The world is round once again

The Global Financial Village : It’s a round world again.



• The economy of the globe is in a mess. The financial markets are unable to decipher any effective way or any means to meet the situation. All countries from the USA to Japan have used one and just one tool of infusing more and more liquidity into their systems. It would have been effective in moderate situations.. So far their is no palpable effect of these measures by way of inspiring confidence in the financial markets due to the magnitude of the crisis
• . The comity of Nations may next use the tool of cutting Interest rates to make Capital more affordable and accessible. In the absence of Business and Investor confidence this will not affect the Real Economy in a significant way. On the other hand it may be counter productive by escalating the Inflationary pressures.
• This may result in a situation where we have stagnation with Inflation i.e Stagflation. How about Recession plus Inflation. Scary Indeed?
• The losses of the underlying ‘bad assets’ have to be booked as losses and written down. The value of these ‘bad assets’ is still unknown and it comprises of sub prime, CBLO’s, Insurance counter party risks, and last but not the least ‘credit card defaults’. MINDBOGGLING.
• The USA is perhaps insolvent as the bad assets or the NPA’s exceed it’s GDP of $15 trillion. In other developed countries the position may be somewhat better but not far from satisfactory.
• The USFED may nationalize the Banking and the Insurance businesses. This would be the end of the ‘Free Economy’, at least for sometime. Honestly, we deserved it.
• This may be followed by rescheduling of bad debts, foreclosures, incentives on domestic savings, higher interest rates, and Recession to the extent things become comfortable. It appears to me that everyone is waiting for the other to make the first move in this inevitable direction.
• The flat world in fact just became round once again. The global economic village has to erect barriers and check posts to enforce the same. Global trade and commerce may decline to the most essential level until the Comity of Nations links their currencies to an acceptable underlying asset coupled with effective Regulatory measures that are enforceable.
• Everyone is guilty of a common excess of ‘printing cash irresponsibly’ and so we should not point a finger to any one in particular. God bless Keynes.
• Global efforts should be directed at restoring the linkage between the medium of exchange to the underlying assets. Thus you restore order and come down to earth.
• SENSIBLE HOPES?
• …………………………………….R K SHARMA. “cancercop22@*****.com”
• 28 OCT 08