Chi-Merican seesaw

This is a tussle for power worth mentioning. It is a seesaw which requires players on either side, America and China, such that neither player can evolve into a world power single handed. China had recently disclosed its decision to acquire nearly a 3 trillion dollar worth of natural resources majorly in crude oil, gold, natural gas, copper, iron ore, etc. On the face of it, there seems to be working on in securing the nation’s supply of raw materials for the nation’s growth.Due to China’s huge demand the copper prices are pushed up. Also the natural resources too are not left alone in the Bull Run. But when the purchase is viewed from the point of view that these are the resources most fought for and with limited supply, the issue becomes severe. It becomes more severe when the acquirer is the biggest holder of dollars outside USA.

It is the making of the perfect battle of supremacy. The Chinese are looking forward to two things by this purchase. Firstly they wish to reduce their US dollar dependency as a reserve currency. Keeping these reserves with very high dependency will be detrimental to their growth of international power because of the volatile world political environment. It is a double edged sword with China. While it gives China a good leverage and a say on the American policy decisions, but a prejudicial step taken by any nation to reduce the utility power of USD will reduce the value of Chinese foreign reserves. America on the other hand needs the utility value of USD to decrease to pay off its mounting debts and also help its exports to be more competitive. And here is the making of the first centre for power struggle between the two nations.

But China wishes to use the devaluation for its own benefit. If the USD is devalued it will also force the Chinese to shell out bigger sums to acquire the natural resources reducing the USD reserves. To counter this they are buying in resources which contain real value with them like gold, silver, metals, etc. Another aspect to the devaluation row is that US wishes to reduce its dependency on imports from China. This requires the Chinese goods to cost more in that case Chinese yuan should be valued more. With Chinese not willing to do so, US got an (probably) unintentional opportunity because of the financial system failure. It has taken lot many steps to devalue its dollars including the quantitative easing.

Secondly China wishes to promote its currency to be used in the international settlements. To be able to do this they will require the gold backing for its money and also decontrol its currency. Taking a step forward into this move China is said to have planned purchase of gold worth 1 trillion dollars. And as can be seen in the current market scenario where the price of gold is touching new highs every month, the purchase of gold is helping China to get rid of the dollar and showcase that its currency has more real worth backing. But the irony is gold is still valued in dollars.

The Japanese Recovery – Strategic view

The March 11 Japan earthquake, the 5th largest in world, has affected the world economy in more ways than just economics. So while looking at this major natural disaster the two criteria discussed in the article are Economics & Politics.

The Economics: A classic case of “supply side disruption” fueled by the unpredictable and dangerous cocktail of natural disasters - the Japan earthquake tsunami and nuclear disaster. Japan is amongst the major producers of capital goods and creates 10% of the world economic output. The good exported by Japan, consisting mostly of machinery and transport equipment was in 2010 worth about $470bn. This natural disaster wrecked havoc on the factories producing the goods heavily demanded by the whole world. This was visible in major reduction in production & sales figures of auto majors sourcing from Japan. Their May 2011 sales figures declined nearly 23%. Japan provides nearly 60% of the world’s computer chips and the calamity resulted in closure of 2 companies for repairs reducing the output by 25%. The nations round the world hence need an early recovery for the smoothening of the supply chain and depreciation of Yen.

The fund flowed into the nation for the reconstruction and there was a high appreciation of Yen. The bond market in Japan was also gathering pace. This proved one major point – Investor confidence in Japan’s recovery and repayment capability. The Japanese showed this capability and capacity. They have restored the infrastructure destroyed with great speed. An example of this would be the case of the Tohoku Shinkansen, a high-speed rail line connecting Tokyo and northeastern Japan. It recommenced operations 49 days after the earthquake.

Induced Spending

The buzz word doing the rounds from the advent of "recession" is how to induce the consumer spending when they are quite skeptical about the future security. America is the leading example in this. America has brought in various fiscal and monetary policies which induce the people to spend more and save less. Policies are reducing the borrowing rate, reducing the value of the currency so that more money is spent constructively. But how much of it is actually done? American investors are sending their money to overseas markets where there are more returns on investments. How much is actually been spent to improve the economy?

As a parallel to this, India in the ancient times was very rich. Most of the population was wealthy and had some occupation to perform. There was no urgency in spending the money to buy items of desire. They had enough liquidity with them to spend as and when required. Also the people believed in savings and longevity of material goods.

This situation can be seen as an issue to the country's financial circulation. If people do not spend much and there is no consistent demand, then how can enterprises define their raw material pipeline? And as raw material for enterprise A is the output product of enterprise B, with this vicious circle there can be a devastating crumble of the system. With this crumble citizens tend to save more and spend less as there is no future security.

With this situation in mind and the recent festivities doing the round, I was amazed at the rituals which were formulated for all the festivals of our nation. There are numerous festivals, effectively making someone celebrate a festival or occasion everyday. All these occasions require people to invite guests and also give some money as "shagun". Now with this kind of raw money changing hands, the system is finally able to run the mill. People are spending during the festive seasons and saving during the odd seasons. These festivals are an imbibed feature of us Indians. We cannot live without it. Its our culture.

So without blaming any culture, I will say that if the festivities are made about such that people are compelled to spend, then you have your financial machinery running smoothly. There won't be any need of fiscal or monetary policies to Induce Spending.

Is Near Zero Interest Really Helping the Economy?

With this economic recession major developed nations started to role out various schemes to simulate spending amongst the consumers which was believed to help the businesses in their nations. For this to be useful, the banks started lending at never heard of low rates – nearly 0% interest rates. These rates were never heard of even during the previous economic depressions. The American banks were still lending at nominal rate of 2% during those hard days.

Lending at near 0% interest rates specifically means that the borrower need not pay huge interest sum on its principal amount. People would then start borrowing from the banks to spend on the luxuries or objects of their desire. This is believed to create currency inflow into the businesses in the country and thus making them self sustaining. But is there any chance of this not being helpful and in turn more detrimental than lending at 1-2% interest rate?

With a particular point of view, this does seems to be helping people and the nation. The per-capita spending power is increased. There is more purchase of the items from the markets. But the depositors of the bank need some returns, even the banks need to generate profits from lending. How will they be functional yet be profitable with zero interest lending? They start investing in other investment options like real estate, commodity markets, petroleum, etc. This in turn increases the cash inflow for these investment opportunities and raises their prices to unsustainable prices.

Dot com debacle was followed by Real Estate debacle

According to the Austrian School of Economics, the real estate debacle was a direct fall out of the policy decisions taken after the dot-com bubble burst and the 9/11 incident. The federal fund rates had dropped to around 1%. This was necessary so as to bring the economy out of recessionary trend and make it a self driving force. This policy was continued for more period than required which offered nearly free money to the borrower. This measure was intended to pump in the monies into the economic activities, but it eventually got invested in high earning activities like the derivatives, commodities, real estate, developing market equities, etc.
These low interest rates facilitated the growth of debt at all levels of the economy, chief among them private debt to purchase more expensive housing. High levels of debt have long been recognized as a causative factor for recessions. Any debt default has the possibility of causing the lender to also default, if the lender is itself in a weak financial condition and has too much debt. This second default in turn can lead to still further defaults through a domino effect.

This easy money allowed people to buy houses which they could not afford, inducing artificial demand for the real estate. The borrower credit ratings were ignored to boost consumption which was not backed up by appropriate resources. Banks also brought in their innovative derivatives product which could be traded on the market to hedge the banks risk of lending a low quality mortgage. These instruments were traded by many huge institutions looking forward to earning quick bucks at high risk. With sky rocketing prices and limited income sources there was increasing trend of defaulting on payments. Large default rates on subprime mortgages were only the contributors to the severity of the crisis. Rather, low-quality mortgages acted as an accelerant to the fire that spread through the entire financial system. There were several factors that are unique to this crisis:

• The transfer of assets from the balance sheets of banks to the markets.
• The creation of complex and opaque assets.
• The failure of ratings agencies to properly assess the risk of such assets and the application of fair value accounting.
• Failure of regulators and supervisors in spotting and correcting the emerging weaknesses.

Flow of currency

The U.S. dollar has weakened about 6.5 percent against a basket of major currencies since September as prospects for further monetary easing by the Fed have led investors to seek higher returns in other investment options. Flow of dollars has caused currencies to appreciate in many emerging market countries such as Brazil, which offers strong growth prospects. The Japanese yen has also hit record highs against the dollar.
As a reactionary measure these countries had to act upon the inflow of currency into their markets. Japan lowered the target for its benchmark interest rate to a range between zero and 0.1 percent. The Bank of Japan also pledged to buy 5 trillion yen ($60 billion) worth of assets, in a strategy similar to the one adopted by the Fed to pump funds into the economy. Other measures include selling their own currencies to grow the foreign-exchange reserves. They had to take these steps so that their exchange rates appreciation does not destroy their exports. Commenting on these measures a noted economist Stiglitz said “But additional monetary stimulus will "clearly" not solve the problems caused by lack of global aggregate demand”.
For controlling the inflation in the developing world faced at present, the governments have imposed higher interest rates, which in turn lure the foreign investments into the fixed income instruments. As a consequence there is increase in the foreign fund flow into the countries economy making it more susceptible to exchange rate fluctuations and also increased volatility in the equity markets. To counter this many governments have taken various steps to control this, like Brazil government doubled the tax it charges foreigners on investments in fixed-income securities to 4%.

Also the investors are hunting at greener pastures like the commodities market. From past few years the investments in commodities markets have been rising, putting pressures on the prices and the general availability. Few buyers for the sense of hedging the supply risk and others for investments have been increasing the price of commodities. The food commodity prices have been rising, creating pseudo-scarcity. Although there have been other reasons for the price rise, but “purchase for investments” has become the major contributor to the price rise.

So is there another bubble building up? Yes, I believe it is highly possible the next in line for the bubble burst seems to be the “Commodity Markets”. Its then left upto the investors ethical and moral considerations and the governments regulations to keep a check on the issue.

Why we need Bt Brinjal (Baingan Tadka)

“One step for man; one giant leap for mankind”.

Great quote which creatively resonates with the expansion of human adventures. We are great explorers thanks to our never ending quest for exploration – craving for unknown.

Starting from being the chimps who wanted to explore their surroundings, we have come to the extent of being present on every inch of this lovely planet. We have explored the outer universe and still trying to figure out what lies beneath us. We just know the depth we need to explore, but not its extent. We are even exploring the avenues and the methods to bring into us the qualities of living beings surrounding us. First we experimented with “Life After Death” for our beloved sheep – Dolly was the new name. Next we thought to get into experimenting bringing cross cultivation, by mixing genes of two different species. The only hindrance to this was the objection by governments against human trials. But now we have taken the detour to do this with plants. We are slowly progressing in imbibing qualities of other living organisms into us. We are bringing ONENESS to its truth.

All the living beings require staying together for mutual benefit. Now we have started exploring this option. We wanted to bring in the “Bacillus thuringiensis”, so we developed the Bt Brinjal. Actually the word Bt stands for “Bacillus thuringiensis”, which is a soil bacteria, and hence the BT Brinjal is actually the normal Brinjal, with an additional gene from the Bt bacteria, which produces Bt protein. This new Brinjal was researched on by Mahyco (Maharashtra Hybrid Seeds Company) and is promoted by University of Agriculture Sciences, Dharwad, and Tamil Nadu Agriculture University, Coimbatore. Now the genes of this little bacterium can freely integrate with our body. Totally unrestricted and unaffected by our immune system. This is true bio-diversity integration.

We can definitely neglect the reports of soil infertility due to using Bt Cotton, animals dying by eating the Bt crops, fauna extinction. We the Indians are the super powers of the next generation. We need to prove to the whole world that we can be the best “guinea pigs” available on earth. Why go anywhere else, Indian soil and its inhabitants are the best test objects. We have the out of the world immunity power which can thwart off any bacterial or viral attack from inside our body.

Why stop at “Bacillus thuringiensis”, check the mutation with the hepatitis virus, or AIDS virus, with these viruses as part of our body, we will enhance our capabilities against these diseases. Then India will be the only AIDS free nation in the world. Even tough the western companies initially will conduct extensive trials with their proven medications and procedures; they won’t succeed in selling those drugs in Indian markets as we will be the AIDS resistant human species. All their money will be lost at treating the guinea pigs of India.

On the future developments front, we have very bright prospects for the Indian companies. We should stop at nothing and start integrating the genes which will build up our antennae like cockroaches, create highly sensitive nose like dog, eating machine like pigs which can survive on any shit.

HAIL, INDIA!!!

HAIL, OUR POLITICIANS!!!

You can read the following articles to get the latest update

http://ibnlive.in.com/news/not-so-scientific-bt-brinjal-report-full-of-errors/109519-11.html

One more news, we can have genetically modified forests too. And this time USA doesn’t want to stay behind, so they will experiment with forests.

http://www.scientificamerican.com/article.cfm?id=eucalyptus-genetically-modified-pine-tree-southwest-forest