Posted by: Shiv Muttoo | April 4, 2009

Promise of a New Day?


Flashback to the brilliant blockbuster from a quarter of a century back, Ghostbusters (1984), which had a group of psychotic professors in jumpsuits, totting fancy atomic guns bent upon ridding the world of all paranormal activity. End of movie, all ghosts, ghouls, gargoyles, et al in question were sent packing and all was well with the world (at least with New York, the centre of the universe).

The camera zooms to the present. A group of 20 seemingly important men and women bent upon whacking the stuffing out of the global economic crisis, the new age paranormal showspoiler. Armed with their economic stimulus bazooka, they will infuse the ultimate elixir to rid the global economy of all its wrongs. And all will be well with the world. Or will it?

While the going was good, everyone joined the party and policymakers conveniently looked the other way. But now it sure is broke and needs a quick fix.

And the remedy is a $ 1 trillion POTA (pulled out of thin air) package. The world will see more federally-backed, gilt-edged IOUs (currency notes) chasing a limited supply of hard resources. The fact that most of the G-20 recession fighters are deep in deficit does not seem to deter anyone. After all, balancing accounts may be out of our reach but the currency printing equipment sits right in our backyard. Who cares if this is inflationary, deflated demand from a recession-hit world will surely keep prices down. At least till such time that the current set is in their current jobs.

I understand that America’s $ 14 trillion economy owes $ 60 trillion. If this is even remotely close to the truth, there’s no hope in hell of a payback happening. It’s not only the U.S., most of the developed world and EU is caught in the same whirlpool. Many of these countries are far more leveraged than the U.S. and therefore at greater risk of capitulation. A significant currency deflation is the only chance to get a foot in the door and somehow squeeze through it. I suspect that next we’ll see a race to deflate currencies by the world’s leading nations. Savers will see the value of their corpuses shrinking as inflated prices and deflated currencies eat into them.

And where’s India in this melee? Being part of the G-20, and ably guided by a wise and wonderful prime minister (Barack Obama, no less, says so!), India is a key Ghostbuster, soon to lay the world economy’s gremlins to rest. What are we armed with? Quarterly current account deficit of almost $ 15 billion in the third quarter and rising. Balance of Payments deficit of $ 18 billion last quarter for the first time in many years, driven by a reversal in the trend of strong global inflows. Repatriating deposits parked in international tax havens (India has a leading share of over 10% in this $ 10 trillion market) could be the source of some succor in these cash-deprived times. But whenever there is an opportunity to push this forward, our Government has tended to look the other way. No prizes for guessing why!

So, as Alan Parsons asked, where do we go from here? The Great Shenanigans Show (the general elections) is about to unravel. Divide and Rule, as a concept, did not really fade away with the British. It’s very alive much alive, being practiced everyday by our political masters, and will soon kick us into submission. A Government even more populist than the current one (is that possible, you may ask?) is about to descend upon us. Law abiding citizens of this country, however few and far between, are in for a further round of screw tightening. Not even the Ghostbusters can do much good in this situation.

So just take a short on equities, take refuge in the primary source, and hope for the best.

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