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A dollar devaluation by another name

September 25, 2009 2 comments
Devaluations can be addictive

Devaluations can be addictive

British Prime Minister Gordon Brown said on Tuesday there was substantial support among the Group of 20 nations for creating a new framework to tackle global economic imbalances … Analysts said the United States’ drive to agree a roadmap for a more balanced global economy could meet resistance from China which is unlikely to agree reforms that would threaten its growth … A document outlining the US position ahead of the September 24-25 summit said big exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings … The euro hit a one-year high against a sliding dollar ahead of a federal reserve meeting and the G20 talks on rebalancing, a process which is likely to require a weaker dollar.

Like Quicktake has pointed out in earlier posts, the US has alternated between an overvalued currency to gain ownership over large sections of world economy – and now with a devalued dollar, it seeks to gain an upper hand in merchandise exports. The three main points that one needs to understand are: –

One – It reduces the real value of US debt. The Chinese, the Rest of BRICS and the Others need to be paid a lot less in the future. (as pointed out earlier in various posts linked here.) Two – It makes US exports artificially competitive. (as pointed out earlier in linked posts). Three – The US competitiveness will be anchored to assets purchased with over-valued dollars.

Factor US Germ

any

Japan China ASEAN India
Labour High High High Low Med. Low
Welfare Costs High High High Low Med. Low
Entrepre

neurship

Med. Med. Low Low Low High
Domestic market Large Med. Med. Med. Small Large
Raw materials

(Self-owned)

High Low Low Med Med Med

What the US is proposing is that the Chinese Yuan must become ‘stronger’ – and the dollar must become weaker. This will mean a real reduction in US debt – and a subsidy for US exports. Of course, a devaluation has never helped any regime in the long run – but in the short run it reduces imports and increases exports. But is a ‘fix’ that the patient begins to row dependant on!

Is that the US is wanting to do to itself?

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    Khap panchayats seek legal claws

    September 8, 2009 1 comment

    The real tehelka is that local-khaps is the way forward – and not centralized government regulation.

    A over-regulating state is also ineffective state (Prohibitions cartoon and ©by Meera Sapra)

    A over-regulating state is also ineffective state (‘Prohibitions’ cartoon and ©by Meera Sapra)

    Irked at being equated with the Taliban and kangaroo courts, khap panchayats in Haryana are now determined to get some legal sanction.

    Soon, they will draw up a set of recommendations for making “suitable” amendments to the Hindu Marriage Act (1955) at the state level so that their rulings become valid under law.

    Khaps are traditional area-based community organizations whose rulings have no legal sanction. In keeping with tradition, khap panchayats oppose marriages within the same ‘gotra’ (lineage) and are known to have meted out harsh punishments to “erring” young couples. (via Khap panchayats seek legal claws – India – NEWS – The Times of India).

    ‘Indian’ NGOs

    A NGO /activist publication recently ran an article on Haryana’s khaps – equating the khaps to the Taliban. This was the famous ‘Tehelka’, whose main aim in life is to show how ‘backward’, ‘ignorant’, ‘uncivilized’ the India(ns) are.

    Of course, being ‘English speaking ‘activistas’ of the ‘civil society’, nobody can doubt their intentions or message or their ‘intelleigence. Except some like 2ndlook – whose ‘provincial’ mind’ (aka मोटी, देसी और मंद बुद्धि) cannot reconcile the ‘de-regulation’ that these NGOs want and greater regulation that they propose – as they exhale and inhale.

    Of course, since they are ‘educated’. ‘modern activistas’ without any axe to grind, they must be right. What is the data that they have? This story was linked to me by an 2ndlook reader (novaaristotle) and is worth reading for an excellent hatchet job.

    In conversations with villagers over weeks and months, it became clear that murders decreed by Khap panchayats were common. However, in most cases, a twisted notion of tradition and the fear of social boycott ensure the murders are never reported to the police or the media. The National Crime Records Bureau (NCRB) doesn’t classify or record honour killings and hence has no statistics on them. The lack of figures on murders ordered by Khap panchayats or ‘honour killings’ hinders research and legislation that might address the issue.

    Maybe, they should look take a 2ndlook at Indian society – from a law and order point of view.

    All quiet on the Indian front …

    In more than 1000 Indic books, claiming to record more than 10,000 years of history, there is no instance of any dispute reaching the King. The longest ancient epic in the world, The Mahabharata has no incident where a private dispute reached Yudhisthir (though a mongoose could lecture the King about sacrifices and yagnas). There was never any case of private dispute, recorded in the Ramayana, that reached Ramachandra (though a dhobi could ‘inform’ the king about bazaar talk regarding the Queen Sita). Even a poor Brahman, Kautsa, could reach King Raghu for help in the disbursal of guru-dakshina गुरु-दक्षिणा.

    Is it that Indians were ‘saints’ and did not have private disputes? Were they so civilized that they could solve all disputes by talking to each other? Is it that Indian kings were not bothered about delivery of justice!

    It gets worse! No prisons …

    Modern econometric modelling has an interesting perspective on Indian economy where research shows that for much of the last 1000 years, India has been a significant economic power till the 1900.

    China and India, this analysis estimates, for the last 1000 years, accounted for 50% of the world economy. Statistical analyses showed India with a world trade share of 25% for much of the 500 years during 1400-1900. With this prosperity, the most interesting (historical) aspect of the criminal management story is the absence of any surviving mass jails in India prior to colonial India.

    Without prisons, just how did pre-colonial India, one of the largest (and most prosperous) populations of the world, deal with crime and criminals?

    But then crime rate in India must be really high …

    Cut to modern India. With such an inheritance, India has the lowest prison population in the world. How can India have such a low prison population, with a poor police-to-population ratio and a crime rate which is not above the average – in spite of a large civilian gun population.

    All the 5 indices (below) create a bias for a lawless Indian society and rampant crime. With these five indices, namely: –

    1. Police to population ratio (‘increase police force’)
    2. Prison population (‘put more criminals behind bars’)
    3. Capital punishment (‘kill enough criminals to instill fear’)
    4. Poverty (‘it is poverty which the root of all crime’)
    5. Gun ownership (‘more guns means more crime’)

    against a stable social system, how does current day India manage low-to-average crime rates. More than 2000 years ago, Megasthenes a Greek traveller to India wrote,

    Theft is of very rare occurrence. Megasthenes says that those who were in the camp of Sandrakottos, wherein lay 400,000 men, found that the thefts reported on any one day did not exceed the value of two hundred drachmae, and this among a people who have no written laws

    Historically, trade in India is governed by शुभ लाभ ‘shubh labh’ – and hence Indians have not been major players in drugs proliferation (unlike Japan, the West in which traded Opium in Korea and China) or in slave trade.

    In modern times, India is not a big player in spamming or in software virusthough a power in computing industry. In August 2008, a hoax story alleged that an Indian hacker, had broken into a credit card database, and sold it to the European underworld. Some ‘experts’ feared that this would spark of a crime wave across Europe.

    The Indic model of justice, crime and law

    Evidence of a different Indic system goes far back in history – to Lipit Ishtar, Hittite laws, Hammurabi et al. As far back as 4000 years back in history. Indian kings did not deliver justice. It was done at the local level by panchayats पंचायत. Indian justice systems did not rely on imprisonment or executions or the police to control crime!

    The answer – the world’s most stable marriage system and the extended family-social structures took care of the wayward. The khaps may have gone overboard in some cases (based on anecdotal evidence) – but the real tehelka is that khaps is the way forward.

    And not more government regulation.


    U.S. Leads World In Foreign Weapons Sales – Report – NYTimes.com

    September 8, 2009 Leave a comment

    Citing a congressional study released on Friday, the Times said the United States was involved in 68.4 percent of the global sales of arms.

    U.S. weapons sales jumped nearly 50 percent in 2008 despite the global economic recession to $37.8 billion from $25.4 billion the year before.

    The jump defied worldwide trends as global arms sales fell 7.6 percent to $55.2 billion in 2008, the report said. Global weapons agreements were at their lowest level since 2005. (via U.S. Leads World In Foreign Weapons Sales – Report – NYTimes.com).

    Can you stop me ...

    Can you stop me ...

    US in the Post WW2 world

    In South East Asia from 1950-1975, Israel from the 1960 onwards and now in Iraq, Afghanistan, the US has been the in the middle of most expensive conflicts (measured in terms of lives lost) in post WW2 world.

    This model of international relations is something that needs to change. The poor in this world has not become much safer, seen more democratic or significantly more richer. What justification does this policy have – apart from “I have muscles and can you stop me from flexing them” logic?

    Gold – a non-military solution

    As I see it, there are two simple solutions. One – everyone who disagrees with (or even if  you are worried about the economic consequences of) the US foreign policy should go out and buy gold. This will surely trigger a collapse of the US dollar. Just a 100,000 people buying a 100gm of of gold in the next 1 year will trigger the dollar collapse.

    Drill for oil

    The second solution will need more time and will need co-operation foron the BRIC Governments. The BRIC Governments must go out and drill oil wells all over the developing world. The collapse in oil prices will remove the petro-dollar funding of the US and simultaneously eliminate /reduce the trade deficit of the developing world.

    Election funding, India-Pakistan jigsaw mash up

    September 7, 2009 1 comment

    Army Chief Mirza Aslam Baig had advised the ISI in September 1990 that it should give logistic support to transfer of funds from the business community in Karachi to the IJI during the 1988 election, the report stated.

    Durrani said in the affidavit that he opened several bank accounts in Karachi, Rawalpindi and Quetta, the daily reported. A man from Karachi called Younus Habib had deposited Rs140 million in one of the accounts in Karachi. Some of the amount had been transferred to the accounts in Quetta and Rawalpindi and the rest to a special fund, according to the report.

    According to the affidavit, submitted before the apex court on July 24, 1994, former caretaker PM Ghulam Mustafa Jatoi received Rs 5 million, former Sindh Chief Minister Jam Sadiq Rs 5 million, former Prime minister Muhammad Khan Junejo Rs 2.5 million, Nawaz Sharif Rs 3.5 million, the Jamaat-e-Islami Rs 5 million, and Lt Gen Rafaqat Rs 5.6 million for managing the media campaign. There were many other names on the affidavit. (via Nawaz, others got money from ISI: Pak ex-CJ).

    Power, pelf and wealth

    Bribes to politicians are neither unique or a monopoly to Pakistan. Funding of power struggles is a part of polity – and is more a problem of the structuring election funding, rather than the moral fibre of politicians.

    The Lodis from Afghanistan, petty horse traders, regained India from West Asian invaders. The Lodis could do this, by reducing the cost of raising an army. Being horse traders, they access to low cost horses, essential for a large cavalry-based armed forces of the time.

    The Afghan Lodis ended the short 200 year stint in Delhi by the frequently defeated West-Asian invaders. Western historians have painted the Lodis as Islamic conquerors – without differentiating between Indian-Muslim rulers and West Asian Muslim rulers. Afghanistan was last ruled by the rulers of Punjab – Maharaja Ranjit Singh, till about 1830s.

    This brings to mind two things.

    Political funding in the West

    All political systems must necessarily create a system for funding access to power. ‘Modern’ democracies have no systemic channel for funding. Those who follow the ‘system’ – are left behind by those who break it.

    The Roosevelt family fortune was built on opium ‘trade’ with China. The Kennedy families fortune was built on initially bootlegging (smuggling alcohol) and Wall Street shenanigans (sold all his shares just before  the Wall Street Crash) and Hollywood capers (Alexander Pantages affaire). In each case, he turned legal – and started a alcoholic-beverage distribution company (Somerset Importers), SEC Chairman, Ambassador to Britain.

    He ensured his son, JFK, became the only and ever, Catholic President of the USA. Behind Robert Kennedy’s appointment appointments as SEC head and Ambassador to Britain, was FDR – whose own family fortune was made by marrying rich and opium ‘trade’. Takes one to know one.

    The much whispered and well-known funding of political parties by the Reliance Group or the well-oiled PR machine of the Tatas in India are another example.

    Funding of Elections

    A simple expedient would be to set up a tax-payer funded corpus, for each Parliamentary, State Legislature and local Government constituency – which would get proportionately divided between the top 5-7 candidates, based on votes polled – subject to a ‘clean’ record.

    Based on a 500 (central Government), 5000 (state legislature) and 50,000 (local Government) constituencies, and a corpus of Rs.5000 crores each for Central /State /Local Government politicians, to be distributed every five years, would immediately clean up Indian politics and bring in a whole new breed of politicians. The annual cost of such funding will be Rs.3000 crores at current cost – which is far lower than the estimated ‘bribes’ that Indian politicians presumably collect.

    To believe that a nation can depend on a constant supply of Tilaks, Boses, Gandhis, Vinoba Bhaves, et al is niether real nor possible.

    Can Pakistani business clean up Pakistan

    The other thing is the use of Pakistani business interests to clean up Pakistan. Mahbub Al Haq made a famous 22 families in Pakistan speech – which detailed how some 22 families in Pakistan control the Pakistani economy. India can provide a huge market, opportunity and growth to Pakistani businesses.

    Is there a coherent anti-terrorism strategy? Is Indian diplomacy engaged with this segment of Pakistan – to find ways to clean up Pakistan. Are Indian banks, consortium-members that fund Pakistani businesses – which are on a “White’ list?

    Or Indian diplomacy too busy engaging with the Unca Sam and the West?

    The bubble you know

    September 6, 2009 Leave a comment

    A Chinese bubble has been deflated. Too bad it’s the wrong one. The main Shanghai stock market index has fallen 23% from its peak at the beginning of August, reversing half of the run-up that started early in 2009. That’s a welcome correction, but it doesn’t mean a return to normality, or address the bigger bubble round the corner.

    Shares were driven up by a belief in China’s recovery – and by a rush of liquidity. The fall occurred because both were gently dampened. Politicians have warned that economic recovery isn’t a done deal. Monetary authorities drained some liquidity from the market, curbed certain kinds of lending and asked banks to show restraint. (via The bubble you know).

    Look ma, Green shoots

    Look ma, "Green shoots"

    The long and short

    The US economy is going to take some time to recover – a long time. Green shoots versus Brown Weeds is the kind of empty debate which covers the complete lack of visibility on the probable outcome that economists have.

    The Japanese have finally decided to sack the LDP – after more than 50 years. The Japanese do not expect any major recovery or growth to happen for the next few years.

    Europe is in the boondocks – and is unlikely to come out out of this soon. Their most feasible European option is a greater role for public sector – which the Europeans seem to have embraced in a bear hug.

    The BRICs of global economy

    Which leaves the BRIC countries. Russia is too dependent on high raw material prices – which need greater demand from the world economy to make a difference. Russia feeds on high growth rates – but cannot be the reason for growth of the global economy.

    Ditto for Brazil. Which leaves the world with India and China. Let us first take the Chinese case first.

    How ln can this model work

    How ln can this model work

    Biting the bullet

    Most economists believe that to kill the Beast of Great Recession, the world is left with one, single  magic bullet – China. This being the only bullet in the chamber, makes everyone very nervous, keeps everyone busy, reading Chinese tea leaves with great care.

    There is overall consensus that the Chinese growth figures need to be ‘tempered’ – and significantly. The fears seems to be in two areas: –

    1. Overstated growth rates.

    “The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance,” Marc Faber told CNBC. Combine this with the other preoccupation where “China is desperately trying to figure out how to withdraw its funds from the dollar without driving it down — not an easy feat.”

    2. Understated bad loans by banks.

    an astonishing $300 billion vanishing act … the amount of bad debt the top three banks offloaded in the early 2000s. Back then, the People’s Bank created four asset management companies to scrub away the dirt from two decades of policy-driven lending. There was a big catch. The AMCs bought the loans for up to 100 per cent of face value, while recoveries were in the 20-30 per cent range. That means the top three lenders’ Rmb1.2 trillion of AMC bonds, which start to mature this year, are likely to be almost worthless. In theory, the Ministry of Finance is ultimately on the hook, but it is unlikely to make good for the banks. The amount due to all three is roughly one-sixth of China’s fiscal revenues for 2008. (from If in doubt, rub it out BY John Foley /  August 29, 2009, 0:03 IST).

    Housing makes up roughly a quarter of investment spending, which is in turn 40% of gross domestic product. The differences between China’s big cities make a bubble harder to spot. But record bids for land are cause for concern, as is falling affordability in big cities. Meanwhile, stagnant residential rents suggest speculation, not demand for somewhere to live, is pushing up house prices. A burst real estate bubble could be fiendishly tricky to clear up. While stock markets clear in a day, property gluts can take months – if they clear at all. ( from The bubble you know by John Foley, Septemeber 1st, 2009, 01:33 IST).

    Everything is made in China

    Everything is made in China

    Both these severely strain the economic outlook and the banking sector. This may lead to, what the WSJ.COM says, a situation, where “China in the medium term will face just the overcapacity and bad debt that many observers feared already existed.”

    But some of these observations and scare stories are exaggerations – and need to be read with the caveat that the dominant Western media portrays all competitors in a similar manner.

    What about the Indian economy

    That pretty much leaves India as the sole candidate. India cannot absorb the kind of imports that are required to make a difference to the global economy. Or boost exports to the rest of the world – to create consumer led growth. World Bank estimates are that India will grow faster than China by 2010. So, no go!

    A plan for Indian businesses

    What this means is that India needs to do: –

    1. Not bank on any kind of global recovery soon.

    2. And island itself – by ensuring that any kind of global mayhem, counter-party risks do not hit Indian banks, corporates, exporters, et al. This may need some strong alliances on export guarantees and credit enhancement by importers for exports from India.

    The Indian Government, may not take any major initiative in this regard, but it is the Indian businessmen, who should and must understand this situation – and take the necessary precautions, actions, insurance, guarantees, due diligence, comfort letters – the entire gamut.

    Indian Mosaic and the Western Melting Pot

    September 6, 2009 2 comments

    West has the lowest levels of ethnic, linguistic and religious diversity persecutes whatever little is left. E.g. Roma Gypsies.

    The US Melting Pot

    The US Melting Pot

    “However, India’s nation-building process differed markedly from the classic 19th-century European model. European nations flattened diversities. We now know that at the time of the French Revolution, only 10-12 % of France spoke French. Over the next 100 years, public schools and conscription armies turned “peasants into Frenchmen”. France simply did not allow diversities to flourish. Everyone came to speak French.

    Under Gandhi, India consciously embraced diversities. Even though Gandhi thought that Hindustani — a combination of Hindi and Urdu — might become India’s lingua franca, the idea that India would be a multilingual nation soon took control of his political thinking. And the notion of embracing diversities was quickly extended to religions and castes.

    Experience told Gandhi that most Indians had at least two or three identities. They were Bengali and Indian, Tamil and Indian, Hindu and Indian, Muslim and Indian. To push either fragment too far was to go against the requirements of Indian nation-building. Building a classic European style nation was simply not a practical option.

    Thus was born the Congress model of politics, which was indistinguishable from nation-building. Today, we call this the “mosaic” model of nationalism, as opposed to the “melting pot” model. The latter term is often used for the US, but recent scholarship makes it clear that France is the biggest melting pot in the world.” (via No place for extremes in the Indian mosaic – Special Report – Sunday TOI – NEWS – The Times of India).

    Ashutosh Varshney, in the article linked above, makes the distinction between ‘mosaic’ and ‘melting pot’ very well. Looking deeper, one, however needs to qualify his thesis.

    Lowest diversity vs.Biggest talk

    The West today has the lowest levels of ethnic, linguistic and religious diversity – and persecutes whatever little is left, like the Roma Gypsies for example. Would critics like to mention any other country, where such a large minority Muslim population, has greater freedom and opportunity, than in India? Would you like to suggest France instead?

    The US melting pot

    The US melting pot

    The language conundrum

    India, has 15 official languages.

    No other countries even had the courage to think of that. Various US state governments outlawed all languages – except English.

    It was only in 1923, was this finally set aside after the matter reached the US Supreme Court (read Meyer vs Nebraska). The USA gathered some courage to start timidly with more than English only after seeing India’s success with 15 languages. Switzerland has only four. Sri Lanka’s Sinhalas do not want to accept Sri Lanka Tamils as full and equal citizens – hence the 20-year-old civil war.

    In the thrall of One

    The Western concept of nation building requires the cornerstones of Desert Bloc – One God, One Book, One Holy Day, One Prophet (Messiah), One Race, One People, One Country, One Authority, One Law, One Currency, One Set of Festivals. This tyranny of the ‘One’ is the root of most problems in the world. From this ‘Oneness’, we get the ‘One’ Currency, ‘One’ Language logic  – a fallacious syllogism. Once you accept ‘One’, you will accept all others.

    Manick Sarkar - does magic with cartoons also

    Manick Sarkar – does magic with cartoons also

    Before finished saying M

    While Ashutosh Varshney makes the distinction between ‘mosaic’ and ‘melting pot’ very well, he misses the beat, completely, by crediting Gandhiji for this Indic construct! When he says, “Under Gandhi, India consciously embraced diversities” is he implying that before Gandhiji, India was a mono-bloc society.

    Was it under the thrall of ‘One’?

    Would Gandhiji have become a Mahatma in India, if tried the ‘melting pot’ strategy?

    I think not!

    He would have been rejected, rubbished and trashed before he could have said M.

    Of mosaic, melting or Mahatma.


    Sunita Narain proposes more Government

    September 5, 2009 Leave a comment
    Dilbert knows all ...

    Dilbert knows all ...

    we bought samples of leading brands available in the market and analysed content for the toxin. What we found was staggeringly high levels of lead in virtually all samples we checked. India does not have a mandatory standard for regulating lead in paints. We only have a voluntary code laid down by the Bureau of Indian Standards (BIS), which specifies that lead content should be 1,000 parts per million (ppm). Our tests found that the biggest and best companies had lead levels 180 times the voluntary standard.   

    But we were not surprised, as I said. After all, the government has not set standards to phase out lead in this daily-use product. Something most governments had done some 20 years ago. In the US, lead had been termed the number one environmental threat to the health of children. But it was a non-issue for the industry in India. We were angry at this indifference and decided to write to all major paint companies asking them about their plans to phase out lead. We expected little response. But this time we were really surprised.   

    Two of the major companies — Asian Paints and Nerolac — wrote back saying that they were planning to get rid of lead. They promised that this would happen soon, within a few months. So, instead of immediately releasing our report, we thought we should wait: To recheck and to validate if the companies kept the promise they had made to us. Some months later we went to the market and picked samples of the same companies.   

    Our analysis found a change. Of the big five, three companies had no lead in their product. Asian Paints and Nerolac had indeed cleaned up. Berger and Shalimar still had lead in the samples we tested. Both are big companies and neither have any excuses. The fact is that companies have the technology to phase out lead. (via Sunita Narain: New coat of paint).   

    Failed agency, failed agenda, failed model

    Failed agency, failed agenda, failed model

    Actions matter

     Much as I like Sunita Narain’s work, her reading of this situation is wrong.   

    Unlike her fault-finding, this was good news. For three reasons.   

    1. Three out of the five biggest companies voluntarily agreed and reduced lead content – at a significant cost to their own bottom-lines. Without a sword over their head or legal threats hanging over them. Just a gentle pointer did the trick. That is good news. This is possibly why Indians trust their companies more than the Rest of the World.   

    2. The Government has voluntary codes – which are NOT enforced. Unlike the US. We should do more of this – and not less, Ms.Sunita Narain. Bigger Government, with greater enforcement agenda is a bad idea – and no good can ever come out of it.  

    EPA does nothing about Environment and Justice does nothing to do with justice

    EPA does nothing about Environment and Justice does nothing to do with justice

    For you to call for greater Government activism is simply more bad news. The American model is faulty, expensive and prone to abuse. Why copy a failed model?  

    3. Ms.Narain – Maybe, your organization can franchise a ‘प’ (Prakriti) logo – for all companies that voluntarily adhere to the highest global standards. And that will again be good news.   

    Let us take away the regulatory load (which will soon become overload) from the Government and move towards self-regulation.   

    I think it is time you took a 2ndlook.   

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