The following article , 'WITHDRAWAL SYMPTOMS TO A DOLLAR ADDICTION (copied below) which has appeared in today's The Hindu newspaper, reveals many facts of in-sincere governance, that reflects adversely on the so called 'leaders' of the G-20 nations. These leaders are the 'elected representatives' of the people from the respective nations.Did they have the long-term welfare of the people uppermost in their minds or only the thought of short-term political gains in their hometurfs, while they took collective decison for a 'fiscal booster' in the year 2008 ?
The facts revealed by this article
(2) This positive sign, of the slight movement upwards in US economy, now wakes the conscience(of authorities ?) which triggers the realisation that expansion of credit by printing currency cannot be an eternal remedy. Therefore 'The Federal Reserve begins to taper excess liquidity as a consequence' (of US showing recovery). This results in the following action:- 'US Federal Reserve withdrawing its $85-billion-a -month liquidity support to the domestic economy over the next year'. The US Fed had 'declared this statement in May indicating withdrawl of liquidity in near future.' We the ordinary citizens will never know whether these words will be followed up with action. And just this announcement has sent the markets in a tizzy.
(3) The current economic crisis is actually rooted to the '2008 financial meltdown'. At that time, the causes of the crisis was the 'expansion of credit', which boomeranged starting with the housing bubble in US. And that crisis thereafter spread across the world.
(4) Now it seems, that the solution to the 2008 crisis, was still more expansion of credit. Read the following passage from the article." Deputy Chairperson of the Planning Commission Montek Ahluwalia says after the economic crisis in 2008 the focus largely remained on boosting the global economy through fiscal expansion. There was consensus among all G-20 economies to go for a fiscal booster. "
(5) We are made to wonder how our PM , Dr. Manmohan Singh, who is considered to be an 'economist of repute and credibility' , could be a party to such "unconventional monetary policies" ?What had compelled him to be a party to such decision taking ? Did he succumb to
(6) There was consensus amongst the G-20 leaders for the 'fiscal booster' which was unconventional. This is likely to have happened after Presiden George W Bush's talk on the subject. "President George W. Bush told the first G-20 meeting at Washington, after the 2008 financial meltdown, that the emerging economies will have to play a big role as engines of world growth." After deciding to boost the economy through fiscal expansion, which is most likely a US idea, 'there was hardly any formal discussion on coordinating the monetary policies at that time'.- Now in 2013, it looks like we had walked into a trap (honey-trap) laid by the Americans.
(7) The expansion of credit/liquidity by the Americans is questionable .That is why it is called 'unconventional monetary policy'. Look how they have done it . "The U.S. then resorted to the most unprecedented injection of liquidity in its history as the central bank balance sheet expanded from about $870 billion before the crisis to $3 trillion today. The additional $2 trillion freshly printed dollars were pumped in three phases, described as QE1, QE2 and QE3. This was done largely because the U.S. economy was not showing any signs of reducing its unemployment rate since the peak of the crisis."
(9) The emerging economies that are impacted negatively due to Fed's actions are Indonesia, Turkey, South Africa, India, Brazil and Malaysia. China & Japan are not in this list,(being in the same region), and these two countries are lenders to the US Govt.
After reading the article, one becomes doubtful of US intentions and actions and the following questions pop-up in the mind.
(a) US economy is only 'showing' recovery. Is this recovery really going to effected by sucking off the wealth from the above countries including India, whose currency has depreciated , to whom US can sell dearly and buy cheaply. Is not this the conceited plan of US in effecting a recovery.?
(b) At this point in time why US wants to strike Syria, when its 'acolyte' ie UK is not going along with it ?The previous wars in Iraq and Libya had boosed the economic prospects of US companies.!! If US is itching for an attack on Syria, is it that its economy had NOT really shown any signs of recovery. In this age of 'futures' trading, is US announcing the results beforehand, before actions are taken on the ground.
(c) As per Noam Chomsky, the Really Existing Capitalist Democracy existing in US is a
What the PM said in Parliament about the Indian economy . (The Hindu, 31/08/13, Page 12, National ,http://www.thehindu.com/todays-paper/tp-national/pm-need-of-the-hour-is-more-difficult-reforms/article5077814.ece)
(1)
Exports :- “On the export side, “weak demand in our major
markets has kept our exports from growing.” Exports were further hit by a
collapse in iron ore exports. Taken together, these factors made “our current
account deficit unsustainably large,” he said.
(2)
Imports :- “Prior to 2010-11, the current account deficit was
more modest and financing it was not difficult. Since then, there had been a
deterioration, mainly on account of huge imports of gold, and a higher cost of
crude imports and recently, of coal.”
(3)
Intraneous factors : - “Not only had the rupee been hit
because of a large current account deficit, part of it was a needed adjustment
as inflation in India had
been much higher than in advanced economies. Therefore it was natural
that there had to be a correction in the exchange rate to account for this
difference.”
(4)
Blessing in disguise :-“ “To
some extent, depreciation can be good for the economy as this will help to
increase our export competitiveness and discourage imports,”
(5)
Extraneous factors :- “The sharp and sudden depreciation of the
rupee, he said, was due to unexpected factors such as the situation in Syria
and the prospect of the U.S. Federal Reserve tapering its policy of
quantitative easing as the U.S. economy was recovering. This led to a reversal
of capital flows which was now sharply pulling down not just the rupee but also
the Brazilian Real, the Turkish Lira, the Indonesian Rupiah, the South African
Rand and many other currencies.” (Is the U.S economy really recovering ? Are
they not jumping the gun, thinking of better prospects (only ephemeral) after
military intervention in Syria ?Really Existing Capitalist Democracy in America
is a plutocracy. Few people take the decisions there, serving own interest)
(6)
Remedies :- “Clearly
we need to reduce our appetite for gold, economise on the use of petroleum
products and take steps to increase our exports.” (There was another time when
India was the dump-yard for bullions of silver and gold. The economy was not
(made) complex at that time, foreigners paid for our manufactures in gold
and silver.- How are we to economise the use of petroleum products, since
we have moved away from an agricultural economy to an automobile economy.
?- Exports are likely to improve since Indian goods will now be cheaper,
“provided” there is world-wide demand )
(7)
Warning of treatment based on Milton Fried man’s
Shock Doctrine :-“ While admitting that there were
several problems facing the economy and investor sentiment was affected, he
said the country would face “short-term shocks” but
expressed confidence that growth in the current fiscal would rise to 5.5 per
cent, up from a decade’s low of 5 per cent in 2012-13”.
(8)
Provided further data for public consumption, engendering in us
cognitive dissonance ““It is important to recognise that the fundamentals of
the Indian economy continue to be strong. India’s overall public-debt to GDP
ratio has been on a declining trend from 73.2 per cent of GDP in 2006-07 to 66
per cent in 2012-13. Similarly, India’s external debt is only 21.2 per cent of
GDP, and while short-term debt has risen, it stands at 5.2 per cent of GDP. Our
forex reserves stand at $ 278 bn, and are more than sufficient to meet India’s
external financing requirements.” - If the fundamentals of the economy continue to be strong, the chronic problems we are facing should never have arisen !!!! Now we the people are thoroughly confused !
Will the people by and large have full knowledge about this crisis? Is economics a proper science, able to predict effects from causes. That is, if a given set of initial conditions are provided,will economists be able to determine the final outcome/s. If this be affirmative, how will we judge the actions of the G-20 leaders.
Whatever it is, we the ordinary people are short-changed by govts., financial institutions and uncaring and unsympathetic leaders. And there is no reason for hope.
Op-ED Article of 01/09/2013
Withdrawal symptoms to a dollar addiction - M.K.Venu
The G-20 summit in St. Petersburg, Russia, that begins on September 5 will probably show greater urgency in tackling emerging risks to sustainable global growth. It will call for much closer cooperation between the developed and developing worlds, as also among emerging economies, in dealing with the “catastrophic consequences” of the United States Federal Reserve withdrawing its $85-billion-a-month liquidity support to the domestic economy over the next year. Cumulatively, the U.S. has pumped an additional $2 trillion of freshly printed greenback since the 2008 global meltdown to support its banking system and the economy at large.
The prospect of the withdrawal of some of these dollars from the global system has sent shivers down the backs of many emerging economies, including India. The rapid currency depreciation in many of these countries, such as Indonesia, Turkey, South Africa, India, Brazil and Malaysia these past few months, especially after the Fed’s statement in May indicating withdrawal of liquidity in the near future, was discussed at the G-20 Finance Ministers’ mid-July meeting in Moscow. Finance Minister P. Chidambaram had spoken to U.S. officials at the Moscow meeting and expressed concern at the negative impact of the Fed’s actions on the emerging economies.
India's concerns
India has already flagged the issue by stating how “unconventional monetary policies” followed by the U.S. and EU have ended up creating new risks in the system. Deputy Chairperson of the Planning Commission Montek Ahluwalia says after the economic crisis in 2008 the focus largely remained on boosting the global economy through fiscal expansion. There was consensus among all G-20 economies to go for a fiscal booster. There was hardly any formal discussion on coordinating the monetary policies at that time. The U.S. then resorted to the most unprecedented injection of liquidity in its history as the central bank balance sheet expanded from about $870 billion before the crisis to $3 trillion today. The additional $2 trillion freshly printed dollars were pumped in three phases, described as QE1, QE2 and QE3. This was done largely because the U.S. economy was not showing any signs of reducing its unemployment rate since the peak of the crisis. In all past episodes of depression/recessions, the U.S. economy had bounced back to its pre-crisis employment within 12 to 24 months. This time things did not improve significantly even after 50 months. This resulted in the highly “unconventional monetary policy” which is coming back to haunt the emerging economies.
According to Dr. Arvind Virmani, who represented India as Executive Director at the IMF in the post-crisis period, “We at the IMF did express concern that the massive quantitative easing by the United States was particularly going into some eight emerging economies, India being one. The liquidity boost also led to a big increase in oil and commodity prices which also contributed to high inflation in emerging economies.” Dr. Virmani agrees managing such massive inflows, and now possible outflows, is a big challenge for developing economies like India.
One of the key concerns of the G-20 meet in St. Petersburg will be how emerging economies can manage the outflow of dollars that is bound to occur as the U.S. shows recovery and the Federal Reserve begins to taper excess liquidity as a consequence.
Indeed, beyond a point U.S. monetary policy cannot address global concerns. The U.S. will necessarily look inward until there is some visible improvement in its own employment data. In fact, one of the criticisms of the G-20 forum was that it had become just a talk-shop after the first two meetings in 2009 in Washington and Pittsburgh. The first two meetings showed urgency among countries to work together in a coordinated manner because the economic crisis was at its peak. Recall how President George W. Bush told the first G-20 meeting at Washington, after the 2008 financial meltdown, that the emerging economies will have to play a big role as engines of world growth. At that time America looked most vulnerable. But today some of the emerging economies seem more vulnerable with their currencies crashing.
The possibility of a substantial tapering of the dollar deluge of the past is making developing economies think hard about innovative solutions. They will also have to come up with unconventional alternatives like bilateral and regional currency swaps to tide over short term liquidity problems. For instance, there are reports that BRICS countries may reach a quick consensus on the sidelines of the G-20 summit and work out the modalities of the proposed $100 billion Currency Reserve Fund(CSF) to tide over short-term liquidity problems. This was decided in principle at the BRICS summit at Durban, South Africa earlier this year. China has apparently agreed to contribute to nearly 50 per cent of this fund. India, on its part, is trying to save up on its dollar liability by preparing to discuss local currency trading with its non-U.S. trade partners. It is going back to Iran for rupee denominated oil purchases. India must be pragmatic and not get ideologically constrained in this hour.
venu.mk@thehindu.co.in
Emerging economies that are feeling the pain as the U.S. winds down its liquidity injection must use the G-20 summit that begins today to formulate a pragmatic response
http://www.thehindu.com/todays-paper/tp-opinion/withdrawal-symptoms-to-a-dollar-addiction/article5091086.ece (original article at the above link)
PM: need of the hour is more difficult reforms
(Report in The Hindu dtd 31/08/2013)
“Rupee decline a shock but we’ll address problem through other steps” |
| “We need to reduce our appetite for gold, economise onthe use of petroleum products and increase exports, ” Prime Minister Manmohan Singh tells the Rajya Sabha on Friday.— PHOTO: PTI/ TV GRAB |
Prime Minister Manmohan Singh on Friday said the sudden decline in the value of the rupee was a “shock” but the government would address this problem through “other measures,” not by reversing the process of reforms or through capital controls.
Making identical statements in both Houses of Parliament, Dr. Singh sought a political consensus for carrying out “more difficult reforms” such as reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red tape and implementing the Goods and Services Tax. Reforms such as GST were essential to restore growth and required States to come to an agreement.
The sharp and sudden depreciation of the rupee, he said, was due to unexpected factors such as the situation in Syria and the prospect of the U.S. Federal Reserve tapering its policy of quantitative easing as the U.S. economy was recovering. This led to a reversal of capital flows which was now sharply pulling down not just the rupee but also the Brazilian Real, the Turkish Lira, the Indonesian Rupiah, the South African Rand and many other currencies.
Prior to 2010-11, the current account deficit was more modest and financing it was not difficult. Since then, there had been a deterioration, mainly on account of huge imports of gold, and a higher cost of crude imports and recently, of coal. On the export side, “weak demand in our major markets has kept our exports from growing.” Exports were further hit by a collapse in iron ore exports. Taken together, these factors made “our current account deficit unsustainably large,” he said.
“Clearly we need to reduce our appetite for gold, economise on the use of petroleum products and take steps to increase our exports.”
Not only had the rupee been hit because of a large current account deficit, part of it was a needed adjustment as inflation in India had been much higher than in advanced economies. Therefore it was natural that there had to be a correction in the exchange rate to account for this difference.
“To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports,” the Prime Minister said.
While admitting that there were several problems facing the economy and investor sentiment was affected, he said the country would face “short-term shocks” but expressed confidence that growth in the current fiscal would rise to 5.5 per cent, up from a decade’s low of 5 per cent in 2012-13.
“It is important to recognise that the fundamentals of the Indian economy continue to be strong. India’s overall public-debt to GDP ratio has been on a declining trend from 73.2 per cent of GDP in 2006-07 to 66 per cent in 2012-13. Similarly, India’s external debt is only 21.2 per cent of GDP, and while short-term debt has risen, it stands at 5.2 per cent of GDP. Our forex reserves stand at $ 278 bn, and are more than sufficient to meet India’s external financing requirements.”
The Prime Minister’s statement in the Rajya Sabha was marked by sharp exchanges between him and Leader of the Opposition Arun Jaitley after Dr. Singh charged the BJP with stalling crucial reforms Bills by repeatedly disturbing proceedings. In the Lok Sabha, several Opposition members staged a walkout, dissatisfied with his statement. (Original link http://www.thehindu.com/todays-paper/tp-national/pm-need-of-the-hour-is-more-difficult-reforms/article5077814.ece
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