:00

Many of us, who are not American citizens, including those who may have so far not had the opportunity to visit this great land - epitomizing the statue of liberty and human aspirations with human dignity, have read or heard, thanks to the Internet and the global village of today, two specific words on the zeitgeist of the United States of America, probably the greatest ever nation in history so far.

‘American Values’, or many of its offshoots like ‘this is what America stands for’ or ‘This is what America believes in’ are often found to be integrated parts of American Presidential speeches, or in American columnists’ articles, or in innumerable online posts of American netizens.

As an academician believing more in simplicity and clarity, I was little constrained in interpreting the uniqueness and the zeitgeist of ‘American values’, which sort of have been the backbone of this great nation for over the last couple of centuries. Not that I didn’t sense or partly understand its meaning, but surely I could not internalize the meaning completely, to my fullest satisfaction, with my own interpretation and belief in sensing how these two single words can drive such a diverse nation, to great heights and tasks, that has traditionally also been the nation of ‘who is who’ in world’s history of greatness, from thinkers to scientists.

Effectively, I was looking for a case, a real life story, a simple example that perfectly represents these two words ‘American Values’, to its fullest and rightful extent. For constraints that is purely personal in nature, as I might not have heard or read about of hundreds of such unreported or less publicized instances happening every day or year in America; or for global constraints that truly handicapped America to display true ‘American values’ on a grandiose scale, to the benefits of people like me, and not ‘American imperialism’ in disguise of ‘American values’, or “American exceptionalism’.

I won’t blame myself or millions of others like me, who eventually started believing that ‘American values’, even at its best, are nothing but another two UN-styled words for orators, to be used in Presidential speeches, or in many-an-Americans’ interests/netizens’ blogs, to pursue further the interests of American imperialism.

At the same time, another alternate good image, a case, a story with vivid pictorials that started filling up the void on ‘American values’ at my cerebrum, is that of Santa Claus, in which most of us would love to believe in, irrespective of nationality and religion, but which does not exist, nor ever will.

It is not that I did not try and find better metaphors for ‘American values’. There surely was traces of it when President Obama won and became the 44th President of this great nation (it is actually better suited as an example of American aspirations); or in Spider- Man 3 when, towards the end, Spider-Man comes to save the day and poses for a few seconds in front of a huge waving American Flag, probably implying much more than what words are capable of, on ‘American values’.

I have been also reading it umpteen times daily in numerous web-comments or articles when I come across the greatness of many American thinkers in understanding the plight of China or its workers, or the plight of the ‘have nothing poors’ in India or in Africa, or even in understanding the root causes of injustices that might have driven fundamentalist groups like al-Qaeda.

As a B-School professor; I have studied many garage-workshops to Wall-Street styled billionaire club cases in this land of unparalleled opportunity and innovations, which surely have benefited mankind at large too, and where most of my batch-mates of colleges have eventually settled in, in similar pursuit. Operation Geronimo was not the perfect example of ‘American values’, it rather was the perfect example of ‘American revenge’, qualifying at best to be ‘justice done’.

Effectively, I was still searching, probably in vain, for a case on ‘America values’.

All that changed with the reports and articles that flooded global media over the last few days, regarding the arrest and denial of bail to the IMF head, Dominique Strauss-Kahn, over the charges filed by an unidentified chambermaid in Sofitel Hotel in New York.

The bits-and-pieces that have come so far, in media, irrespective of authenticity, identifies that victim as a thirty-two year African (from Guinea) woman, with a girl child of fifteen, who is one among the millions of American residents, pursuing those great American dreams. The employees of the hotel network so far has not said anything negative about this victim; no such reports have emerged from the neighborhood where she lives. The hotel network rather has asked its employees not to ask any questions to this shocked (and extremely vulnerable, as per various media reports) victim when she joins back, but to offer her a simple hug.

Now, what does this unique story offer, to qualify itself as a long-awaited case of ‘American values’, to someone who never visited first-hand this wonderful land? It simply offers the hope of ‘justice initiated’ following ‘American values’, without any probable covert question mark on American self-interests behind these acts.

One scrutiny, that this case still fails to qualify, is on the citizenship status of this woman. Anyway, it can fairly be assumed that she is a legal resident, and media termed her as an immigrant. That hypothetical scrutiny is, Dominique Strauss-Kahn is not an American citizen, but the chambermaid is an immigrant, on her individual rights and merits.

I will never take this case for classroom testing as this is not a subject I cover; however, I can very well imagine a student, at some corner raising his/her hand suddenly, to make an out-of-the-box point in nullifying this case completely, in its teaching objective of exemplifying ‘American values’ to millions of young learners across the world, under the pretext of:

“But Prof., America has no permanent friends or enemies, only interests (as stated by Henry Kissinger). And the interests of a resident American always come ahead of that of others. There have already been reports of conspiracy theories on this, particularly in France, and among some sections of socialists, or even on how Strauss-Kahn had been working to make IMF policies more inclusive for developing nations, against US interests and stronghold status over IMF. The matter is, therefore, not as simple as you think, Prof.”.

That’s a fair point. Do ‘American values’ rank many pedestals ahead of ‘American interests’, even when they are not in perfect synchronization with one another? Surely, in reality, ‘American interests’ has a negative overtly aggressive nationalism connotation to it, unless it is only to defend ‘American values’. I can only hope to evade the question, by quoting Confucius, under such a hypothetical, uncomfortable scenario: ‘That’s a great question. However, three things cannot long be hidden, the Sun, the Moon and the Truth. Let’s hope that the truth dispels those conspiracy theories’. In my further struggling attempts, to win over an unconvincing, young class, I may even talk about my personal bias, from watching Bruce Willis as John McClane in ‘Die Hard’, and thereby taking a call that NYPD should not be viewed to be as incompetent as the police forces of most Indian states are, particularly when such a high-profile person is involved.

Coming back to the challenging realities of this evolving case, from the discomforts of such a question in such a hypothetical classroom; the matter is very much sub judice. While denying bail, the judge merely stated the reason for the decision primarily arises from the ‘flight risk’ angle. Denying bail, in no way, is to be interpreted to be a judgment on guilty or not-guilty.

Dominique Strauss-Kahn, therefore, still remains an accused and not guilty. As an individual, although I would respect people’s right in believing in ‘presumption of innocence’, in favor of Dominique Strauss-Kahn; personally I would apply same in favor of the unidentified, vulnerable chambermaid.

Still it does not amply explain why the case may qualify as one of ‘American Values’. This can at best be a case of crime, and subsequent justice being done to it. Nothing more, right?

Wrong.

We all love to believe that we live in societies across nations that believe in equal rights and equal interpretation of laws and rights; seldom have I seen that to be followed anyweher, if probably never at all, so far.

This case surely does offer that simmering hope of seeing one unfold, to people across the world, who have been following the story now, from various other earlier such sexcapades of Strauss-Kahn, from France to Mexico to probably in same Sofitel, gaining global media attention only now.

Particular attention is due to Tristane Banon, a French journalist, who might have suffered a similar incident in the hands of Strauss-Kahn, back in 2002. The French girl was under the protection of a mother, who is probably not an absolute ‘nobody’ in the French society as this 32-year old Guinean chambermaid. Even she couldn’t encourage her daughter to stand-up for justice against the influential class, in her homeland. French media/TV show decided to blip-out the name of Strauss-Kahn during live broadcast, although Tristane Banon named Domique Strauss-Kahn in 2007, in an interview. Jean Quatremer, a respected journalist, in an interview to Hindu, reported of many such cases of ‘importunating female journalists time and time again, sometimes in a manner so crass and gross it could only be called sexual harassment’.

The point is – these French journalists didn’t believe in their chances of getting fair justice from the French society. The key words here are ‘women journalists’. As the fourth estate of democracy, journalists anywhere enjoy tremendous power, more so in present age of digital media. But when young female journalists themselves feel vulnerable to sexcapades from the influential section of men; or majority of journalists act in collusion with a corrupt system (as in India), society suffers.

And France is not a third-world nation like India.

So long I was under the impression, in spite of occasional skirmishes across the Atlantic, that Western values were sort of universal human values. The fine-prints, emerging from this case, teaches me now the limitations of over-simplifications, as Einstein believed in ‘everything should be made as simple as possible, but not simpler’.

America may have hijacked basic human values and rights and aspirations under these two words ‘American values’. However, for a change, millions of people across the world, who have been disillusioned by American foreign policies to monetary policies over the last many years, surely would not be complaining this time.

When the brother of the alleged victim assured his crying sister over phone, probably immediately after the incident, saying ‘This is America - he won’t get away with it’, we all can see that belief in ‘American values’. ‘This is what America stands for’ seems to be in action now, proving that the assurance of the brother, another immigrant or at best a citizen of the US now, to his vulnerable sister, has not been wrong.

It is early days for this case, symbolic of ‘American values’, to billions of netizens like us. The case would surely evolve. For a change, the rest of the world would surely love to witness the case moving to its legitimate end, morally supporting this vulnerable woman, from each corner of our global village.

We have so far seen the trailer.

I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes). You are also invited to join me on twitter.

The puzzle involving interests of AfPak, China, India and the West.

2011-05-16T04:10:00.000-07:00

This is the second part of a two-article series on ‘Finding the elusive win-all solution in AfPak’, Part I of which can be found here. Winning the ongoing war against overt terrorism apparently is the common win-all solution, however not so when one factors in covert intentions of involved state powers.

Afghanistan-China mutual interests

Other than regional peace, stability and China’s insatiable hunger for natural resources, as in Aynak copper mines in Logar province of Afghanistan; China also understands that Hamid Karzai government in Afghanistan can’t make too many enemies simultaneously. It is no secret that Obama-administration and broader Western interests didn’t want him to win a ‘rigged’ or fair second-term in office. Relationship of Hamid Karzai with Pakistan is deteriorating, to put it mildly; and India remains a non-committal ally (in spite of Indian Prime Minister Dr. Manmohan Singh speaking in Kabul that Afghanistan can ‘count’ on India last evening), in terms of governent resources and military capabilities. Again on a purely economic and stability context; China can offer win-win solution to Afghanistan. Afghanistan also surely realizes this, going by the charges of corruption made by Western interests, while deciding winner for the Aynak copper mines.

And unlike the West, where the US needs financial tightening more than the struggling European Union; China is flush with funds. It is not on the strength of borrowed printed money on the global status of the greenback as in the case of the US; for China it has, trillions of dollars of earned reserved money, on the strength of its economy.

So where does it all leave India? And what about the all important Western interests in AfPak? Can the Western interests and that of India converge for AfPak, without India sacrificing more, as a pawn, at the hands of the West?

India need not necessarily be in the losing side. It gives strategic bargaining tool to Indian policy-makers against the West. Since long, India has been treated at par with Pakistan in words; however when it came to measurable actions; Pakistan probably emerged as a clear winner, in terms of share of the physical cake. China is moving faster with nuclear power plants in Pakistan whereas Indian civilian nuclear treaty with the US seems to be grounded in terms of real progress; China recently acquired the Thorium-based and safer nuclear technology that would have served India better. Money and investment wise, China can be as important an ally as the West, probably better, as it is state controlled investments, and therefore not prone to market sentiments and shocks.

So the West may have sugar-coated its statements on India whereas clearly favoring Pakistan in terms of aid, and military assets. The West has also started treating India and China in different platforms over the last few years, after the hysteria of China-India comparison in local and global media found its natural burial. India remains the only hope to the West, if they believe they have strategic long term interests in the region.

Matter of fact is, India so far, has been a loser. There is distinct possibility that things can get worse for India if India continues with its ‘in no man’s land’ foreign policies influenced by significant Western ideologies. Unless India quickly adapts to the changing geopolitics of the regional alignment, without being able to convert the same threats and challenges to opportunities and strengths, India can indeed be the genuine real loser of the ongoing realignments in the region, left to lick its own wounds.

In spite of open diplomatic sweetness; behind the door, there may be discussions now on AfPak, based on developments in Pakistan, on picking friends based on common interests; and others – if not ‘enemies’, based on opposite diverging interests. The diplomatic sweetness has been missing, starting from May 1st, from the utterances of the US, the UK, and from Pakistan so far.

India, if cornered to such a situation, where Pakistan-China-Russia converges on their interests and India continues to hesitate in taking clear sides and thereby being ‘in no man’s land’, must extract that cost from the West; for the benefit of Indians and not for capitalist forces of Western interests alone. Irrespective of how India exploits the developments in its negotiation with the west; India must wake up to the ground reality of challenges in AfPak with regional realignments, and stand on its own, by aiming on strengthening ties with its neighbors, from bilateral to multilateral interests.

In the end, the choices for Pakistan, Afghanistan and even India are getting limited. They need to choose one – either the West, who may declare ‘achieved peace with honor in Afghanistan, and justice has been done to the 9/11 perpetrators’ any time now and start withdrawing; or a rising neighbor in China, who surely have long term interests in the region. There is obviously a third option, better than these two, and that is - being able to stand on its own. However it is unlikely that imperialist interests from the West or from China would indeed and genuinely welcome that, without destabilizing covert efforts.

At the same time, it can be expected that China would not make the mistakes that both the USSR and the US have done in Afghanistan, since the late 1970s.

Needless to say, culturally and historically; India, Pakistan and Afghanistan have a lot of commons. Bollywood and Indian soapboxes surely do a better job in Pakistan and Afghanistan than Indian government machineries, in establishing the much-needed people-to-people ties.

Whoever they pick as strategic ally, they must not make the mistake of being pawn to those imperialists’ interests. Real stakeholders of AfPak actually are not the West, or China. The real winner or loser would actually be the people in ground in AfPak areas. Their interests must be protected first, before the interests of the others, to explore mutual benefits.

History, however, does not offer encouraging lessons that prove we have taken due learning from history, particularly in such complex games, with imperialists’ interests in play against states that resemble ‘failed states’.

The task indeed looks impossible. Achieving World Peace indeed sounds easier than finding win-all solution in Afghanistan.

[The author deliberately excluded nuclear-aspiring, and emerging key player of the Middle-East, Iran on the western border of AfPak; and obvious Russian interests, be it to control terrorism in North Caucasus region or be it for obvious strategic interests at close proximity to Russia itself. The author acknowledges vital role for these two key players in AfPak sustainable solution, however including those interests in one single article gets beyond author’s understanding of the region. In 'Parallels With Past: How Soviets Lost In Afghanistan, How US Is Losing – Analysis', Larry Goodson and Thomas H Johnson, examines it with reference to the UUSR experience].

I invite you to visit my blog, Wondering Man (or take a look at my book,Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes). You are also invited to join me on twitter.

Finding the elusive win-all solution in AfPak

2011-05-16T04:02:00.000-07:00

This is a two-article series. Part II, titled ’The puzzle involving interests of AfPak, China, India and the West’ can be found here. Winning the ongoing war against overt terrorism apparently is the common win-all solution, however not so when one factors in covert intentions of involved state powers.

Each country, to smaller regions within bigger nations, is dynamically unique. As context happens to be the key in any analysis, and each context being unique again, the common mistake we all do, while analyzing geopolitical challenges, is to club such unique things into pre-defined categories, for ease of our analysis. It actually does not help the reality.

Pakistan’s uniqueness since long has been defined by the three A’s — Army, Allah and America. Over the years, ISI has largely replaced its army, be it as a legitimate proxy or as another interest group, within bigger interest of Pakistan’s defense forces. The assumption in differentiating ISI from Army of Pakistan is driven by ground realities of terrorism in Pakistan. Pakistan defense has bled under the attack of terrorism, not the ISI so far, in any major way. It is also expected that army in Pakistan works at broader interests of the nation, unlike that of ISI again, which as the premier intelligence agency of Pakistan, thereby functioning under covert operations than transparent ones. However when the tail wags the head, inevitable problem arises – one needs to either cut off the tail, or swap the head and the tail.

Increasing US impatience over Pakistan’s double-standards on war-against-terror, post the death of Osama bin Laden in Abbottabad, and subsequent bitter diplomatic exchanges, or verbal duets involving both the nations military establishments, which seem to get worse every day, justifiably bring us to the 2nd inflection point on role of America in future of Pakistan.

Pakistan is at a cross-road where one path continues to lead in the three A’s direction, the other takes a radical divergence from the existing one, towards AIC – Allah, ISI, and China.

How impossible and Herculean does the task of finding the elusive win-all solution in AfPak really look like? Someone may opine, by the enormity of the conflicting interests of the involved parties, that having the hypothetical, utopian, elusive World Peace (and ‘Santa Claus in reality’) may be easier to achieve than having converging interests from these parties, for a sustainable peaceful solution for AfPak.

With the calls from the West growing now, that, as the US finally got Osama bin Laden, Western interests need no longer face the humiliation of another ‘cut and run’ in Afghanistan. West can simply do what the US did in Vietnam: “brings peace with honor in Afghanistan and AfPak region” – a more honorable withdrawal statement than setting another example of ‘cut and run’ in Afghanistan.

The matter is indeed complex. The key to the problem rests in the hands of ISI, and how well, Pakistan as a state, is able to prioritize the interests of her 170 million citizens, ahead of the interests of the ISI, or even that of its Army. In this context, the upcoming visit or Prime Minister Yusuf Raja Gilani to its all-weather friend China gains significance. It must be mentioned here that the visit was a pre-planned one, prior to the incident of Abbottabad.

However Pakistan PM Gilani’s forthcoming China visit could not have been planned at any better time (President Zardari is already in Russia). A lot of answers may emerge from that meeting outcome – be it within the closed doors, or to public access.

What are these individual interests, bilateral interests, and the other multi-party interests on AfPak? Careful analysis may present some clarity, however much remains under the shroud, and is open to expert interpretations. This author lacks that expertise, from the ground levels.

The sensitiveness of the area and its ethnic groups of tribes, the topic and the passion of the individual national, to imperialists, interests of these five broad actors may make one confined to nationalistic sentiments alone, thereby ignoring the big picture. Matter of fact is; both nationalistic interests and the big picture are important, to get a grasp of the problem.

So, what are China’s interests in Pakistan?

As long as it is not akin to China’s relationship with nuclear North Korea, the possibility to find a solution brightens. There is US military base in South Korea, Japan and in the Philippines (along with the US justifications for maintaining a strong military presence in East Asia); China therefore would always love to wage its proxy wars, to protect its legitimate or whatever interests it its geographic proximities, under the guise of a rogue, nurtured nation. Even if this analysis is right and acceptable to defenders of China, they would argue with the case of Israel gaining one such reputation in the all important Middle-East, under the patronage of the West, primarily from the US.

Alternatively, China’s interests are purely economic and regional stability, for the stability of its own Muslim-populated areas bordering AfPak – namely Xinjiang Uyghur Autonomous Region. It has absolutely no anti-US or anti-India elements in it, at least in the driver’s seat, which is driving China’s AfPak policies. However if the West, primarily the US, and India too make a mess of their strategic relationship with Pakistan; and also with people of Afghanistan, China need not be blamed for that. It would surely love to exploit the opportunity not directly aimed at, but offered by the failures of the US, NATO or other Indian interests.

The only additional point on China – it always analyzes its plans prudently before making any visible public actions. In spite of its increased stature, and rare but rising global demand, China has so far not deviated from the policies of Deng Xioping, i.e. to ‘hide one’s capacities & bide ones time’. So it would be naïve to think that China does not have holistic plans for AfPak, involving even military interests, at its very neighborhood. All said and done, it would naturally be discomforting for China to allow permanent US military base, or Western military bases in AfPak. The sooner they exit, more would be the comfort level of China with AfPak.

Increasingly, there seems to be convergence, at least on the surface, among the interests of Pakistan-China and Russia.

Part II of the series, titled ‘The puzzle involving interests of AfPak, China, India and the West’ can be found here.

[The author deliberately excluded nuclear-aspiring, and emerging key player of the Middle-East, Iran on the western border of AfPak; and Russian interests, be it to control terrorism in North Caucasus region or be it for obvious strategic interests at close proximity to Russia itself. The author acknowledges vital role for these two key players in AfPak sustainable solution; however, including those interests in one single series gets beyond author’s understanding of the region. In 'Parallels With Past: How Soviets Lost In Afghanistan, How US Is Losing – Analysis', Larry Goodson and Thomas H Johnson, examines it with reference to the UUSR experience].

I invite you to visit my blog, Wondering Man , and take a look at my book,Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes). You are also invited to join me on twitter.

Israel, allies start playing the old gramophone - in the age of YouTube and WikiLeaks

2011-05-16T03:58:00.000-07:00

Coming from known sources, and having the reputation to distort the truth and thereby prevaricate, many seem to hear again the old familiar tune, having the distinguished smell of napalm too, that used to play one single, old, scratched gramophone over the last fifty odd years. Surely, the quality of that once globally famous 'tune' has degraded and degenerated to the forms of 'creaky old noise' this time, that since long has become irrelevant in this age of YouTube and WikiLeaks.

But Internet has not yet changed the eternal human desire to rule, to oppress, to have unquestionable power over weaker section of people. The Arab Spring is a living example of that human desire. To quote a very few tweets from the wisdom of the '56th United States Secretary of State and Chairman, Kissinger Associates (parody)' Dr. Henry Kissinger, this is what the Nobel Laureate thinks (parts in parentheses is the addition here):

1. It never ceases to amaze me that there are still people who believe the constitution (or Human Rights) applies at all times and in all circumstances. Crazy!!

2. Some truly shocking images emerging from Bin Laden's compound. Extremely tacky interior design. That wallpaper is a crime against humanity (as Israel sees Hamas)

3. Friends, you are very welcome to call me war criminal or greedy bastard or bloodthirsty tyrant...but any anti-semitic abuse will be blocked.

4. Today an 8 year old asked me how to achieve world peace. I told him world peace was like Santa Claus: doesn't exist and never will.#Crying

5. Extending the internet to the Arab world was a big mistake. Heads must roll for this. #SoToSpeak

6. Classic Domino Theory: If our SonOfABitch in Egypt falls, then all our SOBs will fall. This is a black day in American diplomatic history (How true now, as interim govt. in Egypt brings Fatah and Hamas together, for the common cause of Palestine).

7. Until you've given the order to fire on unarmed civilians, you haven't really lived-- something you lefty punks will never understand (it is a different matter that 'right-winged' lefty punks of Kolkata fired on unarmed villagers in Nandigram, of West Bengal, India for the disputed 'Salim Group of companies' of Indonesia, and then call it a mistake and not a 'freewheeling capitalistic hysteria' for which they must now pay the price, in the presently ongoing assembly election after 35 years, and as applicable for some of the Arab-leaders).

8. Nixon wasn't an anti-Semite but I remember one Easter when he made me wear a "Sorry for killing Jesus" t-shirt. OK maybe he was anti-Semitic

9. The Syrian people should think carefully before trying to get rid of President Assad or he may have to get rid of you. #Warning

10. Obama keeps fussing about "world opinion". I told him, "If you have them by the balls, their hearts and minds will follow." (and this is what Israel has been attempting again, by playing the old gramophone)

11. When we carpet bomb, you complain. Then we use drones (or precision airstrike at Qana, or in innumerable other places against children, one being one-day old) to bomb and you still complain! We can't win with you liberal punks.

It's time to stop. Thank you, Dr. Kissinger. Otherwise, Spoof can get sued by your powerful interest group, against misuse of 'fair use of copyrighted material'.

That's the old, familiar tune, in the form of 'Hamas being a terrorist organization'. Dr. Kissinger has been contemplating, since long, to have his second Nobel Peace Prize for providing our world with a workable definition of 'terrorist organization' or 'war crime', that can be uniformly applied, across time lines too, to allow present day Israel not sharing its place with Hitler, whereas tantrums of helpless kids get termed as 'acts of terror' that endanger global peace.

The latest that has leaked from interns of Kissinger Associates on this front has not been encouraging. The fertile brain of HK has been struggling, since 1973.

When further asked, by a correspondent of The Spoof on the missing part of the Obama speech 'What about justice and empty dinner tables to millions of innocents killed in war against terror, be it in Iraq, AfPak, or be it by ally Israel in Palestine or in Lebanon'; HK, with his unmistakable arrogance, retorted - 'You liberal punks and media outlets of the type of Guardian. You never understand. Justice is not merely a word, it is a game-plan, which, by its nature becomes the monopoly of people of 'Semitic' and Western origin. Don't come and tell me now that you want justice to be done against 26/11 of Mumbai, following Geronimo. Ants don't dance where elephants party, right? Does justice mean same to ants and elephants?'

The old tune being played by Israel and its allies must change, all due to the symbolic WikiLeaks and YouTube. They must pay heed to Dr. Kissinger, and admit that 'Extending the internet to the whole world was a big mistake. Heads must roll for this. #SoToSpeak'. They would surely find an ally in China. Bush Jr. will be happy to relax his copyright, on this cause, too:

'"And there's an old poster out West that says, 'Wanted: Dead or Alive.' "

They all must go against Assange, to Tim Berners-Lee, to even this anonymous 'HK' in twitter. These people happen to be symbolic heads of the biggest terrorist organizations, as symbolic as Osama bin Laden has been for al-Qaeda. Assange, Tim Berners-Lee, et al. are symbolic leaders of the global terrorist movement that seek global peace, human rights, democracy.

Hamas has merely been a helpless kid, creating tantrums, as expected from Palestine. Israel and its allies must go after the real guys this time, and kill any possible, lasting peace plan as two-state nation may have.

'World peace was like Santa Claus: doesn't exist and never will - not because of Hamas, but because of us'.

Yes, the tune gets familiar now.

The story above is a satire or parody. It is entirely fictitious.

End of article.

An appeal: It is high time we have a Nobel Peace Prize for Internet and its ability to stand for the causes that surely was the intention of Alfred Nobel, in its objective of Nobel Peace Prize.

I invite you to visit my blog, Wondering Man, and or take a look at my book,Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes). You are also invited to join me on twitter.

Place of Osama bin Laden in History?

2011-05-02T23:02:00.000-07:00

In all likelihood, the question on the place of Osama bin Laden in history may be too prematured a topic to be discussed right now. At the same time, we all jump to early conclusions now-a-days.

I am no exception, however with a disclaimer that deals with disruptive forces or elements, and says (slide 3):

‘We tend to overestimate the impact of disruptive forces in the short term and underestimate it in the long term’.

Can Osama bin Laden be considered as a disruptive force, to the level of Black Swan of Nicholas Taleb, when his actions would get scrutinized by future historians globally? If future historians come to a party and try to build consensus on one single person who had the most of the impact on world history over the last two to three decades in the form of a list, can Osama bin Laden be in the top two or three?

Surely there exists a possibility (in my personal view, the other name can be George W Bush, however root cause of Bush Jr. being in such a list would surely be due to Osama bin Laden).

When I looked at the obituary of Osama bin Laden in The New York Times, which definitely have been involved with this history making process since much longer compared to the emergence of Wikipedia, I was amazed by its size of seven-pages and posted a tweet:

‘when was it in history, the last time and all the times, when NYT had seven or more pages of obituary on a person? And when was it for non-Americans per se’?

Honestly I don’t have the answer. Someone can better enlighten us on it.

Churchill stated that ‘The further backward you look, the further forward you can see’.

My reference system here is that 7-pages of NYT obituary on Osama bin Laden, and thereby looking backward in other NYT obituaries of seven or more pages, to gauge its impact going forward.

In the evening, when I had the opportunity to watch TV, I saw only this being covered in BBC. One must admit that the sampling may therefore be absurdly vague, and I must yield to that academic scrutiny.

My particular focus for this article comes from following two aspects:

(1) What exact role did Osama bin Laden play in the downfall of the mighty Soviet superpower? Was it a (or even ‘the’) key and significant role, or was the collapse of the Soviets around same time was sort of inevitable anyway - without elements like Osama bin Laden and his resistance movement against the Soviets in Afghanistan?

(2) As Laden and his terrorist group al Qaeda took on the mighty U.S.A next, I particularly find this comment of his, as quoted in the NYT obituary, quite interesting:

‘Most of what we benefited from was that the myth of the superpower was destroyed... ’

Is the above comment too early, and boastful for Osama to be extended for the U.S.A. too?

Many historians view that the superpower era died with the demise of the former U.S.S.R itself. However if one tries to compare the global influence that the U.S.A had in 1990s and compare it with that of now, and further project the trend going forward, can the above statement on ‘the myth of the superpower’ be of any significance for the U.S.A. too, in the context of the single superpower that the U.S.A. had been over the last two decades?

Other than bleeding Soviet military, economics surely played a significant role in the fall of the former Soviet Union. The cause-effect is little complex; and the specific role this one single man, in playing a key role in the downfall of former Soviet Superpower, may therefore be insignificant on a contextual basis.

At the same time, if historians try and focus on one single man who brought the superpower Soviets down - two names come to my mind. One of Mikhail Gorbachev, and the other of Osama bin Laden. Arnold Tonybee felt that ‘Great civilizations are not murdered. They commit suicide.’

So when historians investigate fall of the U.S.S.R, important questions for historians to answer would be - could the apparent ’suicide‘ in any way be significantly influenced by a man named Osama bin Laden, who ‘murdered’ many of their military assets in Afghanistan?

Probably such enlightened discussions already have happened, beyond my present knowledge. The output of such research, in case there’s consensus on it, would be of interest.

The obvious next question follows - the bleeding of the U.S. military that has been happening due to 9/11, and impact of the same on the economic mess that the U.S. have landed into - is it reversible or irreversible? Present signs again may be too early to draw anything remotely conclusive.

However areas causing discomfort come from new areas - from much of the developing world, primarily from China. Significant majority of global opinion would consider China’s economic power, and even more so China’s military power, to be decades or even centuries behind the U.S.

The rarest of the minority few believe in Ramo: ‘To measure Chinese power based on the tired rules of how many aircraft carriers she has or on per-capita GDP leads to devastating mis-measurement’.

So one may just have a pure number comparison of $90bn or so defense budget of China (whatever understated it be) with that of $660bn or so for the U.S.; and compare China’s $7500 (PPP, in nominal around $4300) per-capita-income vis-a-vis that of the U.S. at around $45k or more; without paying detailed attention on how well the defense budget is actually spent, or how sustainable that per-capita-income is with cost of living indices.

While ignoring the quality of the defense spend or the sustainability of the per-capita-income, and thereby focusing alone on the numbers, one may actually be missing the forest for the trees. The reason for China’s relevance in determining place of Osama in history comes due to the way Osama bin Laden directly fought with the two of the world superpowers (not simultaneously, one by one) since 1980s; and the major nation least affected by the bleeding of that fight happens to be the rising China, contender for such an influential role in the future world.

There have been various Forbes surveys since 9/11 that projected Osama bin Laden as one of the most influential person for many of these years. However measuring the place of Osama bin Laden through such ranks may be myopic when history records Osama bin Laden.

The real question, as of now, is to ask Michael T. Caufman and the NYT team - when did you last run a seven-page obituary for non-Americans, and for whom all since your inception? And who were the Americans who deserved a seven-page obituary in your publication, since you started being a leading part of producing the first draft of history.

Finally, as a question, on where does Osama bin Laden exactly belong in history, should better be reserved for future historians. Let’s not fall in the trap that Craig Dobson felt as we tend to do regarding disruptions (probably in this article too) - of overestimating Osama bin Laden in the short term, and underestimating him in the long term. History is for the longer term.

I invite you to take a look at my book,Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes.

Interestingly, my book cover page has pictures of three famous (or infamous) living persons, and four dead. Now it has five known dead faces, and two living.

You are also invited to join me on twitter

2011-04-20T02:44:00.000-07:00

Part II: Gandhi Had Not Had To Face Present Indian Media On His Way To Be The Mahatma

Part I of the article can be found here

Everything has to have a beginning.

As citizens, we feel for many of these other legitimate causes and have our moral support to those causes. However, when one uses one such cause against another following divisive tactics; that needs to be nipped at the bud. If there are grievances, it must be directed against the people in authority, and not against the team spearheading Jan Lokpal. Irrespective of other legitimate causes, to have a just and fair society – one group acting towards that objective must support another group having the same objective.

Blaming Jan Lokpal for Irom Chanu Sharmila (and similar others) not getting justice, as part of media has hinted at, is metaphorical to blaming Binayak Sen for getting bail, finally, while hundreds of people happen to be in exactly the same legal situation as he was, while in jail.

Coming back to the book of Joseph Lelyveld, many of its reviews have been sensational, particularly one in the WSJ by Andrew Roberts that attracted nearly 300 comments. One particular comment worth mentioning here is by ‘Pierce deWah’: ‘…tenets of non-violence can be found in each of the major Indian and Abrahamic religious traditions.’ If this comment is true, Gandhiji was not the inventor of it, he rather used it in the right context.

Without the sensationalism, Pranay Gupte (who also had worked with Joseph Lelyveld in the NYT) had an article on it titled ‘Joe Lelyvelds of this world don’t lie’ in The Hindu. Indian media however has been mostly silent on that book, or its ban in select Indian states.

In spite of the failures that any organizations can have, the NYT as an institution is respected globally to be accurate, even when they have been found to be on the wrong side. However, today that credibility is badly lacking from most of the institutes in Government or Indian mainstream media. And same has started spreading among citizens as well. We have started looking at each other with that jaundiced eye.

So, one must not allow personal issues to score over the issue of corruption, as Jan Lokpal bill demands now. The relevant question to be asked is not whether Shanti Bhushan is as clean as probably X is, but it rather is how the team, representing aspirations of millions or billion of Indians, collectively goes together in its acts on the issue of fighting corruption. Within the team, members must complement each other in finer points of legal and constitutional issues, and they must also share a spirit of bonhomie, keeping in mind the uphill task they have undertaken. If the existing members have it as per their belief, let it be so.

Let’s not crib about that, and thereby damage that legitimate Indian aspiration.

So it is immaterial for any to even demand for a 100% untainted image for all these five committee members, be it legally, morally or professionally. However as long as they carry on doing their job as volunteers in the Jan Lokpal committee, which is a fruit of their own hard-fought battle against all odds, without any remuneration whatsoever, that too with the self-less devotion and enthusiasm that they have exhibited in the recent past, the rest of the country must stand behind them.

Or else, Mahatma may also fail in today’s age of media scrutiny - in the name of splicing and dicing. A re-reading of the WSJ review with the comments, in spite of whatever wrong intention Andrew Roberts may have, would strengthen that point of view. Gopal Krishna Gandhi, a great statesman of contemporary India, other than being the grandson of The Great Mahatma, highlighted same in his interpretation of Anna Hazare. He also explained what Andrew Roberts or Joseph Lelyveld might have missed, that Gandhi’s protests were equally divided in three parts (1) fight against oneself to improve the self, (2) fight against (Indian) society to get rid of the evils of society, and (3) fight against the colonial rules. Most of the Indians, or even Gandhian followers, might not have known the first two parts of The Mahatma as he continued with his experiments with truth in his own life.

Gandhi, in my humble belief, could not have become Mahatma under simplistic slicing and dicing of non-issues that Indian media has been engaged at. The investigative journalism, if there is truth in it, has been done by the Jan Lokpal Committee members when they pointed out (should have been the job of the media, right?) fallacies in the CD that now has emerged to defame the Bhushans. In this age of WikiLeaks, and investigative journalism; Indian media should take inspirations from Daniel Ellsberg, or from I F Stone, when they went through hundreds of pages to get the truth (‘Stone’s journalistic work drew heavily on obscure documents from the public domain; some of his best scoops were discovered by peering through the voluminous official records generated by the government’).

If Indian media can’t provide clarity, let them remain quite. They however don’t have a license to create confusion in people’s mind. If they lack capabilities to seek truth and accuracy, let them not throw muck at people at the allegations of people who already might have lost all credibility. Here’s a nice piece of advice that Indian media must keep in mind, in their enthusiasm of practicing (Indian-styled) journalism, which would slice and dice any would-be future great soul to pieces, missing the whole of it totally (remembering the Gestalt belief that ‘The whole is something more (or else, whatever) than the sum of the parts’, as could be applicable for The Great Mahatma Himself. The quote is also attributed to Aristotle):

‘[I]t is very necessary that we should not flinch from seeing what is vile and debasing. There is filth on the floor, and it must be scraped up with the muck rake; and there are times and places where this service is the most needed of all the services that can be performed. But the man who never does anything else, who never thinks or speaks or writes, save of his feats with the muck rake, speedily becomes, not a help but one of the most potent forces for evil.

There are in the body politic, economic and social, many and grave evils, and there is urgent necessity for the sternest war upon them. There should be relentless exposure of and attack upon every evil man, whether politician or business man, every evil practice, whether in politics, business, or social life. I hail as a benefactor every writer or speaker, every man who, on the platform or in a book, magazine, or newspaper, with merciless severity makes such attack, provided always that he in his turn remembers that the attack is of use only if it is absolutely truthful.’

Theodore Roosevelt, The Man with the Muck-rake, 14 April 1906

At the same time, irrespective of maturity of most of Indian mainstream media, Indian netizens must use their power of technology to counter such organized efforts to derail the Jan Lokpal. If we fail collectively to steer Jan Lokpal Bill clear of such controversies, we should blame ourselves for the prophecy of this (disputed) Churchill-quote:

‘Power will go to the hands of rascals, rogues and freebooters. All Indian leaders will be of low calibre and men of straw. They will have sweet tongues and silly hearts. They will fight amongst themselves for power and India will be lost in political squabbles.’

I invite you to take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes. You are also invited to join me on twitter.

2011-04-20T02:37:00.000-07:00

Gandhi Had Not Had To Face Present Indian Media On His Way To Be The Mahatma

“Three things cannot long be hidden: the Sun, the Moon, and the Truth.”

Confucius

One is not certain whether The Great Mahatma, from his heavenly abode, would be smiling at the current developments in India, relating to fight against corruption to draft the Jan Lokpal bill; or would he be crying in deep pain at the circus that’s been created around the same.

Irrespective of his smiling or crying on these noisy developments, related to corruption and Jan Lokpal, he would probably be relieved that he had not had to face Indian mainstream media, as it stands now, in his journey to be The Mahatma; neither he faced a character named Amar Singh, of whom less said is better.

Over the last few weeks, few notable developments happened that brought back the memory of the Mahatma in the forefront. One of these developments is related to Anna Hazare and his fast until death protest to get members of his choice (and with social standing for their individual and collective fight against corruption) in the drafting of a Jan Lokpal Bill, to deal with massive and unprecedented levels of corruption in India. The notable other development deals with another book (controversial and banned in parts of India even before its India release) on Mahatma, by Joseph Lelyveld, who had been an executive editor of the New York Times, and thereby had an opportunity to work in both South Africa and India, as an NYT correspondent. These two key places surely had shaped Gandhi’s journey to be The Mahatma.

On the first, about the peaceful protest following footsteps of Gandhi, Anna Hazare ultimately forced Indian Government to give in. The public representation for Jan Lokpal included five members, as suggested by Anna Hazare, probably in consultation with members behind that movement. These five nominated members had no way of getting elected by people of India, to be fair representatives of Indian people.

Many Indians believe corruption in India have reached dire proportions, and thereby demand drastic measures, in the better interests of its nearly 800 million citizens who have not probably directly benefited from the high-rates of economic growths unleashed since economic liberalizations. However as any roadmap of starting point is always bumpy, there isn’t a full proof system by which people’s voices can get incorporated in drafting of a bill, in its way to be a law.

At the same time, there can be no denying that the all important challenge of governance and economic growth should be aimed at making the fruits of economic growth reach out to these 800 million of underprivileged sections of Indian people. One must keep in mind one single point of agreement of diverse socio-economic researchers, that universally agrees that reaching out to the poorest of the poors has always been an extremely difficult and challenging task. Getting rid of corruption, in the context of India in order to reach out to the poorest of the poor, is therefore critically important, and at the same time, difficult.

Media started making comparisons of Anna’s fight against corruption with that of Mahatma’s fight against colonial rule. Many termed him, probably a bit early, as the 2nd Mahatma as the first freed India from British rule and the 2nd aims to free India from corruption now. There were also comparisons made against the popular movement of Jayaprakash Narayan of 1970s, during the time of emergency.

Correct recording and interpretation of future history would determine how much of these comparisons are valid, or else premature. Irrespective of that job which should be best reserved for future historians, the effort of Anna Hazare and his team must be commended immensely. Following many other citizens – this author would not hesitate to present his personal bias in personally saluting this civilian team fighting corruption in India.

However such comparisons also brought in new series of criticisms as Anna did not hesitate in stating exemplary punishment for the corrupt, unlike (probably) Gandhian philosophy. Anna also did not hesitate in mixing Gandhian philosophy with Shivaji’s actions to reduce and control corruptions in India. There should not be as such much problem in having this opinion while spearheading a campaign against corruption, however part of Indian media sensed trouble in their analysis as they themselves viewed Anna as another Gandhi in the making.

Anna, by the way, never claimed that. So media starts making comparisons, and then finds fault with the same person because the image they built may not be exactly compatible with real portrait of the person.

Questions have started flooding Indian media that fighting corruption is not the monopoly of any. There are also reports that similar, or more serious peaceful protests, on more demanding grounds have been completely overlooked. One case in mind is that of Irom Chanu Sharmila of Manipur.

Both the above points are absolutely justified, and valid. However one fails to understand what Jan Lokpal Bill (or the committee, more specifically five civilians in it) has to do with above valid demands. The culprit for above, if there are any, are (1) Government of India and (2) Indian media again.

These five members never stated that fighting against corruption is their monopoly. They rather have been trying hard, probably too hard at times, to mobilize support for this movement – online and on ground – across the breadth and depth of India. They looked for as much participation as possible from citizens through web-based interfaces proactively, in spite of which a PIL has been filed asking for more citizen participation through newspaper ads. Point is, these members must be managing on meager resources unlike the Government or big private businesses, against whom their fight primarily is, so any such costly (proposed) newspaper advertisement should be to the Government’s account.

If the concern is that why not someone else is in the committee, assuming for argument’s sake, that such a person happens to be more eligible than any of these five members to be in the committee; my humble submission would be genuine leaders must know when to be a follower, even to humbler human beings. This argument can continue endlessly that X is better suited than Y and why not Z…however matured society must learn to ignore them.

If Indian media does not learn them, it is better to ignore most part of the mainstream media that indulges in such derailing exercise of the Jan Lokpal.

Regarding other legitimate demands from citizens on other pressing demands or issues or protests spearheaded by other personalities, what can Jan Lokpal do? Just like two wrongs don’t make a right, when actions are being taken to rectify one particular wrong, even if selectively by the Government, one mustn’t stop that rectification process with a demand that all the other wrongs must be dealt simultaneously.

Part II and the concluding section of the article can be found here.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted many of the economic and geopolitical crises, to the gold prices and the currency disputes. You are also invited to join me on twitter.

Hillary SOS to China: 'We Need the Great Firewall of China'

2010-12-16T02:07:00.000-08:00

Here's what Hillary Clinton stated in January 2010 (during Google-China spat):

'Secretary of State Hillary Clinton joined in today. In a wide-ranging speech in Washington, Mrs Clinton said the internet had been a "source of tremendous progress" in China but that any country which restricted free access to information risked "walling themselves off from the progress of the next century" [BBC News].'

However the Wikileaks is different. We all know it as Drucker knew it. It has been trying to take us back to the middle-century before the printing presses challenged the authorities of the Church. And Hillary would not allow that to happen as she wants Internet to take us to the 'progress of the next century' only

Latest cable leaked from the Wikileaks showed that the U.S. Government has realized that they have made a mess in which Wikileaks is getting censored in the U.S. In an emergency cable that directly connects the White House with Hu Jintao, sent from The White House to Beijing, Beijing has been asked to provide its Great Fire Wall of Internet to the U.S.

'It's an S.O.S' - the leaked cable said.

Further leaked cables from Beijing to China in Wikileaks show that Beijing is skeptical as Beijing fears, that the increased trade deficit that this additional export to the U.S., would eventually add further pressure on China to allow faster appreciation of its currency, the yuan. No decision on this has yet been taken, as per latest Wikileaks from the U.S. embassy in Beijing.

Without Wikileaks as there's no other way to know this breaking story, Forrester, the firm that monitors these trends related to information technology and Internet, suggested that in case the U.S. is able to manage the censorship well, understand that the Great Firewall of Internet from China has arrived.

I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted the housing-led economic crisis of 2008, rise of gold prices to the currency war being played now). You are also invited to join me on Twitter.

Howard Zinn on Wikileaks: ‘How has the U.S. gotten away with it?’

2010-12-16T02:04:00.000-08:00

Following paragraph is taken from The New York Times article, ‘Sweden Issues Warrant for Wikileaks Founder’:

‘According to accounts the women gave to the police and friends, they each had consensual sexual encounters with Mr. Assange that became nonconsensual. One woman said that Mr. Assange had ignored her appeals to stop after a condom broke. The other woman said that she and Mr. Assange had begun a sexual encounter using a condom, but that Mr. Assange did not comply with her appeals to stop when it was no longer in use. Mr. Assange has questioned the veracity of those accounts. ’

Another para said:

‘Ms. Ny (director of the Stockholm prosecutor’s office) said in a telephone interview that the court had approved two arrest warrants, one applicable within the European Union and the other an international warrant that would be issued through Interpol. She said she had acted because “there is a risk of him fleeing.”

I just didn’t have any words for it. I was dumbfounded. This isn’t India, or worse still Kolkata. And then recalled Howard Zinn:

‘How have they gotten away with it?…The question is, you know, how did they get away with that?’.

I don’t know what to say…to whom to say. I just felt what probably Howard Zinn felt. I was a bit skeptical of him when he said all these about the U.S., because then I would not have known what he could have said for India (or worse still, for Kolkata).

‘Very often that’s a feeling I get when I wake up in the morning. I think, “I’m living in an occupied country. A small group of aliens have taken over the country and are trying to do with it what they will, you know, and really are.” I mean, they are alien to me.’

For Wikileaks and Julian Assange - one needs to replace ‘country’ with ‘world ‘ while reading the above para.

I understand that global diplomacy is quite a complicated area, as is geopolitics or the war against terror. Here I quote from another source (I want the earth + 5%), with minor changes in the version that Fabian, the banker had told to the people from the main streets against their question on sustainability of fractional reserve banking.

The extremely minor modifications in what Fabian said are necessary to lip synch it exactly with what Hillary Clinton et al. now have been stating on issues like Wikileaks:

“(Global diplomacy, geopolitics, war against terror are) deep subjects, my boy, it takes years of study. Let me worry about these matters, and you look after yours. You must become more efficient, increase your production, cut down on your expenses, (abide by your national laws), and become a better (citizen). I am always willing to help in these matters.”

Can we put them together to get any clarity? I still would love to believe life is beautiful, we collectively represent a sense of humanity. And I would love not to believe in the conspiracy theories.

These indeed are testing times for humanity.

I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted the housing-led economic crisis of 2008, rise of gold prices to the currency war being played now). You are also invited to join me on Twitter.

Imported dollars, made in China, provokes anti-dumping duty (Spoof)

2010-11-23T04:40:00.000-08:00

Since the speculation of Quantitative Easing (QE2) had begun back in August, many Chinese suppliers of printing presses started receiving a new flood of enquiries from the printers in China.

And in November, when Bernanke approved QE2 with his seal by specifying the figure as $600 billion of treasury purchases, Chinese manufacturers of printing presses have started receiving a flood of orders from the Chinese printers. In an interview to Reuters, Chi Min, the president of Printers' Association of China said that clients in the U.S., primarily the Federal Reserves, have asked for supplies of hundreds of billions of dollars from this very month itself, on top of the earlier orders. Mr. Min further reported that this additional demand has also created a new demand for experienced or fresh hands in printing industry in China. 'The demand is unprecedented', Mr. Min supposedly stated to the Reuters reporter.

As per the mainstream media, Bernanke wanted to go for QE2 to stimulate the slowing U.S. economy. Unemployment rate in the U.S. is hovering around 10%, sort of unprecendented in recent times.

However confidential sources, coming out only now and first reported in The Spoof show that Bernanke actually hoped that printing money would at least create a few thousand jobs in the U.S., both for the printing machine industry and for the printers. The Fed. also expected that printing $600 billion would create another few hundreds of jobs with paper manufacturers. An FOMC member, present in that meeting of Nov. 2-3, who has been unsuccessfully trying to get a job with The Spoof for last several months as The Spoof pays in gold and not with fiat dollar, leaked this piece of information to The Spoof from the yet to be released FOMC comments from its November 2-3 meeting. The FOMC board member also mentioned how Bernanke confided the real objective of QE2 to the other members. According to this source, Bernanke himself didn't believe in any of the noises on QE2 in mainstream media. The FOMC never discussed the stimulating impact of QE2 on the U.S. economy nor did it discuss the inflationary impact of it through devaluing dollar following the currency war hype of media with China. Bernanke didn't believe in any of these theories with merely $600 billion drops of water on the ocean. It was all about printing $600 billion notes!

Bernanke's core objective was to create a few thousand jobs in the U.S., who would directly or indirectly be engaged in the printing process of these dollar-bills. To achieve this objective better, Bernanke favored printing lowest denomination of dollar bills for the QE2. Bernanke even assured of new jobs in printing industry in the U.S., back in July, when he delivered a keynote address on 'Keynesian School of Thought on Role of Employment in the Printing Industry to Kickstart an Ailing Economy'. It's all about jobs, jobs in printing dollars. Period.

However lack of knowledge of economics along with lack of knowledge of how dollars actually get printed in the U.S. supposedly backfired on this decision of Bernanke. The Federal Reserves have outsourced the job of printing dollars to the Chinese printers since long, to gain efficiency and cost advantages. It follows the same process as Nike follows. Nike uses Michael Vick in its ads to get more U.S. buyers, but get the job done in China producing more jobs there; similarly George Washington gets printed in the land of the Mao.

However Bernanke was ignorant of this vital piece of information, other than being ignorant on many other trivial things like monetary policies, global economics, etc.

The trouble started hereafter. Representatives of printing industry who were present during the seminar on 'Keynesian School of Thought on Role of Employment in the Printing Industry to Kickstart an Ailing Economy' this week enquired with Bernanke on his promise of job creation in the industry. Bernanke enquired back with his team at Fed, and hell broke lose. Bernanke was briefed that orders have already been sent to the Chinese printers. Misunderstanding the context of Bernanke's query, the Fed. team in charge of delivering the dollar bills also informed Bernanke that they have relaxed the specifications this time, to ensure speedier delivery.

Bernanke apparently was at a loss for words for a few moments, but then asked his officials to contact Congress to look at anti-dumping provisions against Chinese manufacturers. The printing industry of the U.S. has also been demanding same independently, following tyres and tubes and steel industry - and what not.

Confidential sources state, till information last came in, that the immediate purchase of tresuries with dollar-bills may therefore get postponed indefinitely. Mainstream media got the whole causality wrong when it stated that long term treasury yields are rising because markets believe Fed. will not succeed in driving down long term interest rates. The real reason has been a postponement of QE2 due to above developments.

Timothy Geithner has been briefed on this, and he informed The Spoof (to get a job that pays in gold) that President Obama would use this development to mollify the Chinese during the G20 meetings at Seoul.

The story above is a satire or parody. It is entirely fictitious.

I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted the housing-led economic crisis of 2008, rise of gold prices to the currency war being played now). You are also invited to join me on Twitter

Can the world change status of dollar without a war?

2010-11-23T04:36:00.000-08:00

Like any of you, I too hate wars. I have never seen one, other than those on TV or in other media. And the horrific things that go on with any war, against human lives, be it with the military or from civilian population, is so much repulsive that no human being from any modern society can support any war, whatever be the reason. It is the believe that whatever unjust a dispute may be, discussions and negotiation can help in finding a solution, or worse still, a compromised solution.

However I am not sure whether our present world leaders have any potential of finding a solution to the problems that arise all because of the position of dollar in global monetary and trade systems. I am not young and naive enough to be polyannish that an eventual sustainable solution to the ongoing currency problems can be possible diplomatically.

The 2nd World War, now 65 years old, was the last earth shattering event that led to the present form of the world. The United Nations and its permamnet members, who happen to be more equal than the rest, the World Bank & the IMF, and the respective position of each nation in these bodies were decided by who happened to be on the winning side of the WWII. Out of the winners again, the United States, due to its strengths of not being affected in the war like its other winner allies, gained the most - militarily and economically. European nations like France and Britain could identify their ideologies to be more similar with those of the U.S. than those of China or the the former U.S.S.R, resulting in dollar being accepted as the global currency with a gold peg, leading to the Bretton Woods system.

And in 1971, Nixon unilaterally withdrew from that peg by closing the gold window. Not an earth shattering event at that time, however its implications are felt more widely today.

The end of the cold war could have been another earth shattering event, however its ripples, probably was not felt around the world as much as it was felt in Europe, in the former U.S.S.R. and in the U.S. The reason could be that it was managed quite well. The massive disruption of the end of the cold war probably affected citizens of the East European Nations and Russians, but in no way it did affect the topology of the world or the bargaining power of most nations (other than of course that of the U.S. and that of present day Russia). One may disagree that rise of present day EU is a direct result of the end of the cold war, which happens to be true. However I say it was not earth shattering, as EU formation happened over years and not overnight.

The gold-peg of the dollar and the former U.S.S.R - both happened to disintegrat from within (was it due to unsustainability of both?), without an external war, economic or physical. Question now is, can it happen with the dollar also, because there is no denying that its present role and scale of it in global monetary system, trade settlements and also as a reserve currency are not sustainable? To put it more aptly, dollar probably has already failed its sustainability test quite badly; however the world has been keeping it sustainable under life support system as there’s been no other alternative to it, just like the U.S. kept sustainable its form of capitalism back in 2008.

There may be many who may argue against this fundamental assumption of sustainability of dollar in its present role. That’s why I included role and scale of it, together they probably define better why dollar’s present role and scale isn’t sustainable.

The big question that’s been going round in many of the business TV channels over last few days, and elsewhere in online media is, how to address this unsustainability. People from the Wall Street believe this to be less of a concern, as they truly understand what tremendous role dollar plays in global financial system, the big stakes involved in letting it continue for proably all the stakeholders’ benefits, and to ensure no major disruption happen in their own profession inside the Wall Street. Because no Wall Street Professional or economist can probably think of the scenario where dollars role and scale of it has to reduce by half or 2/3rd of its present role, within a short period of time.

The other reason for the reluctance of the Wall Street in accepting a much lower role of the dollar is in its incrementalism approach when it comes to its trend-lines that can affect it negatively. The Wall Street will never be open to the debate that a disruptive change that may affect it in the negative side is lurking somewhere near, and can strike real soon. Therefore most Wall Street professional would prefer an incremental approach in adjusting this unsustainability, giving it decades to come down incrementally (and yuan to rise incrementally) or even by denying that dollar’s present role is unsustainble.

However Black Swan events or Disruptive Events happen. As it happened in 2008. The unsustainability of the dollar looks to be worsening than the unsustainabilities of those esoteric derivatives that led to the unexpected in the Wall Street back in 2008.

But the dollar survives simply because there’s no agreeable alternative. And the problem worsens.

The world simply isn’t ready to operate without the role and scale of the role that dollar plays as the lubricating oil in the global spinning mill - that’s the verdict from the Wall Street, the IMF, the G20. Probably the Chinese also believe in this hypothesis, otherwise one can’t explain their actions that resemble that of the U.S. Federal Reserves (or US Treasury). The Fed. has been trying to solve the problems that successive liquidities created with even more liquidities (and Treasury by creating more deficits); China has been trying to solve the imbalances of the U.S. economy by trying to balance it more by buying more of its debt which is the root cause of the imbalances, barring one or two exceptional periods so far (when China might have sold a bit of that huge balancing U.S. assets).

That’s why it would be wise to include the Chinese into the same club of people at whose interest the dollar dominance must continue as the world economy goes through the process of even more globalization and dollarization.

At the same time, and in-spite of the win-win scenario (better to call it as ‘not a lose-lose scenario’ than ‘a win-win one’ because realistically present role of dollar is truly not a win-win picture for both the U.S. and China), the imbalances are growing stronger and stronger, and practically are getting out of control.

There’s no possibility of war in the horizon, however media has been talking about currency war as a prelude in addressing this unsustainability. Irrespective of the usual media hype, currency war this time happens to be real.

My knowledge of history is poor. However as an Indian, I know there are times when war is not all that bad, it rather becomes inevitable - as it was in the Ramayana or in the Mahabharata. The 2nd World War was also not all that bad if the atrocities of the Nazi-regime is taken into consideration. However many of these decisive wars were painful, horrific - however unavoidable as otherwise the wrongs would have continued longer.

And bigger changes are unavoidable without a decisive war. Because the constituent of any power, more so which isn’t sustainable, are never willing to let it go. The present structure of the United Nations Security Council and its unwillingness to reform itself is a well-known case in example. There’s no denying that it needs to reform, however how the reform has to be carried is the big question mark that further acts as a hurdle to that much needed reform process itself.

The example of UNSC is dangerously similar to the question of sustainability of dollar in its role (and scale of it) in global financial system.

One isn’t sustainable, at the same time there’s no other agreeable alternative to it. The unsustainability of the dollar in its present role therefore further aggravates, as the irrelevance of the UNSC, the IMF or the WB becomes more prominent.

A matured world with matured leaders who are ready to put the bigger interest of the world and its nearly seven-billion people ahead of their national interests in a global society can probably address these unsustainabilities without a war.

However the ongoing scenario with the worsening currency wars and the routine G20 communique, not worthy enough of the paper on which it gets printed, do not hold out much hope. The ground situation does not support the assumption of a matured world with matured leaders.

I hate wars. However I also hate an unsustainable situation simply being continued because there happen to be no agreeable alternative to it; not that there aren’t truly any. The situation is not as worse as global warming, where the agreeable alternative means a hell lot of sacrifices in the short run.

Unlike the example of the global warming and agreeable solution to it, the solution to the unsustainable dollar is realistically possible, provided all parties that supported that build-up of this unsustanable act (primarily the U.S. and China) are ready to own up their own responsibilities, and desist from doing it any further. U.S. must ensure to live within its means, and China must ensure no further destination in the U.S. treasuries for its export surpluses.

Real developments however show that possibilities of changing the unsustainable global order of the dollar without a war, be it even in the form of a currency war, looks to be remote. Decisive wars, in-spite of being horrific in the short-run, at times are inevitable to bring the much needed, much awaited, and much desired change.

The present round of currency war can be decisive in bringing that change, or else it can remain as an ongoing dispute without being decisive for ages.

A decisive currency war is a better alternative than long-lasting and undecisive frictions of currency and trade disputes.

I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d that rightly predicted the housing-led economic crisis of 2008, rise of gold prices to the currency war being played now). You are also invited to join me on Twitter.

Time for China to fight the Fed., for stability

2010-10-13T19:51:00.000-07:00

There’s an old saying in the Wall Street that advises its participants not to fight the Fed. The axiom makes a fundamental assumption that there may be times when the Wall Street finds it appropriate to fight the Federal Reserves (Fed.).

Over last many years, since Greenspan ‘put’ era and now with Bernanke’s super-easy monetary policies; many see that the Wall Street has rather been well protected by the Fed. In the present context, Greenspan said that the best economic stimulus is rising market. Bernanke et al. obliged, overtly and/or covertly. Bernanke may not get an ‘A’ when it comes to employment generation or its protection; however he would surely get one if the objective of the Fed. would have been protecting the Wall Street.

So obvious question is - why should the Wall Street ever think about fighting the Fed.? A rising market, at all times, even beyond the bubbles, is in obvious interest of the Wall Street. Unless, of course, one has been having contrarian views like being a short-seller in a mad bull market, or an optimist in times of crash by going long. Problem here too is, markets can remain irrational (‘irrationally exuberant’ as Greenspan put it) for much longer to drive this minority contrarian views out of the market.

There is now ample credible literature that proves that markets are not rational. People however expected that Central Bankers would behave rationally and would thereby try to bring some rationality to the irrational markets. However, when the mother of all Central Bankers, the Federal Reserves itself aided by the BOJ and alike start aiding the Wall Street irrationally; it is polyannish to expect rationality to return in global financial markets due to more rational actions from the Central Bankers from the BRIC community, or from the rest.

In this era of higher degree of financial globalization than physical globalization (for trade or services), the Fed. therefore exerts a significant influence in global financial markets, beyond the borders of the U.S.

We no longer live in a free market, we rather live in a ‘Fed.’ market. And main street globally is fed-up with it.

It essentially devalues currency and drives the price of other assets higher, creating a speculative atmosphere. Gold has been a classic example of it. It also fosters inflation. Problem with inflation is, there isn’t a single measure of inflation as with cost of capital, that is interest rate. Coming from India, it has been hard for me to believe that Japan had negative inflation for majority of the time over the last decade or the U.S. is now worried about same deflation hitting it.

It took me some time to realize that unlike developing nations like China, Brazil or India where food prices may have a significant weigh in the inflation figure; it is not so in the U.S. or Japan. It goes also true for energy related prices. Studies show that a significant majority of people around the world spend a significant part of their earning on these two components (energy inclusive of transportation costs as well).

So inflation is there, felt by many of us, but is not measured due to reasons best known to developed nations Central Bankers. And although inflation may be a single word, it does not mean a single thing across people from different income groups. Literature also explains how inflation act as a tax to the poor.

So what is it that the Fed. is trying to achieve?

A look at global media highlights the confusion analysts and economists have on the road-map taken by the Fed. in dealing with the crisis so far. Many may even think that they actually have no road-map due to their repeated misreadings of the economy, documented from past meetings. If there was a road-map in 2008, one would have by now exited the stimulus and headed for higher interest rates.

That view may have its limitations as road-map is not something static. One may argue that the Fed. is rather following a ’sense-and-response’ strategy.

My biggest concern here too is - what has been the response so far to the various unprecedented Fed. actions since 2008? The few answers I can offer is S&P 500 at 1180 level, unemployment at nearly 10%, and dollar index at 77 or so. Growth is practically insignificant. I accept the employment figure as a better indicator for growth than the GDP figures.

One may argue that the success lies with unemployment figure itself as unemployment is not yet up to levels seen by many European counterparts. The critics of the Fed. would accede this point. However the concern now is, where would one see S&P 500 going forward, if at all employment level improves to normal? So either it is priced in or not priced in? Isn’t the market running ahead and creating other asset bubbles? What about commodities or gold? What about economic stability in emerging nations? What about the interest of the people who save and don’t speculate? What about a stable investment horizon to investors who can sense where dollar is likely to be over the next years with what likely interest rates?

China could create factories because investors knew the value of Yuan is not likely to go down over the years. Yuan appreciated by 25% or so since 2005 against dollar. Can the U.S. provide this stability to an investor with ongoing unstable environment?

A higher interest rate may offer more money to the consumers in a sustainable manner than zero interest rate which act as a viagra to the Wall Street. Main Street benefits are more and sustainable when one has a stable interest rate policy and stable currencies. Bringing down cost of capital to zero or negative is like insulting capital, an essential economic resource. Printing more capital with zero interest rates will not serve the desired purpose but create undesired consequences. It may at most shift the problem from the U.S. to the rest of the world, and dilute it a bit within the U.S.

And that’s where China needs to be concerned. Because it has the ability to affect stability of inflation and asset price outlook in China as well. Even if China is able to isolate itself, many of its trading partners may get affected, leading to loss of further stability.

Essentially that’s what China has been asking since ages. China wants stability in values of global currencies. This will lead to stability in asset prices globally, stability in planning horizon for investors to create real assets and not paper assets, stability in employment and finally stability in growth.

It is time to chose one between series of shock-therapies that lead to a plethora of uncertainties globally to one that leads to stability. It is time to prioritize the interest of the main street than that of the Wall Street. Stability helps everyone, without repeated creation of asset bubbles and bursts and economic slow downs. Japan paid a severe price as stability in currency prices were disturbed. The rising population of old people in developed nations get more sound sleep with stable return of their life’s savings in stable financial products with stable interest rate.

Let us all give a chance to China as we have given to the U.S. over the last seven decades, when it comes to economic policies. Let us not write down economic policies originating from China because of our individual bias. China is not evil. There may be bad policies in China in other areas as we have seen with Google or now with Liu Xiaobo, as we have seen same for the U.S. with Iraq. However China is the only country that achieved what the West preached in terms of removal of poverty and bringing properity to a populace more than that of the U.S., Europe and Japan put together, in barely two decades. And they did it in spite of all the odds.

The Fed. is now acting to destabilize that growth in China by creating an unstable currency value era leading to currency war like situations.

No one can fight the Fed., the old saying goes. China has proved many such beliefs wrong. It is time that China takes on the Fed. in the interest of stability, within China and also for the rest of the world. Europe realizes a strong dollar is in the interest of the world, but would not chastise Fed. (or treasury) openly for making a joke about a strong dollar. Japan seems to be in an endless pit of unstable currency values leading to zero interest rates.

China so far remains the exception. Stability is not a bad word afterall, excessive volatility is. It is indeed time to chose between a stable dollar or another stable global currency. It is time for China to accept it and work on it, with ‘Chinese’ speed of implementation.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

The World Needs a BPR

2010-10-13T19:50:00.000-07:00

A status quo has been continuing in the global order when deeper analysis shows that the urge to stick with the status quo is the fundamental reason behind much of the major problems of the world today. We can look at examples from global warming to currency war where the world has been looking for leadership from the U.S., in the form of a constructive framework, that can lead to a sustainable solution.

However, there are problems within the U.S. Stating that there are problems within the U.S. is an understatement. There are major problems within the U.S.; and the U.S has been struggling to solve its domestic issues, without much success so far. Matter of fact is the U.S. now needs external support to run its economy, rather than being in a position to provide support to the global economy. The same holds partly true for the EU when we view EU as a common region, though parts within the EU look strong.

So it’s matter of being polyannish when nations around the world or global bodies like the IMF look for leadership from the U.S. in solving the major problems of the world.

Given this context, providing able leadership to the global challenges at this hour is beyond the resources of the U.S. This also leads to situations of conflict of interest as what’s apparently good for the world becomes bad for the U.S., keeping in mind the problems in which the U.S. has been (like reducing emission or having fiscal discipline).

It’s a unique situation when the world has been getting signals from all around that it needs to change, urgently and radically, with more power to the developing world; but the lack of any leader in bringing this change maintains the status quo in which we have been. The pace of change at most has been ornamental. The status quo suits a few who naturally oppose any such change, like that of the Wall Street; but works against the majority of the individuals of the world - be it within the U.S. or outside it.

Unfortunately, for President Obama or for Chairman of the Federal Reserves Ben Bernanke, finding a solution for the domestic problems (albeit for the short term) at the cost of creating more problems for the world and even for the U.S. in the longer term is a preferred one vis-a-vis one that can help the world in solving the problem as it simultaneously creates more short-term pain for the U.S.

And sadly the world knows it well but does not show the maturity to admit it and move forward. Moving forward essentially means for the betterment of the world and for the betterment of the U.S.

That’s the shortcoming of democracy in national contexts. Globally this leads to the mindset problems amongst nations as they try to maintain a status quo of the global order as the world takes a back-seat compared to the nation. For most democratically elected leaders of the world, the global challenges matter less and what matters most is the temptation to come back to power, again, in that nation by prioritizing the local issues.

It’s actually not the job of the rest of the nations individually to come forward and build the much needed atmosphere where the global problems can be discusessed and debated with collective responsibility. Most of the nations and their respective leaders, more so in the democratic world, has enough domestic problems to keep their democratically elected members busy.

There’s fire fighting going on in most nations in the world, more to stay in power than to address or ponder about the global problems.

Few genuinely realize that the problems indeed are global in nature and the ad hoc solutions that the nations have been trying to work out individually may not provide sustainable solution.

Eventually all these lead to a classic case when the world, the human civilization that we know today, needs a Business Process Re-engineering; but there’s no ownership about it.

It must be about fundamentals - asking questions like who, what, why, how, where, when. Can we ask a question today and get satisfactory answer on who benefits from the much talked about Quantitative Easing of the Federal Reserves, the root cause behind the currency war?

The obvious answer is the Wall Street, although no one else is sure about potential indirect benefits of the QEII. Do we at the same time worry about impact of inflation on the poor in India as Fed. drives to get inflation expectations back? Shouldn’t the U.S. take into account the concerns of the rest of the world?

Problem is, without a BPR the U.S. will do whatever it needs to do or can do to improve the U.S. against the interests of the other nations around the world. It is not the U.S. alone, China has been doing its part as well; be it through pegging yuan to dollar or thro’ high-handedness against the Nobel committee or the awardee for awarding Nobel peace prize to Liu Xiaobo.

We need to ask the fundamental question: at whose interest have we been doing this? That must apply equally for the U.S. Federal Reserves or for the Government of China.

Unfortunately none seem answerable to the world. Democratic leaders care for their nations, and the U.N., the IMF or the World Bank care for the U.S. more than they care for other nations.

Where would people from the world, facing global problems, look for solution? In the radarless world as we have today, there’s indeed very less hope that the world can go for the much needed BPR.

It is not out of pessimism. It is out of practical concern of the context than being polyannish.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

Change conundrum for the world

2010-10-13T19:49:00.000-07:00

Matter of fact is the world needs a Business Process Re-engineering (BPR). Matter of fact also is that the world does not know who would do it or how to go about it.

And this unique situation has been roiling the world, from China to the U.S.

Have you ever wondered that we have deomocracy in most nations where leaders spend most of their time in solving domestic issues, without realizing global problems actually lead to majority of these domestic issues now? However we don’t have democracy for the world as a single body. Institutes like the UN or the World Bank or the IMF have failed miserably in their approach in solving global problems, more so when the U.S. has been partly or fully behind these problems. Needless to say that the U.S. itself has been in a mess of its own making.

In this context how do we solve global problems without any able leadership? The world of 2010 faces global problems, like the currency war or the global warming, which manifest itself in various forms across different nations. Rather than tackling the global problem at its root, the nations have been struggling to solve the various forms of these problems within their boundaries.

They have been in a futile struggle in finding a local optima as the global optima remains unattended.

So China, India and Brazil fight to maintain growth with less inflation, whereas the Federal Reserves is working to get inflation high enough in the U.S. (and thereby to the world due to status of dollar) to spur investment within the U.S., to solve the unsolvable unemployment problem within the U.S.

They don’t realize that the nature and the spread of the problem is across the boundaries. Needless to say that the U.S. and the rest of the developing nations have been pulling the world in opposite directions.

No one worries about the poor people affected by high inflation in developing nations.

Chairman Ben Bernanke hoped that change in global perception on the safety of the U.S. treasury should happen incrementally, if it happens at all, in response to the hopelessly irrecoverable U.S. deficits.

He has been right so far as the world desperately realizes that the present financial system has inherent structural problems. But the urge to maintain the status quo remains, due to multiple reasons.

The first is about leadership. Nowhere it is possible to bring a change, involving diverse multiple bodies, without an able and accepted leader. Unfortunately today’s world lacks any who has the ability and acceptability to take on the major global problems.

One has the right to preach as long as one follows the same principles irrespective of the person. However when we see double-standard in the preachings, one for ‘them’ and another for ‘us’, the precher loses the much desired credibility.

That’s what essentially has been happening with institutions like the IMF, the World Bank, the UN, and alike. And the root cause lies in excessive U.S. influence in running these global institutes. The objective of these institutions should be to prepare the world collectively for the challenges it faces and bring necessary changes, preferably incrementally, than being forced to act radically for years of inactions.

But their systematic failure in doing so over the years may jeopardize their own existence or purpose, or even may lead to radical changes in which the world runs its systems.

The other development that’s further aggravating the problem is a lack of unity and rising mistrust among other leading nation states of the world in reforming these global institutes. When a leader of undisputed power and influence, like that of the U.S. enjoyed over the years, starts its decline; there is bound to be chaos and rumors amongst the rest.

There are a few who feel ambitious to take that coveted position, and wait and watch without a hurry as China’s been doing wisely; and there are many more who feel insecured in the prospect of that inevitable change. Japan, India fit perfectly in the 2nd group.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

‘The wolf and the lamb’ of the currency war

2010-10-13T19:48:00.000-07:00

How sadly history repeats. Remember John Connolly’s (the then US Secretary of the Treasury) famous 1971 comment to European financial ministers: “The dollar is our currency, but your problem.”

G-7 will have its meeting this Friday in Washington. They will discuss the ongoing race to the bottom currency war issue that has been roiling the global economy over last couple of months. Call it by competitive devaluation of currencies or competitive nonappreciation of currencies, it essentially boils down to a falling dollar due to the ‘global currency’ status that dollar enjoys.

Can the G-7 face the following simple question in trying to find a simple feasible solution to the currency war?

Who started this currency war and how?

The problem with agencies like G-7 has been that they always miss the point and come out with an analysis that further damages the patient than cures the ailment. They always live by the minute as they don’t have the patience nor the resources any more to look for a long-term sustainable solution. G-7 has routinely misinterpreted root cause of any problem over last couple of years, and mistook symptoms as root causes, more so when the root cause was due to faulty policies (excessive liquidity) from the U.S. G-7 also lacked any credibility to reprimand the untitled leader of the G-7, the U.S. itself.

Whenever the U.S. has failed to play responsibly to its unique position in a global economy; G-7 has tried its best to find a scapegoat to the problem, or even have tried to scuttle the problem itself by letting the problem persist and magnify.

Just imagine had the U.S. been another nation, what could have happened to its economy post-2008 disaster? It would have fallen like the former USSR, if not more badly.

The world has been paying an extremely heavy price in its effort of letting the U.S. economy regain some of its old-time vitality. Alternatively the U.S. has been exploiting the present turmoil in global economy to its advantages by exporting inflation globally through a weaker global currency that it owns and prints shamelessly, the dollar.

Probably both of above two have been running simultaneously for quite some time. One understands the pain and frustration of Japan, at the same time Japan is ready to feed the U.S. so that there’s market for Japanese products in the U.S.

At least China has been trying to develop untapped poorer markets across Africa and certain parts of Asia. China understands the unsustainability of the model where the U.S. consumer is at the center of the global demand; financed, however, by debt.

In spite of years of efforts from the World Bank, the U.S. or Europe, little progress could be made in generating consumption at the bottom of the pyramid in the poorer nations of the world. China has been trying to do so, and it surely would find a more sustainable market for its competitively cheaper manufacturing industries at the bottom of the pyramid than the U.S. consumer in coming years.

One needs to pump both money and goods to keep the demand high from the U.S. consumers as it has been the case with the U.S. economy. With the bottom of the pyramid, they would consume less individually, without credit and their numbers would make up more than the the short-falls from the lost demand from the U.S.

Can the G-7 face the question on who triggered this ongoing currency war? Although all the superficial blames point to China, accountability must be commensurate with the responsibility. Trillions of dollars of reserves are held by the developing nations. Yuan does not yet enjoy the status of a global currency even to a single digit percent point as dollar does.

If the U.S. fundamentally believes that China is the root cause of the problem, why not apply anti-dumping duty heavily against imports from China? A bi-lateral problem needs to be resolved bilaterally; and there’s no need to go for a global debasing of a global currency.

So the argument that dollar goes down as yuan has been deliberately undervalued is not acceptable, and is fundamentally flawed. (alternatively, the reason for not doing so may be an apprehension amongst the U.S. policy-makers on impact of such a decision on bi-lateral ties with China, more so from the point of China’s forex holdings).

The flow of the events of this currency war clearly highlight how the root cause of the currency war is linked with the market speculation of Quantitative Easing II (or QE III or IV or whatever as others suggest), to be launched by the Federal Reserves. Fed. has bolted the horses on that ‘market speculation’ cart, and now the cart is running amuck without any control. And it serves much of the purpose of QEII before it is launched!

Now one may further go down the root cause and ask what prompted the Fed. to decide to go for further stimulus or why did the U.S. went through the crisis more than the rest of the world to why the U.S. consumers don’t save or why the unemployment figure in the U.S. is high?

Do we need to revisit China as the root cause for all these troubles in the world’s largest economy?

However I am sure that G-7 or the IMF (or institutes affiliated with the U.S.) would point to China for all these sufferings of the U.S. economy.

Reminds me one of the famous Aesop’s fables, The wolf and the lamb.

The U.S. merely presented an opportunity and China grabbed that opportunity. The U.S. thought itself invincible in making dollar a problem for the rest of the nations. No one had any idea how the opportunity may one day backfire against the U.S. itself. By pegging yuan to dollar, China makes dollar a problem to the U.S. as well.

Some lighter words before the G-7 meeting begins on this complex issue. May I please suggest (with all my humility) that policy-makers from G-7 read this poem, titled ‘the discovery of the shoes’ , of Tagore, before trying to find out solutions to the ongoing complex currency war. This may indeed lead to the discovery of a sustainable global financial system.

Rabindranath Tagore probably had an inkling on how complex problems can be solved with an open and unbiased mind. Today’s financial world badly needs one. We need someone from the main street background in telling the G-7 the importance of living within one’s means to solve this currency war.

A global currency does not come with the passport of exporting inflation alone, it also comes with its associated responsibilities.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

PIGS suffer when elephants named dollar, yen and yuan dance

2010-10-13T19:47:00.000-07:00

Since Japan intervened in the currency market last month, and Bernanke has been keeping dollar low with whispers alone of ‘further Fed. actions’, euro has strengthened against both dollar and yen by nearly 7-10%.

Unfortunately euro does not look like a well protected child of the ECB or the euro zone because of its strength, it rather looks like an orphan due to its relative strength in the ongoing currency war where the race is to the bottom. China’s yuan, due to its automatic linkage with dollar, naturally weakened against the euro.

Surprisngly the ECB or the EU has shown least concern about this strong euro and its sharp upward volatility. It will be actually wrong to term euro ’strong’, it will be more accurate to say that euro at this moment looks less weak than dollar (due to fundamental reasons + possibilities of further Fed. easing) or yen (due to possibilities of further intervention).

However the ECB, and the EU have its own problem child. Although these are indeed ‘children’ compared to the size of the overall EU GDP (barring Spain from the list of Portugal, Ireland, Greece and Spain in PIGS), it makes the job of avoiding a restructuring of the national debts or even default of any of the weaker economies within the European Union a more difficult job.

A stronger euro in turn makes the recovery process of Ireland, Greece, Portugal and Spain even more difficult.

But not necessarily to Germany (or France). The pain felt by Germany or France is insignificant compared to the pain felt by the PIGS.

It is simply because the export-driven Germany economy relies a lot on export markets within the euro areas. Its import costs come down due to stronger euro, and export competitiveness to the euro area is simultaneously not lost as realization remains in euro. Therefore a fluctuating euro, stronger or weaker, does not affect the export-driven Germany economy when it comes to exports within EU itself.

Germany happens to be the winner in ‘heads you lose and tails I win story’ of the euro and the EU.

Problem is with the rest of the problem children. None of these smaller economies are export-driven, however whatever export they do to the rest of the world gets affected due to a strong euro. Also these weaker economies’ exports are not primarily within the EU, unlike the case of Germany.

So at a time of austerity and job losses in these economies, they further lose their export-related competitiveness and jobs.

Then why is the ECB silent on a strong euro? Why isn’t there any scope of intervention or even an approach to ‘talk the euro down’ from Trichet or the ECB, as followed by Bernanke or the Fed.

It is because the growth engine of Europe is not feeling the pinch of a strong euro. And Germany has a much larger say on activities within the ECB. It also helps Germany to improve its negotiation power over the weaker links of the EU when it comes to austerity.

Question is: can it sustain? With dollar looking weak and further weakened by actions or words of the Fed., yen weakend by actions of BOJ; what recourses do the weaker economies within the EU have, other than asking for more bail-out funds from the ECB? Their internal actions alone can’t bail them out, but can only weaken the economy further as it has now been witnessed with negative GDP growths.

It’s said that ordinary people like us should not share the dancing floor with the elephants. Today there’s a ‘currency war dancing floor’ race to the bottom amongst the giants of the global economies like the US, Japan and China; the top three in global economic order.

The result is a strong euro, and strong local currencies among various other emerging nations.

The weaker European nations are not dancing with the elephants, however by linking themselves with another elephant called Germany who isn’t sharing the dancing floor with the rest three but having its own party instead; the weaker European nations have been suffering silently, by paying a very costly price for a strong euro.

The strong euro along with the austerity measures of the ECB may be stampeding the weaker EU economies, however the giants within the EU like Germany (and France) or elsewhere like the US, Japan or China do not feel it.

Many other nations across the world feel the same as the PIGS in Europe feel. However if need be, these nations have the option of intervention (for export-surplus nations like South Korea) or a devaluation (for current account deficit nations like India). The PIGS don’t even have that option. They have perfectly been sandwiched between two groups of dancing giants - in one side there’s the race to the bottom in this currency war with the likes of US, Japan and China; and on the other side there is Germany (and France).

PIGS can only suffer silently and pray that the elephants do indeed stop their mad dancing in a race to the bottom of currency valuation.

It is time the broader world of the PIGS remind these elephants that there’s accountability in monetary policies for a nation enjoying the status of a global currency. One can’t act like a third world nation in managing its currency when one’s currency is held as reserves in trillions by other nations, many of which are poor nations, at the cost of depriving the legitimate needs of their citizens.

Problem is: who would deliver this SOS message to the dancing elephants? IMF excelled in this job when it came to the third world nations; however knowing by the track-record of IMF, one can reasonably say that IMF actually is a pawn in the hands of the elephants than having an independent mind of its own.

So the PIGS are likely to suffer until the dancing of the elephants in the ‘race to the bottom’ war in currency valuation finds a clear winner or an acceptable treaty.

Both are unlikely in the near future.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

Post-Mortem of Capitalism in the U.S.

2010-10-13T19:45:00.000-07:00

‘Has capitalism been dead? We didn’t know that…’
‘When and how did capitalism die? And why has there been no formal annoucement about it? Is there some one desperately trying to hide the facts towards some (vested) objectives?’
‘Is capitalism indeed dead? I can’t believe it! Well, it has been due since the happenings in the name of ‘cult-of-Wall-St.’ capitalism…’
‘The greed-driven, Wall St. cultural capitalism has been dead. It has not yet been announced as policy-makers are clue-less on how to take the economy forward. However newer and better forms of capitalism would emerge. Long live capitalism.’
‘A good riddance. RIP’.
‘Well, we need to find new ways to make money. Forget about the millions…that era is dead with the death of capitalism. Can we do anything that creates value for society and help us earn as much as most of the other professionals earn in society, a decent salary? I doubt it.’ Heard from an old and veteran Wall Street Professional.
You may be thinking about the possibilities of one or more of above from current economic turmoil. Or you may belong to the group of deniers that believe present style capitalism can never be dead in the U.S.

Let’s try and understand all of these better.

Yes. Capitalism has indeed been dead in the U.S. for some time. It’s an assumption you have been making that you would come to know about the death of capitalism as if it’s another living body that can be declared dead by a ‘DC’ of a doctor. It is a belief, a concept, an economic idea, a form of society. And don’t tell me that although you haven’t heard the death of capitalism, you can’t feel that it’s been dead in the U.S. The answer is indeed blowing in the wind.
As capitalism is not a living body, no one can for sure state when and how it had its death. However it’s been dead for quite some time now. The players who caused its death are the Federal Reserves, the U.S. Govt., BOJ and Japanese Govt, partly Europe, along with most other national governments and their central bankers. You and I and most of us have also been involved in its death as we all became greedy and wanted to live like the rich. Capitalism couldn’t take this burden of expectation and experiments that policy-makers followed to make all of us rich and all nations’ GDP to grow more and more year after year, and passed away silently sometime during 2008-2010 period.
There’s been no formal announcement yet on death of capitalism because

i. Policy-makers in charge of making such an announcement are clueless on understanding the implications of it. They never knew the implications, locally and globally, if capitalism cease to exist ever in the U.S.; they could only feel the vitality of capitalism in its peak as we now sense capitalism has been dead for some time.

ii. Few of the policy-makers and economists have been so much in obsession with capitalism that they can never accept the death of a format/an avatar of it. It’s something what you come across in news that there are people in society who have been living with a dead-body for years as they can’t think about their existence without the presence of the departed. Think for example - Ben Bernanke. Can you ever make him understand it? He would always be on the denial or would hope against hopes, in a Pollyannish manner, to revive capitalism with even more dollars - in its same old format.

The ‘denial’ group also believes accepting the death of capitalism would hurt the interests of the U.S., the broader western powers and its allies; more in the context of a rapidly rising China, with its allies. Call it vested or misled - this group doesn’t see how citizens of the same nations which have been in the constant denial of death of capitalism have been suffering. More money than ever is now being spent in preserving the dead body of capitalism which is the living epitome of the Wall Street, unfortunately that does not benefit the citizens.

3. Well, you got it right.

4. You are right, and most of us agree with you; from the viewpoint of innovation. Capitalism is about private ownership of means of production to downstream activities seeking better returns on capital. However since last ten years or more, one can make better capital by taking calls in forex markets as the currency war in a race to the bottom continues. The death-knell came from gold over the last few years. Gold does not produce anything, but have been generating consistently better returns on capital over last several years. At the same time, central bankers have abused capital by bringing down the cost of capital to zero, or in real sense to negative territories.

5. Well, we never miss an opportunity to miss the opportunities that could have rectified the health of capitalism. In 2008, it presented a great opportunity where taking down most other investment banks along with Lehman could have revived capitalism in its true form by now. We were misled to believe that investment bankers of the Wall St. is same as capitalism. As long as that believe remains, there’s scarce hope of revival of capitalism again in the U.S.. So unlike Marx, who has been in peace in the last few years as he laughs in his tomb with the death of the last version of capitalism in its citadel in the U.S.; capitalism in its true spirit would like to resurrect with the least of opportunities anywhere else where there exist an enterprising environment of the people, and supporting atmosphere.

Only if policy-makers in the U.S. allow it for it to return in the U.S.. And regarding its resurrection, it already has done so in China.

6. We feel for you, just as you feel for the main street.

However in case you happen to be a die-hardnon-believer in the death of capitalism, you can remain so. However be ready for more ‘black magic’ type of witchcraft from the Federal Reserves, from the BOJ, from the ECB and from these respective governments.

These can be in the forms of more stimulus to quantitative easing (QE) to buying stocks in a covert manner to support the S&P index to intervening in forex markets in the form of a currency war to bailing out more banks to -ve (real) interest rates to denial of inflation to anything. These can take the stock markets higher to create another bubble and gold even higher, however these actions would not revive the economic dynamism of making money from productive capacities, in a sustainable manner. Therefore these actions will not revive the much-needed employment generation in the U.S.

The release of the official post-mortem report of capitalism, to be signed by the U.S. policy-makers, is likely to be significantly delayed, if it ever happens (they may do as China did with another ‘Dalai Lama’ in Tibet, with a different boy). It may make the economic situation only worse, over the longer term. However no one thinks beyond months now.

The main street believes that the cause of death of capitalism in the U.S. was due to mistaken identity of capitalism by segments of policy-makers, pretending to be God. Powerful central bankers started thinking themselves as God due to the maddening worships they received from investment bankers of the Wall Street. They started believing that they indeed can create trillions of dollars of value by a mere decision of monetary policy.

They forgot that it has been the job of capitalism to create value.

Central bankers, influenced by Wall Street, forgot their role - which is to support the forces of capitalism. Central Bankers, in their faulty diagonosis, tought that with the help of the Wall Street, they can create and sustain value than capitalism does or real private enterprises do.

And the Wall Street complied by dancing to the tunes of the Federal Reserves than to the sufferings of the enterprises in the U.S. as revealed by fundamental economic data.

These central bankers eventually forgot their own role and mistook Wall Street to be representative of capitalism. They killed capitalism to protect the Wall Street. However the death of capitalism would prove that Wall Street may improve, but not the fruits of economy that can be shared by every enterprising person in the main streets, as was the practice in the era of capitalism.

At the same time, a more sustainable form of capitalism, with strong state intervention to control unbridled greed, has already resurrected in China after its painful death in the hands of the U.S. policy-makers (and its allies). However neither Chinese policy-makers (or economists) nor that from the west would admit that, or baptise it as a better form of capitalism. The presence of true worshipper of capitalism like Warren Buffet in China in factories of BYD, that follows this better version of capitalism, lead to this belief. The interest of the Wall Street in keeping yuan valuation low follows the same logic.

Another round of QE is easy to do for the U.S., but admitting that the time has come to learn capitalism from China is difficult. Problem is: lately the U.S. has always taken the easy path that have consistently made things worse for the medium and long term health of the U.S. economy.

And here’s a copy of the ‘death certificate’ that Schumpeter issued to capitalism back in 1942, to be issued at a future date, without seeing the ’success’ of capitalism as we observed in 2008. One can write the date ‘circa 2008-2010′.

“ Can capitalism survive? No. I do not think it can.” Thus opens Schumpeter’s prologue to a section of his 1942 book, Capitalism, Socialism and Democracy. One might think, on the basis of the quote, that Schumpeter was a Marxist. But the analysis that led Schumpeter to his conclusion differed totally from Karl Marx’s. Marx believed that capitalism would be destroyed by its enemies (the proletariat), whom capitalism had purportedly exploited, and he relished the prospect. Schumpeter believed that capitalism would be destroyed by its successes, that it would spawn a large intellectual class that made its living by attacking the very bourgeois system of private property and freedom so necessary for the intellectual class’s existence. And unlike Marx, Schumpeter did not relish the destruction of capitalism. “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it.”

China didn’t desire capitalism, but today China has been nurturing a form of capitalism as China understands the positive aspects of capitalism. The U.S. didn’t desire the death of capitalism, but as it nurtured the negatives of capitalism alone as foreseen by Schumpeter, it paid the price with the murder of capitalism. Schumpeter saw a natural death, but the events of 2008 make the death to be a murder.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

In Search of Real India

2010-10-13T19:44:00.000-07:00

Had Commonwealth Games (CWG) been a financial product, its valuation for the New Delhi 2010 surely would be the highest. That’s the summary of the two events that took most of the prime-time on Indian televisions on 21st September. One of these two events pertaining to India happened to be a top BBC news-story.

This event was on the preparedness (or unpreparedness) of New Delhi in hosting the forthcoming Commonwealth Games (CWG).

The other one was on Sensex and Nifty, two of the barometers of Indian equity markets, touching mile-stones since 2008 at 20,000 & 6000 respectively. Indian stock market happens to be at a kissing distance from their all time highs, and is the most expensive amongst major economies.

Most Indians view these two events as two different and extreme pictures of present day Indian dichotomy. The myth goes like this: the former epitomizes the failure of governance in India, the market signifies the success of Indian entrepreneurship.

It may be worthwhile to quote Kennedy in this context:

‘The great enemy of the truth is very often not the lie: deliberate, continued, and dishonest; but the myth: persistent, persuasive, and unrealistic.’

My problem in accepting the great success of Indian entrepreneurship comes from two sides. One is universal that states money is the root cause of all the evil (or something like ‘money is the bitch who never sleeps’ in the context of post-2008 Wall St. as presented by Hollywood). The 2nd one is more India specific.

And this one is: ‘I am suspicious of most successful businessman in a country of stupid governance’ where their success is mostly proportional to their illegal, unethical or immoral ways to deprive the nation her legitimate dues. A stupid government makes the job easy.

Therefore both the events are as similar or as different as two sides of the same coin.

The concerns of the delegates on the preparedness of Commonwealth Games made Indians realize how unaccountable our nation has become. This is a nation where the Prime Minister passes the buck to the state governments, state governments do the same on center (recent example of Kashmir where the state government, which happens to be an ally of the ruling center, even didn’t spare the Army), judiciary refuses to entertain legitimate concerns stating policy-intervention or in the excuse of intervening in the executive domain of the democracy, etc.

Mark Tully beautifully described it as ‘No full stop in India’ as we have seen this from our border disputes with our neighbors to Bofors to Bhopal to Ayodhya to Caste Census to Maoists-problem to hundreds more, depending on our awareness of national and regional issues.

Indians are used to it. Majority of us know we are on our own, more so the two-third majority and poor lot. It also explains why we trust more in God.

Unfortunately, the organizers of the CWG have also started praying to God now than believing in their capabilities, as a team, in hosting a professional game.

However we can’t expect that the civilized society and its athlete-members from many of the participating nations understand this unique dynamism about India.

So I was not surprised by the media hype on unpreparedness of New Delhi for the Commonwealth Games. I would have been more surprised had New Delhi got ready in hosting the CWG in a professional manner.

As a nation we need to understand that the unpreparedness of New Delhi for the CWG is not something ‘Business-as-unusual’ for India. Unfortunately it is a ‘Business-as-usual’ for India. We come across these inefficiencies everyday in our governance, and thereby our expectations have been re-calibrated to the so called ‘Indian standard’ (or ‘Indian Government standard’).

We need to learn from the CWG unpreparedness by not fixing persons alone, but by improving the systems. That does not mean the corrupts need to go unpunished. That only means the rot is much deeper than the superficial persons alone.

I happen to be more concerned about the plight of the laborers who have been probably working day-and-night now to finish the unfinished work, in the most difficult circumstances, than by the overall unpreparedness. Media talked about those laborers sleeping on athletes’ beds or using those toilets (or even urinating in the open). That barely explains the facilities they get or the working conditions they face or wages they receive. None of the media ever bothered to focus on that.

In the media debate, the plight of the laborers is not a concern. We are not ashamed by the plight of our laborers or the poor. The apparent concern of the media is the ‘dignity of the nation’. I don’t understand this dignity which we Indians see to be compromised everyday in our matter of life - with or without a CWG.

We need to move away from the logic that the nation feels ashamed for the time being because a few invited delegates have found the unpreparedness of our games village, to a level of permamnet national concern regarding our planning, execution and managerial capabilities in building the nation in an equitable manner.

Seven years back we were able to sell New Delhi as the host of the CWG beating Canada. We are able to sell India, but we have not been able to build India or New Delhi.

And here comes the 2nd event where we again see that we have been able to sell India to a minority group of FIIs who can take our stocks higher or lower at a fractional flow of global liquidity. Unfortunately, this has not translated in building real India or impacting real India. A look at China makes the comparison complete.

When Obama has been debating on tax-cuts for the majority and not for a few rich minority, successive Indian governments have given tax benefits to Indian stock market participants who are not only an exclusive minority in India, but who also happen to be much richer than the salaried tax-payer.

Where are the numbers that justify tax concessions for equity investors in India? We have never seen any debate on it as it favors the people who sell India, without ever trying to build India.

We need to realize the simple thing that selling a nation of 1.2 billion is easy, but building a nation of same 1.2 billion is a formidable task. The seller apparently tries to make some quick money in the process, without owning the asset of the billions. A look at how private firms acquire land and then how FIIs invest in those firms to make quick money highlights the case of selling real India in the stock markets.

The people without the money power rely on government and get the same standard of inefficiencies as evident through the failures of the CWG.

Building the nation must start with a strong leadership and accountability.The CWG can be good learning point and therefore a right investment for India only if the future leadership of India learn to figure out the real India from the various fake versions of it.

Question is: Would next generation of Indian leadership probe deep into both the events and come to an original and logical conclusion than be brainwashed by vested interests?

I happen to be an optimist as I believe things can’t get any worse than this.

The more I have been seeing the actions of Rahul Gandhi and Mrs. Sonia Gandhi lately, I have been liking them. One of my colleague explains it as ‘western values’ when it comes to Mrs. Gandhi. Earlier I was one with the opinion that an Indian can only be India’s PM. I am and was against dynastic succession. That view has changed now as I don’t see much light of hope anywhere else in the Indian political space.

The CWG is bound to be a grand success for India, only if Rahul and a few like him who can lead India in coming days, learn from both the events - the CWG and the rising markets simultaneously, and take the right lessons to figure out real India and her real concerns.

The identity of India lies in not having proper streets across most parts of the nation whereas it has been having an advanced sophisticated Dalal Street without any entry barriers since long. New Delhi is yet to realize the futility of having a Wall St. without having real main streets that can meaningfully overcome exit barriers to its majority of the underprivileged lot. The real fate and identity of India is linked with the progress of the Millennium Development Goals (MDGs) of the UN as India happens to lag behind the most, and thereby even pull the whole world back in most of these parameters.

However the absolute silence in Indian media on the ongoing UN MDG meetings or the absence of any senior and relevant representative from India in these policy-discussions speak volume about real India and her misplaced prioroties. Indian policy-makers happen to be always busy in attending meetings organized by lobby-groups of industry associations to take the GDP and market higher by short-selling India.

Building real India to achieve the MDGs, like building New Delhi for the CWG, have little relevance in that list of priorities.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

Bernard Shaw’s Question To Bernanke

2010-10-13T19:43:00.000-07:00

Economics is not perfect science, although biology is.

Any monetary policy action is expected to generate few likely outcomes of vastly different nature. The exact outcome, which is likely to be different in each context, will depend on the nature of policy-action and the situation. However the exact outcome can never be predicted as it is possible in the area of science.

The well-known story of Bernard Shaw goes like this: A young and beautiful actress once proposed to George Bernard Shaw in his old age. She hoped for perfect children from the marriage, due to the beauty of the former and the wisdom of the later.

Bernard Shaw first complimented the young actress for her splendid imagination. However he also noted: “But, what if the children take my appearance and your wisdom?”

Because in a scientific area like biology, we even today don’t know exactly what drives wisdom or beauty in a person (all the genes). It is naturally more so in the field of economics as we don’t exactly know what creates employment or inflation in a real world that changes every day.

Stimulus in one nation, in an era of Keynes when global economy was not as integrated as it is now, had a different effect within that nation than it is likely to have now. US policymakers would love to create a fraction of the jobs, that actually are getting created every week in China, India and in the rest of the emerging nations, in US itself.

The irony is, surely a small but significant percent of the jobs, that are being created in the developing world, is due to the ongoing stimulus in the US. $40 billion of monthly trade deficit in the US can support 4 million job-creation every month in the rest of the world, assuming (1) minimum salary of even $1000/employee, and (2) 10% of the figure is spent as salaries.

US economy is showing signs of doubtful recovery since 2008, however the job market surely hasn’t shown any ‘green shoots’ as of now. In the same interim time, the headcount of Indian IT firms or Chinese manufacturing firms (both exporting to the US) have grown by millions.

A fraction of that has been possible due to the economic recovery/stability in the US (without the job recovery).

Bernanke’s hope, like the imagination of that actress, is: Only if, only if a fraction of these jobs can be created in the US (no denying here that more job losses in the US have been avoided by stimulus). His assumption is the money he throws from the helicopter remains in the US. Problem is: a significant part of that extra money, that is used for consumption, remains in the US; whereas the other part of that money is invested to create productive capacity in emerging nations.

His other hope is: inflation will remain low as high unemployment will mean less demand in the US.

However the millions of people, gaining meaningful employment elsewhere in the developing world, will have their consumptions. So the global consumption need not necessarily slow down. Car sales in the US might have fallen, but globally it gained significantly. In the global economy of present age, we are likely to see higher inflation everywhere when additional demand in the rest of the world more than adequately makes up for the lost demand in the US.

And now add the persistently loose monetary policy present in the US and in much part of the developed world.

Therefore Bernanke must not rule out the other possibilities of his innovative, easy monetary policies. It is not deflation that the US (and the world) should be worried about. The last decade of Japan saw loose monetary policy only in Japan, along with trade surplus in Japan. Demand generation from China and India was not as significant ten years back as it is now.

It is the spectre of inflation which may start haunting the unemployed in the US soon. Rather than becoming wise and beautiful as Bernard Shaw pointed out, the calls for more stimulus to help the unemployed in the US may backfire to the same lot when prices and interest rates start rising.

Signs of this spectre is already visible in the emerging nations.

Given this situation, the question Bernard Shaw would love asking Bernanke is: “But, what if the unemployment continues to be high in spite of all your actions and the economy shows signs of inflation due to all your actions”?

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

One Week And Two Events - From China And India

2010-10-13T19:38:00.000-07:00

It is not even a week. To be more precise, it’s been just six days. The first event happened on last Saturday in Beijing, the second happened in India on 16th, that is today.

Last week, precisely on 11th September, China decided to bring out its inflation number. The practice was to bring it out on a working day than on a Saturday (11th September was Saturday).

Financial markets globally were unduly worried about high inflation numbers, and thereby anticipated likelihood of a stubborn response from PBOC in tightening rates. The explanation was – China wanted the world to digest its action over the week-end before markets reopen on Monday.

Inflation came in expected lines, and monetary tightening didn’t finally happen. Global financial markets rallied on Monday.

On 16th September, RBI in India hiked rates as India has been known as ‘Inflation Nation’ globally. Market did factor in that. However the tightening was more aggressive than the expectation of the market.

Within an hour of the verdict, Indian stock market rallied up by more than one percent point.

True, markets seldom send the right signal – more so for the shorter period of time.

Sometime back, a tweet said: ‘Mahatma Gandhi died saying ‘Hey Ram‘…present lot Indian policy-makers starting from Manmohan to Montek would die saying ‘Hey GDP‘’.

GDP is not an end by itself. It is a means to an end - to the objective of having better quality of lives for the vast majority of the citizens of any nation.

One can’t play tennis by looking at the score-board. India would do better, if it learns policy-making that enables China to grow at more than 10% (1) with low inflation rates, (2) with poverty reduction at a faster or similar rate than the GDP growth rate over the last two decades, and (3) with increasingly higher literacy rates, than alone chase the GDP figures of China.

When China overtook Japan as the 2nd largest economy in terms of GDP recently, one prominent policy-maker of China played down the development by stating China needs to improve the lives of its millions of underprivileged, and that remains the primary goal of China. India does not focus on the nearly 70% of its poor-population who badly wait for basic and fundamental developments for years amidst the country’s unsatiable qwest for GDP.

The relevant question is: How much speculative capital inflow or outflow within a period can cause financial destabilization in India or in China? For India, the answer would be less than $20bn for any year; for China – it’s anyone’s guess.

India can absorb trillions in its infrastructure, however that money never comes (as it does not return super-profit). That will help India achieve global standards of inflation, poverty and illiteracy to achieve the broader objectinve on improving life-standards of its vast majority.

PBOC expressed its concern about how a rapidly depreciating dollar can cause asset bubbles in commodities and in assets of emerging markets. Indian policy-makers take pride in how Indian financial market has been outperforming others (as a sign of confidence) to beat the drums of ‘domestic consumption’ story, without bothering about fundamental liquidity rally that is driving its stocks higher.

New Delhi thinks like Washington and not like Beijing, as if the poverty figure in India is as low as that in the US. New Delhi believes in freewheeling capitalism, at times more than what the wild west believes in. Incidentally this same form of capitalism and free markets shook Washington up as recently as in 2008.

I invite you to take a look at my book, Wondering Man, Money & Go(l)d. You are also invited to join me on Twitter.

Economic Opinions During ‘Unusually Uncertain’ Economic Environment

2010-08-23T21:56:00.000-07:00

In economics, it’s all about opinions and hypothesis. ‘A hypothesis can never be proven true, it can sometimes be verified beyond reasonable doubt in the context of a particular theoretical approach’, explains free online dictionary while differentiating among hypothesis, law and theory. They all arise from statements, however in economics – it can never get to be a ‘law’ as in science.

So we can have extremely opposite opinions, more so in times of uncertainties, coming from eminent economists.

Only time has the answer, however the prediction that comes to be right isn’t purely because of its brilliance alone. It’s also because of turn of events that favor one prediction more than others, much of which are always uncertain. It’s something like getting ten heads in ten tosses – out of many, someone will get it right!

And with uncertainty, here comes Ben Bernanke.

Greenspan was known for his trademark ‘Irrational Exuberance’. His successor, Bernanke, was initially known as ‘Helicopter Ben’, and later for his trademark comment of ‘(Finding) Green Shoots’ in the economy.

Then we saw a degree of honesty and frankness in Bernanke, in spite of holding the high office of the Chairman of the Board of Governors of the Federal Reserve System. It came with his latest comment that the future of economic environment in the US looked to be ‘Unusually Uncertain’. He also sensed that ‘economic forecasting is a bit like reading entrails’.

That has not prevented economist and financial market analysts from making a forecast or a likely scenario for the intermediate future, focusing as usual, more on the shorter term. The unique situation of the economies of the two of the largest economies, when EU is taken as one, indeed makes the global economic recovery uncertain. On top of that there’s Japan, now 3rd largest economy, and suffering from an in-and-out-of-recession-syndrome since mid 1990s, where the discussion revolves around another possible round and form of stimulus; and effectiveness of it, when the stimulus comes.

Central bankers of the US, EU & Japan are left with very little arsenals, which have not been previously tried with, to steer their economies in case they face future uncertainties on the downside. Interest rates happen to be close to zero. Inflation is non-existing in these three economies, although signs of its ghost have started appearing in Britain, and in the form of hidden inflation in the US. One isn’t considering developing block where it’s already a threat.

On the other hand, the governments of these three economies are already burdened with huge existing debt, from 60% of GDP for EU collectively to nearly 200% of GDP for Japan, leaving little elbow room for further piling up of additional spending. Yearly addition of fiscal deficit, normally in the range of sub-3% as was the benchmark for developed nation, has now shot up to 11% for the US, 7% for Japan and 6% for the EU. In spite of around 6% deficit for EU, problems remain within parts of EU as nations like Greece, Portugal or even larger economies like Spain have much higher deficit compared to Germany, the growth engine of EU.

So the governments have used their arsenals, Central Bankers have used their part; and economies of all these three regions still languish. It’s something like a doctor using all available tools on a patient, and the patient continues to show signs of ‘unusually uncertain’ recovery.

If all of above were not enough, add often appearing articles in western media about ‘a possible bubble’ in China, now the 2nd largest global economy. These articles talk about possible signs of bubbles in China’s real estate or in banking or in certain other commodity industries. At the same time, there are likely negative implications if the Chinese growth engine slows down.

It was always difficult to read financial markets or economies, but a few people anyway thought that they could read it like Paul the Octopus did the recently concluded World Cup. So amidst present round of ‘unusually uncertain’ economic environment; economists are divided in few schools of thought, on their opinions and remedial actions. Each of these schools of thought look equally murky deep inside due to the ‘Paul the Octopus’ syndrome (and not having something basic like ‘sense and response’ approach); however their broad line of thinking, in a predictable scenario, is as follows:

EU, IMF, and Raghu Rajan club: Prescribes austerity, reduction of deficit and national debts. EU has started following it. Their latest recommendation is to raise Fed rate by 2%.

US, Japan, with academically brilliant economists like Krugman, Bradford De Long club following Keynesian policies (although Krugman would disassociate himself from Fed or US Govt. policies as he belongs to the ‘extreme follower’ of Keynesian policies): More stimulus, even more stimulus as long as ‘measured’ inflation is low; and get economic recovery & job recovery. Krugman must be wondering how Rajan can be considered as an economist for suggesting Fed. to raise rates – it’s unthinkable economic blasphemy!

The differences of these two policies are nicely highlighted by an article titled, ‘Dr. Keynes killed the patient’. The article is about a ‘morbidly obese’ (Uncle Sam) man addicted to high-calorie intake. Dr. Hayek prescribed him to reduce food intake and to do exercise; whereas Dr. Keynes advised the patient to continue ‘high-calorie’ intake to avoid stress till recovery starts. The patient obviously liked 2nd easier option of Dr. Keynes, and died.

The difficult part of the story is, unlike a human being destined to have a death without any possibilities of revivals, economies don’t have any such ‘deaths’. It rather has up and down turns, some lasting for decades and centuries, some lasting merely years. History teaches us of some of the powerful economies of nation-states of past that had massive downturn within years whereas others had a slow and languishing downturn lasting over decades. It’s like a modern day life-support system which can keep an old patient alive for years when the patient, in words of nature, is as good as dead. At times, miracle happens as a few such patients revive, however majority succumb, sooner or later.

And the ones who revive go through the same ordeal again within months or years, and barely survive a decade, if not less.

Central bankers did a major bypass and installed pacemakers in these major economies, primarily in the US, back in 2007-8 in the form of bail-outs and stimulus, other than interest-rate cuts or injection of tremendous liquidity in the system. Europe has been trying to take the patient out of the life support system, and asking the patient to take some stress in form of some cost-cuts. America and Japan decline to do that.

And these two patients have been showing signs of getting in-and-out of that coma since then. Life support system has primarily been on in the US and in Japan with newer devices. At times one organ shows signs of recovery whereas another few fail in the next period.

So what’s likely to happen?

No one knows for sure when Bernanke himself, having the highest knowledge of the arsenals, existing or potential, doesn’t know it. We can however develop likely simplistic scenario.

Scenario I: No double-dip; however the uncertainties persist for some time (can be weeks to months to even years). And then some miracle happens as economy revives under life support system. It’s about unforeseen opportunities that may come-up due to global uncertainties of economics combined with geopolitics.

Scenario II: Double-dip happens. Once it happens, there will be further talk about a triple-dip or back to Scenario I like situation. History tells us that, when the road perpetually is downhill for major economies as one era comes to an end.

Scenario III: We already are in a New Normal where the present state of ‘unusually uncertain’ environment continues until something rocks the boat, and sinks parts of it faster than anticipated. It’s like amputating certain parts of the global economy in order to make the rest survive and grow.

So, the present new normal continues until a Black Swan event gets triggered, either as an opportunity or as a shock. It can come from China, it can come from Israel-Iran through political disturbances or even from North Korea or somewhere (food shartage globally, etc.) else. It’s likely to be having strong political implications than purely being of ‘academic interest’. Due to the nature of Black-Swan events, it’s difficult to pinpoint them. The Black Swan event may trigger rapid economic disturbance starting with massive inflation, on the economic downside for the US (and Japan). On the upside, US supremacy gets re-established due to some geo-politically shattering event, as it happened in the 1990s, with the fall of the former USSR; thereby giving the US another few decades time to continue surviving on ‘high-calorie’ food.

Such a period can also offer the US another chance to get back in ‘economic’ shape following Dr. Hayek.

Copyright: Ranjit Goswami. I invite you to visit my blog, Wondering Man (or take a look at my book, Wondering Man, Money & Go(l)d at Google Books). You are also invited to join me on Twitter.

What’s the truth behind Anti-Semitism, Israel and US-Israel Relationship?

2010-06-02T04:14:00.000-07:00

The topic is sensitive. Couple of times, I desisted the idea of writing anything on it.

I got the idea after reading an article in the Wall Street Journal (‘Turkey’s Minister Criticizes U.S.’). It would be inadequate to say the idea came from reading the article, it would be more appropriate to say that it came from reading the comments (more than 230) that the article generated.

The temptation of writing on a complex geo-political area was difficult to control. Still, considering the sensitivity of the issue; coupled with my comparative ignorance against many-a-expert; I resisted the idea.

However the resistance proved to be too weak once I read another article (‘Stop the hypocrisy about Israel’). This time it was editorial, and in CNN. The 2nd article had around 1570 comments.

Internet has done one thing for sure. It has proved beyond doubt that the readers collectively have more insight, more knowledge, more facts and even less bias than the reputed columnists.

I was indeed flummoxed by the 2nd article. I had an altogether different expectation before clicking on the article in Google News. I never heard about David Frum as a columnist of repute; however CNN commands some credibility in my mind.

Am I becoming negatively biased against the actions of the Binyamin Netanyahu-Ehud Barak Government of Israel, even if they are the best given the complex situation? If it is so, is it broadly right for the rest of the world also?

Reading some of the comments the article generated also highlighted that I am not alone. The flotilla incident, the blocking of humanitarian aid in Gaza in spite of a UN resolution to do away with it, flying fighter planes over Lebanon again in spite of another UN resolution against it, continuing with the occupation and further ‘stealing’ land (the word is borrowed from those comments) from its neighbors.

And the U.S. continues to keep quite. Some comments suggested China to be more responsible in keeping another rogue state North Korea under control.

The anti-Semitism card, often played by some sections of Jews in defense of their over use of forceful actions, has lost its appeal. If anti-Semitism at some point of time meant anti-Jewish; now the ‘misnomer’ term (since the Arab peoples are also Semitic people as descendent of ‘Shem’) means ‘anti-Palestinian’.

I really don’t understand it. The Jews suffered in the hands of the Nazis. The death toll might have been even higher than 3.5 millions. That does not mean one can’t question the actual figure or the methodology of arriving at it. I am surprised at the legal protection Anti-Semitism debates get in many of the nations, known for their progressive views where one can question anything under the Sun. It was a historical event, by questioning it one isn’t necessarily subscribing or supporting it. Russia (USSR) lost more number of civilians (around 9 million) in 2nd World War, China and much of SE Asia suffered under the brutal regime of Japanese rulers around the same time, and Bangladesh suffered brutalities during its freedom fight. The list is indeed long. All these come under same category of inhuman episodes of history.

None of those sufferings of mankind get mentioned in the same scale as the sufferings the Jews had. Even if that comes to be true, what should be done now? Does it give a right to the present state of Israel to do anything in the name of self-defence?

I really don’t know. Before reading the CNN article, I also read another (‘We control America’), recommended in a comment in the WSJ article, and came to know about USS Liberty. In the age of information, we all need to be careful about one thing. And that’s falling in the trap of believing something (or anything) without getting actual facts or real truth about it.

If one wants to believe in X, there’s enough compelling material online in support of X and against Y (directly opposite of X). Similarly if one wants to believe in Y (opposite of X), one can find enough material for that too. It is a dangerous trap of information that Internet provides for zealots.

I admit my ignorance on the complex issues of anti-Semitism and self-defence cards being played again and again by Israel in killing innocent people by an excessive overuse of force. But it does not make sense to me. I don’t understand why the U.S. continues to look otherwise when the control of media is no longer with the erstwhile powerful Jew lobby (due to Internet and information age).

The comments in those two articles (as samples from a large population), both in reputed Western media, show the divide in society (presumably in the West). The divide is even more in the rest of the world, and more so in the Middle-East. The world needs clarity, or else it will further get dangerously divided by articles/opinions that offer dangerous half-truths.

Ranjit is the author of Wondering Man, Money & Go(l)d, and is on Twitter

What does Government mean in the 21st century information age? (Part II)

2010-05-06T23:37:00.000-07:00

Part I of the article can be found here

Governance is all about having the right sense of priorities (using common sense which increasingly seems to be uncommon in Governments) for the benefit of the maximum number of people (and for the most vulnerable people first) than for the benefit of the capitalists alone. I don’t know, but I get the sense that from sometime in mid-1980s; when capital movement across countries eased; Governments started losing its priorities from main streets to the Wall Streets. It could have happened through a combination of (1) global capitalists threatening a well-meaning Government about the consequences if they collectively black-list the nation and/or (2) by hijacking policies of the Government by having members in Government directly representing the interests of the capitalists (at the cost of the citizens).

[Many from the developing world viewed the World Bank and the IMF as representatives of the (2) category as their countries got affected by the wrong policies of these institutes; now part of the developed world have also started viewing these Institutes through same lenses.]

The same movement of capital which once caused havoc with many of the developing countries has now started affecting much of the developed nations (in Europe as we witness now) as well. For the poorer nations, it was movement of capital (along with misplaced priorities); for the developed ones, it was more so in misplaced priorities (otherwise articles like ‘You’re Welcome, Wall Street’ is inexplicable).

What if, what if, if free flow of capital across the world can be implemented but not capital movements in speculative areas that looks like weapons of mass destructions? The capitalists have no national affinities, they can choose amongst nations that offer them the best returns even if that goes against the interests of the main street of those nations in the long run. Markets across the world have united the capitalists; it has not united the nations (or their Governments). There is competition amongst nations in attracting capital, however there isn’t same levels of competition amongst capitalists in investing in socially sustainable projects. Within a single nation, there exists a next level of competition among states in offering subsidies (or benefits, whatever) to the incumbent business house to attract that investment. Needless to say that tax-payers bear that burden that nations or states shower on the capitalists in attracting investments through forms of state-subsidies. The often-repeated logic offered by Governments in doing so is to improve the lives of the local people with the help of the trickle-down effect. We will look at effectiveness of trickle-down effect little later. Instances where this argument of the Government have been found to be true, one need to ask the question at whose costs that prosperity has emerged. One can look at the example of Singur in India to find similar such instances of direct or indirect investments.

The capitalists never had it so good in the past. A perfect global competition to attract their investments and lots of opportunities to invest, resulting in not much of a competition amongst capitalists themselves in offering higher incentives to the state (while bidding for the same project).

On the other hand, capital can’t remain idle for years. They need to be invested in some nations in some forms. What if, what if, if all the nations can collectively join hands in declaring that interests of our main streets (vulnerable sections) come before that of the Wall Streets. What if nations start following uniform policies (in not subsidizing businesses with tax-payers’ money and by having uniform tax-rates that help business and innovations to sustain) so that capitalists can’t make one nation fight with the other in order to attract their capital, where ultimately citizens of both nations happen to be the losers.

[Capitalists have tried dividing nations on forms of Governance like Communist country, etc. However if we recollect Plato, we understand the poors of America may share their mental maps more with the poors of China and that of India and vice-versa. ‘Any ordinary city is in fact two cities, one the city of poor, the other of the rich, each at war with the other; and in either division there are smaller ones – you would make a great mistake if you treated them as single states’ (The Story of Philosophy, Will Durant on Plato (‘The political problem’ section)) pp20]. Surprisingly we find that the cities of the poor and the cities of the rich are fundamentally same across the cities of the different nations in the 21st century world.

The priority of any Government anywhere is first to provide basic amenities to the most vulnerable sections of its people. I see the role of a Government to be like a father-figure supporting, as best as he can, his adult offspring in order of the priority of their vulnerabilities (where all the grown-up offspring actually happen to be on their own, managing themselves as per their abilities, as with the citizens of different nations).

Standards of basic amenities across the world vary. In the U.S., it may be jobs; for Indian tribal-people it may be food, water, electricity, roads, education. The U.S. has failed in doing so over the last couple of years in spite of adding trillions of dollars of Government liabilities in saving the Wall Street. Indian Government has failed for more than sixty years in providing basic amenities to much of its rural areas, more so in tribal-populated ones. With the information age, the unemployed in the U.S. or the tribal-section in India are respectively aware of the trillions of dollars of aid to the Wall Street by the U.S. Government in various forms or about the favorable mining leases Government allowed private sectors to have in tribal India at the cost of the poor tribals. These so called vulnerable sections may economically be vulnerable, but no longer are vulnerables in terms of having the right information affecting their lot.

Information, unfortunately for the Governments and fortunately for the people, has no longer been the monopoly of the Governments of the nations. Increasingly, these underprivileged section of the people are aware of the lifestyles and the obscene amount of richness the capitalists have been having at the costs of their sufferings; and they constantly compare both. It is natural in human psychology and behavior. In such a comparison, the benefits that the vulnerable sections received from respective Governments over last few decades may often tend to be ignored even if that gain in recent past outweighs similar gains from the periods prior to the recent past. The credit goes less to quality of Governance and more on technical advancements. We rarely compare our present life-styles with that of our past; we rather do that with that of our better-off neighbors. The improvement in real incomes or in life-style of these underprivileged people in the recent past in no way is comparable to that of the richer sections of the society.

And there lies the key problem of present forms of Governance. Income divides have been allowed to grow across nations without the sense of urgency that nations must collectively now show to tackle it. No nation can take that fight single-handedly due to the threat the capital movement (flight) across nations poses. But nations together can surely make policies to collectively change the dangerous trend of income divides that has lately been witnessed. The time is probably right to have uniform policies to tackle financial terrorists across nations as it has been for the other brand of terrorists. Earlier terrorists were often wrongly regarded to be freedom fighters (or fighter for a rightful cause) that one nation could exploit against its enemy nation; thankfully it is no longer so. The same principle needs to be applied with capitalists by having uniform policies for them across nations than safeguarding/welcoming them in one nation when another nation bears the costs of their terrorist-like actions. Sooner or later the nation harboring freewheeling capitalism is likely to pay the same price that nations that harbored terrorists have now been paying.

Expecting trickle-down effect to take care of the majority of the nearly 6.7 billion people across the world through the actions of a few billionaires and millionaires are like expecting “horse and sparrow theory,” of Galbraith to be effective (”if you feed the horse enough oats, some will pass through to the road for the sparrows”). In the human context of 21st century, the horses are too few, the sparrows are too many and the horses here accumulate than only feed. Moreover the sparrows know what the horses feed on and what they leave behind for the sparrows, and that further drive the mistrust in Governments.

So we have a scenario where information has empowered the citizens whereas Governments across nations, the so-called most powerful institutes of any nation, seem to have surrendered before the demands of a common breed of global capitalists. Don’t brand me a communist; the capitalists have somehow, somewhere hijacked the policies of most of our Governments. We don’t know exactly how it happened, but a look at policies across nations that help the rich grow richer and the poor struggle further for existence validate it.

Otherwise how does Wall Street (or any society within a democratic Government) justify salary of CEOs at hundreds of times more than that of a rank and file employee in same organization (when Drucker, thinker for the same Wall Street, felt it should be no more than 20-times)?

China was out of our scope as it may have managed that flow of information that empowers the citizens with knowledge; however time may be right to look for alternatives to ‘Washington consensus’ policies if our Governments want to regain the trust of their citizens. That includes the U.S. too, if the U.S. wants to be true to its main street.

Can Obama really free the U.S. Government from the clutches of the Wall Street in this information age as the printing press helped the society to free itself from the clutches of the Church in the sixteenth century? The printing press subsequently lead to the reforms in the Churches; we are yet to see any such significant reforms arising in this information age - be it in the Wall street or more so be it in our forms of Governance.

Going by history, those reforms may not be far off. Victory of Obama against all odds portends that demand from the citizens. In present forms of Governance, citizens can’t change the way Governments work; they rather can only change the Governments (surprisingly, most Governments now increasingly look the same). With the printing press, the real impact on Churches started after nearly fifty years of arrival of the printing press. While expecting a repeat of the sixteenth century in the 21st century (due to the pervasive nature of present information revolution), it’s likely to be sooner than later .

(C) Ranjit Goswami. The author is a Professor at IIFT, Kolkata. He can be followed at Twitter

What does Government mean in the 21st century information age? (Part I)

2010-05-06T23:35:00.000-07:00

Everybody, it seems, is talking about change. Obama got elected with the promise of ‘change’, and now that promise of ‘change’ looks empty as his approval rating from the main street has started sinking. Britain goes to poll today where Cameron again plays on the change-card from the 13-year old labor-Government that seems to have landed Britain in an economic mess (true, much of the developed world is in the same boat).

The big question that must be hounding Obama (and others in Government) is what to change in Government to get people’s support and trust back in the democratic institutes of the Government in the 21st century. This also needs an understanding whether and how people’s expectations from Governments have undergone (are the citizens responsible by becoming hopelessly Pollyanna-ish in their expectations from Governments?) any changes over the last few decades; and if so, why.

Asking the right question (‘What does Government therefore mean in the 21st century Information age’) is more important than finding the right answer. It’s so because there probably isn’t any single ‘right answer’.

The question is pertinent as increasingly, citizens’ trust in Governments across nations, more so in democratic forms of government that had developed in the west and got adopted by most other nations subsequently, has been on the falling side. Increasingly, it seems that ‘Government of the people, by the people, for the people’ isn’t working anymore. And citizens get frustrated as after all; it’s a Government they themselves decided (out of available choices). [China isn’t a democracy; and findings within China indicate more than 80% of the people support the actions of their Government (unprecedented in most democracies with free information flow and free expression of rights). However western media mostly paints a different picture on China on same issue. We really don’t know the truth about this issue in China, and therefore it’s better to keep China (and similar nations where information flow may not be free and fair) beyond the scope of this article].

History may or may not be helpful when unprecedented things happen as the society has lately been changing with an overdose of information. Information leads to knowledge; and knowledge has been acknowledged to be the real source of power since ages. Government is supposed to be the most powerful entity within any modern nation. However the (actionable) knowledge of most Governments on the priorities of the respective nations may not often be the best as per the knowledge of its own citizens. I noted ‘actionable knowledge’ because there may be instances where a Government has the right knowledge of priorities, but does not act on that list of priority due to vested or other reasons (or procedural difficulties).

One may look at history to seek answer to a similar question - on the role of the Church on society in the fifteenth and sixteenth centuries, specifically before and after the arrival of the printing press. The impact started to be felt nearly fifty years after the arrival of the printing press (around 1455). It continued for the next few centuries. All that happened in society post the printing press era was not necessarily a direct result of the printing press; but indirectly they originated because of the printing press.

The printing press changed the mental map of individuals and that of the society. People started asking questions based on the emergence of a free press than accepting things as it had been before, and when not satisfied with the archaic answers the authorities provided; they themselves tried finding out the right answers - be through scientific innovations or through public recourses.

Today’s information evolution has handed a printing press to anyone connected with any form of ICT devices, be it the Internet, mobile, radio or cable TV channels. It has not only given us ownership of a printing press; it has also given the public a control of the distribution channels of the printed content (with multi-media content, it’s no longer limited to age-old printed forms). It has also empowered the public with the ability to find (search) the information from anywhere, anytime; and communicate with other like-minded members. The urge to have the right information to improve the life-style of individuals or that of society collectively through desired actions seems to be more with individuals of society than that with members of the Government.The individual works on his individual priorities amidst that ocean of information whereas the Government seems to be losing its radar of priorities often in the same ocean of information.

[Increasing fragmentation, a result of above and as observered lately within any society, may also be another indirect result of this information age.]

The individual can take decisions based on that information and start acting instantly on that decision; that’s not true with all functions of Government and its various institutes. So Government seems to be tending fires much after the fire has broken out (and individuals taking care of themselves individually or falling victims to that fire) and by the time the Govternment senses what caused that fire (and how to stop its repetition in future); another bigger fire emerges elsewhere. A genuine willingness to stop the fire may also be missing in many-a-Government; it may rather be a stage-managed show to highlight the efforts as Governments often neglect reforming the roots of the problems due to a conflict of interest.

It’s all about having clarity of priorities in Government in managing the information flow, taking sort of real time decisions based on that information, and executing actions on that information again as soon as possible. A well-executed example of it can be in the 53 hours 20 minutes ordeal that the U.S. Government took in arresting Faisal Shahzad, the suspect behind the unsuccessful attempt to detonate a car bomb in Times Square. This process also went through its ups and downs. However there also are similar demands citizens across the world have been having from their respective Governments that demand an equally responsive Government, more so when their individual lives in larger groups have been facing livelihood challenges.

Are Governments a fractional responsive when many of us are facing similar challenges in our individual lives, be it in terms of being unemployed (in the developed world) or living without basic healthcare (in the developing ones)?

National security is a top priority for any nation. It’s rightfully so. The misplaced priorities arise when issues pertaining to quality of lives of its ordinary groups of citizens come. Should Government be taking care of those who have been capable of taking good enough care of themselves when there are others who have been struggling to take basic care of themselves, and may not be getting best support from Government-machinery or adequate resources from the Government?

No form of Government can adopt perfect ‘mass-customization’ in its policies that can attend each individuals’ needs in order of an well established and accepted list of priorities. Is the priority of the U.S. Government is to ensure banks survive and become healthy through market recovery of the Wall Street; or is it in the creation of employment for the main street? Is the priority in Greece today is to cut costs in Government in a merciless manner to satisfy the buyers of its bonds; or is it to examine better how such cost cuts affect its citizens? Is the priority in facing Naxalism in India is to fight with the Naxals to eliminate them and create pockets of prosperity through industries in those mining belts (the argument goes that it would eventually lead to development in those under-developed areas); or is it first to develop those areas without evicting the tribal-people living in those mining resources; and then try and find how best to exploit those mines?

People with basic economic knowledge would immediately find the ‘chicken-and-egg’ economic causality relationship in these lists of priorities. One can’t create jobs if the capital market isn’t healthy. Governments can’t borrow for social projects benefiting its vulnerable sections if fiscal prudence is lost. Social development in Indian tribal belts can’t come without industrializations involving private sectors.

All of the above are economic hypotheses, often granted to be right when a study found that most economic hypotheses (or almost all) fail at levels at which they can be generalized to be sort-of true. There aren’t jobs getting created fast enough in spite of recovery in the Wall Street (could it have worked out better the other way, i.e. more jobs for main street through Government spending in infrastructures, as China did, leading to a market recovery?). Government may not be borrowing for benefits of main streets directly; but Government may be doing the same when it comes to safe-guarding the interests of the banks and industries in the pretext of trickle-down effect. And the mining resources in Indian tribal belts remain unexploited for years in stuck-up projects with billions of dollars of costs and time over-runs. The tribal-society opposing the mining projects hasn’t developed; neither has industrialists been able to make money on whatever investments they made.

Part II and the concluding part of the article can be found here

The author is a Professor at IIFT, Kolkata. He can be followed at Twitter

Lehman was the symptom of a bigger crisis that many forecast right

2009-09-24T04:50:00.000-07:00

A lot of media and academic attention has been engaged in the post-mortem of the financial crisis that took almost everyone (as perceived and presented by media) by surprise last year. The symbolic equivalence of that event is now entangled with (the demise of) Lehman; although there were others in the club of Lehman, and there could have been all the other bigger names of Lehman’s class that had a near death experience had it not been the interventions.
A myth doing the round since then, and gaining in terms of credibility lately due to media-megaphone syndrome, has been that no one foresaw this crisis. JFK once stated something that we find of regular relevance now-a-days, and the last crisis is no exception. It was, 'the great enemy of the truth is very often not the lie: deliberate, continued, and dishonest; but the myth: persistent, persuasive, and unrealistic.'
Two such myths have emerged since the last crisis. First that no one foresaw this outcome (barring exceptional names like Nouriel Roubini or Nassim Nicholas Taleb of Black Swan fame although Taleb himself stated that the crisis was not a Black Swan event), and second that it was primarily the fault of the Wall Street (and lesser to its regulators) that led to the crisis.
A deeper examination may prove that both are not true, probably. The blame for the crisis, if one indeed wants to go to the root of the problem, is actually somewhere else which explains the excesses of the Wall Street as a symptom. It may sound a bit non-academic economic sense to apply one of the best industry practices that Toyota applies to minimize waste and to continuously improve processes to have error-free standardized systems. However as the concept is more philosophical, it surely can have its applications in the way financial markets or monetary policies work. Employees at Toyota are taught couple of basic lessons like ‘go and see yourself’ and ‘ask ‘why’ five times’ whenever one faces a problem. The argument is – it helps one zero down on the root cause by understanding the complete problem rather than finding an ad hoc solution (or alibi) to the problem for the time being.
If we apply above two in analysis of the last crisis, we come out with drastically different conclusions than what’s popularly perceived to be true as myths. It was the easy liquidity policy of the Federal Reserve (and its consequences) that led to the crisis. And it was again Federal Reserve which failed to see the fundamental changes that happened in the US economy over last couple of decades as services comprised nearly 80% of the economy, and within that, financial services comprised nearly 31% of the economy. And when the 31% contribution of financial sector (2006 figure) is viewed in comparison to 1990 when it was merely 23% (still high!), the financial sector contributed a whopping 42% in the absolute growth of $ 5trillion real GDP from 1990s to 2006. That means that out of every 2nd dollar of additional goods or services that the US produced in 2006 compared to 1990, nearly a dollar came from financial services.
While identifying waste, the 1st and topmost importance in Toyota Production System (TPS) is attributed to overproduction. The long term philosophy (or the True North) as practiced by Toyota states that (1) Philosophy supersedes short term decision making, (2) steer the organization toward a common purpose that is bigger than making money and (3) generate value for the customer, society and the economy. If we for a moment think what true long term philosophy the Federal Reserve should have, it’s a balance between employment, (real) economic growth and inflation. While trying to balance that, the Federal Reserve has often fallen into the trap of overproduction of money. And thereby it has resulted into wastage of money – as perceived by the end customers – the citizens.
Obvious question comes – why?
It’s because the way the Fed. channelizes its liquidity to the society (or any central banker does). It’s through the intermediation of (fractional) banking system. So the banking system in the US has been flooded with cheap money for a long time. This led to the housing boom, which to an extent meant that the end-customers got real economic value and real assets (houses) were created, true with borrowed money. However it also meant that risks taken were high as many were not credit-worthy. But why did banks lend to them? Because they were having too much cheap money in hand and wanted to have a better return of that (profit maximization when all other asset prices were also high). And they subsequently went to find esoteric derivatives to find further application of that excess money and to mitigate risks, if any perceived, and to generate further cash for further lending using fractional banking system.
An analogy of above, although not exact, would be comparing money with water. Water is a useful natural resource, and it’s likely that the wastage of water is much more near its source. Contribution of water to the economy is through its usage in our daily lives (domestic, agricultural of industrial use). However if and when half of that contribution comes from channelizing water amongst participants (users of water), one can be certain that the resource is getting wrongly used. Moreover the concern of generation and application of liquidity grows globally when one frequently sees flooding near the source, whereas acute deficit exists and is a common place thing where real applications takes place.
2nd, was the crisis really not foreseen by any as popularly believed? On the contrary, many did foresee the crisis. True, most of them were not well-known economists, or policy-makers from Central Banks. However those who foresaw the crisis for many years didn’t know what symptom would result from the crisis. That’s quite acceptable as no one knew what consolidated action global policy-makers would take. The most prominent of the group that could forecast the crisis was the gold-bugs, although many consider them as outcast, brainwashed by a conspiracy school of thought. Excluding the gold-bugs, there were many more in the web (in blogs) - the nameless, faceless people who foresaw the crisis other than the rare few eminent people who also felt the going wasn’t right. Their primary concern was on increasing indebtedness of the US, and that analysis primarily resulted in the often forecast symptom of a collapse in the value of dollar. It was not wrong to come to that conclusion - as the likely visible symptom of the highest level - from the imbalances that persisted as a crisis. True, in last one year we rather saw the opposite of that as dollar strengthened against most currencies (and now again losing ground as markets recover).
How I know that is because of a book (Wondering Man, Money & Go(l)d) I authored back in 2006 (after the severe market correction in summer of 2006) where I borrowed significantly on what others stated on the sustainability of the financial markets. Unfortunately, many of these websites have changed since then (the URLs changed/don’t exist). Here are few examples, taken from that book, on how many bloggers saw things back in 2006 (or even earlier as I completed the book by August 2006):
• ‘The turkey (dollar) is being fed by the foreign investors (who have little choice) and the Central Banks are keeping it from choking. Until Thanksgiving !’
From RGE Monitor by one JAVO back on 15th September, 2005. Unfortunately Lehman became the ‘Turkey’. The specific URL RGE Monitor changed.
• ‘While real estate values hit all-time highs, total home equity (of mortgaged homes) as a percentage of the average-priced home was down to 18 percent from 50 percent in 1984. A 20 percent correction will wipe out all real estate equity in mortgaged houses.’
From ‘2004 – The Year In Review’ in Bullion Management Services Inc.
• "the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds."
‘Is the United States Bankrupt?’ Professor Laurence Kotlikoff, working for the Federal Reserve Bank of St Louis,
• ‘The entire world wide economic system is a con (confidence) game that can only work if the cost of goods and services is steadily inflating over time. If that steady inflation is interrupted the system collapses. This process has already begun and is beginning to unravel all over the world.’
The Fed, the Constitution, derivatives and Enron, http://myhomelender.com/fed.html (doesn’t work any more)
• ‘The global financial system seems to have a black hole at its centre. Over the last two decades, US residents have sold a total of about $5,500bn worth of IOUs to foreigners, yet the officially recorded net investment position of the US has deteriorated only by a little more than half of this amount ($2,800bn). The US capital market seems to have acted like a black hole for investors from the rest of world in which $2,700bn vanished from sight – or at least from the official statistics.
Discrepancies in US accounts hide black hole. Financial Times (14th June, 2006)
• Each US-American owes to the World one Million Dollars. Figures here can be questioned, however a similar post in the USA Today back in 2004 stated : (we) ‘found that the nation's hidden debt— Americans' obligation today as taxpayers — is more than five times the $9.5 trillion they owe on mortgages, car loans, credit cards and other personal debt.’

• ‘Since the present monetary system is fundamentally unstable, the central bank is compelled to print money out of thin air to prevent the collapse of the system. It doesn't really matter what scheme the central bank adopts as far as monetary injections are concerned. Regardless of the mode of monetary injections, the boom-bust cycles will become more ferocious as time goes by…After all, the present system survives because the central bank, by means of monetary injections, prevents the fractional reserve banks from going bankrupt… Whether the central bank injects money in accordance with economic activity or fixes the rate of growth, it further destabilizes the system. The only way to make the system truly stable is to permit the free market to take over.’
How Much Money Should There Be?

So were those people wrong who didn’t foresee the collapse of financial markets or Lehman (as a symptom) as they often foresaw the collapse of the US dollar as a likely bigger event from the root causes that manifested during 1990-2006 (and still does)? Probably no, because the symptom (of collapse of financial markets last year and the demise of Lehman) was an early one, and not the last or biggest one that the ongoing crisis may result in, unless the time gained in between is wisely used to mitigate the crisis from its root.

Lehman, Recession, Black Swan and China

2009-09-16T23:24:00.000-07:00

Well…what now?

Are we back to business as usual again as recession comes to an end with green shoots growing and reaching productive stage with every passing day? Was the collapse of capitalism, free-markets as it’s been mostly known by most so long is purely an isolated non-significant outlier for the near-to-medium future; or it rather highlights the beginning of a disruptive trend as a Black Swan event. That is, irrespective of the drastic measures taken or new regulations formed, irrespective of the green shoots of today, capitalism as perceived by the Wall Street must be ready for more Lehman-like incidents as disruptions increase. Or even if such sudden collapse is avoided as we saw in 2008, the trend is set by demise of Lehman as a Black Swan event of considerable significance for the future – be it how financial markets operate, get regulated or the role of the symbolic Wall Street on main street and finally on the role of the US as an economic superpower.

The 1st anniversary of the demise of Lehman has seen considerable media debate lately. One thing is for sure. The perpetrators of the collapse, namely The Wall Street breed, irrespective of their knowing the implications of their actions that led to the collapse, have been helped globally by policy-makers and tax-payers to be back on their feet again, be it China (to safeguard its exports by saving the Wall Street) or the US. Wall Street has recovered, however similar signs are missing from many other indicators relevant for the main street from developed economies like the US, Japan or EU.

Question is why? Because economic recovery can only take place if markets recover. And unfortunately, amongst all that clutter, markets also got a new name of the like of The Wall Street all over the world. Did we ever have a situation when (financial) markets rallied in recession times or vice-versa? Financial markets rather forecast the economic outlook. Though the correctness of market sentiment can be questioned as Krugman pointed out, there is no denying that market provides the best simple single overall indicator on a real time (momentary) basis. However as has been found, the momentary picture may not be something correct for the near term and thereby can not be extrapolated as a trend line, and therefore may itself be a outlier in a bell curve over the time. The participants in the market change, the available information change, the herd phenomena change leading to stampedes as it happened a year back or of another form earlier, and with that even the liquidity changes drastically.

We were not much concerned about sustainability of policy-led recovery (again how long is long is questionable as in the long run we all are dead as Keynes stated). The USA has always responded based on the need of the hour, often with a ‘fast-food’ mentality, irrespective of the quality of the food that temporarily satiates the hunger or its long term impact on health. The fire needed to be doused, and it has been doused successfully (unbelievably fast!), for the time being. And due credit is due to the fire-brigade, question remains whether that’s the right role for the Government or Federal Reserve for more than a year. True, it is a small part of the government role, as the bigger role is to set policies and regulations on how such fires can be prevented.

Unfortunately, the fact that the Wall Street has become symbolic of free market economy and they engage frequently in playing with fire with others ammunition and lives with the backing of government as the fire-brigade has been of secondary importance over the last one year.

The measure of recession is linked with the measure of GDP which in turn is linked with the performance of the (financial) markets. Common people without a deep (formal) understanding on how GDP gets measured may often wonder how the GDP of the US can be more than that of China. One produces more but don’t have the purchasing power, other consumes more with increasing indebtedness (partly from the producer) but can’t produce competitively. Many of these points have been raised by Stiglitz (and Sarkozy) as the (developed) world debates for the 1st time on the right measure for economic power.

The question therefore is: is the US the largest economic power by all relevant economic measures? There is no denying that it is the biggest consumer, but being the largest economic power and being the biggest consumer – are they effectively the same? Stephen Roach in The Next Asia pointed this out as power of Asia grew, its dependence on the US also grew at even a faster rate following sort of a trend line so far. He found that although the Americans accounted for about 4.5 percent of the world’s population, their consumption spending totaled nearly $10 trillion in 2008. Comparatively China and India, which accounted for roughly 40 percent of the world’s population, consumed only about $2.5 trillion (but produced nearly $10 trillion of GDP (PPP) basis). More importantly, much of that consumption in the US was supported by the savings of the Chinese. Post Lehman, China has emerged as a net exporter of capital also, that too without the printing press. So whay is a poor per-capita consuming nation exporting capital when it also has the production machine of the world?

The role of China over last twenty years and more importantly in the last one year in driving global economic growth is significant, more so when one views the moderate to low inflation rate that prevailed in-spite of huge growth in money supply globally, led by the US Dollar. If there ever was a competition globally on the all-time best marketing case for a single product (or concept?), US $ will win that without any competition. In-spite of some conspiracy schools or skirmishes lately, that position has remained in-tact even today. Question is, can the past be an indicator of the future here; or unprecedented developments of unexpected events of utmost significance can alter that much faster as Black Swan events typically do. Can the fall of Lehman be a related event linked with post 9/11 loose monetary policy and subsequent series of events (as new developments take place in Japan and in major European nations where the merit of the relationship with the US is increasingly getting questioned now) be of significant canonical milestones in rise and fall of power?

Most China-watchers would state that it may be another 15-40 years before China can be an equal (economic) superpower to the US. Point is – can events like Lehman shorten the cycle dramatically (unless China makes similar mistakes). The events of Lehman, recession, massive liquidity injection when the US government looked ill-placed to do so, 9/11, recent political changes in Japan, worsening relationship with the EU – all of these when examined as intersectional events than directional ones may strengthen the case of a faster rate of decline of the US (and its dollar and thereby further faster rise of China).

Lot of things had to change for a long time but they didn’t. Foremost on that list was the marketability and creditability of the US $. Free markets still can rule global economy, sans the Wall street types. That free market is not something minorly similar to the present day Wall Street or the quasi-view the US Government or Federal Reserve have about it. Free markets operate like nature where it takes self-correcting steps to rectify a problem (rise of China can be an example of free market economies). It’s not driven by what the Chairman of the Federal Reserve says, and thereby dances according to the tunes of the Federal Reserve, it rather should be moving in tandem with natural laws. Otherwise there’s no point of studying economies as a subject where both science and arts matter, it purely becomes a subject where the beauty lies to the beholder. The more severe the problem is (unsustainable), the more severe the impact of those self-correcting mechanisms that nature (and markets) normally follow. No one can be sure about the exact timelines or the degree of severity due to the complexity of the natural system. However one can be certain that the natural repercussions are bound to happen.

Unlike global warming as the case with nature, where mankind has agreed on the problem and debating on the ways to cut Carbon foot-print; in case of financial markets – it’s always been the case of implementing a +ve feedback loop to rectify the problem momentarily that further strengthens the problems for a future date. No one has the guts to bell the cat called free market as perceived by the Wall Street, they rather feed it to keep it satiated. True, it’s the same with global warming; however there is growing agreement there about need of sustainable solutions and actions. The only thing that links strongly global warming and a recession is recession is good for the sustainability of the nature. Nature does not give credit, (the US) Government and Federal Reserve can create credit by marketing the concept called US $ all over the world out of thin air.

No wonder that the recession we witnessed lately was solely driven by lack of liquidity as there was nothing wrong with the growth machines (China, Japan, Germany and much of developing world), the fault lied with the dollar producing machines as it needed further capacity addition as prior excess capacity was wrongly played in the casino of the Wall Street. It was added quickly, and for the moment – the recession tends to come to an end. However what now, how long would China provide the greasing to the dollar-producing machine (and so would Japan and EU and OPEC) is a question of time.

True, the possibility that the hegemony of the dollar is nearing its end was raised since the 1970s, and most were proven wrong - time and again. However history shows Black Swan events do indeed occur and shape our world more than regular events. Lehman did fail. Unexpected things happen and impact the world much more going forward than the regular expected ones. More importantly, they happen faster than forecast

(C) Ranjit Goswami. And it happens to be my 1st post since the demise of my beautiful wife. The last year indeed was eventful, significant and changed the lives of many. Many of the affected already recovered or would do so in nearfuture...would I?

Digital anarchy to creative destruction

2008-07-04T22:41:00.000-07:00

I read Save the Press (under a different title: ‘Why we need newspapers’) of Timothy Egan, in the largest English business daily (of India and the world too!).

I did talk about it in Relentless upheaval in the media. It’s the best (or worst!) example of creative destruction that Schumpeter talked about and which we all can sense. The beauty of Egan’s online article is in its 164 comments or so, when I checked it.

One of the best articles (because I didn’t hear the speech!) on that was probably delivered by Bill Keller, the NYT editor again, on Hugo Young Memorial lecture in 2007.

The point is – let the print media, with its very high marginal costs (unlike the electronic media), should focus more on reporting than on opinion and analysis. Reporting is the core competence of the journalists, not opinion and analysis. And reporting isn’t easy, as Bill Keller pointed out.

We are free to have our own opinions and analysis; however we are not free to have our own facts. The correct presentation of facts can lead to correct opinion and analysis. That’s how judiciary works, and that’s how much of academic research also works.

I, like most bloggers, never had been to any journalism school. The best part of journalism, whatever less I know about it, I read in an academic post. It was not on journalism, it was on Information Technology. I came across the six fundamental questions that a journalist should ask in Zachman’s framework, which was put as ‘fundamentals of communication found in the primitive interrogatives: What, How, When, Who, Where, and Why’.

Unlike the print media of the west, Indian print media has not yet faced the onslaught of the web as ‘the web is the future’. And as Reuters recently pointed out, Indian (print) media seldom asks any of those six fundamental questions that journalist must ask for every article.

The quality of Indian media is probably as good as that of Indian parliament. The media in the US is probably superior to the US Congress. However all of them now produce more junk than what people expect from them. One response to the Reuters blog was right when it talked about ‘churnalism’ by mainstream media globally, and even NYT, Bloomberg, Reuters, WSJ, FT do ‘churnalism’ more often than journalism.

While on the media, another point that bothers me is regulation on ownership. In India, anyone can own a media company of any format. So we see print media getting into electronic media (TV-news), or even politicians running news-media. With digital convergence, production cost of content generation can come down when same content, in different formats, can be pushed across the mobile phone or the news-paper. If I am not mistaken, I believe cross-ownership of media still remains a contentious issue. This was a great regulatory policy of past-years, however with changing times, many fail to understand how it is relevant in present age.

True, there should still be checks and balances to ensure competition and diversity.

The points are well made by Egan. We collectively empathize with the pain that print-media as an industry is going through. But it’s inevitable.

As an outsider of both the government and of media, and also by being a blogger myself, I do welcome the changes that the Internet has brought in. It’s the anarchy phase that leads to radical innovations, which Schumpeter termed as ‘creative destruction’.

If any opinion of the blogosphere can be taken, irrespective of nationalities, I believe most are fed-up with the government as well as with the mainstream media. Yes, the alternate media isn’t in a position yet to suggest a better alternative to both. And one can’t write off this collective blogosphere opinion as ‘wishful thinking’.

After the anarchy, we sure can have some creative destruction. Once the anarchy is over, the changes would not affect the real journalist, because the function of journalism is more important than the format of it. Bill Keller knows it right.

We only hope against hopes, like any revolution with mass-movement, that this online revolution can lead us to better quality of governance, and better quality of media, including print media.

The blogosphere would rather choose the last option had Jefferson thought about present age with three options:

“Were it left to the blogosphere to decide the best option out of (1) we should have a government without newspapers or (2) newspapers without a government, or (3) none, we should not hesitate a moment to prefer the last.”

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Dollar against the world

2008-07-03T01:27:00.001-07:00

The choice is indeed becoming a hard one. In trying to protect the US economy (the symbolic dollar), the world is increasingly endangering itself. Surprisingly, the end-objective ‘slips sliding away’.

There unfortunately aren’t many pleasing alternatives as policy-makers and regulators fretted away the more workable solutions over the years, expecting that nothing can happen to the Dinosaur of the global economy.

In the worst possible scenario – the choices, if we can call it choices and not the choice, boil down to two. Let dollar weaken, or let the world economy weaken. Experts from the pro-American groups would say that the two choices are effectively the same. Global economy and financial markets over the last year testify that.

That’s broadly right. So the challenge would be to decouple global economy from the contagious US economy, as much as possible and as fast as possible. Following the other alternative, i.e. trying to protect dollar with the petro-dollar linkage, isn’t easy for the rest of the world. The signs of a strong dollar must 1st come from the US itself, in actions and not in playing with words, in the form of more taxes for those who can pay, less trade deficit and an interest rate in line with the rest of the world.

The rest of the world, in-spite of having a much better economic health and growth rate, increased interest rates. It’s a symbolic gesture that money comes with a higher price tag, and thereby the demand for money slows. However the aggregate good work of the rest of the world is wasted away by the actions of the Fed. (and it’s counterpart, Bank of Japan, who fueled carry-trade elsewhere). The ECB is now more inclined to join the rest of the world.

It’s not a blame game. The rest of the world has as much a role to play as they allowed the situation to aggravate, starting with the 1960s. They have poured good money after bad money year after year, and now they need to do more of that. The choices are indeed difficult. Many even see it as Europeans and Asians net being fair. It’s not so – because the problem can’t be helped by the ECB or by the poor Asians. The commodity boom driven inflation can be controlled only by the US (and to some extent by Japan), the two so-called largest economies of the world and producers of cheap money.

On the other hand, there are millions of underprivileged families and kids in South Asia and in Sub-Saharan Africa, who are more likely to go hungry with present level of food inflation. Though no firm single answer can ever come if one kid asks his/her mom why they can’t afford food any more, an answer like ‘we need to protect the American economy’ from the mother may not be much off the mark, as it summarizes many of the possible causes.

The innocent kid may naturally ask: ‘Why? Are they poorer than us?’

The mother would answer: ‘No, dear. They are nearly 100 times richer than us. But they are used to consume more than they earn. And we collectively lend them money.’

The kid would surely be puzzled how it can be possible. ‘The world is crazy’, s/he would have said as the Gauls did. The mother may not explain how that lending helps the kid to get half-square meal a day as that credit-driven consumption drives the global economy.

The rest of the world produces more than it can consume, the extra-produce therefore must find a market. Rather than giving credit to the poorest of the poor to generate additional sustainable demand, who probably have better prospect of paying it back, the rest of the world prefers to lend it to the richest so that they can consume even more. According to many, the richest, collectively as a nation, are in the verge of bankruptcy by virtue of their spending habits.

People have been shouting on top of their voices since ages: IT’S NOT SUSTAINABLE.

And the World Bank, the IMF and the policy-makers from the rich nations, with their muscle power or market power, or by playing the race to the bottom, time and again made it look as if that's the best sustainable alternative the world has.

The whole of BRIC and OPEC blocks, along with other nations with their rising power and influence as the US declines, can help in bringing forward small steps of change. There would always be geo-political games played by OPEC, BRIC and others, however the time for an alternative to dollar has already passed.

Unless OPEC or Fed. does something drastic, all the efforts to protect dollar by the rest of the world, over the longer term in a sustainable manner, may still fail.

In between, the poor gets poorer and the hungry kid remains puzzled.

Copyright: Ranjit Goswami

Petro-dollar: Unsustainable at $140 a barrel!

2008-07-02T02:57:00.000-07:00

When the whole world (barring a few policy-makers in the US), reeling under $140 a barrel, increasingly pointed finger at the weak dollar as one of the culprits; the Wall Street Journal came out with an interesting analysis.

The dollar not only showed surprising stability, if measured against the broader currencies beyond the trading currency basket, barring Yuan, it has remained within a range, or appreciated. Many countries faced the possibilities of currency crisis. Many other countries have started showing current account deficits, and are more likely to do so going forward if oil stays at where it is, and even more so if oil further moves up. Around 50 nations, the list growing fast, are facing double digit official inflations, and therefore have tightened interest rates aggressively.

On the other hand, OPEC has increasingly been appealing for dollar stability. If one assumes that OPEC, with the bounty of dollar inflows from its oil exports, would reinvest this money back through SWFs or otherwise, it’s likely that they would get those assets cheaper now, in most places around the world.

So if that’s what a weak dollar and high oil price means - it suits both the OPEC and the US.

The bigger question is the sustainability of that. And that demands an understanding, why for most of the world, with interest rate differentials of 5-10% or even more against the dollar, it’s still not a weak dollar.

The problem lies with the petro-dollar linkage. Dollar is weak, but oil is super-strong. The combined result is, for most of the world, a stronger dollar, because the weakness of stand-alone dollar is nothing compared to the strength of the petro-dollar.

Take the example of real demand of dollar, against global trade. With oil at $140 a barrel, all importing nations now need a daily amount of around $6.3 billion dollars. This is a ball-park figure, by taking global oil exports at around 45 MBPD. Now if one leaves aside the US, the largest oil importer, who need not earn this dollar as they can print it, the amount comes to $4.6 billion/day.

When oil was at $50, this was at $1.6 billion or so. So, barring the few exporters, rest of the world now needs an additional daily supply of closed to $3 billion. These oil-importing nations need to earn this additional $3 billion daily to meet their daily oil demands.

Wherefrom do these oil-importers get it? Most oil importers are not in a position like China or Japan, running huge trade surpluses. Even when one goes by Japan’s or China’s net oil imports; it would cost them an additional $160 and $120 billions of dollars respectively in oil imports, just because oil moved from $50 to $140.

Traditionally, with average oil price of $50/barrel (assuming), other than the US, rest of the oil-importers needed around $1.6 billion daily to buy their import requirements of oil. Oil is unlike other major categories of trades. Here the dollar moves from a source to a sink. The source is the Federal Reserves, the sink is mostly OPEC members like Saudi Arabia. Imports of Saudi Arabia haven’t gone up much to ensure that this additional dollar remains in circulation.

So the fundamental difference for the rest of the world in (A) Oil at $50 a barrel against (B) oil at $140 a barrel is - it needs an additional daily supply of $ 3 billions, equivalent to a yearly additional supply of $1.1 trillion dollars. At this rate, the forex reserves of emerging nations will wipe out in 3-4 years, however that’s a hypothetical situation. No wonder that many nations have started facing currency crisis.

Take the supply side of dollar against its increased demand only due to oil. The US has maintained more or less a daily average trade deficit of $2 billions over last few years. This also hasn’t gone up as significantly as oil prices went up.

So the simple equation becomes, rest of the world needed a daily supply of $1.6 billion to import around 33 MBPD of oil at $50 a barrel, and US supplied around $2 billion a day. Now the rest of the world demands a daily supply of $4.6 billion or more, dollar supply has remained more or less same at $2 billions. There’s a daily deficit of $2.6 billions. That’s alarming!

Would dollar appreciate or depreciate in such a condition?

King Abdullah announced generous $1.5 billion donations in Jeddah last month for developing and poor nations, to finance energy and developmental projects. It’s a noble move, however one can immediately understand its effectiveness against the problem in hand.

If OPEC indeed cares for the two-thirds or more people of the world, let them trade oil in other currencies as per preference of importers, at least for a few million barrels a day. Otherwise OPEC would support dollar with rock-solid oil and still cry for its stability, knowing fully well fundamental instability of dollar. Even a rate increase by the ECB isn’t likely to weaken dollar much, when the demand for dollar remains twice its supply, due to oil again.

If petro-dollar linkage isn’t diluted and oil continues its run at current rate, there will be dollar with only the US and with the oil exporters. It’s simply not sustainable for both.

OPEC is force feeding junk dollar at a premium to the rest of the world by maintaining controlled supply, and more so by pricing it in dollar.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Inexplicable Bernanke!

2008-07-02T02:53:00.000-07:00

Over last couple of weeks, Stop Trichet.com gained some attention, more so by leading mainstream media, as Reuters, Timesonline and Bloomberg covered it. When I checked it on 1st July, it had 6000+ signatories. Presently it has 7000+ signatories.

Can we expect a StartBernanke.com initiative? Would it have more signatories or less? Going by the articles and comments in global online media, it should have more.

Actions of the Federal Reserves and Bernanke can be best described by the word ‘inexplicable’.

The only possible explanation could be they know something which the rest of the world doesn’t know. And it’s about Iran. Lately we have been seeing some coverage on it.

Is there any possibility that leading US-based investment banks, battered by domestic crisis, now aided by the Fed. to prop up their capital, is trying to make some quick money by going long in oil and short in equities - mostly in emerging markets? China, India and much of emerging markets quote at a discount to the US. If stocks are built on future expectations, growth rate of emerging markets should be much higher than the US, over next few years, under probably any eventuality.

OPEC has blamed US-led past actions in cutting-off 6-7 MBPD of oil supply. Another such action can lead to couple of more millions cut in OPEC exports, and endangering another 40% of OPEC supply through Strait of Hormuz.

Under such a possibility, raising interest rate won’t slow down oil prices. It would rather increase the overall pain in the system. The think-tank of the Fed may rather allow the US-based investment banks to make some much-needed quick money to survive with this Iran opportunity.

Under such a possibility, the rest of the world will have to bear the additional pain again, as it did so far by losing that much needed 6-7 MBPD.

Otherwise actions of the Fed. are inexplicable. Time for StartBernanke.com?

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Something has to give in…

2008-06-29T03:09:00.000-07:00

People in the west are talking about riding bi-cycles. The affluent and the rising middle-class people of the east have been moving-up from the bi-cycle to the two-wheeler to the car.

The forgotten ‘have-nots’ of the world are aspiring for two square meals a day.

One important aspect of human psychology (as Jeeves would have said!) says we feel happier if we started with having nothing. Having something good, and then losing it, is more painful than not having it in the 1st place itself. At least that’s what happens in the short-term, immediately after we lose something. So having a home and losing it subsequently is painful. Having a great job with a greater pay-check and losing it (the salary, obviously!) is painful. Having oil at $2 a gallon or so, and then to pay more than double that amount hurts a society used to cars.

Blatant consumerism with easy credit money, and then cutting back on even useful expenses facing a credit crisis, are painful. For the have-nots, they were probably happy with the bare minimum two square meals a day. Rising food prices forced them to reduce even that intake. So they too crib about the current conditions, true seldom we do hear about them or discuss about that.

It can’t probably go on like this much longer, with oil rising seven times in probably as many years. Many other commodities had a similar run. Lately food prices joined the rally.

Makes me wonder, whether global capitalistic society someday can come up with innovative derivative products for air, water or say, human blood - as needed in times of emergency. However that’s a different topic altogether.

The last structural change happened in the 1970s with the demise of the Bretton Woods system.

At the same time, many have said earlier that the imbalances, whatever those are behind present conditions, can’t go on for ever and still they go on, year after year. Economic challenges like this often visit us, leave a few nations, organizations or individuals bruised, and pass away.

The blame games are being played as usual. Can something indeed give in to bring back the much needed in-built balances that the Bretton Woods system had? Because the change is much more fundamental this time, as nearly two billion people from much of Asia have already entered or would be entering middle-class life styles over next couple of decades. That’s nearly three times the size of the combined population of Europe, North-America and Japan; the economic power-houses of the world so far.

Well, the figure of two billion people entering middle-class over last two decades and over the next three decades can be debated. It may even be a little optimistic. But that’s a distinct possibility, depending on the level of shift in consumption from China, India and other nations. True, the consumption level of this aspiring middle-class would still be a fraction of that of the west, but the number - in three times of Europe, US and Japan - has a deeper meaning in it.

The problem would have been a no-brainer, had it been with productivity or innovations alone. The problem this time is about natural resources, with few having it and others paying for it. And irrespective of the debate whether the supply can keep up with rising demand for the time being, over the longer term, supply is anyway limited. Economic advancement has been synonymous with more and more consumption of these resources. Forget about crude, iron ore now sales at much more price than at which steel used to sale, even couple of years ago. Or why take iron ore, coal itself now sales at twice the price at which steel was selling a decade back. Fertliser prices have sky-rocketed.

In-spite of all academic talks about innovations, productivity; they, in my opinion don’t offer much relief against availability of natural resources. Per-capita consumption of wood probably has not come down from the stone-ages to the present age, the utility has changed. More so, when OPEC has the control, meaning investments made now for alternate energy at $140 a barrel can be unproductive if OPEC wants it to be so. They have the ability to bring the price down to $70 a barrel or so, at least temporarily.

Money supply, on the other hand has been growing at nearly 20% or so, in many of the fast developing nations or in the leading economies. When all asset-class prices are falling (barring commodities and bonds in some nations), obvious question comes, where is this money going? This money, mostly categorized as smart money, won’t be satisfied with Japan’s low-single digit bond return or that the US offers now. Irrespective of what’s said about speculation in commodities, a very small fraction of this money supply is chasing commodities. Hedge funds are a different ball game altogether.

Personally I am not feeling much of this 20% or so growth of this money supply. I believe most don’t, all over the world. Smart money doesn’t follow Buffet, it hardly stays in cash, forget of being in cash for ever. And too much cash for ever also would signal low interest rates, however many countries are now witnessing the opposite.

What can therefore give in that can lead to temporary or more longer-term solution to this problem? In order of likelihood, and effectiveness, from short-term to longer term, combinations of following may work:

US influencing OPEC to wriggle out more supply/manipulating commodities markets through speculators: This was quite easy for the Fed. and other US-based policy-makers earlier. Goldbugs believe in it strongly. However, this time, it’s been quite a frustrating experience for these master manipulators. Is it indeed different then, this time? The answer isn’t easy, though seasoned economic experts would say, it’s no different; it’s just another cycle of boom-and-bust.
Fed. tightening rates as Paul Volcker did in the 1980s (and Japan following same), and as often stated now-a-days in media. Historically, increase in interest rate reduced money supply. However, that relationship doesn’t hold sacrosanct now-a-days. There are nations with closed to double digit interest rates, and still money supply grows at 20% or so. And with 2% interest rate in the US or 0.5% interest rate of Japan, we see similar growth in money supply in dollar or yen. Money supply is something to be focused on, and not interest rate! Global media focuses more in interest rates, and as individuals, we also can feel interest rates directly. Money supply isn’t one that an individual can sense, other than in the form of inflation (too much of it), or very high interest rates (too less of it). Increasingly the world sees both high inflation and high interest rates, barring the US and Japan. And the damage control attempted by other central banks are more than compensated by the Fed. and its follower, the Bank of Japan.
I seldom see any reference on how much of global money supply comes from dollar alone? Or dollar and yen combined? How much should it be, to have a resemblance of global balance? Ideally it should be closed to their share in global GDP – 30% or so, take little more as both are also used as global currencies of different degrees.

The actual figure may well be 50% or more. True, it’s my guess, and I will be glad if someone points out the right figure. And there lies the problem. The world’s two largest economies have a problem in them. In order to have growth at any cost, they supply the cheap money.

Points 1 & 2 above provide possibilities of solutions without addressing fundamental imbalances, a minor course correction at most and thereby again charting back on same old path with same parties.

Can the parties itself change? Can the petro-dollar linkage itself break? Would emerging powers like BRIC and OPEC try out something different? No one should expect that those arrangements would be full-proof from day 1. Those would stumble, face similar or worse crisis. However is it time to think about alternatives to have energy market in other currencies? Can we have much of global trade in currencies other than dollar or yen? No single currency can no longer act as a predominant global currency, in this age of globalization. Euro alone isn’t the solution.

Experts would say not likely and not feasible in the foreseeable short term.

Right, however could anyone forecast oil at $140 or more even a year ago? Radical events bring radical changes.

So what’s going to give in…if not at $140 a barrel, then at what price for oil? Remember, many felt such a change may come after the Beijing olympics. I don’t know how or what would give in, however I would love to see that something does indeed give in.

Copyright: Ranjit is an Associate Professor at Indian Institute of Foreign Trade, and is the author of the book Wondering Man, Money & Go(l)d.

OPEC vs. Fed – the war gets interesting

2008-06-23T23:05:00.001-07:00

'Markets funny, fed prints money
Says it sunny, lies like honey, too sweet for me'

commented by ‘40 Years After - I would love to change the world’ in IMF: Fed Should Leave Rates Steady in the WSJ.

Inflation is a perception. So is money – it’s actually a paper. The real inflation figure of the US may not be much different than the ones now reported in China or India. It’s a jugglery of what’s measured and what’s not.

The gold peg was broken nearly 40-years before with the demise of Bretton Woods systems. Petro-dollar still goes strong.

In the recent oil summit, OPEC blamed it on speculators; the leaders of free marker economies blamed it on supply-side. The answer probably lies somewhere in-between.

Was there speculation in the US housing market? Or was it productive economic activity gone accidentally wrong? There was no speculation, going by statements made by Bernanke in the past. Presently, the US gets more than 20% of its GDP from financial sector – more than manufacturing!

Daily Nymex futures trading volume was nearly three times of the total daily global supply 88 MMBPD capacity of the world, when I last researched it more than couple of years back. Now it’s close to 12 times, as Nymex reported. The open position I heard is close to $190 billion, and as Bloomberg also reported. The open interest holds global supply of 15 days. That’s in Nymex alone…there are similar exchanges in most nations, taking lead from Nymex.

At the same time, as per the structure of any derivative markets, there is no net-wealth generation here. One’s gain is other’s loss. However, for every dollar rise in crude price, all oil-bulls are pocketing twelve-to-fifteen times more money than all oil-producers are making, if not more. The oil-bears are again losing same money, true.

Tomorrow, in case same large investment banks hold longs on oil futures and oil crashes, would Fed. take those long positions as it did for Bear Stearns, to save financial markets? If it does, the answer of the question on why oil is shooting high can be found.

OPEC would never be able to produce as much oil-equivalent of dollar as Fed. can produce dollar. After the gold-peg with dollar was gone nearly 40-years before, petro-dollar faces another test.

Ranjit is an Associate Professor at Indian Institute of Foreign Trade, and is the author of the book Wondering Man, Money & Go(l)d. Opinion is personal.

The sub-prime profligacy tax on the world

2008-04-02T23:35:00.000-07:00

Well, the debate is still on regarding the status of the sub-prime crisis, or the bigger credit crisis, or even the bigger cheap liquidity driven US consumerism that drives US and global economic growth significantly, or take the biggest of it as the whole of US spending more than it can afford is over. The debate is about its bottom – are they nearing respective lows, at least for the time being.

No one definitely knows the answer for sure, barring the US Federal Reserves and the policy makers in Washington. Because the debate has its origin in their efforts to change rules as often as possible and as much as possible. Otherwise, no doubt those things would have been much worse, at least for the shorter term, by the measure prevailing in financial markets. As no one could gauge that the Federal Reserves or its counterpart in the US government would be bending the rules so much to safeguard the crisis (Federal Reserve innovated rules to safeguard Wall Street innovations!), no one would be knowing how much further they can go if it again resurfaces, even in a different form or in a worse shape.

Much of global media repeatedly term this bail out of Wall Street firm to be at the cost of the US tax-payers. But is it limited to only the US tax-payers? I believe the actual cost of the profligacy of the Wall Street and its bail-out by different agencies is borne by all the people of the world who save money and/or pay tax in any form.

If we take a minute away from the sub-prime crisis in the US and wonder had such a strike happened in any other economy of the world, how would that economy react? The answer would be simple - it would have collapsed.

But then why not the US? The logic given by Federal Agencies in bailing out Bear Sterns is equally applicable in the case of the US as well. As Bear Stearns was too big to fail (failure does not mean its own failure alone but the subsequent bank run which would have caused others like Lehman and many more to fail, in different scenarios), similarly the US is also too big to fail. Now Bear Stearns could have resulted in many more collateral damages, similarly the collapsing of the world’s largest economy may lead to many more collateral damages.

So when one section of the media blames the actions of Federal Agencies in bailing out profit-driven high-handedness of the Wall Street at tax-payers money as immoral; a bigger look of the problem reveals that the Federal Agency has actually done what a smart Central Bank would be doing. The actual blame lies in all the nations who believe that the US is too big to fail and thereby bail it out again and again by holding dollar or dollar-denominated securities. Just as the Wall Street banks take advantages of their scale, the US have been exploiting its scale advantages for years from the rest of the world.

Now what everyone asks is how long this process of small bailing out the big can be sustainable. Remember it’s the series where the big fish eats the small fish in our eco-system that we studied in schools. Actually it very much prevails in global capitalism. The small tax-payers often bail out the big risk-taking firms without any return on their risks, the small tax-payer again bails out the government as the government goes on various unnecessary spending overdrives (take Iraq for example which may be for the benefits of few US oil giants but the cost comes from the tax-payers and soldiers’ lives).

That was for the US. Now when one focuses it for the economies for the other nation, it even gets worse. The Chinese saver saves 50% of his money assuming his money would buy him/her security in later years, but sees it getting eroded by inflation and his Government willingly allowing same money to be borrowed by rich US to overspend in an unsustainable manner. The Japanese people lend money to the US expecting their exports to be healthy so that they can remain employed. The Indian government holds dollar as it runs a trade deficit. The OPEC holds dollar because it believes if it does not, the dollar would collapse and thereby pours more oil into bad money before it gets worse.

The US, due to all of these, force feeds the rest of the world almost $2 billion a day. That comes to almost 1/3rd a dollar per person per day that the world lends to the US because it is too big to fail. Without this lending, it fails or slows down towards that failure. And in India alone, nearly one-third of the people live every day at less than that figure of earning (nominal).

The US is too big to fail! Can one explain it to this one-third of India’s 1.1 billion people, or to similar sections all over the world?

Something can be too big to fail, but if something is not sustainable or adaptable to the changes, it must fail. The dinosaurs did fail – so size should not be the only criterion for the survival of the fittest.

The question that the US tax-payers ask is also asked by the tax-payers and all savers all over the world. Don’t take my share of money by printing more money or burden me with inflation to protect the big because they are too big to fail. How long can we do that? How long can the world lend money to the US because it’s the currency of the big, and if doesn’t; it fails with unthinkable collateral damages.

The US has not faced much of the upside and downside due to the excessive risk-taking nature of the Wall Street firms (barring this time in housing, last time it was dot-com, etc.). It actually happened in the emerging markets where real estate prices in Mumbai caught on with Manhattan and share prices went sky-high as these markets are small, and lacks the depth that billions and trillions of dollars inflow or outflow can create. And the corrections have also happened here again as China, India both corrected by nearly 30% or more.

A part of the money borrowed from various windows from the Fed. eventually lands in many of these emerging nations; as same investment banks buy assets there. It’s the same market where many of us in emerging nations buy assets with our hard-earned saved money. One borrows cheap, endlessly to play in integrated global financial markets in search of higher profits knowing he is too big to fail; ordinary investors like us compete with them in same markets. It is high time that these local governments must ban one entity out of these two diverse ones (as China has done for its domestic market, however that experiment has also not been great lately) because FIIs cause market distortion in these emerging nations; and in a way Fed. support that.

The Federal Reserves could have also decided not to bail out Bear Stearns and let market adjust to the collateral damages from trillions of dollars of open derivates it had. It didn’t do so. And it’s likely that it won’t do so in future as well in similar conditions.

The rest of the world allowed the US to be big by allowing it never to bother it balance its earnings with expenses. The US government could do it because rest of the world was always ready to lend money (rather competed!) to the US. Once US government could do it, it percolated down to the US consumers; and the days of saving money concept was gone from the US.

One may well ask – what’s the alternative? The alternative is not Euro or Yen. The shift from dollar has not been even in double digit, and Euro climbs by 60% or more, leaving aside the increase in base in forex reserves. The alternative is to allow acceptance of mutual currencies. Some section of media suggest experiments where travelers between Brazil and China carrying the other’s currency directly without buying dollar as an intermittent currency; Iran, Russia, China and Venezuela again trading oil in their respective currencies; etc.

And the solution lies there itself. As China increasingly becomes the largest trader of the world, it need not be concerned of losing exports to the US provided it accepts others currencies or trade in Yuan. Rather, it may find more export demand! One must be ready to pass through the intermittent turbulent phase anyway. And in the long run, China may find better solutions to curb its inflation as well. China and India both can trade in their respective currencies as well! China, with its huge trade, must allow Yuan to be more openly available for trade globally.

It’s unfortunate that global currency basket does not include any where the future is.

The unsustainability of the dollar liquidity can only be felt if the nearly $4 trillion dollar in the form of forex reserves with various emerging nations flood US market as an increase in Money Supply. The US inflation would be simply unmanageable!

When the big exploits the small, it’s time for the small to act together. The Federal Reserve would always bail out the big financial entities of the Wall Street with tax-payers’ money; however let that not be the practice for the other national governments to bail out the Federal Reserves and the US government, again and again.

When the rest of the world acts together not to bail out the US; the US would be forced not to bail out the Wall Street. That’s the only way we can protect us from similar events of future.

Copyright: Ranjit Goswami. Ranjit is an Associate Professor at Indian Institute of Foreign Trade, and is the author of the book Wondering Man, Money & Go(l)d. Opinion is personal.

Why not allow Internet disintermediation in Central Banking operations?

2008-03-28T00:32:00.000-07:00

Many, including myself believe that the Internet has changed the world significantly. Few, including myself again believe that Internet and associated Information and Communication Technologies (ICTs) can even do more, in newer and newer areas too, to meaningfully solve many of the otherwise challenging problems of our world. And impacts of Internet and ICTs can therefore be much larger.

One such area surely lies in disintermediating the operations of the Central Bank.

As a researcher on the Internet and on broader ICTs who also happen to be an avid follower of global economy, including the latest financial mess in which the world is in lately because of credit crunch in the US; lately I often wondered on the radical idea of using the reach of the Internet and associated ICTs to have a better control of the objectives of any Central Bank – primarily through disintermediating the primary banking operations.

One would agree that it surely sounds like a stupid, prematured, out-of-the blue idea, at best a rant. But that’s what great technologies and their impacts can potentially be.

Coming back to Internet, and broader ICTs; these have been termed as General Purpose Technologies (GPTs). And thereby its impacts have been compared with power delivery systems (of different forms waterwheel, steam, electricity, internal combustion to new-age batteries powering handheld devices) and transport innovations (railways, motor vehicles, ships, etc. Adopting of GPTs eventually leads to higher growth in productivity, and thereby results in improved economic growths. Internet and many ICTs (so do all GPTs) also share the characteristics of disruptive technologies, which eventually may lead to a change in the industrial order. And all these are well known, and thereby well established facts.

Now coming back to the role of any Central Banker, it essentially acts as the Banker of the banks. Following mainstream media, the definition that emerges of a Central Bank is (1) it creates money and thereby ensures adequate credit and liquidity is available in the economy, (2) It is the lender of last resort to commercial banks, (3) its objective is to balance between inflation targeting and economic growth by fixing different key interest rates, (4) regulate commercial banks, etc. And it owns the entire responsible for the monetary policies of an economy as an independent authority of an economy.

Interestingly, just like GPTs herald in growth in productivity and economic activities, right Central Banking operations also result in the same. However faulty Central Banking policies result in economic depressions to great financial mess, both of which often get mentioned on global news and media because of prevailing economic conditions, primarily in the US.

A lot of reference is now being made about the speech of Bernanke, Chairman of the Federal Reserves, in the event of commemorating the 90th birth anniversary of the great economist, Milton Friedman. The apparent argument focused on what caused the Great Depression in the US, or on the bigger argument on role of the Central Bank in avoiding economic recessions to economic depressions. Friedman had his opinion on it and Bernanke had his PhD thesis on it. And both believed that the Central Bank was to be blamed for the Great Depression. What we don’t know due to the ‘attention-deficit-disorder medium for an attention-deficit-disordered age’ is whether that diagnosis holds true for all economic slow-downs, recessions or depressions, or that diagnosis holds true for a class of those events, like the Great Depression, due to the various prevailing economic reasons. Categorizing all economic problems in same class may be too much of a generalization!

And the way the Fed. has been acting, since the signs of sub-prime crisis started affecting other parts of the economy, vindicates that Bernanke believed that monetary policies can act as a remedy for almost all economic slow-downs. One would wonder what would have been his prognosis had he pursued his thesis on the current inflationary problems that Zimbabwe faced!

The actions of the Fed. since then have received mixed responses. However what can’t be denied that irrespective of the urgencies of many of these debatable actions, it’s the intermediaries who always benefit from this fractional reserve banking policies that Central Banks follow. ‘Heads they win, tails we lose’ has been the business model of commercial banks and a majority of financial intermediate entities.

There can’t be any denying of the fact that intermediate entities like banks served and still serve a great mechanism of canalizing savings into credit, and into various investment products for different types of needs.

But time now has probably come to ask a fundamental question: can we think about a future world without financial intermediates like commercial banks or brokerage houses, at least to take care of the basic operations of canalizing savings, credits and investments? The hypothesis does not suggest that the world will do without them altogether, however in present age, most citizens can’t live without them. The exception comprises the ‘have nots’ of the society from developing or even economically worse categories of nations. And there are also financial intermediates who ‘really’ add value rather than relying on their ‘spread’ of fund alone to generate profits.

Let’s take the argument with couple of examples of current relevance:

In the context of the US, the largest economy of the world, as it stands now, in-spite of interest costs being lowered over the last six-seven months, and adequate liquidity being injected to these intermediate entities; the end-borrowers have not yet benefited much. The reasons can be many, the primary one being that banks are still to recover from the credit hangovers, and the housing crisis may still have further downside. And it’s a therefore a case of market failure. And thereafter we see Fed. bailing out investment bank Bear Stearns with tax-payers money.

So essentially the commercial banks borrow at 2.75% or similar rates, but lends at 5.5% or even at higher rates. The difference or the spread is to cover the risks associated, the costs of servicing, and also contributes to the banks profit. In earlier days, it was impossible for the Central Bank to reach out to millions and billions; however with technology it no longer is impossible.

Most of us, individuals, don’t play with our money in esoteric financial derivatives. A majority of us bite that much only what we can chew and therefore never default on our loans repayments. So for the vast majority, the commercial banking business covers nil risk and assures them of hefty profits.

Question therefore is, why can’t we take the same credit from the Central Bank directly at lower costs bypassing these commercial banks? All documentations can be checked, credit worthiness verified, and suitable interest rates can be charged with additional processing costs put to the customer’s account. The same things can be applied in the matter of collecting savings also. So in both, it’s a win-win model for the customer and the Central Banker. And the profits (or even losses at exceptional periods) of the Cnetral Bank belong to the tax-payers because at the end of the day, it’s for the citizens.

It’s another matter that the Federal Reserves now have a balance sheet that’s economists’ nightmare. And while it focused on protecting the balance sheet of Wall Street banks and financial intermediate entities, it also spoiled the balance sheet of the majority of the working Americans.

True, one immediately senses hundreds of objections, many valid. How can a regulator also act as another entity itself? Isn’t it what the Fed. is doing right now (or the Northern Rock nationalization)? Without competition, service levels will deteriorate. Can we really say that these commercial banks (or the loan-sharks) really deliver great services? And even if yes, that can still be taken care of and competition can be created through other means.

True – it’s a simplistic version. There will be critical challenges. However, those can surely be overcome.

The point is simple. It’s the Central Bank that’s behind monetary policy, and the only authority to create credit or determine key costs of credit/savings. And the whole of society needs them. Why do we still need financial intermediates to channel that credit or savings when technology can act as the greatest enabler in connecting the service generator (the Central Bank) and end-service consumer (you and me).

Many industries no longer exist as they have been made redundant through disruptive developments. And in many other industries, classes of disintermediates have been replaced by one single powerful reintermediates (Google, Amazon, Wal-Mart).

In the financial world, we have seen disintermediation and online impact in the last mile of the supply chain, like online banking with a commercial bank - an intermediate agent, or one can access the trading terminal of a broker to trade in exchanges. However in both, the broker or the commercial bank does not add any value but still pocket some money. Today, with technologies, we can surely maintain direct online banking relationship with the Central Bank, or trade directly in an equity market. It’s the agents in between who as such don’t add any economic values engage into malpractices or unsustainable practices.

If the Fed. can lend JP Morgan nearly 29 billion dollars against 30 billion dollars of mortgages at attractive interest rate, all U.S. citizens having little higher home-equity than those mortgages can also claim similar terms from the Fed, losses in both cases taken up in the accounts of the Fed. It’s no longer the question of exception, as starting with ‘Greenspan Puts to these measures’, they have already become norms.

The process would also enable developing countries like India, the world’s largest democracy, to be able to reach out to the millions of ‘have nots’. If Grameen Bank could do it and still make profit, it shows that the ‘have nots’ as a class of credit takers may not be riskier than the Wall Street firms. The have nots need right credit (microfinance) at right time at right costs, they don’t need to be force-fed costly mortgages by loan-sharks. Indian government would therefore do well if it restraints from populist loan wavering of farmers and focuses on reaching out to the farmers through banks (better through Central Bank using ICTs), as majority of Indian farmers take loan from money-lenders at much higher interest rates. With Internet and direct policy-interventions of the Central Bank, government can directly reach out to these underprivileged sections with cash rather than different ineffective subsidies, where for every 100 units government currently spends, hardly 11 units reach them through the leaky delivery channels with different intermediates.

Increasingly, the line of difference between money-lenders of India and profit-driven financial intermediates of Wall Street are vanishing. However the difference is, Indian Central Bank don’t yet practice the example of bailing out its money-lenders.

It’s a question of government will. Central Bank, as the creator of fiat money, must not be catering to the select few through its credit window, who in turn run havoc with global economy and individuals’ lives and properties in search of higher and higher profits. Central Banks must not be viewed as a coterie for the rich and the powerful, rather they should be answerable to the people, more than even the government as in democracies government change often and therefore can afford taking populist measures. Central banks can’t take populist measures today to build more pains for the future.

Unfair access and costs of credit money has also been a driver of the ever rising inequality the world witnesses now, from China to Russia to India to the US. The present form of capitalism also increasingly looks unsustainable where the whole banking system works for the interest of the banks and not for the broader interest of the society. Both the problems can be effectively countered when the Central Bank opens up its window to all citizens uniformly.

Central Banks must ensure that costs of credit must be uniform to all depending on risk and return. Citizens in the US can’t be blamed if they demand same treatment as JP Morgan got while taking over Bear Stearns. In India, an industrialist from the real estate segment with $1 billion dollar asset can take $2 billion loan and acquire farmer’s land whereas the farmers are denied $1000 credit for their land assets of $10000 or even more. And same $10000 asset becomes $100, 000 with the transfer of ownership. Even if the farmer gets the loan, he pays much higher interest rates. These are not exceptions, Mr. Paulson (or Mr. Chidambaram) - but these are norms in present capitalist society due to the untenable financial intermediates.

Let all commercial banks and financial intermediates that depend on playing with costs of capital from borrowers and savers be dead. Along with them, we will see the expiry of lot of the financial derivatives of the world. Let the Central Bank do business directly with all citizens. If it can’t with present technology, it does not have any authority to be the Central Bank – it then only remains the Banker of the Wall Street.

As we can directly buy tickets online from airlines bypassing the travel agents, as we can directly buy books from publishers at a discount bypassing the shops charging a premium, so we can individually do banking with the Central Bank bypassing the inefficient intermediate entities. We also see economic benefits in visiting a large intermediate entity like the Wal-Mart or the Amazon; however those benefits are not there with commercial banks, unless they resort to unhealthy credits or products.

Still sounds impossible? No doubt it is. However many would be optimist, and believe a change like this can eventually come. It may not necessarily usher in the US, but somewhere else with less influential lobbies, to be experimented and perfected over the years for a better future. And that’s what GPTs are for.

Long live the Central bank. Let the commercial banks, increasingly indistingushable in inter-related financial world with other banks, die.

Ranjit is an Associate Professor at Indian Institute of Foreign Trade, and is the author of the book Wondering Man, Money & Go(l)d. Opinion is personal.

Bernanke et al are scared… of the market!

2008-03-18T02:06:00.000-07:00

Was it the exchange stabilization fund, or the market itself that did the trick for the US financial markets on 17th March, 2008 after Bear Stearns saw its bail out (or negotiated liquidation for Bear Stearns but bail out for JPM for Bear Stearns’ assets)?

One can never be certain about the market. Lately it’s more so about interlinked financial markets, globally. No one probably expected the US market to be so bullish in the back of relative black-out in rest of the world, not even 24-hrs ago.

So as indices from Asia to Europe traded lower by 3-4% on an average yesterday (17th March), all eyes were on the US markets. Call it bail out, market intervention, market manipulations or market regulation; The US authorities have been at many of those to have credit markets stabilize, at any cost, as reported by their policy-makers.

There is no denying of the advantages one get by being a Super Power, rather the Super Power. Your definitions changes with your (short-term) requirements and the rest of the world follow suit. So what’s capitalism, what’s socialism, what’s intervention, what’s regulation, and what’s manipulation is all defined by the US by playing with words. One may argue that the definitions of these ought to change as the situation demands so. Absolutely right!

However what about Free Market and Free Market Economy? What about a strong dollar policy?

So one need to be too biased against the actions of the Federal Reserves or that of Treasury Department, headed by Ben Bernanke and Henry Paulson respectively. They have been doing what the US is known for.

Shoot first and then find.

So they have been shooting all their arsenals just to ensure that things don’t go out of control. Out of control of what? What’s ‘in control’ and what’s ‘out of control’ for free market economy?

The US did it in Afghanistan in terms of its foreign policy back in the 1980s. It did so in Iraq by colluding with Saddam during the now infamous Kurdish gas attack or even during the Iran-Iraq war. They did shoot it first, and after two decades they found that they did shoot at themselves. However, still the shoot first and find later attitude has not changed.

Those were the cold war days. One may argue that there were still reasons to be scared. But now what – when almost all the world has adopted free market economy, with their respective definitions, what scares the US. Chins has allowed its stock to correct by around 40%. And till sometime back, all western journalists were talking about possible riots had there been such a bloody correction in China? Yes, there is riot in China – but that’s more in Tibet; and the riot amongst policy-makers is on controlling inflation.

Defenders of Bernanke et al would argue that it’s inflation. China does not have a 2nd choice. Well, historically China probably always had twice the inflation of the US. The inflation in the US is also high (though I never trusted these officially released inflation figures because it meant nothing for the common man) lately. Would the US allow a 40% correction? Stocks are attractively valued in the US based on PE ratio, and all such logic may pour in. Absolutely fine again, but allow the market to find that.

When consumers are having negative savings for years, financial institutes make money by getting levered beyond the risk profile of assets and firms get profit from consumer demands rising primarily from one form or other credit that the consumer enjoyed historically; it does not take much to pull the plug of credit to butcher the precariously balanced US economy.

But it’s the land of free market economy, it’s the land of capitalism, and it’s also the land of the B-2 Bombers with the Super Power status. So at least for now, the financial markets of the rest of the world get butchered. Because they don’t manipulate, intervene, bail out hefty bonus-taking investment bankers with tax-payers money. China did tremendous capital injection in its four largest state owned banks before they went public to clean up their balance sheets, but they were state-owned. So tax-payers money were used to create tax-payers asset.

In the US, Fed. takes the risk and JP Morgan shares shoot. One can’t have anything better than that in the name of capitalism and free market economy.

Coming back to the reason of their otherwise inexplicable actions, Bernanke et al are scared. They don’t have the luxury to have any moral values. You can’t ask a terminally ill cancer patient to go to the gym and lift weights. This time there isn’t any USSR, but Bernanke et al are none-the-less scared. They are scared of the market.

Sounds ridiculous – isn’t it? But there is no getting away from the truth. The so-called market may be an abstract concept; but it can be even more powerful than the only Super Power of the world.

Just like the USA didn’t break-up the USSR, it won’t be China which will end in the current super-power status of the US. China’s rise is due to market forces; and the decline of the US would again be due to market forces.

For a long time, the US felt empowered to have the chain of a hungry male lion that mauled on other economies whenever their actions were not liked by the US at the pretext of unsustainable market dynamics. The Asian economic crisis is barely a decade old.

The markets eventually grew strong. And though the US still holds the tether of the free market brutal force by being the de facto central banker of the world; the lion is increasingly getting restless.

Bernanke et al are scared of that free market force. They feel that it’s the one that’s getting out of control. And they are throwing anything in front of that hungry lion to tame it down, for the time being.

Would Bernanke et al succeed this time – probably yes. Would it be good for the US economy and the global economy? Probably no as the brutal market forces would be even more brutal to rectify the global imbalances that Bernanke et al further creates; and a bigger chunk of meat would be needed every subsequent time to pacify it.

And that’s why Bernanke et al are shooting first. They can’t shoot the market force, they wish they could! They are shooting down others to be used as bait for that hungry lion. Dollar, commodities, Bear Sterns, Inflation, etc. are just a few fall out of that shoot first and find later attitude.

One can never be sure what caused the US market to be so strong on 17th March, after the fifth largest US investment banker went down to market forces, sorry to get it wrong again – rather to Fed. negotiated liquidation. If it was the so-called Exchange Stabilization Fund, they indeed did a great job at any cost on 17th March as they indeed stabilized the exchanges.

Alternatively, the hungry male lion seems to be satiated for the time being after having a great dinner from Bear Stearns just the day before.

Copyright: Ranjit Goswami, the author of the book Wondering Man, Money & Go(l)d.

Headlines on crude, dollar and gold go to Bloomberg, Reuters & WSJ (Spoof)

2008-03-14T02:27:00.000-07:00

You know it. There should be innovations, originality, creativity in journalism. And all of them try to be creative to differentiate it from the rest, more so in the title, in headlines. It's a maddening crowd, thanks to wired and online news.

But what to do when the news is the same? The editor of Bloomberg, on the other day, shouted on his columnist who wrote 'crude hits new high' as the title sounded exactly same that came from WSJ and also from Reuters, even around same time, with hundred other similar stories. And it's been going on for days. Even Bloomberg itself had 20-news items over last one week itself with same headlines.

What a loss to the economy...

That's sheer wastage of efforts, thought Bernanke and Paulson. More so when the economy is facing a recession, in all likelihood. Productivity must be improved. Other than the readers of thespoof, having all the time of the world, no one would look at same headline news from two or more different infamous sources. And therefore productivity drops. And economy faces further recession.

Must be tackled, immediately, on war footing, thought Paulson.

Comes up Paulson's innovation in tackling another problem after his successful ways of handling the sub-prime crisis. He calls a meeting of the editors of the Bloomberg, Reuters and the WSJ. And starts with his usual style: 'Gentlemen, the US economy is in cross roads that demand your productive growth...'

The editors, having their own ideas on how great a cheater this Paulson is, wonder on the objective of the meeting. Finally Paulson comes to the point. No point in having same headlines news everyday on crude oil, dollar, gold, sub-prime crisis and credit woes though the news practically is the same...why not form a cartel as the OPEC has done?

Not a bad idea...the editors thought.

And they decided that henceforth, following titles will be copyrighted and owned by one of them:
Crude oil hits new high: by Bloomberg
Dollar hits new low against Euro: By Reuters
Gold hits new high: by WSJ

After the meeting, Paulson, facing the media, said:

'This indeed is historic. In-spite of all bad news in the economy, the media firms never had it so good. The story remains same, they just change the date, time and the value. At times, the journalist even creates the futuristic story with likely values, and by the time it's up, the value is also achieved in markets. And therefore there was lot of conflicts, and loss of productivity. We have resolved that now. True, the cartel at times squabbles as WSJ feels it got a bad deal, more so as Gold is having a wait and watch policy before it hits $1000. So you may still see some infringements. Eventually, as above headlines become as permanent as the Chinese Wall on business news everyday, the insignificant inner fight is likely to subside, eventually.'

Copyright: Ranjit Goswami,, author of Wondering Man, Money & Go(l)d

Oil@$100, Gold nearly@$1000, Inflation at 3-4%?

2008-02-27T05:54:00.000-08:00

Economics is no doubt a complex subject, more so for people not having a formal degree in Economics. True, they also say that ten economists would have eleven opinions on one single issue.

The headlines hit us all the while, over TV, morning papers, online. And we see various releases on economic growth rates, inflation rates, consumer spending, financial markets, and what not.

For some time, what’s also hitting us is the rise in prices in commodities, practically all types. Crude oil quadrupled over last 4-5 years, and now trading over $100/barrel after hovering around the magic three digit number for months. And it’s a question of time, not in years but probably in months or even in days when gold hits the magic four digit number per ounce.

Other base metals, iron, iron ore, coal…copper…you think of any particular commodity; and they all have had a similar run. Lately agri-commodities have joined that club as corn, wheat and others have been hitting high prices all too often; and in many cases the jump in price has been nothing less than 100% over last year or two.

When consumers buy for end-products that’s made of any of the above commodities, they essentially pay the extra costs as profit for corporate world has not come down as a result of rising input costs. So essentially, end consumers bear the rise in costs from their wallets.

True, there have been many studies that showed how our global economy now is more immune to any energy (read crude) price shocks. Compared to the 1980s, when the world had its first oil shock, energy prices as a % of consumers’ wallet now stands much lower in the US. Studies showed them to be around 6% now, creeping up from 4% a few years ago before oil started shooting up but way down from 9% from the early-1980s. Food again as another class comprises 9% of consumers’ wallet (UK-based study) now; so economists feel that rising food prices won’t drastically impact inflation.

But if one takes only these two class of products, where prices may have already gone up (compared to 2-3 years back, say) by 100% or would soon reach that figure sooner or later if the present trend continues; it would mean consumers paying 100% more for 15% of their consumption itself. For the balance 85% consumption, prices again may have gone up (can go down also, but unlikely, more so for coming days as cheap productions in China also has its limits. And when services contribute to a major part of economy and consumption; other than electronics, telecom, computer or internet, there hardly is any area where prices have fallen. The service providers also pay their employees, and that costs have also gone up) to a certain extent.

So the non-economists like me wondered often how many major economies kept on reporting low single-digit inflations. Or think about Japan, a country that imports most raw materials, shipping freight was up in same line as commodity prices; but still showed price deflation continuously for years. The trend reversed only very recently, surprising when yen appreciated thereby reducing import bills and thereby helping contain inflations. There was deflation mostly when yen depreciated from 110 to 120s, prompting its Central Bank to have no interest rate or the lowest possible interest rate for years.

We read about GDP growth rates, various types of inflation rates often. However most of us have no idea on how they are measured. Contrary to that, we see the prices of these commodities flashing over without any difficulties in understanding how they are measured as we realize that even more when we buy goods made from those commodities.

The question that at times therefore hits us is on the reliability of the inflation data. Various types and their various interpretations are even more perplexing. Say, if producers price inflation (PPI, one released lately) went up by 7% or more in the US, that cost must have been passed on to the consumers (otherwise the firms took a hit on their margins). Are we missing something as ordinary consumers and readers, or is there a magic wand that our ‘economic machine’ has which takes high-priced inputs but produces low-priced goods, none (manufacturers, government) taking any direct hit from it. Conspiracy schools have since long propagated the idea of stealth inflation which may be running at double digit numbers.

Lately, the specter of inflation has started haunting global economies. However the core, non-volatile inflation in leading economies still remains less than 3-4%. That’s a surprising achievement when oil is at $100, and gold nearing $1000. And other commodities and agri-commodities are also following crude. True, there always is the lead-lag factor; and rising commodity prices may not yet have percolated to the consumer level fully. But then the Japanese deflation paradox that lasted even till 2007….

Economics is a matter of confidence. Financial markets, fiat money, bonds, other monetary instruments or financial instruments, asset prices including homes – all exchange hands with that confidence being there. Credit market problems hitting parts of the biggest economy is not due to a shortage of credit, but due to a shortage of the confidence. And that’s why rate cuts have not helped solving the credit market problems as of now.

So non-economists like me are not suggesting anything conclusively here, rather stating our confusions on understanding the inflation numbers coming particularly from Japan and the US. When oil is at $100+, gold nearing at $1000, agri-commodities doubling their prices in years – how can inflation be still in low single digits?

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Bring the much-needed change globally, Obama

2008-02-21T05:10:00.000-08:00

‘Change’ – the word loved and hated by many at the same time. But there’s no getting away with it.

The two fundamental questions, I often ask myself are:

1. Are we changing for better or for worse?
2. Irrespective of the answer of above, is it benefiting all or a majority of the citizens of the world (even for the shorter term); or is the change benefiting only a handful of minorities, that too at the cost of the majority?

Since the end of the WWII and even more since the end of the Cold War, many do consider the U.S. to be significantly responsible for all the three challenges that our world faces today, namely:

1. Global warming & climate change
2. Rising inequality due to form of capitalism and globalization in practice, and finally
3. Terrorism (which, fundamentally. speaking is partly a derivative of point 2 above).

Now when certain parts of the rest of the world that includes me say that the U.S. needs to own up responsibility for all the three above, this group don’t necessarily come with a mindset similar to blaming President Bush for all failures, even say, for one’s dog not being well.

Personally speaking I rather like President Bush, though I disapprove strongly most of his policies that saw a lot of destruction of lives and properties, probably unnecessarily. The difference between Bush and Blair, again in my eyes are:

1. Bush is honest, simple and a straight-forward guy who was continuously mis-lead by policy-makers having ulterior motives.
2. Blair was a smart guy who knew the fallacies of many of those policies, but still pushed ahead expecting a short-term or long-term personal gain.

Above probably explains my biases to a large extent. So when this group holds the U.S. as responsible for the major challenges that the whole world faces today, it’s because of the superpower status and ‘global policing’ attitude of the U.S. that’s been there for long. President Bush has not done much to change that perception, rather damaged them badly in his tenure.

Now let’s come to the fundamental two questions with which we started on ‘Change’ itself:

Are we changing for the better (at least lately)? – No doubt it’s a complex issue. And no one can have a final say on it. The answer would surely vary depending on your age-profile, socio-economic background, location, and most importantly how you have performed socially & economically over last few years against your peers. Surely mankind has gained a lot by adapting to continuous changes since the beginning of human civilization.

Why the question comes now because there are ominous signs that this path of civilization may not be a one-way street of prosperity for all of mankind on Mother Earth as global warming and climate change becomes more and more evident.

Coming back to the question, I get a feeling that we are changing for the better over minor and smaller issues; but when the bigger and major issues are concerned, we probably are changing for the worse. I again admit that it’s too complex a process to have such an oversimplified opinion on it.

The answer for the 2nd question (who benefits more from the change?) again comes from the cues of the 1st. The smaller changes benefit all or the majority, but the larger changes benefit only a handful over the cost of the majority. Take example from any corners – economic policies, environmental concerns or terrorism-related issues on the three major challenges; you get the picture.

So when we say that there is global warming, but emissions will not be cut as it can impact economic growth; we indirectly affect the large majority of the people all over the world who have seen little benefits of economic growth so far in their lifestyles and consumptions, and rely more on Mother Nature still for various forms of livelihoods.

Or take the example of the interest rate cut that the Federal Reserves did, which according to many is nothing but socialism for the Wall street. It’s yet to be seen on how the American poor (>12% of the U.S. population) will benefit from this decision, because (1) s/he may get affected by never to get the opportunity to own a home as prices remain high or (2) in case s/he already bought one under sub-prime category, s/he may have already lost it or still lose his/her home as the decision benefits the financial system of global capitalistic society more and not the end-consumer. On top of that, s/he gets adversely affected by inflation.

Well, one may rightfully say that in case of an economic down-turn, s/he may lose his/her job as well; and therefore to protect the job (of whatever payment) it’s important to even protect the rich by a higher degree. True, however it being true itself sounds an alarm bell on the sustainability of this global capitalistic system in place.

One can take examples of democracy and freedom and see its different applications across many parts of the world, again chiefly advocated by the U.S. itself. Kosovo and Palestine are again two latest glaring examples of that. In one case, the whole world agrees that people of Palestine have been mistreated for years but does nothing. In the 2nd case, there is divergent of opinion but still Kosovo declares freedom with US support. U.S. has over the years conspired against democratically elected governments elsewhere and done nothing against absence of democracy in oil-rich OPEC nations.

Therefore just like the U.S. needs to own up its responsibilities in facing three of the major global challenges; the U.S. also needs to be credited or blamed for the fundamental two questions on Change.

Lately, it’s often said with statistical findings that the perception of the U.S. in the rest of the world has taken a beating. It is right, but I again believe that’s an oversimplification. All over the world, there is a great respect for the American values, the American people, the American icons (Dylan, Gates, Google and many more in all spheres) and their contributions to mankind in various forms.

However when it comes to U.S. policies, majority of the rest of the world dislike it. Dislike still is softer word, hatred may be better.

Why is it so? Simply because of the double standards the U.S. has been following for quite a long enough time to build a negative perception in people’s mind elsewhere. Let’s take a look at what many Americans themselves believe in:

‘The so-called “free trade” bottom line: Poor countries producing commodities cannot possibly compete against rich countries producing credit money. Yet they are being forced to do so.

Meanwhile, during the past 30 years the US has bombed or attacked Syria, Lebanon, Nicaragua, Sudan, Korea, Vietnam, Cambodia, Laos, Iraq, Guatemala, Japan, East Timor, Nicaragua, El Salvador, Colombia, Dominican Republic, Somalia, Haiti, Yugoslavia, and Panama. The common denominator of these nations is that they are all non-members of the World Trade Organization. Since the invention of the WTO only Japan has joined willingly; the South American countries have been “persuaded” by friends of the system.’ From ‘Money’, Library of Halexandria.

Well, I have not done enough research to comment on the validity of above. However what can’t be denied is part of above probably is true.

Surprisingly, today the same U.S. faces reverse heat from WTO as its markets get flooded with overseas goods and services.

Afghanistan is another example where the U.S. sacrificed its long term interest by joining Taliban and facilitated terrorism.

Point here is, if something is not good for the world over the longer term, it can’t be good for the U.S. as well.

Obama has promised Change. I personally like Senator Clinton as well. The character she has shown since her days in the White House as the 1st Lady from Monica Lewinsky days is of unbelievable balance & strength. Her intelligence and experience also can’t be questioned. Other Presidential contenders also have many pluses. However Change as a theme is something the world also expects from the U.S. as the current perception of the U.S. needs to change from that of a country of double standards to uniform ones.

The world has seen a drastic shortage of global statesmen of stature, probably when it’s needed. The U.S. needs to either provide it itself, or facilitate other statesmen to emerge who can solve these complex challenges that our world faces today.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

1000 times reward to US consumer offered for overspending (spoof)

2008-02-14T03:01:00.000-08:00

The Federal Reserves and its Chairman, Ben Bernanke along with the US government is trying everything possible to get rid of a recession in the largest economy of the world. Interest rates were cut aggressively; Congress and the President sanctioned the stimulus package. Many feel that the economy may already be in a recession, others doubt on the probability of it.

Not that markets globally didn’t react to all those stimulus packages and interest rate cuts, but the call was still mixed.

Come January retail sales figure, and apparently ‘consumer purchases in the US rose 0.3 percent in January, after declining 0.4 percent in December, the Commerce Department said Wednesday.’ If one calculates with ball park figures or even with the exact data, the difference may be at most to single-digit billions of dollars.
And global financial markets responded by going up – minimum 2% whereas many in Asia were up by 4-5%. It added the net wealth of the paper money by trillions of dollars.

So a cause of an average US consumer spending one dollar extra results in minimum $1000 increase in global m-cap, well may be for hours or days, but it happens.
One may argue that Japan’s unexpected growth rate also worked, however readers of mainstream financial media fail to understand that on what basis the same global financial media accepts and writes Japan’s nearly 4% growth rate after proclaiming recession/stagnation there for months in article after article.

All these made the policy-makers in the US and Japan decide that henceforth, any consumer in the US who will have a track record of spending 1% more month-on-month would get a 1000 times reward on his/her increased monthly spends. Federal Reserves and Congress have found that the cost of this package may be less than $170 billion, and can potentially last for years. The consumer need not worry about any delinquencies in future credit card payments; as the money will be circulated from financial markets to banks to consumers for doing a favor by consuming with credit money.

This single act would help the economy grow, stabilize financial markets and housing market, and thereby help the US consumer to feel rich again due to his/her exposures to these asset classes. And subsequently the stimulus package can be withdrawn again when the consumer starts reusing his/her home as an ATM, or takes mortgage which s/he can’t pay back.

Many Noble Laureates applauded this great idea of the US policy-makers, and proclaimed that it’s a sure shot remedy to permanent growth. Words like ‘saving money’ are being shifted to the same league as Nazi atrocities; and being declared unparliamentarily in the US congress.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Only the ‘Have Nots’ got decoupled from global economy

2008-01-25T05:51:00.000-08:00

Months of speculations on decoupling theories were crashed at least over last few days as global financial markets melted, till the US Federal Reserves came out with the surprising 75 basis points rate cut a week ahead of their scheduled meeting.

And theories of Reverse Coupling came into limelight from C. Fred Bergster, of the Peterson Institute for International Economics (formerly known as Institute of International Economics). Yes, the global economy has re-coupled across nations as large US firms now talk about their targets to increase non-US revenue faster than domestic revenue, and many already achieved it.

So have we now got some evidence that the world economy moves in unison where the largest economy still drives global economic growth significantly? The answer is a firm yes, if last few days reactions of financial markets are considered.

But surely ‘Have Nots’ as a community is increasingly getting decoupled from this round of global economic growth, that saw income inequality rise to its highest levels from the US - the land of freewheeling capitalistic heaven to socialist China to socialist democratic India. Some say a rising tide does not lift all boats.

When the debate over last few days focused globally on availability of capital and its cost, I heard this story from one of my colleagues in India.

The bottom-line of the story is one domestic maid from South Asia wanted to have an abortion because of non-supportive husband, and no legal recourses. The lady realized that she did not have minimum resources to support the new-born baby. Apparently she tried every possible means to get the unborn baby aborted. However one of the state run hospitals that she approached told her finally that she needs to pay a minimum of Rs. 600 (approximately $15) to have the abortion done.

And she didn’t have that. She now is the mother of that baby, and continues her job as a domestic maid somewhere in this region of South Asia.

Can the global fractional banking system and all its central bankers and associated banking system answer what could have been the cost of capital and how that $15 could have been made available to that lady in time to avert a crisis in her individual life? I guess that she would have surely accepted that $15 as debt also at an appropriate cost of capital, probably at a much higher rate than what the biggest Central Banker offer to the banking system in the US at their point of crisis, which is much less severe compared to what this lady faced?.

I heard the story couple of days back. It indeed is chilling, however the bigger realization is that, it’s not China, India, developing nations getting decoupled from the slowing growth in the US. It’s no more a country-specific issue. It’s rather a class-specific issue that’s been there since the time of Socrates, who said there always were, are, and would be two permanent classes of ‘haves’ and ‘have nots’. There were two classes, but there were a coupling between them as well. Over the years, it got weakened. It affects billions of people, but in the race of economic growth, they no longer matter in the considerations of economic growth.

‘Have nots’ as a class has been decoupled from the global economic growth. Even in regions where they are a majority, they are increasingly getting decoupled from domestic growth agenda.

Copyright: Ranjit Goswami, Author of Wondering Man, Money & Go(l)d

Credit market faced severe attack; Central Banks offer bypass and pacemaker

2007-12-12T21:34:00.000-08:00

The question is, irrespective of the quality of the bypass (interest rate cuts) and the pacemaker (more and more liquidity support for the banking system, official notice of the Fed. of 12th December) coming out from the operation theater (board room) of the Federal Reserves, the failure of the fractional banking system at the heart of present capitalism looks imminent.

First came market followed by economic growth with the innovations with support from moderate bank credits. Then came the flood of bank credits without much of innovations and productive growth from thin air (one study of British banks showed out of all the credit growth, only 3% was debt free and created by Central Bank, and rest 97% came from fractional banking system. More the credit banks create, more naturally is their top line and bottom-line, assuming there is no crisis).

Nothing probably succeeds for ever. The hard reality is the credit, in the early phase of capitalism, was used to drive productive growths. Now same credits are used in global financial markets, creating asset bubbles in the form of speculations. The trouble didn’t start with economy slowing down or being in recession where a productive asset may get valued less, the problem started from ‘liquid’ asset bubbles.

Change management is never an easy task. With the collapse of the Soviet Block, capitalism as followed in the US became the only recipe that lasted the test of time, so long. However if one remembers the failure of Bretton Woods (closure of gold-window in 1971 by Nixon-administration), one may not be wrong to say that fractional banking driven capitalism would have died back in 1971 (2-decades prior to the collapse of the Soviet Block!) itself, had not there been the cold war specter, due to which leading world economies bailed the US out in that period. And global economy was still US-centric in the 1970s.

Capitalism, as it’s practiced now led by fractional banking and ‘fiat’ money, in-spite of lasting longer than other forms of regulated economies, naturally has its own limitations. And the time has come, now, to look for other alternatives. Those may not be the ones that already proved their limitations (by failing many times before), but something which can be combinations of different forms that give more and more power to the markets, maintain equality and also environmental sustainability (score of fractional banking on these two is also poor). Market forces can and should be the only drivers, presently Fed. rather drives market forces by interest rates and liquidity. It’s not sustainable.

The actions of the Federal Reserves, to overcome the sub-prime crisis (it’s high time media uses a different word as the problem is no longer limited to ‘sub-prime’ segment) and to avert a likely recession so far, resemble one in which a kid plays with paper money. For the kid, paper is money and there is no accountability on its supply. For the Fed., paper is anyway money, and it thereby forgets that money is ultimately a medium of exchange. The actual products – goods or services exchanged – needs to be produced from natural resources, cost effectively, in a global world. And on that, giving American enterprises and its people due respect for their innovations, Federal actions of easy money policies has been rather counter productive. It has led to more speculations, and less investments and innovations.

In 1971, western world and Japan was with the US (the other alternative was the USSR, meaning there was effectively no alternative). By extending the easy money policy and supporting the actions of the Federal Reserves in their respective markets in 2007 (‘The coordinated action is being led by the Fed, which will lend $40 billion this month. The European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada will lend $50.2 billion this month and next’ stated the NYT), when the best alternative rather is to let the rotting fractional banking system die (due to its overuse and misuse) and capitalism find new meaning; all major economies of the west are aggravating the problem.

South America has already established the equivalent of its World Bank, China would at one point tire of lending products to the US against credit money, Russia is taking renewed posturing aided by energy resources, and WTO talks are facing critical hurdles. Japan’s economy also looks vulnerable; the only strength of the west actually comes from that of the European side. Against this backdrop, look at the major currencies, and they all are western ones.

Changes are painful, at the same time one must change to survive. The major world economies would be better if its Central Banks give up the effort to put the fractional banking system under life support system. It will benefit the world economy as well.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Growth, when derived from Socialism for Wall St. & Financial Terrorism, not desired

2007-12-01T01:46:00.000-08:00

Economic growth, in terms of how it’s measured in GDP, is a complex area. And because many of our minds aren’t complex, we believe others who guide us on economic growth rates & the figures they throw at our face.

We need growth. We need to produce more goods, services, and food grains, from primary to tertiary value chains of any economy. However the problem comes in measuring those in common standards, against nearly impossible surrounding constraints. Take for example, it’s easy for one to comprehend that in 1945, post World War II, the US produced nearly half of world oil, power, coal and what not. And now China increasingly dethrones the US from that place, in many areas US isn’t 1/5th of what China is (take for steel). Yes, US now consumes 1/4th of the world oil, and produces hardly 10% of it (though China produces even less).

One would immediately find that this article is old fashioned. World economy has undergone drastic changes, developed world rely more on services than on manufacturing or agriculture. China still relies on manufacturing; the US don’t rely on manufacturing. Here what I find difficult to digest is how come an American consumes nearly 40-times more services compared to an average Chinese. China has much more telecom users, already or sooner China would have more Internet user and usage, more number of Chinese visit the barber-shop, probably more number of Chinese have banking services, and it’s true for all other services that one can think of. True the quality of services accessed by an American consumer may be higher; but does it make up for their 40-times difference in per-capita consumption of services in these two economies?

It simply does not make sense to me. And that’s why I wonder at the often repeated terminology of ‘3rd largest economy’ and ‘2nd largest economy’ as used by Bloomberg and Reuters respectively to describe China, one going by nominal figure and other by PPP figure.

To me, China is already the largest economy of the world. Sounds stupid, but let that be so! And that’s what the US isn’t comfortable about, more so when there are weak-signs coming from all sides. And that’s why they are keen to print more money, in a desperate attempt to retain their position, rather than producing more goods and services. And present order of economic powers follows more of production of ‘fiat’ money than production of goods and services.

Since last couple of months, we have seen how the Federal Reserves have been converted to a restaurant of the super-rich, reserved for the Wall Street, where Wall Street orders the dish, and the board-members of the FOMC, with Bernanke as its head-chef, cooks it and delivers them fast. Many termed it as socialism for the Wall Street, many asked what they would do if they delivered so much (even when market isn’t down by10%) when market gets eventually down by 30%. True, it may hurt the ego of many of these FOMC board members, but that’s the truth. Strangely, after every rate cut under pressure from the Wall Street, FOMC members try to show-off their uncomfort at being termed to be dancing to the tunes to the Wall Street. It comes in some words, only to be dumped by the next meeting gets close.

And they need to blame themselves for that. Hopefully they won’t disappoint Wall Street again in their forthcoming meeting on 11th December, where the cut is expected to be anywhere between 25bps to 50 bps.

Their sole justifications came from two myths – growth and employment. Yes, we understand employment better. However employment should not eventually be something like a bonded labor where one works hard his/her whole life to buy a home. If home prices are not allowed to go through their natural corrections, nearly 30-40% of families in US who are yet to own a home would find it difficult to afford that. The trade-off is between these larger populations against the interest of the Wall Street (and the myth of 2-million likely affected sub-prime mortgage takers, but they actually don’t gain!).

And it’s even truer for the endless supply of cheap manpower from China today to India or Sub-Saharan Africa of tomorrow, where people will get employment from growth in the US (and the world), but they will be like bonded labor as prop-up support to asset prices would ensure they seldom reach income level that would allow them to own their dream homes. Property prices in Hong Kong to Shanghai to Beijing to Mumbai validate that. By borrowing at 4% in US, a country growing (doubtfully) at 3-4% and investing in China and India, growing at near-about 10% surely is the best arbitrage one gets. And the US increasingly destabilizes rest of the world by resorting to these types of financial terrorism, where a different type of ‘dollarization’ has dumped globalization. Many young Chinese begin their employment with the sole dream of having their own home in one of these workplaces, and it’s same in India.

When the world cries about artificially undervalued Yuan creating all financial imbalances, why doesn’t the US rectify it with much higher interest rates, rather than cutting it, to strengthen $ (which strengthens Yuan as well due to the peg)? That would no doubt ensure better economic balances and won’t hurt other nations much. Money-supply growth in the US far outstrips GDP growth, whereas most emerging nations stand at closed to 1. US, with its growth rate, can’t sustain 15% money-supply growth whereas that in China with more than three times growth rate is hardly 18.5%. 10% of all incremental money supply in India now comes from FIIs, allowing Indian financial markets to dance to the tunes of the Fed. more than that of RBI.

And we have often seen how wildfires, by destroying the old, rejuvenate nature in the very next season. Corrections are healthy everywhere. And home prices have barely corrected by 10% at most, whereas they rose sharply during the boom, defying all historical trends for decades.

However now Fed., Treasury and Wall St. Co. have adopted a multiprong strategy that would allow them to protect the interest of at most a few odd-million people around the world at the cost of remaining odd-billions. That’s how trillions of dollars of paper money gets created by utterances, or by manipulative practices. If economic growth or wealth creation was only so easy!

And that’s by protecting the money of the rich – allow them to make money when they do by speculations, by creating asset-bubbles. However don’t allow them to lose money if the asset-bubble bursts.

The action of this Bernanke, Paulson and Wall Street co. is financially equivalent to the terrorism that al Qaeda co. preaches. One, given a choice would spread bullets and nukes indiscriminately from a helicopter, whereas helicopter-Ben, given a choice would distribute $-bills discriminately; ensuring the bigger your lawn is, more the $-bills you get.

All in the mythical names of growth & employment (or falsified ideologies, for al-Qaeda). And both need to be deplored.

Copyright: Ranjit Goswami, author of Wondering Man Money & Go(l)d

When currencies trade with volatilities of stocks

2007-10-24T01:01:00.000-07:00

History repeats. However between eras in history, things look smooth, steady. And that’s when another storm strikes. And we realize that we rarely learn from history.

Yen did appreciate from 300 or even morelevel to 80 or so against dollar, take a little more or less on both sides, during 1980s or so. However many of 1970s generations don’t recall having seen yen varying by closed to 1% or even more against dollar intraday basis regularly or going up or down by 5-10% within a week.

Probably it happened during those days as well. And it happens again, and with every passing day; there is more of it. Now Jim Rogers said Chinese currency may quadruple in next decade, against dollar. What about the rest of the leading currencies? What about Chinese exports if Yuan: Dollar gets closed to 2:1 by 2017? China’s economy no doubt becomes the largest economy, probably twice as large as US by then when one considers both currency appreciation and the double digit growth rate of China that’s running like a loco with no brakes.

Questions arise that it may be, true may be one remote scenario – purely on economic front. Even if that happens, would the US allow that economic force to take place without any military intervention? One needs to get into many more scenario generations. We leave those aside and focus on present when currencies trade with the volatility known for stocks.

Leveraging in currencies is usually much more than it’s in stocks. Daily turnover of currency markets are mind-boggling. And closed to $ 300 trillion or more derivatives are linked with currency markets (and interest rate swaps); accounting for nearly 80% of all open positions globally.

So currency markets are not shallow channels like many of the emerging financial markets. They should have the highest depth. And where depth is highest, little tremors should not cause tsunami waves.

Therefore historically, daily return of closed to 1% in stocks or even by 5-10% in a week is always considered to be very attractive. Currencies usually moved by having the first digit as zero post the decimal. Probably exchanges have now stopped the first zero due to inflationary effects or for better approximations!

However it still does not make sense. Try figuring out Yen-Dollar rate if you have not been following it daily or even at higher frequencies. 120, 123, 110, 115…any of these may be possible within days.

So when currencies move by 5-10% in a week and stocks by 10-30% again in a week, potential returns or losses in an average business week in global financial world can be 40%. That’s without leveraging. If one adds five times leveraging in stocks and twenty times leveraging in currencies, with the remote possibility of having one right trading call, one can multiply one’s asset ten times in a week.

But be aware of the equally attractive downside. Some weird animals in India having their belief in Marxism, where this author resides, often compares stock markets (thankfully they are yet to cover forex markets!) with casinos. Without having any belief in any ‘isms’ as such; many, including me, wondered how can they do that? That was just years ago. I was young, naïve, believed in fundamentals and slowly started taking un-hedged positions driven by greed.

Greed and human beings are probably inseparable. For mortals like us at least!

Until I burned my finger (should I say even the whole body!) pretty badly in one such week back in the summer of 2006, which thankfully gave me the opportunity to watch all the fun in the Roman Circus without being inside the ring, casino and stock markets were different to me, if not in opposite poles. Legendary investors like Warren Buffet would also feel hurt with such allegations of Indian Communist Party leaders; but having ten times return or ten times losses in significant number of business weeks in a year as seen in 2007 often would beat the records of any casino as well.

So at least on physical evidence, people who believe markets are becoming casinos (or worse than casinos) are not wrong.

No research is done to gauge how much money in markets flow with the mindset of Buffet-like investors; and how much with casino-like mindset. Since long, Buffet-lot has been a minority and now with increased Federal backing of ‘Helicopter-Ben’ mentality lot who is ready to throw the lifeline to the losers in this casino due to their individual willful actions; more and more money in financial markets would be moving with the same mindset as it does in casinos. And Buffet-like investors would soon be endangered investor species – a result of global warming in financial markets.

Global warming is caused by too much development, too much consumerism, too much emission of Green House Gases (GHGs). Global warming in financial markets, resulting in severe surges of volatility, is caused by too much liquidity and ‘fiat’ money. Both are not sustainable; but policy-makers die hard to make both sustainable. And the effects of warming and its consequent impacts rise. Common people suffer…

That’s how we have seen more volatility in leading global currencies lately than we were accustomed of gauging volatility even in leading global stocks. GHGs in the form of easy manipulative fiat policies have brought in this change in global financial markets that increasingly beat the best casinos of the world, without any fundamentals.

Copyright: Ranjit Goswami. Ranjit is a Research Scholar with Indian Institute of Technology, Kharagpur, India and is the author of the book Wondering Man, Money & Go(l)d

Sarkozy’s France in Iran = Blair’s Britain in Iraq?

2007-09-21T23:29:00.000-07:00

They say History repeats. Only the actors change. Time changes; and powerful actors act little longer. And these main actors need support actors for their respective acts to be played on the global stage.

Last time the actors were Bush, Blair and Saddam. The theme of the play was Iraq. Blair was only too happy to beat the drums that Bush wanted him to play.

Saddam is now gone. The music directed by Bush and played by Blair to get rid of one single man is well accepted now to be a very costly mistake. Many hundreds of thousands lives were lost, many more became refugees, many billions dollar were wasted, and eventually it destroyed the balance that was maintained in the sectarian power equation in the fragile Middle-East. Smarter historians may have already seen the next series of the same act getting developed in Iran as well, though for the public the ongoing act in Iraq is played still in the center stage. Mistakes lead to more mistakes, gigantic mistakes lead to catastrophic destructions followed by even more fatal mistakes, and it takes a gigantic leader of stature to accept a gigantic mistake and refrain from repeating that.

Alan Greenspan is his unique style of short utterances finally declared that Iraq war was all about oil. A little logical extension of the same theory may state that Iraq war was all about retaining and extending the control over the oil assets by the West. People familiar with the history and style of rule by major OPEC players in the Middle-East know most of those rulers to be effectively the puppet governments of the US and the broader west, barring Iran.

Many theories on how Iran can be handled come in the forefront from time to time. The most critical question that needs to be addressed by the remaining one-year-or-so rule by the Bush-administration is: Would it keep the Iran-nuclear issue open by the time it leaves office; or would it close it? Conclusively or chaotically?

Obelix no doubt would have tapped his head and uttered those well-known words: ‘This Bush-administration is crazy.’ However increasingly it looks that Sarkozy’s France don’t think so.

French Foreign Minister, Mr. Bernard Kouchner, after months of weaker signals, again sent a strong signal this week that France is too eager to be the US flag bearer to protect West’s interest in global oil assets that matter. And why not? If Iraq war still could be justified by the perpetrators of this catastrophic mistake by merely playing with words, Iran should naturally be a logical target. Situations have only worsened since the Iraq-war for the West, Russia have started making some noises again, China is making less of noise but making its impact felt in matters of defense to economies to background politics, and Iran is again playing with words about its nuclear ambitions. Israel is not comfortable either.

And what more can Bush potentially lose? Republican Presidential candidates would play it safe if the early signs are good; and would distance away from President Bush if it gets bad. Whatever outcome happens in the case Bush-administration decides to deal with Iran issue; one-year would be too short a period to judge the prudence of the decision. That’s what Iraq taught us.

Blair became the political martyr to protect west’s controlling interest in oil assets. Bush is also dispensable, barring constitutional hiccups. Anyway he will be dispensablein a year or so. Sarkozy may still ride the popularity wave in home for some more time as Blair did. And then developments would decide what path his career takes him.

What’s not dispensable is west’s controlling influence in global oil asset. And the same tune, played so well earlier in the hit Iraq-war propaganda before, by Bush-Blair era can again be heard. The answer of the only critical question of importance for remaining Bush-administration rests with Sarkozy’s France, because it probably takes two to tango in the global drama, and more importantly in the UN Security Council.

Is the stage for Iran getting ready? Depends on whether Sarkozy has already been cast to play the role in Iran as Britain’s Blair played in Iraq.

And if yes, who will play the role that Iran played in the 2nd half of Iraq war?

Al Qaeda can’t be ruled out. And then there are many vying to challenge the present uni-polar world. Or else back to square one.

The series ends there for the time…the next act begins.

Copyright: Ranjit Goswami. Ranjit is a research scholar with the Indian Institute of Technology (IIT), Kharagpur, India; and is the author of the book “Wondering Man, Money & Go(l)d”.

Bernanke favored flood as a solution to drinking water scarcity

2007-09-20T02:00:00.000-07:00

All speculations of months were over with the 50 basis point cut in Federal benchmark interest rate. Now is the time for analysis of the decision, and expectedly opinions differ when it comes to grading the prudence of this decision.

Those who called the decision right (and part of it is true) and bold argued the reducing inflation numbers with various other indicators of price stability as latest as available and job losses figure of last available month. The shift now has to be from inflation targeting to economic growth and job creation/retention. And there is merit in that argument.

Defenders of the decision also highlight that no differentiation can be made between ‘good money’ and ‘bad money’. Good money is what’s used in creating productive assets; bad money is what’s used in speculations, hedge funds and in financial instruments that eventually create risky instruments, and asset bubbles. Human productivity sans capital productivity does not make any sense to me. Because focusing only on human productivity makes sense only when we associate that with zero cost of capital, on a sustainable basis, available to any without any collateral. I believe no where Central Bankers would lend the people, who need the capital the most, capital at Central Bank rates because this group can’t provide the collateral. So capital can be effectively leveraged by those, who only have prior access to some amount of capital, to create higher productivity-led growths, during expansionary monetary policies. But few interlinked factors work against that:

1. As everyone effectively is in pursuit of ‘quick money’ with quarterly focus linked with take-home bonus and stock prices; innovations suffer.
2. The global uncertainty also makes it hard to know what innovation would work and what won’t. Uncertainty has been on the rise constantly; and playing safe makes better sense than risking money in pursuit of productive growths when all may be lost. Macroeconomic forecasting has been more and more difficult acknowledging the fragile nature of globalization and global imbalances.
3. Under this environment, it’s financial markets only that can absorb trillions of dollars in its system, or generate same money globally from nowhere due to exuberance. However there is no denying that in the short term, one may make book losses on prudent financial investments; in the long run the chances are bleak. So good financial investments (and without leveraged positions) are bound to yield:
a. Either lot of money in the short run
b. Descent return in the long run though initial hiccups may be there
c. Arbitraging financial instruments eventually can give a return that’s unlikely to be met with average return from innovations or productive growth.
4. Providing collateral is easiest for financial firms – therefore they qualify and garner easy money.

The point is, playing with money itself as a business input and business output have become so lucrative that more and more money chases this route than money chasing innovations, productive growths. And thereby have made it risky as well with many players playing the same ‘me too’ models with more and more aggression.

So real innovation, real productivity growth has taken 2nd position to financial innovation and more and more aggressive stance from financial players. Sub-prime issue is effectively an output of that aggression as more and more people in the business of money chases the market with known set of products.

The bottom line is, capitalism in its evolution has led to an economy to a point that awards ‘bad business’ more than ‘good business’. So even if Fed. creates more money with loose policies acknowledging the fact that ‘good business’ needs money to improve ‘real economy’, a major part of that actually lands up with ‘bad business’.

This has been happening since long; and many therefore claim that without a shock therapy, this will continue faster in an exponential rate.

There’s not been a rescue package to the auto-industry when they have been bleeding for long in the US. Because as per some measure; auto-industry, in-spite of their importance to the real economy, is not part of the markets that Fed listens to. The drawback I believe is too much focus and too much attention has been given to the financial markets ignoring the real markets and its sub-categories.

An increasing stock index is not the measure of healthy ‘real’ economy, rather a ‘healthy’ real economy would eventually have a healthy financial market. Focusing too much on financial markets and on its daily gyrations and fancies and delivering what they want is equivalent to putting the proverbial cart before the horse. The horse pulls the cart, not the other way round. One may argue that quarterly economic growth rates measure the health of the horse; but there are doubts on its measurement, effectiveness and also on correctness of the value. Other than the horse which is pulling the cart now, one has to look at the health of the other horses that would pull the cart in future to ensure ‘real’ economy remains healthy.

And to do that, we need a stable monetary policy. Movements of interest rates like a pendulum again helps one in the ‘bad’ financial markets economy (quick get in and quick get out) than the ones who would love to concentrate on productivity led real-economy. One needs time to raise a horse to bring it to productive stage, and cost of capital to do so remains unclear with high volatility for real economy players.

These defenders of Fed. decision have ignored this point that making money available to all irrespective of how it’s to be used without correcting the imbalances of return won’t solve the problem, rather it would magnify it. Many also argued, with logic, that the fire department can’t stop extinguishing fire at a home caused by a smoker due to callousness. The smoker is the poor mortgage taker at most here, not the fund houses; and Fed. decision does not extinguish the fire much for the loan-taker; it rather does for the loan giver.

The opponents of Fed. decision have (more correctly?) called the decision an act of socialism for the Wall Street. Honestly, my definition for socialism and capitalism is increasingly getting marred as in socialism, government bails out state-owned business/enterprises. So the money, used rightly or wrongly, eventually is used for common ownership. In capitalism, actions like the Fed. or Northern Rock bail out in the UK shows that common money is used to bail out selective people in distress, without benefiting all equally. It also shows the fallacies of capitalism.

Finally, I believe that Bernanke felt creating a flood would solve a drinking water problem that’s critical only for sections of the credit market when it comes to end consumer. But like most waters from all rivers finally meet on the sea, one never knows when one trades these complex credit derivatives; which credit market is facing a shortage of liquidity. Bernanke must have tore part of his available scarce hairs solving this problem with an academic mindset, and found no clue.

Therefore he preferred what the US usually does in war front – cluster bomb all with credit. One never is sure where the terrorist may be hiding, and collateral damages are well-accepted now as long as it’s not US lives lost in collateral damages. Bernanke rather moved one step forward. He felt the flooding the markets would solve the drinking water scarcity that some regions are facing badly. And the flood was felt all over the world with stock surging by average 3% globally, if not more. No doubt that the collateral damages would again be borne more by the emerging markets. What he missed in the 1st place is abundant water has first of all led to the drinking water scarcity in pockets of economy as drinking water (good money) got contaminated with flood water (easy credit money for financial markets). One may even say people have been drinking too much, and that’s not sustainable again! And flooding the market again may therefore not be the sustainable solution to this problem of drinking water scarcity in pockets.

True, many treat snake-bites with venoms of snakes itself. The world however is not sure how well this treatment would work for the economy. What goes in favor of Bernanke is the fact that money, no doubt, is morally more poisonous for whole society than any snake bite. He probably wants to do what Lenin suggested: ‘to destroy capitalism, you effectively have to debauch the currency.’

The Concise Encyclopedia of Economics gave following:

'Can capitalism survive? No. I do not think it can." Thus opens Schumpeter's prologue to a section of his 1942 book, Capitalism, Socialism and Democracy. One might think, on the basis of the quote, that Schumpeter was a Marxist. But the analysis that led Schumpeter to his conclusion differed totally from Karl Marx's. Marx believed that capitalism would be destroyed by its enemies (the proletariat), whom capitalism had purportedly exploited. Marx relished the prospect. Schumpeter believed that capitalism would be destroyed by its successes. Capitalism would spawn, he believed, a large intellectual class that made its living by attacking the very bourgeois system of private property and freedom so necessary for the intellectual class's existence. And unlike Marx, Schumpeter did not relish the destruction of capitalism. He wrote: "If a doctor predicts that his patient will die presently, this does not mean that he desires it."'

Is his views of 1942 is becoming relevant with too much success of capitalism (inequality with abject poverty) in 2007...I am not sure.

Ranjit Goswami is a research scholar with the Indian Institute of Technology (IIT), Kharagpur, India; and is the author of the book “Wondering Man, Money & Go(l)d”.

China, India and the Fed. interest rate cut

2007-09-18T23:23:00.000-07:00

A bipolar economic world is emerging. At least if markets in China are to be believed, they reacted quite differently from most of the world on Fed. interest rate cut by half-a-percent.

At the time of writing this article on 19th September, China’s Shanghai Composite index was down by 1.09%, BSE Sensex in India was up by 2.36%. And last night Dow Jones Index in NYSE closed up by 2.51%, cheering the much anticipated rate cut with positive surprise (by the 0.5% value against 0.25% -0.5% anticipated range).

China showed that it indeed has decoupled from financial developments in the US, at least if last couple of months of acid test is to be believed. Back in May-June this year, media in the west were beating the drums that a correction in Chinese markets looked imminent. Markets in China, around 4300-4400 levels then were up by closed to 90% this year; and almost three times since last year. And price-earning measure, the sole valuation parameter applied by many analysts could not maintain same momentum; resulting in stratospheric PEs resembling the dot-com boom days.

However financial developments since then was rather the opposite. The US was hit harder by the sub-prime issue, and in August it led to a situation where risky instruments found no-takers, resembling an apparent dearth of liquidity though liquidity was ample by any measure. And a Chinese market was up by closed to another 1000 points (or 25% in 3 months, annualized growth of 100% again since May-June’07).

Things were not smooth either for China. Inflation there went up by more than 6% as per last report; sort of highest in decades from closed to 3%; prompting Chinese central banks to raise interest rates quite often and also capping liquidity for investments.

India in between looked like an extension of the US markets (and like most of the other world) in-spite of lots of euphoria in India local media about the decoupling story. August 2007 was horrible for India like the summer of 2006, as it was in the US and in Europe.

So it essentially poses a question – why Chinese markets move independently (or even in reverse gear in comparison to the US, though evidence for this hypothesis is inadequate) where India follows the US, sort of blindly? I said blindly, because a market with 1.1 billion people can’t dance to the tunes played by US Federal Reserves that’s primarily entrusted with monetary policy for the US, with 1/4th of the Indian population. Many analysts in local Indian media started reading the Wall Street Journal for last couple of months to know what’s happening, throwing away the local pink dailies. The fever went up so high! And local media definitely gave more coverage to US Fed decision than they usually give to similar credit policy decision done by the Indian central bank, the Reserve Bank of India.

Again complex questions don’t have any easy answer. But the reasons can be one of many, or rather part of many. Indian markets lack the local money that China has aplenty. For China, the problem is the quantum of local money and 50% savings rate that generate more than $ 1 trillion every year, that can either get returns at bank savings rate (less than 4%, much lower than prevailing inflation rate). And India generates hardly $300 billion local savings; however due to the ups and downs of global tide that flood the narrow channels of Indian markets in regular tsunamis; local people put hardly 2% of their savings with stocks.

Though I don’t have firm figures; but it won’t be wrong to state that Indians own a fraction of firms listed in Indian bourses compared to what Chinese people own in Chinese bourses. Convertibility, flexible exchange rates and easy norms for foreign capitals of any forms to move in and out have seen higher FII investments in India in comparison to much higher FDI flows in China.

Following pure text book theories of isolated economies and ignoring geopolitics probably should have led to more concerns in both India and China over the Fed. rate cut. Both countries have significant exposure to US bonds, and fall in dollar reduces the reserves value. The rate cut has resulted in higher oil and commodity prices and both these two countries rely on imports for a majority of their oil consumption. China is more export-driven economy compared with India, which is more of a domestic growth story. Therefore slowdown in US economy should affect China more than India, and the rate cut should have led to more euphoria in China; but we see the opposite. True, it’s only expected from global financial markets because financial markets following logic are more of an exception than a norm.

Interest rate in India is already one of the highest now amongst major global economies (true, many won’t reckon India to be a major global economy and I myself belong to that group), impact of which can be felt with slowing growth rates over investments and even in manufacturing growths in India over last couple of months. And China now looks forward to growing almost 10% more than at what rate US is expected to grow.

As the single super-power; US policies influence most other nations; barring China, Russia and a few others like Iran, Venezuela for obvious reasons. US Federal Reserves is no exception. However time will only tell which of these two nations (China and India) is on the right path – one following its own policies ignoring any leads from the super-power whereas the other desperately trying to integrate with the global economy by dancing with every cues from the super-power. The only caution India should follow is ants are better off to stay away from where elephants dance.

©Ranjit Goswami. Ranjit is a Research Scholar with IIT Kharagpur and is the author of the book Wondering Man, Money & Go(l)d

(Spoof) ‘Markets – Give me a Break!’: Bernanke

2007-09-17T00:35:00.000-07:00

Well, we are almost there for the all important September 18th Federal Reserve meeting to review the benchmark Fed. rate. And as the Chairman of the Federal Reserve Board, I am forced to write this piece as I look at the madness that’s been generated over this meeting.

Well, one may wonder why I picked Spoof when ‘you-name-it’ news sites all over the world that claim to know what markets want have dissected each word of mine and that of other board-members to recommend us what decision we should take and analyzed further its impacts on financial markets, on sub-prime issue, on liquidity and credit availability and finally on the all-important economic growth. The reasons are obvious – only Spoof offers me the freedom that I badly need to share my thoughts. I will serve my purpose; and I don’t want markets to react unnecessarily before that 18th decision as well.

Since last one month or so, I have read ‘n’ number of articles that stated markets expect interest rates would be cut by a minimum of 25 basis points on 18th; and by year end, by close to 75 bps. Many played with the figures by 0.5% and 1.0% respectively. Many even gave interesting median estimations (with other statistical jargons that make no sense) on what economists told them. And majority of these economists came from the Investment Banking community or from Hedge Funds.

I have nothing against those articles and its recommendations and expectations. Many academicians even gave Fed. an ‘F’ for our mishandling of sub-prime issue. Again absolutely fine, honestly I myself do agree that we deserve that (if not an expulsion, I favor an expulsion that Fed. should be closed!). However my sole submission is that grading is based on performance of Federal Reserves over last six years – i.e. when interest rates were brought down to 1% to boost consumption and economic growth. Many scholars complete their PhDs in five years; whereas markets and academicians took more time to give us a rating on our past performance after six years! I wonder what grades they deserve for their timely judgments!

Freedom of speech is a fundamental right. However I am at a loss to interpret the loud drums that’s playing in the so-called markets that blurt out the same theme again and again – ‘markets expect Fed. To cut interest rates’. In Google search; you will find millions of news articles covering that – not only in our homeland, but in almost all parts of the world. Initially I laughed, then I felt angry, then a bit frustrated and now I am little perplexed at the stupid audacity of the self-proclaiming prophecy when some one says some thing like ‘markets expect’. Eventually I understood that it’s a lobby group that wants us to know that markets expect Fed. to bail out markets!

Sounds a bit funny – isn’t it! Did Saddam expected US to bail him out? Probably no. Does Osama bin Laden expect that the US will bail him out for his adventurous actions? Probably no again. The voices against this lobby, though weak because they don’t have the money power that markets command, also said that our parents told us not to play with fire – be it with Weapons of Mass Destructions or Terrorism or even with Money matters. And if we still decide to play with fire; we should not be complaining of getting our fingers burnt. So these academic voices warned that Fed. should not send a signal by proving all parental advices are wrong because markets want them to be wrong.

So I read it this way – the rich expects to get richer and Fed. to help them; the fund managers expect Fed. to help him/her so that they can show bumper trading profits with riskier instruments and leveraged position to earn huge bonus; the sub-prime lender expects Fed. to help them out as they struggle with forfeited properties with no takers in a falling market.

Does the poor (around 12% of the US population) expect to get poorer? No one talks about that because their voices seldom get heard? I guess not. Does the people who have not yet bought their American dream homes because prices have shoot up too high beyond their means should be left without the chance by maintaining prices artificially high thro’ a bail out? And by sheer numbers, this group has more people than the rich, the fund-managers and the aggressive lenders, or even the struggling end home-buyer.

If prices fall now, many would be able to buy house again in future. And if prices don’t fall; many will never be able to own a house in their life time.

I agree that a terminally ill cancer patient can’t flex his/her muscle. However we need to make a choice today whether this ‘Fiat’ Fractional Banking led system has indeed driven US economy to the stage of a terminally ill patient; or we can survive with our strong will and determination as we have done many times in the past.

Many called me ‘Helicopter Bernanke’ because they expected me to distribiute Dollar from a helicopter so that everyone gets enough money and no one complains. Many expected the ‘Greenspan Put’ era to continue. Both are not feasible for ever.

Don’t get me wrong. I have my empathies for the real Americans who today are struggling with their mortgages (or even lost their homes). It’s indeed satirical that when we face economic slowdown; we ask the not-so-well-off section to consume more, to spend more, to dream big so that economy can grow and come out of recession. We rearward those consumptions and dreams with asset bubbles, and low supporting interest rates. The rich always have been consuming more and they can’t consume any more, in all likelihood. So we have used the struggling section with the pawns of ‘grow rich’ scenario once in every five or so years. They also don’t believe us easily now-a-days. So initially they doubt our commitments – they take time to decide to consume more, dream big. But as they wait and watch; the rich creates the asset bubbles. The poor wonders ‘this time it must be for real’. And they finally join. And the bubble bursts. Interest rates tighten; and they again are shattered. And they complain – ‘I was happier by consuming less and without dreams; you created environment for me to consume more and dream big. And when I have just started; you rob me by creating the totally opposite scenario.’ It has some merit, and we can’t and shouldn’t ignore those weak voices of many.

So I am against bailing out this so-called lobby group that apparently knows what markets want. I wonder if anyone ever can know what markets want – even for a day, for an hour or for a year. By claiming that they declare that a few large investment bankers control the markets – their voices are those of the markets’ voices. Which itself is a lie and failure of markets. They live in a fool’s world; and expect that they can influence any with the strength of their money power. They eventually mean that they knew that this crisis was predestined; and markets whisper to the ears of the rich and super-rich.

Alternatively, even if one thinks that these guys indeed know what the market wants where in Fed., we struggle hard to find what’s good and healthy for the markets for the long term and short term. And we don’t deny that we do make mistakes; and if these lobby-groups are to be believed; they expect markets expectations are rational, logical and are never wrong. As common people, we know it to be otherwise. The American people also want our troops to return from Iraq; and it definitely sounds more authentic that ‘market wants’ statements. Does that mean we pull back our troops starting today? Or even take more controversial ‘Bush-impeachment’. Majority probably favors that – does it mean we allow public to take over judiciary and impeach President Bush?

In above cases, we find nothing wrong when Federal policies and systems work against those of the citizens. Then why we expect Federal Reserves to listen and deliver what this so-called market expects thing.

There is something called an infeasible region for many problems if constraints are self-contradictory. It’s a challenge for any Central banker following Fractional Reserves Banking to keep inflation and unemployment low; and growth rate moderate to high. When one adds bailing out the rich on top of that difficult problem; one surely lands in no real solution zones.

That does not mean that we have not deliberated over the issues in Federal Reserves. The best course of action which we will love to take, but can’t is kill the investment bankers like J P Morgan, Morgan Stanley, Merrill Lynch, Goldmann Sachs, Lehman Brothers and that lot. They are the root of the problem and they are not like the heart or the liver of our indispensable global body. They rather are the tumors. There would be some pain as the large investment bankers, hedge funds and Private Equity players die; but their death would indeed herald a new and better financial world with stability and less inequality. If one documents the malpractices these investment bankers have adopted in last couple of decades to earn profit by playing and leveraging money alone; that would put Hitler’s records as most kind and humane.

So we in federal Reserves believe deep in our hearts that we should not bail out these tumors; and prove the lessons our parents taught us to be wrongs. However we have plans to bail out the struggling end-borrower; the house owner who are finding it difficult to pay their monthly installments. And our calculations also show it makes better monetary sense. By keeping interest rate high for manipulators; we earn more (meaning we can afford less Money Supply) and a fraction of that can be used to subsidize the retail customer – partly or even fully. One may question our profit motive; but if the investment bankers so long used our other motives to make profit by cheating their customers; why we ourselves don’t adopt that model for a change for some time with these investment bankers. And once the evils are eliminated; we take on the role of traditional central banker again.

Though we would love to take that decision, you as a reader also be aware that the influence of that lobby group that can hear the whispers of the market has reached us everywhere – from The White House to the Congress to our Federal Reserves. And we may decide something else, sacrificing what we should have ideally decided for better economic health of all Americans.

I feel better that the Spoof exists – which allowed me to do some plain simple speaking baring my heart out to all the criticisms, expectations and suggestions.

PS: Above article is is a satire (parody). It is entirely fictitious.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Economist gets it wrong, again and again, and again

2007-08-01T06:13:00.000-07:00

‘First published in September 1843 to take part in “a severe contest between intelligence, which presses forward, and our unworthy, timid ignorance obstructing our progress’ so claims The Economist.

Before we take a look how and where it rather represented ‘unworthy, timid ignorance obstructing our progress’; we also accept that it’s still reckoned to be one of the most insightful publications. And we have our due respect for the publication.

However with the onslaught of Web 2.0; it’s also facing multiple challenges. And getting things wrong more often than what’s expected from it.

The first debate was on globalization and its impact on poverty, starting early in this decade when Economist claimed globalization do help poverty reduction whereas many felt it otherwise, more from the logic that Economist gave (remember for last many years, globalization has increased and poverty has again decreased. However how much of the decrease in poverty level is due to positive contribution of present form of globalization is debatable).

Much of that debate followed in James in Salon.com (‘Debunking the Economist – again’); and by Galbraith in Opendemocracy ‘Globalization and inequality: ‘The Economist’ gets it wrong’’ where it accused the magazine of using the work of economist Stanley Fischer in a misleading way, to promote the idea that “more globalization” will decrease poverty in the world.

On Globalization, an Oxfam briefing paper titled ‘Boxing match in agricultural trade: will WTO knock out the world’s poorest farmers’ cited critical insights in its very 1st page: 96% of world’s farmers live in developing nations, and a whopping 2.5 billion people of the world earn their main income from agriculture. It goes on to state that ‘Haiti, for example, is now one of the most open economies of the world. Under pressure from the IMF and the US, it cut its tariff on rice to a mere 3%. As a result, rice imports – mostly subsidized rice from the US – increased thirty fold’. Thirty-fold…I try to digest that figure…as the paper went on to add price of rice in Haiti however did hardly fall, malnutrition now affects 62% of the population (up from 48% in early 80s), and Oxfam identified big rice traders and American rice farmers to be the winners of that process. Call it the by-product of capitalism, globalization, free trade or whatever else, 54 countries today are poorer than they were in 1990s (ITU, 2005); and compared to 1960, when per capita income in richest 20 countries was 18 times of the poorest 20, in 1995 that almost doubled to 37 times (WDR 2000/01). And then digest how strong the global institution called WTO is in bringing out fair and free trade practices as Doha rounds of talks failed amongst its member states, prompting Peter Mandelson, the European Trade Commissioner to state ‘The alternative to what's on the table is not the perfect deal, but no deal at all’. There’s no denying that globalization is needed, but in its present form, it has only succeeded in producing a very few filthy rich people at the cost of billions of filthy (extreme) poor people.

Then in its issue (May 4th –May 11th 2006) on Axis of Feeble, on The end of Bush-Blair era, it stated ‘In a world of one superpower, some say, people are safer when its president is too weak for foreign adventures. They are wrong. That Mr. Bush has made big mistakes in foreign policy is not in doubt…But America can-not fix any of these mistakes by folding its tents and slinking home to a grumpy isolation. On the contrary… America needed to respond resolutely to the dangers of terrorism, tyranny and proliferation, Mr. Bush was mainly right. His chief failures stem from incompetent execution.’

Terrorism has increased in response to that resolute respond. Probably a team from The Economist could have executed Iraq-invasion better than the US ground troops!

True, both of above are their mistakes from opinion and analysis. And most of the mainstream media have proven to be no exception – we all make mistakes.

We can have our own opinion and analysis; however when it comes to facts; none would agree that we have the privilege to have our own facts.

While browsing through The Economist (June 30th - July 6th’2007) issue (article 'The hobbled hegemon' on America being “Still No. 1), I was surprised to see following:

'China is pushing America aside as the world's biggest exporter, and last year it produced more cars than the United States’.

Now many of us don't do research on country-wise car productions; however following global economy has given many of us a sense to gauge what can be right, what can be potentially right; and what's unlikely to be right.

A quick fact check revealed Template:World motor vehicle production by country (Reference: World Motor Vehicle Production by Country: 2005 - 2006) that showed China at 7.18 million against 11.26 million of the US, clearly indicating factual misrepresentation here by The Economist in their pursuit of moving forward.

A letter to the editor on this factual misrepresentation was sent on 27th July (asking for their source of information); however till date there’s no acknowledgement.

We love The Economist, however we would love it even more if they stop sloganeering and acknowledge their mistakes while pressing forward.

We so long felt that bloggers alone can get away by fabricating their own facts; however increasingly we see mainstream media does it even more often (plenty of other examples exist, and we all know that).

Myth of economic growth, inflation, and global warming

2007-07-28T03:17:00.000-07:00

U.S. Treasury Secretary Henry Paulson stated on 27th July, the week in which stocks in the US saw its steepest fall in five years:

"Now I believe what we're seeing is a strong global economy. This is the strongest global economy I've seen in 32 years. The growth rate in Europe has doubled. We've got growth throughout Asia. Japan is now growing, so I think this is being driven by strong growth outside of the U.S."

Is something fundamentally different indeed be happening this time which forced a veteran like Paulson to state ‘strongest global economy in 32 years’ – since 1975?

Forecast by IMF has again given almost 5% global economic growth rate for 2008. The traditional cycle of overheating so far didn’t apply in China, and quarter after quarter its economy rather seemed to be accelerating, now reaching almost 12%. Asset prices all over the world, barring only gold and crude historically, did hit new highs with adjusted values of dollars with crude and oil historically.

And talks about economic imbalances – US deficits to China’s forex reserves – and their sustainability often get mentioned while examining the sustainability of present world economic growth.

However the other side of the story, with another news-article (couple of days back only, I don’t remember the source now) narrated a story on how ordinary Japanese people are suffering with the example of a 54-year old lady contractual teacher, who barely survives with the free lunch she gets at school, worth otherwise 200 yen-a-day. That article further analyzed how Abe government became unpopular within years of coming to power. Superimpose this picture with the reality of Yen-Carry trade and 0.5% interest rate in Japan, after years of zero-interest rate; and some +ve economic activities in Japan lately.

And hundreds of similar stories like that of the Japanese teacher asked questions whether economic growth benefits all. Many stated a rising tide does not lift all boats; and Warren Buffet suggested that all boats are rising; but the yachts are rising faster.

And the question that comes from this other side of the story is, if indeed global economy is in its strongest as per the measure of the economists; is it getting translated verbatim in the living of the ordinary people of the world – from US to Japan to China to India to everywhere?

So there remains essentially two questions (1) How long this growth would be sustainable and whether it indeed is different this time (true, a stupid notion), and (2) Whatever drives this growth; has it been good for the vast majority. If not; why so again?

Finding answer of 1st would help us explain 2nd question as well.

Back in June, taking cues from above facts, Moral of stocks up & housing down story appeared in BNN. Since then housing problem in the US has only worsened; and stocks, in-spite of their last week plunge; have decreased marginally. In the month of May’07, Dow Jones Industry Average touched 13K figure for the first time.

Another fad of the business media in between was to report on unsustainably high valuation of Chinese stocks. ‘Bubble in China? The answer is both ‘yes’ and ‘no’ covered those aspects, and since then China has also gone through some increased volatility; however no major downfall has been seen till now.

But none explain extensively the secret of this strongest global growth in 32 years. Have the economist (read Central Bankers) have suddenly found a magic potion on how to run the global economy better; or is it a mere accidental combination of factors that have fueled this so far ‘high-growth-low-inflation-era-with-economic-imbalances’, both within countries and more so within societies?

Simple questions seldom get any simple answers – these indeed are most profound. And probably no ‘right’ answer exists to above questions.

However chances are, both the alternatives (central bankers getting it right with coincidental developments) are right. Yes, indeed central bankers have played a role with easy liquidity; and China did offer a conducive environment by converting liquidity to productive assets, thereby giving a helping hand in controlling global inflation.

However another transition is taking place in-between. The definition of capital itself has undergone vast changes with easy liquidity. Spurt in interest rate in few major economies didn’t spoil the party of easy availability of liquidity (very lately, in-spite of liquidity being there, risk aversion caused by closure of hedge funds of Bear Sterns in subprime mortgage market has prompted less buyers of risky assets. However liquidity, without any doubt, still remains strong).

Capital so long meant resources – human or natural or even monetary ones (fiat currency, post Bretton Woods period). However seldom did we see an era when a vast majority of the capital created in human history originated primarily from the fiat currency part.

Capital (or resources) has now come to a status that can be created as much as Central Bankers of major economies (by ensuring first adequate domestic supply of goods) wishes. However flow of those monetary resources must be controlled, to keep a tab on inflation. So Japan still manages low inflation with 0.5% interest rate and tremendous liquidity with money flowing out in the form of ‘yen-carry’ trade; China manages inflation with investment boom in-spite of tremendous inflows and now planning its investments outside China to ensure the huge cash reserves are utilized elsewhere; US, in-spite of being a borrower sees its investment bankers acquire physical/financial assets in lucrative overseas markets.

It effectively means:

1. Ensure adequate domestic supply of goods (for China or Japan) or a strong currency (for US to keep costs of import low) to manage inflation. Lately though dollar has weakened a bit; the weakness is not of any significance compared what fundamentals suggest.
2. Once major economies and its Central Bankers achieve above, keep on creating resources through fiat channel. Print as much money as you can; but ensure much of that money is invested overseas in countries with weaker currencies. The world essentially does not mean the G-8; and much part of the world still remains starved of all the three categories of resources (human, natural or fiat currency. Natural resources, even if they exist, remain undeveloped).
3. Thereby major economies ensure that it owns up real resources (natural ones) in those underdeveloped parts of the world through artificially created ones; and by manipulating forex rates. China’s acquisition of assets in Africa is a glaring example; and so are US investment bakers backing real estate sectors in India.
4. So China invests heavily in Africa (no major economy with fiat strength there or with a strong currency); Japan does it all over, and US does it in China, India and to all over within its allies. The assets they acquire eventually come from either the poor governments; or the ‘have nots’ of those underdeveloped countries/societies. So the ‘haves’ acquire physical assets against fiat assets.

Effectively by this ‘magic potion’ formula of easy liquidity; central bankers of major economies can ensure their country owns up more and more assets all over the world. Asset ‘A’ in the US and Japan costs much more than same asset in India or China; and it even costs less in most of Africa. So similar natural resources, true with different geopolitical risks, get valued differently when measured with ‘artificially created resources’ in money markets.

The 2nd thing is, barring China, nowhere does firms report losses as they used to do historically. Auto-sector in US does face some troubles, but those are not from operations alone but more to do with employee welfares. Outputs of firms are already priced quite high; global demand also remains robust as increasingly the large section of ‘have nothings’ slowly converts to ‘have nots’ and to some extent to the ‘have’ section. So as long as firm output prices don’t come down substantially; firms even at present level of prices would make enough profits, with expanded capacities as well. And therefore inflation would be controlled; as China has done to the world.

Demand was always there; enough supply was not. As of now, creation of supply has not yet overtaken that demand to ensure that firms face pricing pressure; which in turn can cause firms to make losses; as business cycles usually meant historically.

So an expanding monetary policy where Central Bankers create resources or capital works well for all. The only victim, if any is nature as more the artificial assets we create with money supply; more is the demand generated and supply created (because pricing supports supply assuring profitability) from natural resources; and more is the pollution, Green House Gas emissions.

Nature never allowed any to consume today fruits of tomorrow. But when central bankers create resources with fiat money and still be able to contain inflation because existing price levels and demand justify that; we allow nature to suffer faster.

Much of the borrowings would never get repaid ever – be it by government or by firms. However no one is certain of the consequences when we borrow from nature beyond what nature can provide us in a sustainable manner; and ten we don’t even pay back. Government can run with perpetual debt; nature can’t.

The cost we pay to the nature for unsustainable borrowings may be much more catastrophic than the interest rate we pay on debts.

With still 3 billion people belonging to different categories of ‘have nots’ and therefore demand being there, firm profitability being higher and therefore encouraging more supply, liquidity being high to drive investments; the only real dampener, barring geopolitical risks that can topple this strongest growth cycle can only come from nature.

And it’s already happening.

And that partly explains why yachts are rising faster than boats in this economic growth cycle where we borrow more and more from nature to drive the strongest growth in 32-years. When central bankers can drive economic growth with easy printing of fiat money; the process logically continues with anyone with little ability to borrow by writing future checks.

People who could not borrow; people who consumed tomorrow’s fruit tomorrow and not today; mostly remained left behind from this economic growth. And they again get affected first and the most as climate change hurts ‘have nots’.

Copyright: Ranjit Goswami, author of Wondering Man, Money & o(l)d

(Spoof) Fed to bail out failed hedge funds of Bear Sterns

2007-07-18T02:45:00.000-07:00

Federal Reserves, under pressure from the U.S. Congress, have decided that when all that matters to solve the subprime market is few billions of dollars; it will bail the funds having maximum exposure to risky borrowers.

Confidential sources told Thespoof that one board member of the Federal Reserve, in its review meeting of 17th July, to take status of the whole murky mortgage lending affairs have observed: 'The whole business of this 'fiat' money based economy is anyway murky. We have printed trillions of dollars, and continue printing that even more. We have pumped in hundreds of billions of dollars in war funding in Iraq to bring in more destruction and deaths, in homeland US and more so in Iraq. So what's the big deal in printing few odd billions of dollars to safeguard American homeowners?'

Informed people in the know-how of how the Fed. worked in such overt or covert bailout practices historically informed Thespoof 'The solution is very much feasible. More so when there is absolutely no accounts on how much money the Fed. has lent to the government and how government at all can return that money back to the Fed., which anyway runs into trillions of dollars, the proposed solution can be the best solution. Crisis like the subprime mortgage crisis is very much expected when starting from the government to industries to Private Equity Firms to corporate world to retail consumers - everyone borrows to survive and consume, or even to expand. So blaming the poorer section of the society to have their dreams fulfilled in owning a home that was anyway beyond their means is not the solution; nor blaming the lenders and now allowing the hedge fund to close down is at all ethically right.'

Many also observed that with this proposed solution, Federal Reserves would be able to control some of the criticisms it received lately for failing to monitor the subprime lenders. The market believes that monitoring does not help; manipulating and bailing out does.

Internal sources told us that the proposal of the Fed. also gained ground due to the overwhelming 'Yen carry-trade' practices as encouraged by its Japanese counterpart, the Bank of Japan (BOJ). BOJ has anyway kept its interest rate at 0.5% after keeping it at 0% for years signaling that it does not charge any money to print money. Taking lead from the BOJ, Fed. now feels that what it offered to the government, that is lending money to government knowing fully well that even more good money would be poured on government after the bad money poured so far till all the money in the world turns bad money, can well be extended to the citizens as well. After all government is for the citizens; and if government can be bailed out by printing more and more money; why not allow that same principles to be applied to the citizens and corporate world.

There was minor opposition to the proposal from cautious fund managers and citizens who never borrowed beyond their means. They argue that by bailing out the failed hedge funds of Bear Sterns, government will send a signal to all of us that we can be reckless in our spending, whereas by not spending much so far and by saving our hard-earned money; we look like stupid. We also could have bought homes - after all who does not want a great life style with borrowed money that need not be paid back.

A member of the Congress however rejected the opposition to this bail-out package and stated: 'When we can spend same government money in hundreds of billions of dollar in Iraq year after year in-spite of majority of the people being against our troops being in Iraq in the interest of Halliburton, which clearly is a much more minority group than the case in hand; I don't see meaningful opposition to Fed's proposal to bail-out subprime lenders. Matter of fact is this is already being done, the question is how much covertly or overtly we do that to retain people's faith in our 'fiat' economy.'

He also added: 'In economy, it's all a matter of confidence. By bailing out the troubled mortgage players, and consumers now; Fed may have to shell out a few odd billions of dollars now which will boost the much-needed confidence in the housing market. If we further delay-dally with this proposal; a full blown crisis can not be ruled out; and in that case even hundreds of billions of dollars won't serve the purpose of regaining confidence'.

When Bear Sterns was asked on how much money they need to service their creditors on these two sub-prime hedge fund, they said 'Things are being worked out at this stage. And yes, the amount would be quite large'.

Above article is entirely fictitous, and a satire.

Copyright: Ranjit Goswami, author of Wondering Man, oney & Go(l)d

Fortune 25 to FT 25 – its oil and fiat money that rules

2007-07-16T01:00:00.000-07:00

Fortune 500 came out with their global 500 rankings for 2007 based on revenue, a practice sibce 1954. And barring the number 1 position (Wal-Mart, regained from Exxon-Mobil), out of top ten; nine were oil industries directly (6 refiners/exploration companies); or auto-industries (3), related to oil industries directly as its main consumer.

Expanding the list little more from the top, when one considers top-25 Fortune 500; we get two more oil-firms and two more auto-companies.

So Fortune 500 has 90% representation from oil or oil-related firms in top ten; and more than 50% in top 25.

And the same 500-ranking, as done by the Financial Times based on market-cap (as on 30th March’07, and a practice since 1988) had three oil-and-gas firms in top-ten; and one auto-company (Toyota). Out of top 25-FT list; there are three more oil-firms.

Top 25 Fortune firms, barring these 8 oil-and-gas firms and five auto firms, has ten more firms from banking, insurance and financial sides.

In FT 500, within top ten (barring 3 oil-and-gas and one auto), we get three banking and financial firms. And within top 25 we get (barring 6 oil-and-gas firms and one auto firm); we have six more financial companies; having altogether nine financial firms in top 25 FT-500 lists.

And most of the rest in FT 500 are taken up by pharma giants.

All the above may throw some interesting light to understand where our capitalism is heading. Leave aside productivity and innovations of a barring few like Microsoft (in top-25 of FT 500, no where in top 25 of Fortune 500); it’s increasingly becoming clear that it’s oil or fiat money that determines who scores what in present form of capitalism.

No wonder about all the attention that the Middle-East receives; or how Russia flexes its mussel with new found energy resources. Or take for instance the impact of Japanese carry-trade with Yen; China’s manipulation with Yuan; and US deficits.

True, above sample is only a snapshot picture. However there should not be any mistake that present capitalism is all about controlling the energy (read oil & gas resources); and manipulating currency with continuous central bank interventions and manipulations.

Add to that Michael Moore’s Sicko to explain the high FT-500 ranking of Pharma giants. Again that may be a biased picture. However there are some elements of truth behind those suffering patients in Sicko after all.

May be early, no doubt to make any conclusion. However the trend must be disturbing to those who have so long been championing the free-wheeling capitalism in the name of productivity, efficiency and innovations. Take away the auto-firms, because they may rather be the victim that the gainers from oil price hikes.

Still 18 firms in top-25 Fortune list is directly involved with natural resources or so-called man-made resources called money. And in top-25 FT 500; there are 15 firms that deal with oil or money.

Where are the champions of productivity, innovations, efficiency that capitalism promotes? What explains this predominance of oil and financial firms in top-25 firms in both Fortune 500 and FT 500.

Does it speak about the success of capitalism or of its failure?

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

The U.S. Presidential polls; and al-Queda Hysteria

2007-07-16T00:00:00.000-07:00

Osama Bin Laden (OBL) is dead…or he isn’t? The debate resurfaces; and never seem to die. And come 2008; Presidential candidates in the U.S. would bound to use that hysteria to gain as much mileage as possible, individually.

Hysteria works, always; if History is to be believed. It’s the same hysteria that took the U.S. forces to the Vietnam under President Johnson; to Cuba by President McLinley, to Mexico or even to Philippines under President Polk. Or the exaggeration of the same hysteria of the Soviet nuclear threats, be it to Western Europe or elsewhere, of the bygone cold war period.

The hysterical eras eventually come to an end – as it’s bound to. Because hysteria, on its own, can’t sustain itself for ever. However one hysteria takes over from another.

And the same mentality continues. ‘Go, get them. Take the gloves off of our military, and let them do their job. Nuke them, smoke them…get them out’.

Only thing is…this time none seems to be sure about this ‘them’. It was thought that they were in Afghanistan; and it was bombed and occupied. Then it was thought some part of ‘them’ are in Iraq too; and Iraq was bombed and occupied. Even Lal Masjid in Pakistan also featured in the same map as was parts of Africa. ‘Them’ – the al-Qaeda and the people who worshiped OBL was there in Palestine, Lebanon…true; there were conflicts among them as well. Al-Qaeda was not there in Iraq during Saddam’s time; however bombing brought them there.

And they have resurfaced strongly again in Afghanistan-Pakistan borders. Traces of that element is routinely seen from the U.S. itself to the U.K., to Australia to Europe to anywhere – you name it; and these elements were, are or would be there. Like virulent causes of human diseases; they undergo metamorphosis, and same drug kills them only for some time. However the next generation again appears from nowhere, only stronger against the same drugs that killed them last time.

And allied forces are increasingly running out of the options of ‘so-called new antibiotics’ or new weapons that can permanently eliminate these Jihadis.

The question is: Is bombing ‘them’ is the solution? Is ‘killing’ jihadis the only way to have a terror-free world?

Question is: Is hysteria good in the fight of war against terror?

Terrorism wins as long as common man allows hysteria to dominate his logic. The day, we allow logic to rule over hysteria; terrorism dies.

Terrorism survives on the hysteria of the jihadis. What causes terrorism can never kill the same problem.

“No problem can be solved from the same level of consciousness that created it.” Albert Einstein

Hope all presidential aspirants - irrespective of party-lines - do remember that. By virtue, all hysteria is bound to end, sooner or later. Why terrorism hasn't ended even after nearly six-years of the ongoing global war-against-terror against an unorganized, non-state-based enemy is the hysteria that drives the war fuelds terrorism rather than prevents it. As long as that hysteria lasts; terrorism would last.

Copyright: Ranjit Goswami, author of Wondering Man, Money & o(l)d

(Spoof) Paulson against legislation to curb Yuan, Rice favors Birth Pangs

2007-06-14T00:12:00.000-07:00

Treasury Secretary Henry M. Paulson has views contrary to four leading Democrat and Republic Senators in tackling the nuance of artificially kept low values for the Chinese currency Yuan, the root cause for burgeoning trade imbalances between the U.S. and China.

In open discussions with the press, in the light of these Senators proposing legislation and stronger actions than empty rhetoric, Paulson stated: ‘I appreciate the frustration with a large section of policy-makers in the U.S. from our ongoing discussions, patience of which is increasingly running low as no meaningful actions delivered. The problem is larger than what’s popularly projected. We have defined free markets globally as markets that suit our domestic requirements; we term democracy to be successful when people elsewhere elect our chosen party to rule them, similarly we define manipulation of currency when other than the U.S., no one else can manipulate that currency, not even that country itself. In case of China, in-spite of all of our overt and covert operations; we have so far failed to manipulate the Yuan. And the United States of America is not something that can accept failures.’

He further added: ‘Take a look at Iraq, and you understand what I mean. We wanted to bomb the Yuan free from under the control of China; we even funded secret CIA aid to boost the Yuan; however nothing apparently has worked so far. The worst two failures of the Bush-administration so far have been we could not bomb Bin Laden and China to get them accept our gifts, for one we wanted to bomb him out; for other we wanted to bomb it up. So I believe legislation also does not have much chance to get back our birthright to manipulate Yuan, just like it has so far failed us to get Bin Laden though we legalized our war on Iraq and Afghanistan only to get that man. We need different strategy here, and that’s what I have been doing since last many months.’

Reacting to these developments, US Secretary of State Condoleezza Rice, in her favorite holiday destinations in the peaceful serenity of the Middle-East commented: ‘Trade should be mutually beneficial. We were so long comfortable with the arrangement where we keep the monopoly to export money and others compete to export goods and services to us; however China has taken that too far by gaining a monopoly over other exporters. We would still love to import goods from China as we practically don’t have any alternative as our industrialists have smartly killed domestic manufacturing industry; and opened shops in China to be more profitable by having better cost control. We would love to see the birth-pangs of a new Yuan printed in the U.S.; however what we have been witnessing is the birth pangs of massive dollar reserves in China that resemble the twin of our original Federal Reserve in China. Lebanon and the broader Middle East have benefited enormously from my recipe of birth pangs a year ago; however still we see reluctance in others to adapt to my sure-shot mode of diplomacy. Irrespective of others liking to have birth pangs or not, Bush-administration would consistently provide new birth pangs to any issues and challenges anywhere around the world. Without birth pangs, no solution is a solution.’

Rice, who were otherwise feeling frustrated with her job that primarily focused on the same unchallenging issue of establishing peace where peace is abundant anyway, in the Middle East, loved this new challenge of diplomacy with china, and further added: ‘Paulson is the right man because of his pedigree with Goldman Sachs. In his time, that investment banker made a lot of money by overseeing how domestic firms can profit more in China than in the U.S. from their overseas investment decisions. However all that has not yet been to the scale of a birth pang. Where ever no solution works, birth pangs are bound to work. Socialist China is witnessing the birth pangs of a capitalist era, whereas Capitalist America is resorting to socialist measures within our borders. Ask Chinese firms to invest in the U.S.; and I will personally show the way.’

While responding to a media query that asked what does she propose as others are increasingly skeptical of following her birth pangs model after its success in the Middle East; she answered: ‘I understand and appreciate others concern in following my model. To prove that birth pangs of a new China with a stronger Yuan can really work; I would undergo myself through the birth pangs once with Chinese cooperations.’

As media was baffled by this answer, she further clarified ‘After that, you will see a new
Condoleezza Rice. And with a new look and my new born baby, parts of which will be imported from China again as we can’t produce a baby without Chinese imports, I would advice Paulson to negotiate whether we can pay the Chinese in Yuan for our imports from China. I would be more kind in matters of trade than in matters of conception. With the example of my baby for which I won’t be paying the Chinese anything as it suits them as well for their one-child policy; we would negotiate to have printing presses to print Yuan specially for paying the Chinese to pay their currency against their goods. Headquarter of the Bank of China would be next to the Federal Reserves building; and that alone would solve this problem. And that’s what I call the birth pangs of a new China within the US of A.’

With mushrooming Chinese exporting firms, tremendous interests have come to export a baby to Ms. Rice. Chinese government has also announced special incentive to the firm or individual who grab this order.

The above article is a spoof and satirical in nature; and is entirely fictitious.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d

Purifying News with News 2.0

2007-06-13T00:41:00.001-07:00

Sentence Presented to George Bush was in Google News headlines couple of days back. Well, there can be multiple views on how one reads the two-and-a-half years sentence awarded to Lewis Libby, former chief of staff of U.S. vice president, and one of the key architects of Bush-Administrations behind the Iraq war.

Many of us do follow global news regularly, thanks to Google News. However my expertise has not yet been that good that allows me to identify the source, Kommersant, in this case. By following the news, I find Kommersant is an Online Russian daily.

That explains how far one can take that sentence awarded to Libby as one presented to President Bush. The vibes of ‘Cold War’ is back again, and words along with missiles (test fire, true but that’s why it’s cold war!) have again been used.

Don’t take my bias against Russia or President Putin because of that example. As an individual, I have my bias, like anyone else has. Rather I like the intelligence of the Russian President personally, and his witty (but controversial) comments (remember his joke on Israeli President Moshe Katsav charged against rape back in last October, and as Putin was overheard ‘“Say hello to your president. He really surprised us. I met him. He didn’t look like a guy who could be with 10 women. He turns out to be a really powerful guy! He raped 10 women! We all envy him”).

And latest opinion polls also show that he enjoys a massive support back in Russia, much to the envy of Bush-Blair era of the west.

True, I am also aware of the wrong-things that President Putin reportedly have done in Russia. However one is forced to ask: ‘Which Regime is Perfect?’ Is the Bush-regime in the U.S. perfect? Is the foreign policy of Blair OK?

The answer, irrespective of having our individual subjectivity would be largely one-sided.

Examples like above are aplenty. Take another one from famed WSJ on same issue: Fallen Soldier. Thanks to Google News and News 2.0; one clearly sees both as propaganda, and neither as news reporting, analysis or opinion.

Examples are aplenty. Take reports from Israel (Jerusalem Post or others), and they would largely find fault with neighboring Arab nations for the entire Middle-East imbroglio; and present how noble the mission of Israel has been. That same view also gets largely presented in the U.S. media where Jews have significant influence.

True, there are exceptions in all; and exceptions rather proof the law.

It’s again true for the Arab media, though there is no uniformity in view in Arab World other than the cause of Palestine people, which alone unites whole of Arab. The same vibes are seen again in nuclear stand-off issue when one examines media-reports from the U.S. and from Iran, coloring the dispute from two different poles.

Similarly take a look at the press of the west. True, press in the west, more so the mainstream media, is known for its quality. However barring the New York Times, I can’t name even a 2nd media firm in the west (English language) which truly is impartial. The 2nd best may be the Washington Post. Be it Bloomberg, Forbes, WSJ, Economist, BBC, CNN…I have respect for these media firms as well; however I won’t blindly accept articles in these media firms to be impartial. Experience has taught me that.

One needs to be careful when I say that’s my experience. It can very well be my personal bias.

True, it’s my subjective view; and it’s only legitimate that there can be many other views on this.

Similarly we have another school coming from emerging China. When one follows the recent toothpaste-versus- pistachios rejection battle between China and the U.S., we really don’t have any clue on who is speaking the truth.

Countries will state different things, science is supposed to state one thing. And media firms reporting on that should verify the truth from science or neutral sources; and support the right cause irrespective of it originating from the U.S. or from China or from Russia or from Israel or from wherever.

Experts must be thinking ‘that never was the case in the history of news and news reporting. News and Propaganda are always inseparable.’ True; that was the days of News. But now it’s News 2.0, who is talking about News from one source, or from one nation or at best from a single region. Hundreds of articles from different media firms, countries, regions are hitting Google News every minute; and they collectively present us a picture that may be as close to truth as theoretically possible, as of now.

Propaganda, be it for national causes or for vested interests, did drive a large significant part of global mainstream media. Mainstream media globally, in-spite of having differences within themselves, have lost a large chunk of credibility already, thanks to News 2.0. They did lose that credibility long back; however as consumers didn’t have a choice, they could still wear the musk of impartiality to their local and global audiences.

With Internet and Web 2.0; that mask is being torn apart. As a consumer of global news; I have learned to expect the usual when I read media from Israel, or from Arab world, or from Russia on west’s concerns on Russia’s internal matters and how Russia views legitimacy of actions of the west, how China’s media responds to U.S. concerns, how the U.S. media is so obsessed with casualties of U.S. soldiers alone in Iraq ignoring the casualties of the Iraqis, etc etc.

True, one may state that the news gets reported with the target audience in mind. Who the hell cares about someone reading Russian news reports in Mexico or U.S. media reports in the Arab world

That’s not good for a reader. It builds further bias in readers; I would love to look at every piece of news reports, opinions and analysis objectively irrespective of its source. However my experience biases me about the source.

If I am to be blamed for that bias, and need to take responsibility; mainstream media should take equal responsibility by not ensuring absolute impartiality. Is patriotism more important to media than neutrality and impartiality? Should national or regional fanatism blind mainstream media from their senses of rights and wrongs? Should the interest of ad-money or promoters’ personal bias give legitimate color to the coverage of mainstream media?

Those were one side of the picture, more from ethical side. One area, financial journalism was supposed to be the forte of few like the WSJ, Forbes, Bloomberg. Until even last week, as a researcher, I would have taken any figures given in any of these sources to be factually correct without cross-checking. Now let’s look at following report from the Forbes (China Bubble Mania): ‘Still, China is only 1% of the global market cap, versus 35% for the U.S.’.

Whereas on same topic, The Telegraph reported (Chinese stock market tumbles): ‘In a piece of research published last week, the bank (US investment bank Lehman Brothers)dismissed such concerns and pointed to the fact that the value of the stock markets in Shanghai and Shenzhen represent only 7pc of the total of the world's stock markets.'

So is China 1% or 7%? Do you believe Forbes or The Telegraph?

The answer in present age is: believe no one. Do your own independent research; and that would let you know whom to believe and whom not to. Majority of the time, one can believe any and get away with it; however it’s always better not to believe any blindly (Not even this author, other bloggers until tested and proven)
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The good thing about Internet is too many views, too many opinions, too much news, too many facts and figures, even too much propaganda is found in one single source.

And that differentiates the grain from the chafe. With limited sources, propaganda could work. With unlimited sources, propaganda (or even wrongful information) destroys whatever credibility any source has even otherwise.

The reason for a wave of unpopularity against the present administration of the U.S. can be rooted back to this same credibility issue. When Internet only represents free media, losing credibility is much easier than developing credibility.

Copyright: Ranjit Goswami, author of Wondering Man, Money & Go(l)d