Every duck prefers to sit until and unless motivated by some primal force and moves in the direction of that force.’ This could have been ‘Newin’s law’ if only Darwin and Newton worked together across specializations and time periods. May be they left it for Dinakarananda to put the pieces of the puzzle together. On closer inspection this law seems to be applicable even to most humans, despite millions of years of evolution from the duck, especially when it comes to financial matters.
Most people are generally reactive rather than proactive and prefer following the flock. This strategy gives them a feeling of relative security of a group. From a hunter’s viewpoint shooting at a flock is easy and more rewarding than a lone flying duck. The duck/hunter could be a person(s), organization, government or a country.
At a global level, Uncle Sam (USA) appears to be the hunter while most of the EU (European union) and Asia seem to be two flocks of ducks. Two birds at one shot is cliché, Dinakarananda takes the liberty of modifying it as ‘two flocks at one shot.’ Almost all the countries in the European union have massive amounts of debt that they have no intention or wherewithal to pay. They form the flock of debt ducks. Paying down debt was, is and will remain a very tough call. It calls for a drastic change in lifestyle and severe austerity for years or even decades. Austerity means hardship for the general population and a political suicide for those at the helm of affairs in any country.
Austerity does not mean a measly 5% spending cut in budget as most leaders in Europe are bragging about but a 95% cut. Greece or any debt-laden country in the region can pay down its debt if and only if their citizens live like monks with a missionary zeal or serfs in the erstwhile Siberian gulags to become debt free. Default is an easy way out, but it would mean a severely devalued credibility and currency and very high cost of living for a few years to a decade. Just like all religions lead to one God, all paths seem to be leading the Europeans to austerity. When people are rioting and protesting in the streets across Europe even for a 5% spending cut in budget, politicians do not want to imagine the Armageddon scenario when that 5% needs to be replaced by 95%. It is not a matter of if but when.
For the present, they are all flocking together to find out a solution. All those meetings yield nothing more than news bytes and some evanescent euphoria in otherwise gloomy stock markets.
Most Asian countries have surplus cash (mostly as US dollars) and they are in search of some exotic investment destinations. Investing those dollars in domestic ventures would make them lose their competitive edge in export markets due to a very strong sovereign currency.
In simple parlance any such action would lead to a situation of too many dollars and too few Rupees/Renminbi/Won/Baht/Ringgit… and the list goes on. This would cause the relative value of the US dollar in terms of the local currency to plunge, leading to cheaper imports and costlier exports and a resultant increase in unemployment in these countries. Inflation is not perceived as highly dangerous as it hurts the savers, generally senior citizens who cannot create mayhem in the streets. Unemployment hurts the youth and there is nothing more dangerous to, everything from windowpanes to political careers than angry, unemployed youth. For the present the politicians in Asia, the (dollar) rich ducks are flocking together and opting for rampant inflation over massive unemployment by searching ways and means to keep their dollar reserves intact.
‘From each according to his capacity to each according to his need’ is what Karl Marx could suggest as a solution to the two flocks of ducks, the debt ducks and the dollar ducks. If Europe has debt and Asia has money that needs to be invested, why not transfer a few trillion dollars to Europe from Asia and ‘lo and behold’, everyone can be happy.
Things get ugly when the rich ducks start thinking like Shakespeare’s Shylock and ask the debt ducks for a collateral of not just ‘a pound of flesh’ but tonnes of gold. European union countries are presumed to possess about eight thousand tonnes of gold (8,000,000,000 grams). Only Wikileaks might be able to validate that presumption as the gold reserves are shrouded in secrecy and never audited in public even though it is taxpayer money sitting in the vaults in the form of gold. ‘Whose vaults?’ is a good question and we might have to leave it to Wikileaks to find an answer. The debts ducks want money without a collateral and the rich ducks are unwilling to lend without it and that my friend is the present global financial crisis in a nutshell at a sovereign level.
‘Making a buck off a crisis is as American as apple pie’, the scene is perfectly set for Uncle Sam (USA), the hunter to enter. The Fed (US Federal reserve) can transfer a few trillion dollars to the debt ducks and buy their allegiance and end all competition from euro, as an alternative global currency. These trillions of dollars would devalue the dollar assets accumulated by the rich ducks and create massive inflation in Asia. The resultant civil unrest would be a great opportunity for Uncle Sam (USA), the hunter to ‘liberate’ new countries just like Libya in 2011. Two flocks at one shot and operation ‘financial domination’ would be a grand success.
USA has no qualms about defaulting by printing dollars. It has been doing so for about four decades now (since August 15, 1971) and as the US dollar is the reserve currency of the world, everyone except Americans, bears the burden of an American default.
Dinakarananda has been unsuccessful in buying something with nothing more than pieces of paper bearing the images of his ancestors and with “In God you trust” written on it.
USA is able to carry it off with ‘In God we trust’, printed on rectangular pieces of green paper they call dollars. In reality they mean ‘In God you trust’, it is your only option as we would never pay in Gold’.
Gold, in a way, is like the road in the financial world while fiat currencies are like cars racing on that road. The rate of printing is akin to the speed of the car; the distance covered by a particular car is akin to the value of gold in that specific currency. The faster a country prints money, the higher would be the (distance covered by the car), value of gold in terms of its currency. To get a better idea about the relative positions of the cars (currencies) in the race in real time, one can look up.
India is a not so rich duck in Asia and inflation remains not only chronic but is also getting acute by the day. It is up to individual investors to choose what they want to be, duck or hunter? If you have to be a duck, it is better to fly alone than be in a flock when it comes to financial decisions. Gold has completed its correction phase and is now gaining, thanks to the debt ducks in Europe. The correction was just about 8% and lasted about 45 days. It could be called relatively stable when compared with the highly volatile equity markets.
Dinakarananda wishes you a happy Eid ul Zuha and profitable investing and it would help to remember Newin’s (or shall we say Dinakarananda’s)