A loan without a collateral is a debt and a bet about the donor being a dunce. ‘Gold is the currency of kings; silver is the currency of gentlemen; barter is the currency of peasants, and debt is the currency of slaves’, an adage from time immemorial. During the days of gold standard in global economy, sovereign states exchanged gold while citizens used silver and barter as a means of exchange. A promissory note was taken from a person with nothing else to mortgage. Most of them ended up as slaves.
If you lend money to someone weaker, you get a slave and if you lend to someone stronger than you then you become a slave. It is as simple as that. Germany is in the former category while China falls in the latter.
One of greatest pleasures for most people is spending other people’s money and subsequently the greatest pain is felt when they run out of it. Margaret Thatcher (first woman prime minister of UK) called it ‘the socialist disease’ but in this millennium, it has become the real definition of democracy /welfare state.
Economic booms happen when a lot of people get access to spend other people’s money and recessions occur when that spigot of money is closed. This holds true for a commoner as well as a country. In general, consumption skyrockets when an individual person gets access to a fortune by way of inheritance from a rich ancestor, discovery of a hidden treasure, a lucky lottery or even heist. In case of a country, this happens when some other country gets confused about the difference between donating and lending. The receiver considers it as a donation while the giver harbors a false belief of a loan. Payback time is when it gets ugly as the differences in perceptions become apparent.
China and Germany are in the same boat albeit in different worlds in more ways than one. The former is an emerging economy (euphemism for a country with widespread hunger and poverty) while the latter belongs to the ‘developed world’. They are in a boat named lenders or fools as per individual interpretation. They gave away their produce to wily consumers in other countries to generate employment in their countries and are now facing the hard task of recovering money from almost everyone on the planet. If you lend money to a friend you might lose both but if you lend money to a government/country you would definitely lose it. Finding God or aliens is much more easy than recovering money from spendthrift countries and the Germans and Chinese are learning it the hard way.
Germany is having a very tough time recovering money from a relatively small and (militarily) weak country like Greece even after imposing its diktat in the form of austerity measures and is now gradually coming to terms with accepting its foolishness. China has no hope at all when it comes to recovering money, as the donee is a much bigger and (militarily) stronger USA.
How can consumption increase GDP of a country? This conundrum puzzles dimwits like Dinakarananda. GDP is an acronym for gross domestic product not gross domestic consumption. If an individual/ country consumes a lot more than one/it produces then by simple logic one’s/it’s upkeep should lead to one’s/it’s downfall. This is the general rule but there are exceptions and fools masquerading as investors.
The market is designed to deplete the unthinking of their wealth and reward those who question the consensus. The consensus among the investors (mostly foreign institutions, FII) in India is that there would be a great leap in India’s GDP growth when consumption of 1.2 billion people skyrockets. Very few question this belief as it has become almost religious. Most of them copy a line from the disclaimer of mutual funds, ‘past record is not an indicator of future performance’.
The only variable that is and can be changed in India is monetary policy, which in plain words means benchmark interest rates set by the reserve bank of India (RBI). Unlike USA, any growth of consumption in India leads to a massive hike in inflation, which ultimately leads to a steep decline of GDP (gross domestic product) number. Even a good monsoon is unable to control inflation and monetary policy is also losing its bite. Investors in gold can expect golden days ahead as it would be inflation not growth that is skyrocketing due to increasing consumption.
Prudent investors need to avoid becoming slaves by joining the crowd without question the consensus. To be a king (with gold) or a slave (with debt) is an individual choice. Dinakarananda wishes all of you a happy Diwali and a profitable new year (Samavat 2068).