How about a world in which you can get an Olympic medal, a Nobel prize, a University degree, your annual salary or anything you like first and work for it later. Most of us would dismiss it as (a Utopian) daydream. When a person is allowed to get every comfort/luxury in life first and is then asked to pay for it, most people search for ways to avoid paying (the EMIs). Prosperity and austerity are two sides of the same coin. When prosperity follows austerity, it is welcome by everyone but when austerity follows prosperity, almost everyone tries to run away from the situation in every possible way and direction.
Occasionally, some species of whales are found beached on a shore. One of the reasons for those denizens of the deep sea to be found helpless and out of water, is believed to be their greed. They come dangerously close to the sea shore for easy and abundant prey. Perhaps the greed for more makes them unmindful of the gradual ebbing of the tide. During low tide, the great predators of the deep sea become prey of terrestrial animals. The behavior of major banks in almost every (so called) developed country is, in some ways, similar to that of these greedy whales. Most of the major banks indulged in financially dangerous and highly risky practices, out of sheer greed during the times of prosperity and found themselves stranded (beached) as soon as prosperity dried out and austerity blazed in. Unlike the whales, these banks can and do continue to blackmail the politicians in their countries with financial Armageddon to obtain getting t(rilli)ons as bailouts to sustain and prosper. If only the beached whales could blackmail us into rescuing them, they would have made us dig long and deep trenches to let the seawater float them again.
“The mind … can make hell of out heaven and heaven out of hell” opined John Milton in his magnum opus, Paradise Lost. The shuddering thought of impending austerity during the final days of prosperity is what drives some people to suicide and perhaps that is what ‘hell out of heaven’ could mean in modern times. The hope of prosperity and good times ahead could keep the prisoners in Hitler’s concentration camps alive and may be that is what heaven out of hell might mean.
Greece and almost all of Europe is going through the ‘hell of out heaven’ phase as their cherished but unviable hope called ‘welfare state’ is drying out under the blaze of economic reality. Welfare state is the modern name of socialism, where one can vote and expect to get something for nothing (a free lunch). After the (wo)man on the street, it is now the time for politicians in power to lose their jobs and careers as voters in country after country, vote out anyone who remotely hints about the dawn of economic reality and the end of welfare state.
In Europe, Greece is always the harbinger, be it democracy or a welfare state and now reality. One the 17th of June Greeks have a Hobson’s choice as they vote for a new government. Albeit they wish to vote out austerity, the only issue that is on the ballot is sovereignty. They have to choose between, being in the European Union and agreeing to austerity plans designed and implemented by Germany or to get out of the union and have their own austerity plans with their own devalued currency, the drachma. On the last day of May, the Irish expressed their preference for a German imposed austerity over their indigenous version. Can a country that prefers to import austerity plans ever become self-sufficient? Perhaps no one could be happier than Hitler, as countries in Europe are voluntarily giving up their sovereignty to obey commands from Berlin.
It would be a great delight if fools and food come searching for you instead of the other way round. It is an election year in the country that runs the greatest empire the world has ever witnessed and everyone is paying their allegiance by buying the reserve currency of the empire, US dollar. Nothing delights the US FED (federal reserve) more than printing t(rilli)ons of dollars out of thin air and then dumping them on the world. The dire scenario of recession and austerity across the world is driving fools towards the US dollar and setting the scene for them to be fooled once again.
People across the world are willfully donating their hard earned income to Uncle SAM (US Government) as they run for the safety of a liquid asset, US dollar. Albeit liquid (abundant), it is not an asset but a liability. Everyone who holds a US Dollar promises to repay the US government’s debt with his/her hard work.
The greatest fool could be China, donating three trillion dollars of hard work (of the Chinese people) to Uncle SAM’s extravaganza. How would it feel to donate your hard work to your boss who tries to contain and cage you? The US Navy is flexing it muscle in the Pacific Ocean and the south China sea fuelled by dollars deposited by the Chinese. May be the Chinese have a word that means slavery, just as the Germans invented a word, ‘Schadenfreude’, to describe their delight as they watch the plight of those are willfully accepting austerity for the euro.
Recession is when you cannot afford a (German) BMW car; depression is when you cannot buy Chinese goods. May be it is the 21st century version of Ronald Reagan’s definition, “Recession is when your neighbor loses his job. Depression is when you lose yours.”
Chinese economy is cooling down as the world is unable to import Chinese goods even at ‘everyday lower prices’. Strangely, China seems to be in no mood now, to unveil another superlative (biggest, greatest…) stimulus plan to boost the economy. May be the bankrupt Chinese banks, sustaining on state support are like scars on our body reminding us of a major accident. In 2008-9, all banks were commandeered by the people(’s congress) to lend t(rilli)ons of Renminbi (Yuan) to anything and everything that looked like an infrastructure project.
Now all that remains of that infrastructure boom are infrangible liabilities on the balance sheets of state owned banks and unused structures in many ghost towns like Ordos. When China cannot export goods, it does not import raw materials and that affects the economies of the ore and oil exporters like Australia and Russia. China is back to using its time tested strategy of currency devaluation to help itself out of the economic slowdown much to the chagrin of the rest of the world.
While USA, EU, China and a few others try hard to devalue their currencies to keep their economies afloat, India and Pakistan are so lucky that they do not even have to try; their rupees are on an autopilot (nosedive) mode. Unfortunately these arch-rivals on the Indian subcontinent are unable to profit from their (currency devaluation) luck, as they consume more than they produce. Almost a billion people in this region live on less than 2 dollars a day and work hard to produce more than what they consume, while their governments and politicians do all the consumption.
After a few years of rapid economic growth on the back of globalization coupled with money pumping by the US, these countries seem to be quietly returning to their ‘Hindu rate of growth’ (a term coined by an Indian economist, Raj Krishna) of about 3.5% per annum. Pakistan might have an objection about the word Hindu or India, so we might as well call it the ‘Hindi/Hindustani rate of growth’ as movies Hindi/Hindustani are immensely popular in both the countries just like the Hindi/Hindustani rate of growth. It is the most acceptable and popular rate of growth. There were some leaders/politicians who tried to meddle with it to improve it to 9% or even higher but, the reforms that were needed for a 9% or higher growth, were/are immensely unpopular and those leaders and their plans are now history and no one wants to remember them.
Now the obvious question, what do I make out of all this? Invest in something safe and long lasting. If you count yourselves among those that get going when the going gets tough then, you need to get something that starts glittering when the economy is sinking, Gold. If you are a nimble trader with a good risk appetite, the current volatile markets might be the perfect hunting grounds for you to make a profit. Dinakarananda wishes you a golden future and prudent/profitable investing in June.
Written By Arthayantra