Source: Times of India
March 21, 2009
International Monetary Fund Chief Dominique Strauss-Kahn has said the level of debt in the UK is "disturbing" but more government borrowing
is necessary to stimulate growth.
The level of debt in the UK is "disturbing," but given the severity of the economic downturn, more government borrowing was the lesser of two evils, Dominique Strauss-Kahn said in an interview to the BBC.
He warned that 2009 would be "a really bad year". "I'm specially concerned by the fact that our forecast, already very dark... will be even darker if not enough fiscal stimulus is implemented," he said in an interview.
Strauss-Kahn said: "More state spending was necessary to stimulate growth" and governments around the world had no choice but to step in and spend more.
Public debt has risen to 650 billion pound, 44.2 per cent of UK gross domestic product. Consumer debt is more than 1.4 trillion pound.
He added that a stimulus equivalent to about 2 per cent of global GDP or about USD 1.2 trillion is required to make a real difference to the crumbling economy.
"The problem is that all the whole society is going to suffer," he added.
Friday, March 20, 2009
Thursday, March 19, 2009
Hard lessons to be learnt from Recession
"Hey, you buy this apartment in OMR today; you will make a 30% profit in next 2 years". "Invest in this stock. It is set to double in the next 3-4 months". "iPhone on an interest free EMI. Let’s go buy it".
Barely in their late twenties, these were very common languages I could hear amongst young people two years ago. I felt happy looking at these young people behaving "responsibly" rather than blowing their money partying.
Specifically, in the IT industry, these were very common. Owning a car and a two B/R apartment at 26 is something I or my previous generations could have only dreamt.
The housing bubble burst in the US reached the Indian shores much faster than anyone had predicted (thanks to global outsourcing), came lashing on the employed class like a Tsunami.
Today, we hear a lot of lay offs and we hear stories of people, in tears refusing to move out of the HR manager's cabin. Reason - they have been just laid off.
"How do I pay my mortgages? Will I be able to sell my home even at a break even?" are the questions that are eating the brains. I know of a person who lost his job last April and is still not successful in finding a job. He tried to sell his car, but no takers till date.
Another friend of mine has taken a home loan where his EMI is almost equivalent to his salary. Although we did caution him, his rationale was that the house prices will go up and he can always sell it and make about 20% profit.
But alas, the prices have dropped by more than 40%. Car sales have dropped by more than 25% - 40%. 6 months back, we were fighting rising inflation. But today we are bracing Deflation, which is equally bad, if not worse.
So, is there a lesson that the youth can learn from this recession? Is there a lesson that the corporate's in the hi-tech world can learn from this recession?
Sure there is. Corporate’s should look at standardization of salaries. Individuals should look at acquiring "what they need" rather than "what they can afford".
Clearly, our older generation has a lot of teaching to do to the youth today.
What do you think? Easier said than done, uh?
- Shanky
Barely in their late twenties, these were very common languages I could hear amongst young people two years ago. I felt happy looking at these young people behaving "responsibly" rather than blowing their money partying.
Specifically, in the IT industry, these were very common. Owning a car and a two B/R apartment at 26 is something I or my previous generations could have only dreamt.
The housing bubble burst in the US reached the Indian shores much faster than anyone had predicted (thanks to global outsourcing), came lashing on the employed class like a Tsunami.
Today, we hear a lot of lay offs and we hear stories of people, in tears refusing to move out of the HR manager's cabin. Reason - they have been just laid off.
"How do I pay my mortgages? Will I be able to sell my home even at a break even?" are the questions that are eating the brains. I know of a person who lost his job last April and is still not successful in finding a job. He tried to sell his car, but no takers till date.
Another friend of mine has taken a home loan where his EMI is almost equivalent to his salary. Although we did caution him, his rationale was that the house prices will go up and he can always sell it and make about 20% profit.
But alas, the prices have dropped by more than 40%. Car sales have dropped by more than 25% - 40%. 6 months back, we were fighting rising inflation. But today we are bracing Deflation, which is equally bad, if not worse.
So, is there a lesson that the youth can learn from this recession? Is there a lesson that the corporate's in the hi-tech world can learn from this recession?
Sure there is. Corporate’s should look at standardization of salaries. Individuals should look at acquiring "what they need" rather than "what they can afford".
Clearly, our older generation has a lot of teaching to do to the youth today.
What do you think? Easier said than done, uh?
- Shanky
Indian economy staring at deflation. Is it good news?
Source - Times of India
India is staring at deflation, or negative inflation, with the official inflation rate this week falling to 0.44% — the lowest since 1977. Food prices, however,continued to be high, with food grains roughly 9% costlier than a year ago, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.
With the wholesale price index (WPI) falling by one point to 226.7 for the week ending March 7, 2009 — the same level at which the index was on March 29, 2008 — it now means the year-on-year inflation rate will become zero by the last week of March even if the index for the current year falls no further. TOI had pointed this out last Friday.
As most commodities are becoming cheaper with every successive week in the recent past, deflation is expected to set in even before that. The rabi harvest should see a drop in foodgrain prices too, and that will only accentuate the trend.
If deflation lasts for some time, as seems possible, it would be a new experience for India. Japan went through a decade-long deflation in the 1990s, termed as the ``lost decade'' for that country. At present, most major economies are witnessing disinflation — a lowering of the inflation rate — and some have also seen deflation kicking in. Japan and China have already reported negative inflation rates in the latest data and there are signs that the US, too, could be heading the same way.
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy. A recent Citibank report echoed this concern in the Indian context saying that the present trend of decline in inflation was not because of any improved efficiency in the economy but because of falling demand. The report warned that this trend would weaken economic activity and discourage investments, which would affect the economy in the longer term.
The fear about investments not materializing is aggravated by the fact that nominal interest rates are at relatively high levels. When prices are falling, this means the real interest rates — the difference between the nominal rate and the rate of inflation — are becoming very high for producers, making it unviable for them to raise funds.
Demands for the RBI to intervene to induce a further round of cuts in interest rates are bound to mount in the face of the latest data. However, planning commission deputy chairman Montek Singh Ahluwalia on Thursday said that the inflation rate would rebound from its present level. While not ruling out the possibility that inflation could go into negative territory, he maintained that it would last for only a few weeks. Hence, he said, it should not be termed as deflation, a term that implies sustained negative inflation.
From the aam admi's point of view, what makes the situation worse is that prices of essential commodities like foodgrains are stubbornly refuse to come down. According to the latest data, the index for foodgrains rose by 9.3% in the week ending March 7 as against 10.06% in the previous week. Under the ``food articles'' head, inflation fell to 7.4% after having been stable at 8.3% in the previous two weeks.
India is staring at deflation, or negative inflation, with the official inflation rate this week falling to 0.44% — the lowest since 1977. Food prices, however,continued to be high, with food grains roughly 9% costlier than a year ago, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.
With the wholesale price index (WPI) falling by one point to 226.7 for the week ending March 7, 2009 — the same level at which the index was on March 29, 2008 — it now means the year-on-year inflation rate will become zero by the last week of March even if the index for the current year falls no further. TOI had pointed this out last Friday.
As most commodities are becoming cheaper with every successive week in the recent past, deflation is expected to set in even before that. The rabi harvest should see a drop in foodgrain prices too, and that will only accentuate the trend.
If deflation lasts for some time, as seems possible, it would be a new experience for India. Japan went through a decade-long deflation in the 1990s, termed as the ``lost decade'' for that country. At present, most major economies are witnessing disinflation — a lowering of the inflation rate — and some have also seen deflation kicking in. Japan and China have already reported negative inflation rates in the latest data and there are signs that the US, too, could be heading the same way.
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy. A recent Citibank report echoed this concern in the Indian context saying that the present trend of decline in inflation was not because of any improved efficiency in the economy but because of falling demand. The report warned that this trend would weaken economic activity and discourage investments, which would affect the economy in the longer term.
The fear about investments not materializing is aggravated by the fact that nominal interest rates are at relatively high levels. When prices are falling, this means the real interest rates — the difference between the nominal rate and the rate of inflation — are becoming very high for producers, making it unviable for them to raise funds.
Demands for the RBI to intervene to induce a further round of cuts in interest rates are bound to mount in the face of the latest data. However, planning commission deputy chairman Montek Singh Ahluwalia on Thursday said that the inflation rate would rebound from its present level. While not ruling out the possibility that inflation could go into negative territory, he maintained that it would last for only a few weeks. Hence, he said, it should not be termed as deflation, a term that implies sustained negative inflation.
From the aam admi's point of view, what makes the situation worse is that prices of essential commodities like foodgrains are stubbornly refuse to come down. According to the latest data, the index for foodgrains rose by 9.3% in the week ending March 7 as against 10.06% in the previous week. Under the ``food articles'' head, inflation fell to 7.4% after having been stable at 8.3% in the previous two weeks.
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