The Current State of the Global Economy

June 13, 2012

This is my 1st post realting to Economic scenarios and hopefully many will follow. Currently we are encountering varied issues all over the globe, let me list them down...

1) Japan - Aging population and deflation

2) USA - High unemployment, low growth, low rates of interest

3) China - Propety bubble, falling exports, slowing growth

4) European Union (EU) - High unemployment, high debt to GDP ratios, low growth

5) Australia - High unemployment, low growth

6) India - Low growth, weakening currency, high inflation

The common feature among all is Low Growth and High Unemployment. Precursor to our current state was the Financial Meltdown of 2007-08 and we are still in its aftermath. Let's begin with the EU, which is the main reason for the current crisis. EU countries are currently facing high debt to GDP ratios ( in the range of 70% to 150%), i.e. their debt levels are not sustainable with their current GDP and neither will their economies grow at such a rate that they can repay the interest or the principal. Let us see what led to such a situation for a few of the countries...

a) Greece - Greece's entry into the EU was done in haste and without adequate due diligence by the initial member countries, to shore up member nations that have adopted the Euro, so it could convert into Euro at a highly favourable exchange rate. Greek citizens suddenly became rich as they possessed a stronger currency. The Greek government started borrowing at very low rates due to their EU association. These reasons coupled with an unproductive economy, high social security benefits and low retirement age made them profligate. To sustain such high levels of social security benefits, the government got into a debt spiral in which they had to borrow more money to pay the interest on the initial debt. This situation was sustainable till the world markets were flush with liquidity, but the 2007-08 crisis which led to a trust-deficit made borrowings by such profligate economies expensive as liquidity dried up and lenders became sceptical. Now the government could not mend its ways hence they started borrowing at higher interest rates compared to other EU nations. Earlier they were borrowing at 2% - 3% now the rates rose to 7% for a ten year note, a country which doesn't have the means to even pay the interest on such loans and has a GDP growth rate of 1%-2% can't sustain such a high cost of debt. If Greece had the power to print the Euro it could have easily repaid these loans, but the EU doesn't have a monetary union which allows its member countries to print notes and get out of jail. The EU treaty has a mandated the European Central Bank (ECB) to expand money supply i.e print notes at a certain fixed level. Eventually it had to approach the member countries for a bail-out.

b) Ireland - It also had similar story as Greece and it also had to approach the EU countries for bail-out.

c) Iceland - A non-EU state had a huge boom in real estate prices, being a country having a small population such price rise was unsustainable and had attained bubble proportions. The exposure of 2of the largest banks of Iceland in real estate loans was higher than the GDP of Iceland, when the 2007-08 financial crisis struck it was the first nation to seek help, the real estate bubble burst which lead to huge non-performing loans following which the banks faced huge losses. These banks were bailed-out with government i.e. tax-payer and IMF borrowed funds. Iceland was in a favourable position because it could print its own currency which was severely devalued during the real-estate crash and due to which it could restrain foreign capital from leaving its shores.

d) Spain - Spain also saw a real-estate bubble which was propped up by Cajas (Loca Savings Bank are known as cajas), the typical case of sub-prime lending. Even its real estate bubble burst post the financial meltdown and the Cajas are sitting on potential NPAs of billions of dollars. Just a few days back the EU sanctioned a $100 billion bail-out package to re-capitalise these banks.

Similar story resonates around other EU nations like Portugal and Italy. Till now Iceland, Greece, Ireland and Portugal have received bail-out funds from EU and they have stopped issuing fresh notes as there is no  market for their debt instruments. Greece's 10 year note has a yield of 27%. All the nations (except Iceland) approached the EU for assistance after the yield on their 10 year notes crossed 7%. As of today the yield on Spanish and Italian 10 year notes is 6.5% and 6% respectively and rising.

This the background of the current imbroglio and in the following post I shall provide further details with regards to the measures adopted by the EU, current state of the economy in the USA and China, and finally the impact of all this on India as well as our own follies.                        

Beautiful Dream Run (Part Two)

So having being put into bat, we sent in our openers CP and NA; with CS on the sidelines watching our every move and providing guidance.

Batting First

1st Over - Bowled by a woman

CP managed to take a single on the 1st ball and put our main batsman NA on strike, we collected around 15 runs from the 1st over, all thanks to CP's single and some power hitting by NA.

2nd till 5th Over

We can retire our woman player after the 1st over is bowled, so coming back to the pavilion accompanied a huge round of applause was CP. Next up was UE, he and NA has an amazing time in between and batted on till the 4th over. We lost UE in the 4th over and in came JT he took a few balls to settle down, CC was hoping that JT would perform well as he had put in a good word for him to CS. After a few hiccups we managed to reach a competitive score of 61 for the loss of 3 wickets in 5 overs. JT's performance was average and that's putting it very mildly.

Now Bowling

1st Over by CP

She had received a lot of inputs from CS on Saturday, and now was the time to follow-up on them. CP did a fine job at keeping the woman batsman on strike for 3 balls and conceding a couple of wide deliveries. For the remaining three balls Team Two could put up a score of 10 runs at the end of the 1st over.

2nd over by TT   

After going through a disastrous time in the previous edition of the cricket league, it was time to make things right. The 1st ball was lofted to long-on where RR was fielding, some sloppy fielding yielded 2 runs. This prompted UE to swap places with RR, 2nd ball was once again lofted to long-on, and UE made the catch look easy; his fielding change and TT's bowling were vindicated. 3rd ball was once again lofted to long-on and another catch by UE, this was turning into a dream spell for TT. The rest of the three went for 8 runs, a boundary included.

3rd and 4th over by NA and CC

These two overs went well for Team Two and they were in the game, thanks to our fielding to a very large extent. NA bowled well, the batsmen playing and missing most of the times. The only wicket to fall was by a run-out, which was a pretty eventful one; the batsmen edged a ball to the keeper and it spun after it landed, being sloppy as ever TT, the keeper, misjudged the spin and the ball went past him. They easily completed the single and went for a risky second. Now TT had a conundrum whether to go for a direct hit or throw at the bowlers end to get a run-out. As he wasn't sure about either he ran towards the stumps with more than 11 people screaming, " throw the god-damned ball", and when he was about 3 feet from the stumps he threw the ball and it hit, it bloody damn hit. God saved the day and his ass.

The Final Over - 14 Runs to win

Don't know whether CC had a plan in his mind about who was going to bowl the 5th over. Me thinks that he went with NA because he bowled a pretty good line. So NA with the ball, bowling the 5th over. The first ball a swing and a miss both by the batsman and the keeper (TT), so they get a bye. Second ball once again a swing and a miss by both, another bye. So they need 12 runs off 4 balls, match is still in the balance and everyone is pissed at the keeper. 3rd ball another swing, a nick and it lands just short of the keeper, but this time the keeper pockets it safely and no run given.

Final 3 balls and 12 runs to get, the pressure in on the batsmen to score and thankfully they couldn't. To everyone's bewilderment and ours included we won, we achieved our lofty goal. CS was ecstatic, however, he had to leave due to work commitments along with MIS. Congratulating the team for a very good performance and reminding us to improve our fielding for the next match which was against our old team-mate, the captain of 'Credit in a Mess' team.

PS : CC was given some more inputs for the next match, firstly that JT couldn't judge the bounce well, so to send him lower down the order and secondly to try out UE as a bowling option and if he bowls well not to give TT a bowl in the next match.   

A Beautiful Dream Run (Part One)

Third edition of the D Bank Cricket League consisted of 20 Participating teams. The match would be 5 overs a side and all matches were eliminators. Each team should comprise2 women and the opening batsman and the opening bowler should also be a woman. This was the set-up of the tournament. Now let me update you on my team.

I was part of the Scorchers Team, and our squad consisted of...

1) Captain on Call (CC) - has immense capacity to talk on the phone

2) Juvenile Thakoor (JT) - the youngest player of our team

3) Chulbul Pandey (CP) - our woman player

4) Didi from the South (SD) - 2nd woman player

5) Two overs on the Trot (TT) - this is me

6) CorpFirz (CF)

7) Hanu (H)

8) Mr. N from Admin (NA)

9) Another Mr.R from Admin (AR)

10) Chief Strategist (CS) - he was also the coach and mentor

11) Mr. MIS (MIS)

12) Tax Consultant (TC)

13) Risky Risk (RR)

The tournament was scheduled on Monday, February 20, 2012. And we scheduled our first practice session just 3 days before i.e. Saturday. It was an early morning session with one of the participating teams at a Municipal Ground near our office. Reporting time was 07:30 hours, only JT and NA were on time, TT, RR, CC and SD trickled in post 8; with 15 minutes gap respectively. The other team was on time and most of their members were present. We practised some bowling and batting for an hour; to call our efforts pathetic would be an under-statement. Most of us were holding a bat or ball after a very long time. Post practice we headed back to work. CC reported the status of the practice session to CS, and CS decided we needed another round of practice in the evening to decide what will be the batting and bowling order for Monday. The ones who had turned up for the morning practice were reluctant to go back on the field, we were already down and dusted with just 1 hour of practice.

So reluctantly we were on the ground in the evening, and post our practice the batting order was decided. CP and NA would open the batting and JT would go 1 down, and the bowling responsibilities would fall on CC, NA, CP and TT. We decided that the best we could do was win our 1st match, which was against 'Team Two'. The goal being set of winning the 1st match; in the previous two editions we used to bow down in the 1st match itself. Keeping that in mind this was truly a lofty ambition. We never used to discuss this goal openly so that we wouldn't jinx it.

Had to get up at 6 am to reach the ground at Kandivli by 8.30 am, reporting time for our match was 9.30 am. CC usually on time was late today and in his absence TT had to go for the toss. TT lost and toss and the opposing team put us to bat. So firstly we lost the toss and our strategy was to chase. While all this was happening, H came in with a new player Unknown Element (UE), on his recommendation we got him into the team and put him one down. This was a big risk but we had nothing to lose. So our team comprised of the following playing eleven (in batting order)...

1) Chulbul Pandey (CP)    

2) Mr. N from Admin (NA)

3) Unknown Element (UE)

4) Juvenile Thakoor (JT) 

5) Hanu (H)

6) Captain on Call (CC)

7) Risky Risk (RR)

8) Another Mr.R from Admin (AR)

9) Two overs on the Trot (TT)

10) CorpFirz (CF)

11) Didi from the South (SD)    

Spreading the word for Cricket Expansion

Have always felt that Cricket should have world following like Football or Tennis, this has led me to follow the developments and progress made by the sport in countries other than the British Commonwealth. Cricket has the numbers to be designated a world sport primarily because of the Indian Subcontinent, but I feel this concentrated support base neither sustainable nor desirable. Outside the subcontinent, cricket is not the main sporting attraction even in the other powerhouses like Australia, England or South Africa. Hence the need to popularise the sport not only in new locales but also the traditional ones.

The ICC has a 3 tiered (around 100 countries) structure for cricket, with the power centre in the first. Without getting into the politics of cricket, let's concentrate on the growth potential of the sport. So the remaining tiers consist of Associates and Affiliates. Among them the upcoming ones are Ireland, Scotland and Afghanistan; these teams consist predominantly home grown players unlike others like UAE. Ireland and Scotland being part of the United Kingdom have historically played cricket within the English established cricketing infrastructure. This is their boon as well as curse, as the English have been known to lure players from them, the most recent being the Irish southpaw, Eoin Morgan. However, the recent developments speak of good days to come; contracting players full time has led further commitment by them, resulting in better results against Full Members and the cascading effect of their improved performance has brought in the sponsors for both the Irish and the Scots. Recently Cricket Ireland came out with a roadmap to attain test status by 2020, this consist of establishing a first class structure and development of under-age cricket.

Afghanistan has been the beneficiary of refugees who have returned back home having learnt the game in refuge camps in Pakistan. They have risen from the Affiliates league to join the Associates within a span of 2-3 years; this phenomenal rise has been well documented and credited for uniting the nation. Recently hosted match against Pakistan was not only well attended (it was held in UAE) but also keenly followed in Afghanistan. Cricket can be a uniting force among the warring tribes and also bring some cheer to the ravaged country; it also plays a similar role in India, where Cricket is a very strong uniting force. 

Other nations which can rise to better levels are Nepal and Papua New Guinea, where cricket is followed and played by the locals. India and Australia share proximity to these nations should help them in their quest. A more selfish motive could be to help them achieve more political clout in the ICC. So I would like to see the following teams playing competitive cricket in 2020, Ireland, Scotland, Afghanistan, Nepal and PNG. The only place where cricket can still make further inroads is Africa where South Africa along with a stronger Zimbabwe can help bring Namibia, Kenya and Uganda to the top level.     

Abject Show Down Under

Every Indian cricket fan's pulse would be racing a bit faster out of the sheer anger over Team India's most recent debacle in Perth. Such poor display in all the three departments of our game wasn't expected out of the current team. Prognosis was that we could be the team to beat Australia in Australia, this illusion has been completely squashed.

This team was hailed to achieve greatness after winning the World Cup and scaling the No.1 slot in the Test Rankings, we shouldn't have had such high expectations in the first place as both these feats were achieved while playing at home most of the times and by players who are on the verge of retirement. Hopefully post England and Australia we will learn to put our house in order, as always we can take some tips from Aussies in this respect. Cricket Australia (CA) constituted an independent committee to identify the problems which were plaguing Australian cricket even though their standards hadn't dropped to where India has reached. Knowing the kind of people we and BCCI are, I am pretty sure we won't have anything even 1% similar to that.

My remedies for improving our performance are nothing new, these steps are known to one and all.

1) Make more sporting pitches in India

2) Atleast one India A tour to Australia, England and South Africa every year (easily possible with the clout BCCI has over world cricket ), by this we will have a standby team, good bench strength and competition within the official team

3) Do not over schedule

4) Provide enough number of practise matches before the 1st Test

We also need to give credit to the way Australians have performed not only in this Test Series but also the never-die attitude that they bring to any sport played by them. Some of the best matches ever played in cricket have always involved Australian sides because of their attitude and fighting spirit. Also a word of thanks to T20 cricket which has made test matches more interesting, most of the series that have been played over the course of last 2-3 years have been result oriented post its advent.   

   

Book Review : Liar's Poker

Liar's Poker an autobiography written by Mr. Michael Lewis. It elaborates the journey of the author in Salomon Brothers', an Investment Banking Co. in the 1980s, which was a dominating force in the Bond Markets. Beginning from his recruitment at the firm while pursuing Masters of Economics at the London School of Economics, he is invited to the Queen's birthday celebration by a distant relative who has married royalty. As fate would have it, he shared his table with the wife of a Salomon Brothers' partner. The partner's wife getting impressed with the author presents him with an offer to join the firm and he gladly accepts.

Within a few days the partner calls him for a chat to his office but doesn't say anything about a job and again a few days later he has breakfast with Salomon Brothers HR head, and even he doesn't drop any hints regarding his job. Perplexed the author consults his friend and he tells him that it is below Salomon Brothers' to offer anyone a job, instead one needs to go out of the way and take it from them, as they only give hints and make no concrete offers. After staking his claim he goes off to New York to join the new recruits for the induction programme.

The induction programme consists of about 100 recruits and from here begins his journey into one of the Biggest and Meanest Investment Bank in the country. The heart of the organisation is the 41st floor of the building and here sit the Bond Traders - divided in to Government, Municipal, Corporate and Mortgage. The rule of the floor is "caveat emptor - buyer beware", as the traders are only interested in making profits for themselves. While the induction is going on, the recruits are informed that they will be assigned to different groups as per their calibre, from here onwards the recruits start looking for managers who they can please/flatter so that they are assigned to them. The ranking were as follows 1) Bond Trader 2) Bond Salesman and 3) Equity at Dallas. Equities were for the dumb and low people, a metaphor for people with low incomes, the reasons are elaborated in the book itself.

So our author opts for a position of Bond Salesman and to his respite he is sent to London, six months after working in New York. This book basically provides an insight into how traders behaved and functioned in Salomon Brothers, the politics between the Managers and their short-sightedness which eventually led to the bank's downfall. It's a humorous book, I suppose our own Indian version is 'The Dork' by Sidin Vadukut. The book also provides information about how a Bond Market functions and its various products. It makes for good reading in the end. I would rate it 8 on 10.      

Red Political Theory

Was never fascinated about any political theories and Communism was no different. Having come across this political thought in school, various newspapers and news channels, had a vague idea about the same. One day while through roaming about Landmark I came across " The Rise and Fall of Communism by Archie Brown" and in my quest for reading up on new subjects, I gladly picked it up. It was after nearly a year that I started reading it and have been captivated by the way in which a political theory which was going to emancipate the proletariat was contorted by a few individuals for their own benefit.

Firstly when Karl Marx and Friedrich Engels purported the theory, their intention was to create a system in which power was in the hands of the proletariat and this power was to be exercised democratically. Economic means were to be owned and controlled by the society. The concepts were Utopian but some of them could be implemented for sectors which are of national importance.

The term Communist was coined in USSR by Vladimir Lenin and his idea of socialism was somewhat different than its proponents, it was more draconian and autocratic. Post Lenin who used to defeat his detractors by using his oratory skills and his hold over his ideas, Josif Stalin who followed him used fear to put his point across. Instead of getting into the the pros and cons of their actions, we need to better understand the original thought process and its efficacy in the 21st century.

Post reading this book I will have to get into Karl Marx's theory in much detail. Hopefully I will be able to make a better case for socialism a few months down the line.