I hope you bought a car, house, truckload of fuel and lot more before almost all prices rise from all fools’ day (April 1st), marking the beginning of a new (financial year), the year of the stag, short for stagflation. The Chinese did not think of a stag while choosing animals for their years albeit they invented paper money, the mother of stagflation.
Some defining features of the year of stag are:
1) Everything except your real income grows.
2) When you ask for a pay raise, you might hear your boss say, “Not now, growth has slowed down.”
3) When you complain about hike in prices, the seller (at the shop) might tell you “From taxes to demand, everything is growing”.
4) You feel someone is lying and might suspect your boss.
Stag relishes printed money and arrives when there is an abundance of it. Unlike a Panda that just eats, shoots and leaves, a stag eats (your income and peace of mind), hits on you (‘s’ could be a prefix as well as, a suffix to ‘hit’ and it would be more apt) and does not leave. The year of the stag could be followed by yet another year of the stag. The moot question that most of you could be thinking about might be, “how to get rid of it?”
To answer that, we might have to know more about stag and its life cycle. It begins with greed of the manipulators and foolishness of the masses. In a normal world people tend to buy what they need and do some window shopping of what they wish to have. This is a scenario that you would desperately wish to change if you were the marketing head of your company.
In the halcyon days, companies competed with each other for that little pie of demand from consumers who just came to buy what they needed and were cost and quality conscious. As for everything other than their needs, they were happy with window shopping. Repairing shops were more common place than malls. ‘Low costing’ and ‘long lasting’ were the buzz words that attracted buyers.
One day a brilliant guy from some top notch business school came up with an idea and a slogan, “Your life is short so why wait, exchange your yesterday for today, buy, buy, buy”. S/he actually means “My life is short, please do not make me wait and work hard and live in poverty today and die tomorrow”.
The slogan mobilized the masses only after it caught the imagination of a new generation of (top notch business school bred) bankers. Banking was a very boring job when only a few qualified for loans. Only those who invested in innovation and production were given loans at an interest rate of 10% and the savers were paid about 7% on their deposits and the banker had to be content with the difference of 3%. The dynamic and young bankers let loose the standards and suddenly everyone could qualify for a loan. The new paradigm for performance evaluation became ‘ask not how much (lent money) I could recover, ask how much I could lend from the bank’.
‘If wishes were horses, beggars would ride’ is cliché, the new version is ‘if bankers are Santas (Santa clause), beggars would shop. Windows that stood between buying and window shopping were broken and people got the latest gizmos, houses and a lot more that they could never afford to buy and the marketers could never dream of selling.
‘Long lasting’ and ‘low costing’ were replaced with ‘get it now, before the next model arrives’ and “chuck what you got now, as the next model has arrived”, be it a phone, TV, car, house or even spouse. Greed and foolishness cannot sustain for long and banks lost a lot of money they lent to beggars. They then blackmailed the governments to play God and make good of their losses or else face hell resulting from an abrupt halt to all financial transactions. The bankers in USA came up with this innovation during the financial crisis in late 2008.
Threatening ‘God with hell’ is so ‘out of the box’ in innovation that may be only an American banker could do it. Their innovation paid handsomely and the governments across the world asked their central/reserve banks to print (often electronically) tonnes (trillions in financial terms) of cash and then delivered it to the banks.
Creation of tonnes of fodder/trillions of dollar(s) lured the Stag just as the lush greenery invites wilder beasts and other herbivores to the Serengeti plains in Africa every rainy season. Paper money might grow on tree, but trees need land, water, air and a lot more to grow. This ‘lot more’ is a limited resource on this planet. When limited resources meet unlimited money, a price tornado occurs. Prices rise into the sky, just like debris caught in a tornado. I am sorry for flipping from animal planet to the weather channel.
When prices are rising every day, people tend to buy as much as they can today. But this can last as long as they are able to buy. When banks stop lending and prices keep rising, people and companies start falling by the way side as does debris after the tornado chews it and throws out. May be, your boss could be telling you the truth about slowing or reversing growth.
The governments that printed a lot of money also get caught in the price tornado and unlike their bosses (people who vote them to power and are supposed to be supreme), they do not have to ‘beg for a pay hike’ they just ‘bug you with tax hike’. So the shopkeeper could also be telling you the truth about higher prices due to demand and taxes.
The only way to drive the stag away is by innovation and hunkering down. Hiding in an underground bunker is an innovation that saves lives from a raging tornado. Buying only what you need and investing the rest of your money in something that is really long lasting like gold is one way of avoiding the stag that eats (paper money) and hits (now, you know you can add another s). ‘Less luggage, more comfort’, as per a wise traveler and ‘Less trinkets, more gold’, opines a prudent investor.
It is Halloween time in the developed world as they are seeing the ghosts of 1920s and 30s emerge of out their graves. In the USA it was called depression and Ben Bernanke, chairman of their FED (federal reserve/reserve bank) thinks it was due to inadequate money supply from the FED that caused the depression.
In Germany it is called hyperinflation and most of the old timers of Deutschland know the ill effects of printing paper money. The final outcome was a demagogue called Hitler and rest is (always) shown on the history channel. They see it repeating across most of Europe, as their chancellor; Angela Merkel is intent on feeding the PIIGS with tonnes of fodder, trillions of euros as bailout money for Portugal, Ireland, Italy, Greece and Spain (PIIGS).
China had to bite the bullet of reality. Confucianism seems to have replaced consumerism as the leaders talk about being ‘content’ with just 7% growth after a decade of double digit growth of the economy. Is the world running out of fools who can be sold trinkets? Certainly not, but may be the greedy manipulators have stopped lending to fools.
Uncle GOGOI (Good/grumpy old Govt. of India) seems to have become the address for every imaginable financial problem in the world. From falling income and gold reserves, to increasing debt and deficits and threats of sanctions from USA for importing oil from Iran and news about newer and bigger scams every day. Increasing the tax rates often leads to higher evasion and lower income for uncle Gogoi. Paying gold for oil from Iran is depleting the gold reserves as well as increasing the wrath of Uncle SAM (US government). To avoid importing oil from Iran, domestic demand for fuel can be curbed efficiently with a massive price hike, but elimination of subsidies on fuel is tantamount to political suicide.
Thinking of economic reforms is a vice in India, just like the game of dice in the legendary epic, Mahabharata. Any major reforms would mean at least a decade of (political) banishment to the wilderness (Vanvaas) like the Pandavas. Yudhistir/Dharmraj and P.V.Narasimha Rao are not in our midst anymore but you can definitely ask the former Prime minister (uncle Gogoi from 1998-2004), A.B. Vajpayee before he joins his predecessors in heaven.
Indians get ready for shortages (of fuel) and outages (of power) in the year of the stag, as the demand and supply mechanism is broken by uncle Gogoi. When demand increases, price has to increase. If it is not allowed to increase the supply decreases as sellers do not like losses. When your boss does not give you a pay hike but warns of a ‘pink slip’ (firing) and the going gets tough, think about the tough like Diesel Prabhu who get going.
Dinakarananda wishes you a very happy Ramnavami and lots of profits through prudent investing in the year of the stag-flation.