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One Percent versus Ninety Nine Percent: A Debate

INDIA DOESN’T NEED FDI IN RETAIL TO GROW — Joseph Stiglitz

Nobel Laureate of 2001 in Economic Joseph Stiglitz (who shared it with two more), presently Professor at University of Columbia, is  credited with starting the “1% versus 99%” debate. The Columbia University professor talks about his latest book, “The Price of Inequality”, in which he argues that economic inequality leads to instability

• The title of the book reflects a view that counters the right-wing argument that inequality may be a bad thing but to do anything about inequality is to kill the goose that lays golden eggs. Inequality is bad for economy, democracy and society. Much of the inequality in the US arises out of rent-seeking —monopoly, exploitive practices by banks and corporate exploitation of public resources. In the Indian context, you will call it corruption but we call it corruption American style, where you give away natural resources below market prices. India is doing it now but America has a long history of doing this.

There is a clear association between inequality and instability. People at the top don’t spend too much, they save a lot but people at the bottom spend everything. So you redistribute income from the bottom to the top and demand goes down. That makes an economy weak. That is what happened in the US. We would have had a weaker economy, but the Feds stepped in by creating a bubble that created more demand to offset the demand that was going down. Of course, creating a bubble was creating instability.

• Stiglitz confessed that both the IMF and the UN commission that I chaired came to the conclusion that inequality was one of the major causes for the crisis. It is not the direct, precipitating cause that bad lending was, but bad lending was a result of deregulation and the interest rates that were itself a result of inequality. If we don’t improve inequality and don’t do something else, it is going to be hard to get back to robust growth and prosperity. We are likely to have another housing bubble.

• He further opines, that in the presidential debates none of the candidates have mentioned the word ‘inequality’ as American politics is money-intensive and money-driven. Each of the candidates is expected to spend a billion dollars. When you spend so much, you have to go where the money is, and money in America is at the top. Therefore it is not a surprise that in the campaign you don’t hear a lot of discussion about inequality and the 1%. You don’t bite the hand that is feeding you in the middle of an election.

• He say that this debate may last or  may remain a phrase, he is not sure of, but it will be a part of America unless the problem of inequality gets addressed. It is just not that the top 1% get three to four times more that what they got in the 1980s, but the middle class today is worse off. When you have this degree of stagnation in the middle, there will be an expression through the political process.

• Stiglitz feels that GDP is not a real measure (or say per capita income) of development. he says that, I haven’t looked at India exactly, but it has strong implication for every country. In the case of China, if you take into account the environmental degradation and resource depletion, growth is much less than what it seems. You need that debate in India. Your GDP is going up, you have per capita highest number of billionaires but at the same time you have many people in poverty. So the GDP per capita doesn’t capture what is happening. In India, the progress in the middle and at the bottom has been less than what GDP in itself would like you to believe.

• When asked about the current issue in Indian Economy, that is FDI in retail, he puts it this way.  The advocates of FDI have probably put too much emphasis on it. India is in a different position than a small, developing country. You have a large pool of entrepreneurs. They are globally savvy, have access to global technology and they have a lot of wealth. So, if there were large returns to large-scale supermarkets, the domestic industry would have supplied it. Not having access to FDI is not an impediment in India. Wal-Mart is able to procure many goods at lower prices than others because of the huge buying power they have and will use that power to bring Chinese goods to India to displace Indian production. So the worry is not so much about the displacement of the small retail store but displacement further down the supply chain.

When an argument that ‘But big chains may create more jobs’; he told that  some of the profits of companies like Wal-Mart come from free riding on our society. They don’t provide healthcare benefits and assume that the spouses of the workers get healthcare benefits from their other employees or through some other mechanism. They might not be a good employer.

Always Yours — As Usual —- Saurabh Singh

Source: TOI

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State of the World Economy

Backdrop
The IMF believes that global prospects are gradually strengthening after the setback during 2011, though downside risks remain.  This is mainly due to improved economic activity in USA during the second half of

2011 and pursuance of more effective policies in the euro area which have reduced the threat of a sharp global  slowdown. Accordingly it is expected that there will be a weak recovery in the major advanced economies  while  there  will  be  relatively  more  solid  support  from  most  emerging  and  developing economies.

Fundamentals

Global growth is projected to drop from 4% in 2011 to 3.5% in 2012 because of weak activity during the second half of 2011 and the first half of 2012. However, growth is expected to revert to the 2011 level in

2013 when hopefully the pending issues are ironed out successfully especially by the developed nations. Policy  has  played  an  important  role  in  lowering  systemic  risk  such  as  ECB’s  three-year  longer-term refinancing operations (LTROs), aggressive fiscal adjustment programs, and the launch of major product and labor market  reforms. This has to an extent helped to stabilize conditions in the euro area thus relieving pressure on banks and sovereigns.

The euro area is still projected to go into a mild recession in 2012 as a result of the

o  sovereign debt crisis and a general loss of confidence,

o  effects of bank deleveraging on the real economy, and,

o  pressure of fiscal consolidation in response to market pressures.

Overall growth is expected to turnaround in 2013, while 2012 will remain a year of cautious uncertainty given the risk factors involved. Advanced economies as a group would expand by about 1.5% in 2012 and by 2% in 2013. This would be an improvement over the 2011 level too. Italy however, is expected to still be in the negative territory  with the recession getting protracted for another year. Japan on the other hand is to take lead in terms of growth in 2012 along with USA, but slowdown marginally in 2013.

Real GDP growth in the developing economies is projected to slowdown from 6.25% in 2011 to 5.75% in

2012 but recover to 6% in 2013, helped by easier macroeconomic policies and strengthening foreign demand. Both China and India are expected to slowdown in 2012 though the ASEAN group will continue to grow steadily in both 2012 and 2013.

Inflation  however,  is  expected  to  come  down  in  both  2012  and  2013  for  both  the  advanced  and developing nations, reflecting the tempering of commodity prices in the face of feeble economic growth  in 2012.

The recovery process

Markets have been worried about fiscal sustainability in Italy and Spain all through 2011 which led to a sharp increase in  sovereign yields. With the value of some of the banks’ assets in doubt there was apprehension on whether those banks would be able to convince investors to roll over their loans. This lead to freezing of credit which in turn resulted in erosion in confidence as activity slumped. Strong policy responses however turned things around. Elections in Spain and the  appointment of a new Prime Minister in Italy gave some reassurance to investors. The adoption of a fiscal compact showed the commitment of EU members to dealing with their deficits and debt. Most important, the provision of liquidity by the ECB removed short-term bank rollover risk, which in turn decreased pressure on sovereign bonds. Some of the reforms seen were:

o  The European Central Bank provided unlimited, collateralized three-year liquidity to banks which eased bank funding strains and contained the risk of illiquidity-driven bank failures.

o  Governments in several countries, notably Italy and Spain, worked to reduce fiscal deficits.

o  Ireland and Portugal made good progress in implementing their structural adjustment programs.

o  Greece came to a major agreement to restructure debt held by the private sector, and a successor program has been agreed with the European Commission, the European Central Bank (ECB), and the IMF, and approved by both euro area member states and the IMF.

o  Euro area banks are in the process of securing stronger capital positions under a European Banking

Authority (EBA)-coordinated initiative.

The concerns

There could however be two main brakes on growth: fiscal consolidation and bank deleveraging. While both are needed   today,  they  will  most  certainly  decrease  growth  in  the  short  term.  Fiscal  consolidation  is  being implemented in  most advanced economies while bank de-leveraging is affecting primarily Europe. While such de-leveraging does  not  necessarily  imply  lower  credit  to  the  private sector, the  evidence  suggests  that  it  is contributing to a tighter credit supply.

How about emerging economies?

Emerging economies are not immune to these developments even though it does appear that they are decoupled in terms of pace of growth. Low advanced economy growth has meant lower export growth for them. Further financial uncertainty, together with sharp shifts in risk appetite, has led to volatile capital flows impacting their balance of payments and  exchange rates. However, it has been observed that generally these countries had enough policy room to maintain stable growth. But, some countries need to watch overheating, while others still have a negative output gap and can use policy to sustain growth.

Major risks

Some of the risks that the global economy faces are quite different from the normal ones.

o  Geopolitical tension affecting the oil market is the obvious and known risk. An increase in these prices by about 50 % would lower global output by 1.25%.

o  Another acute crisis in Europe is an unknown one and given the developments that have taken place in

2011, can never be ruled out. Further escalation of the euro area crisis will cause output to decline by 2%

and 3.5% over a two-year horizon.

o  Balancing  the  adverse  short-term  effects  of  fiscal  consolidation  and  bank  deleveraging  versus  their favorable long-term effects. Excessive tight macroeconomic policies could push the major economies into sustained deflation or a prolonged period of very weak activity.

·    In the case of fiscal policy, the issue is complicated by the pressure from markets for immediate fiscal consolidation. Markets ask for fiscal consolidation but react badly when consolidation leads to lower growth.

·    Deleveraging can lead to a credit crunch, either at home or abroad. Partial public recapitalization of banks does not appear to be on the agenda anymore, but perhaps should be.

o  A latent risk could be the disruption in global bond and currency markets as a result of high budget deficits and debt in Japan and United States and rapidly slowing activity in some emerging economies.

Policy thrust

Measures should be taken to decrease the links between sovereigns and banks, creation of euro level deposit insurance,  bank crisis resolution, and introduction of limited forms of Eurobonds including the creation of a common euro bill market. These measures are urgently needed and can make a difference were another crisis to take place soon. In the euro area, the recent decision to combine the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF) is a good pragmatic move which will strengthen the European crisis mechanism and support the IMF’s efforts to bolster the global firewall.

In the United States and Japan, sufficient fiscal adjustment is planned over the near term but there is still an urgent  need  for  strong,  sustainable  fiscal  consolidation  paths  over  the  medium  term.  Also,  given  very  low domestic inflation  pressure, further monetary easing may be needed in Japan to ensure that it achieves its inflation objective over the medium term.

How about the developing countries?

Developing  economies  continue  to  reap  the  benefits  of  strong  macroeconomic  and  structural  policies,  but domestic vulnerabilities have been gradually building. Growth has been supported by rapid credit growth and high commodity prices.  To  the extent that credit growth is a manifestation of financial deepening, this has been positive for growth. But in most economies, credit cannot continue to expand at its present pace without raising serious concerns about the quality of bank lending. Further, commodity prices are unlikely to grow at the elevated pace witnessed over the past decade, which means that fiscal and other policies have to adapt to lower potential output growth.

The challenges  are  to  counter  the  impact  of  downside  risks  from  advanced economies,  ensuring that  their economies  do not overheat, control credit growth, tackle volatile capital flows, and have policies in place to counter inflation.   Monetary policymakers need to be vigilant that oil price hikes do not translate into broader inflation pressure, and fiscal policy must contain damage to public sector balance sheets by targeting subsidies only to the most vulnerable households. This will hold in our own context too.

Fiscal indicators

The performance of governments across the world has become an important concern today in the light of the sovereign  debt crisis that pervaded the euro region. The genesis lay in high unsustainable debt levels of the government that could not be serviced.
The table below gives the Government debt to GDP ratios for a set of countries in both the advanced and developing nations groups.
Table Containing GDP Data
Debt levels remain at a higher level for the advanced countries relative to those of the developing nations. These levels are not expected to change significantly for the advanced nations while those for the developing nations would be tending to move downwards.

A similar picture is obtained also on the fiscal deficit side (ratio of government balances to GDP), where levels are higher  for  the  advanced  nations,  which  however,  are  expected  to  move  downwards  on  account  of  fiscal consolidation (in Table -3 above). India’s fiscal balance is on the higher side within the set of developed nations covered here and is comparable with that of USA, Japan and UK.

—-Compiled and Presented [from Respective Sources for wider non-commercial circulation].

——————————————-Always Yours — As Usual —- Saurabh Singh

Food Price Shock May be in Wings

 

Consumers awoke this morning to a sharp rise in the price of gasoline. By next month, they may also be facing higher prices for two other everyday items – imported cooking oil and pulses – because of the weakness of the rupee.

India, the world’s largest importer of edible oil, has so far not felt the pinch as a fall in international prices for oil has largely offset the impact of the weakening currency. (A weak rupee means it takes more rupees to buy the oil, which is sold in dollars.)

However, with the rupee expected to slide further, analysts say it is just a matter of time before importers either hold off increasing imports even though the coming months are a time of peak consumption. They could even slow their imports, a move that would further tighten domestic supply. Either way, prices are likely to rise.

The rupee’s weakness “is definitely hitting us as it has increased our cost,” said B.V Mehta, executive director of the Solvent Extractors’ Association of India, a trade body for the edible oil industry. “Everybody will wait for the dust to settle on the rupee before increasing their imports.”

The total cost of cooking oil imports is expected to rise to about 500 billion rupees ($8.9 billion) in the year that began April 1, from 400 billion rupees in the previous 12 months, largely because of the fall in rupee value. Those higher costs are likely to be passed on to consumers.

A flattening or reduction of edible oil imports would be a sharp reversal. In the first six months of the marketing year that began Nov. 1, edible oil imports rose 31% from the same period a year earlier to 4.6 million tons.

Consumers also may be paying more for pulses, the main source of protein for a majority of the population, because of a similar dynamic.

“We have absorbed most the rising import costs so far, but if the rupee’s free fall continues we may have to stop imports or raise the prices,” said Bimal Kothari, vice president of the India Pulses and Grains Association.

The country imports around 3 million tons of the protein staple annually.

Prices of milk and poultry are also expected to rise because of a 50% jump in the cost of feed material.

One possible plus for consumers is that the monsoon rains are expected to be normal and that has brightened the crop prospects for other staples such as rice, oilseeds, sugar and domestically-grown pulses.

“The overall scenario doesn’t look too good in the coming months especially for the imported food items like edible oil and pulses,” said Naveen Mathur, associate director for commodities and currencies at Angel Broking. “The food prices may escalate further. It may go through the roof. [Compiled from DJ Reprints]

Always Yours — As Usual— Saurabh Singh

 

Has the Track been cleared …….for Policy Decisions, A Must for Economic Growth & Development

The counting of ballots and consequent declaration of results of Assembly General Elections 2012 held in five states of India on March 06, 2012 completed an important event in the process of Governance. Simultaneously, it also emphasized the importance of concept of Federalism for modern day democracy. On the other side of these developments, an increasing demand world over could be seen, India included, to incorporate or bring about a transformational change in the context to the ‘Governance’ issue.

It seems to be an apt time for revisiting to ensure that ‘Democracy’ as a system of governance adheres to its core attributes and the ‘Institutions’ erected to ensure its real spirit are capable of not alone performing the task, but also of representing the diversity, culture and socioeconomic issues and facets of the people, who have adopted such a system of governance.

It’s being expected by all concerned, that with culmination of Assembly General Elections 2012 of five states, functioning of Union Government would turn more efficient. Union government may now get free from the clutches of ‘Policy – Paralysis’ or ‘Stymied Decision Making Process’, which seemed to have become integral process of decision making by Union Government in Financial Year 2011 – 2012.    

Numerous issues of urgent importance, which were supposed to have been approved or rejected, are still there in cupboards of ministries, either awaiting their turn for being tabled in parliament, or are there in roll back mode awaiting the creation of elusive ‘consensus’. The post Assembly General Elections 2012 picture may not be pleasant to ruling coalition as Union Government, but it has certainly succeeded in putting an end to chaos, confusion or dilemmas born out of various presumptions and  self-fulfilling interests of a number of political parties.

The words, such as ‘Urgent’, ’Important’, ’Immediate’, ’Today ’and ‘Top Priority’ etc. have turned meaningless when seen in context of number of issues to be tabled, discussed and cleared or rejected by both the houses of Parliament, and also in the context of quantum of delay that has already occurred. Some issues out of them may be put, for purpose of illustration, as ‘FDI in Retail Sector’, ‘Direct Tax Reforms’, ‘Entry of Foreign Equity in Indian Airlines Industry’, ‘Issue of 4G Spectrum’, ‘Issue of Telangana’, ‘Creation of NCTC’, ‘Proposal on RPF’, ‘Issue of Inflation in Food Items’, ‘Deregulation of Prices of Petroleum Products’, ‘Land Leasing Bill or even Land Reforms Bills’, ‘Transforming Education in to Business’ and many more of the similar type.

The comments on issues are knowingly being avoided, as every single issue is important and also a subject matter to be covered in numerous articles, debates and deliberations. Certainly the same will be done, but the purpose here was to highlight the important issues pending approval of the parliament and also the evolution of Indian Political System and Governance as on date.

 

Always Yours —– As Usual —— Saurabh Singh

A FICTION: NOT FAR AWAY FROM RECENT FUTURE REALITY

A FICTION: NOT FAR AWAY FROM RECENT FUTURE REALITY

In late evening, when I had just pressed the shut down button of my workstation, a colleague of mine entered the office chamber (Officially allotted to me to work).Hello, was the first word uttered out by her and before I could ask the purpose, she herself expressed that she planned to have my company while walking back to home, at least the part of distance that was common to we both. I welcomed the idea and also thanked her for the same. Thus the journey homewards started. While on walk the momentary silence was done away by my colleague, when she requested the permission to ask question that was coming to her mind. I agreed to help her to the limited capacity of mine.Image- Bricks of Gold

 Probably it was the prices of yellow metal that were troubling her and my colleague wanted to know, where the prices are expected to move in future and why. This I am inferring from the talks that continued.

She started the conversation by posing her curiosity as ahead: “Where do you see the price of gold going in the days to come?”

Since, at that moment, I was not exactly focusing on ‘investment advisory’, so I responded by saying that “on a broad level, the price are supposed to continue their northward journey.”

It seems that my response confused her a bit, as she soon came up with another question that “what I mean, when I say a broad level.”

I got the point and then explained to her that “the prices of any commodity do not move in a straight line. When I say on a broad level, it means that the prices will keep moving northwards, but in between they may drop as well, but they will pick up again, and thus will continue to scale up.”

It seems, that she was not ready to buy anything that I said, therefore, she questioned that what lay behind my confidence, which she visualized while I was answering her first curiosity.

Suddenly I realized that majority of investors; rarely scan the external and vital economic variables that are often of political nature. This made me aware that now I need to go bit detailed and also in a manner that she could easily comprehend.

“Well, I was just reading through some material and I realized that there is another solid reason for gold prices to go up,” I told her.

“Is it something other than all the money printing that is happening and is likely to happen in the days to come, all around the world?” she asked.

“Yes”, I answered.

“So what is this new reason?” she was now more curious.Image - Gold with a Medival Painiting in Background

Now I started by posing a question as ahead “Ever heard of Hugo Chavez?” Pat came the reply, “nope” with a supplementary question that now who’s he?

He is the President of Venezuela, a country in South America.”                                

Probably she got a bit more confused and said that she knew that, but expressed her surprise on the issue that what “Venezuela” has got to do with the price of gold.

This made me aware that now my job was to explain history, international polity, and international trade, cost of transaction and accounting to her, and all this in very limited time of few minutes. I knew that I may be bombarded with whorls of questions.

 I started with letting her know that Venezuela has the 15th largest gold reserves in the world amounting to 401.1 tonnes. A lot of this gold is lying abroad in bImage - Golden Fairyanks in New York, London and Zurich.

“But why will a country keep its gold overseas?” she interrupted.

 I started to introduce her with history. I said that “a part of the reason comes from history. Till August 15, 1971, the world was on a gold standard. Paper currencies were ultimately convertible into gold. This meant that countries had to settle their deficits in gold.” I followed this by giving an instance from international trade. I asked her to assume that England and Germany are exporting and importing goods from each other. At the end if France exports more to England than England to France, there is a deficit.” This means that England had to pay France. This payment was to be made in gold. A look at her face made me feel that she has now started picking up what I was attempting to explain. I carried on by adding that “now this meant that gold had to be physically moved from England to France, which of course was a pain. Movement meant cost of insurance as well as security.”

Image - Gold being Transported via Air

She was prompt in asking that “what was the way out?”

 I added for these reasons “a lot of this gold is simply stored overseas at the Federal Reserve Bank of New York (a part of the Federal Reserve of the United States, the Central Bank of the US).”

“How do you think this is going to help?”

It’s simple; I added and just narrated what Peter Bernstein writes in his book “The Power of Gold”. For example, if England lost gold to France, a guard at the Federal Reserve had merely to bring a dolly to England’s closet, trundle the gold to the French closet, and note the change in the bookkeeping records.’

She got the point, and allowed my request to take her back to Hugo Chavez.

The deliberations continued further, certainly with some statistical inferences. Estimates suggest that nearly 211 tonnes of the 400-odd tonnes of gold that Venezuela has are with banks abroad. Chavez has asked this gold to repatriated back to Venezuela.”Image - Hugo Chavez Nationalises the Gold Mines

Now this brings a twist in the story, and the discussion to follow will also attempt to answer possible reason for Hugo Chavez’s such an act.

 “Chavez has had an anti-US stance for years and may feel that because of that Venezuela runs the risk of its gold being seized.”

“Gold Seized? Why would such happen and does the possibility of such an act exist?” was the latest in series of questions.

“It sure is. I explained the same by making her aware of the ongoing Libyan foreign exchange reserves crisis, which happens to be an outcome of its foreign reserves being seized by allied nations with declaration of war earlier this year.”

 “But what has all this got to do with the price of gold? To me it’s as simple as me wanting to have gold in my own locker rather than the bank locker.”

I agreed to her statement, while continuing to explain by adding that all is not that straightforward as concluded by her, though to some extent she was correct. The straight forward part of transaction would be limited to 99 tonnes of total 211 tonnes lying abroad, as this 99 tonnes are deposited with the Bank of England in London. Repatriating that back to Venezuela would be a straightforward process.”

Image - Gold Jewellary at Display

 Now comes the not so straight forward part, which happens to be of the tune of 112 tonnes of the gold and same is lying abroad with what are known as bullion banks. J P Morgan is one of them. Estimates suggest that Venezuelan gold worth $807 million (or around 450,000 ounces of gold) is lying with it.”

 She was instant, and argued that this should also be as straight forward as it is in the case of Bank of England, London, while simultaneously her facial expressions conveyed me that she wanted to know, if I dare to differ from her opinion. Certainly, I had to differ, and added that things are not always as simple as they seem to be. The statistics again came handy in quoting that “estimates suggest that the total amount of physical gold with J P Morgan currently stands at around 338,303 ounces (1 troy ounce equals 31.1 grams).”

Now, it seemed that she was out of reasons, as she expressed her ignorance about having to come across any news in media regarding, such a huge bank robbery in which approximately 1,11,697 ounce or 3473.8 kilo grams worth gold was looted.  I had to instantly chip in by saying that, this is not a case of bank lifting, but a way of functioning of financial system in general and banking sector in particular. Let me add an example to illustrate it? I sought her permission. The phenomenon goes as explained ahead [the attempt was to explain the process by making it as easy as possible, so that even a novice can understand].Image - Gold of Merchants in Various Weights put at London Central Bank

“Central banks around the world had a huge amount of gold lying in their vaults, not earning any return. The end of 2007 witnessed the stock of gold with central banks around the world rising to 32,000 tonnes of gold.”

 I requested her to be more attentive to whatever I was going to add now. Out of the 32,000 tonnes gold held, the Central Bank lent approximately 14,000 tonnes to Bullion Banks like J P Morgan. James Turk and John Rubino in their coauthored book The Collapse of the Dollar, have argued that “lending, for instance, involves the central bank transferring gold to a major private bank, known as bullion bank, which pays the central bank a small-but-positive interest rate, then sells the gold in the open market.”

In this manner “central banks convert the gold into cash and then deploy this cash, somewhere to earn some positive rate of return. This based on a very fundamental assumption that idle assets provide no return, and there is fair possibility that such assets may ultimately add up some cost to the holder.” These costs may range from cost of storage to cost of security. As per meaning conveyed by the operative word “lending”, since the gold has been lent, therefore, the central banks have all the rights to, and can demand it back, whenever they want.

She chipped in by adding that probably “this is what Venezuela is doing right now”; and thus conveyed me a feeling that she was sincerely following the every single word uttered by me. 

 I nodded in agreement and continued further by adding that, since, the bullion banks have promised to return the borrowed gold to the central banks so they will have to return the same. In prevailing situations these bullion banks are not having the volume of gold that was lent to them by Central Bank. In financial and monetary world, this position is conveyed by the term ‘short’, and this means that these bullion banks are ‘short’ gold.

Now comes a significant turn in events, that may work as catalyst to force the prices of gold to break the roof. As the situation deliberated above suggests that, in case, sometime in future, these bullion banks are asked to deposit the volume of  gold lent to them by central bank, they will be left with no choice and would be obligated to buy gold in order to repay the central banks’.”

“So, as I can get, it goes like, that in such a scenario the bullion banks like J P Morgan will now have to buy back gold from the market in order to repay the Venezuelan government, given the situation that Venezuela has around 450,000 ounces of gold deposited with J P Morgan, whereas J P Morgan at present has only 338,303 ounces of gold in its accounts/ record books,” she added.

Exactly, I said in agreement, and carried the deliberations forward by adding, that this buying will lead to the price of gold rising further. I knew that now she has got answer to her question, but then too, I continued it by saying that this is only one part of the story.

Much like a child, who is curious to know about everything, she was now eager to learn that what the remaining part of story was now. She requested me to unfold the other part of the story.

I continued by giving her a reference of a report titled “Thing That Make You Go Hmmm” , and told that this report points out, ‘Chavez’s move could set in motion a chain of events whereby Central banks who store the bulk of their gold overseas in ‘safe’ locations scramble to repossess their country’s true ‘wealth’. If that happens, the most high-stakes game of musical chairs the world has ever seen will have begun’,” I said.

“This sounds very scary”, she added.

Image - Gold derails the US $ and US Economy“Yes, you are very much correct while mentioning that the report further states that ‘any delay in repatriating Venezuela’s gold could potentially start a frantic scramble by central banks to claim their physical. God save the scenario, but if it actually happens, rest assured that gold price will be on fire. A scenario will take place, which has neither been seen in past, nor even imagined.

It will give birth to an economic tsunami of magnitude, which will turn the great economic recession witnessed by world or even the jasmine revolution and contribution of social media to same to seem dwarf.

Don’t be surprised if I that there is enough in media to believe U S Govt. Manufactured Fake Gold

Perhaps, there are only few who can imagine the magnitude of risk, specifically if they are not linked to foreign trade. Let me illustrate it. It’s one thing to counterfeit a twenty or hundred dollar bill. The amount of financial damage is usually limited to a specific region and only affects dozens of people and thousands of dollars. Secret Service agents quickly notify the banks on how to recognize these phony bills and retail outlets usually have procedures in place (such as special pens to test the paper) to stop their proliferation.

Image - U S Government Manufactured Fake Gold

This is the most sacred of all commodities because it is thought to be the most trusted reliable and valuable means of saving wealth.

A recent discovery — in October of 2009 — has been suppressed by the main stream media but has been circulating among the “big money” brokers and financial kingpins and is just now being revealed to the public. It involves the gold in Fort Knox — the US Treasury gold — that is the equity of our national wealth. In short, millions (with an “m”) of gold bars are fake!.Who did this? None, but the United States Government, as claimed by Chinese Authorities.

Background
In October of 2009 the Chinese received a shipment of gold bars. Gold is regularly exchanges between countries to pay debts and to settle the so-called balance of trade. Most gold is exchanged and stored in vaults under the supervision of a special organization based in London, the London Bullion Market Association (or LBMA). When the shipment was received, the Chinese government asked that special tests be performed to guarantee the purity and weight of the gold bars. In this test, four small holed are drilled into the gold bars and the metal is then analyzed.

Officials were shocked to learn that the bars were fake. They contained cores of tungsten with only a outer coating of real gold. What’s more, these gold bars, containing serial numbers for tracking, originated in the US and had been stored in Fort Knox for years. There were reportedly between, 5600 to 5700 bars, weighing 400 oz. each, in the shipment!

At first many gold experts assumed the fake gold originated in China, the world’s best knock-off producers. The Chinese were quick to investigate and issued a statement that implicated the US in the scheme.

 

What the Chinese Uncovered

Roughly 15 years ago — during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] — between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.

According to the Chinese investigation, the balance of this 1.3 million to 1.5 million 400 oz tungsten cache was also gold plated and then allegedly “sold” into the international market. Apparently, the global market is literally “stuffed full of 400 oz salted bars”. Perhaps, its worth is as much as, 600-billion U S dollars.

Always Yours — As Usual — Saurabh Singh

 RELATED LINKS FOR READERS WHO WANT TO GO IN MORE DETAILS TO BEFORE COMMENTING ON STORY
  1. http://etfdailynews.com/2011/08/17/venezuelan-president-hugo-chavez-sends-precious-metal-etfs-a-wakeup-call-gld-iau-slv-gdx-agq/
  2. http://philosophers-stone.co.uk/wordpress/2011/08/hugo-chavez-gold-runs-bank-runs-and-bank-holidays/
  3. http://profit.ndtv.com/news/show/chavez-officially-nationalizes-venezuela-s-gold-industry-174207
  4. http://notime4bull.com/aggregator/sources/13
  5. http://mikepiro.com/blog/as-chavez-pulls-venezuelas-gold-from-jp-morgan-is-the-great-scramble-for-physical-starting/
  6. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/traders-brace-for-venezuela-gold-transfer/article2134031/print/
  7. http://www.bighaber.com/haber/chavez-to-nationalize-venezuelan-gold-industry-1072000.html
  8. http://www.advisorperspectives.com/commentaries/global_082611.php
  9. http://americasfinancialmeltdown.blogspot.com/2010/11/below-is-antiwar_4391.html
  10. http://mikepiro.com/blog/ron-paul-audit-federal-reserve-gold-stores/
  11. http://www.freedomsphoenix.com/News/061976-2009-11-26-us-govt-manufactured-fake-gold.htm
  12. http://www.the-boondocks.org/forum/index.php?t=msg&&goto=157202#msg_157202s

Union Budget 2011: The Wish List

Budget-2011-12Pranab Mukherjee ready to Present BudgetGovernments come and go. But their visions outlined in the annual fiscal planning (the Union Budget) have a long lasting impact on the economy. The Budget of 1992 was one such document. It was a threshold that set India on a superior economic growth path. The first Union Budget of the current decade also comes to meet several challenges. It should not just counter risks within and outside the economy. But it needs to also fortify India’s position amongst global heavyweights.

Consequently in the Budget 2011-12, emphasis should be on maintaining and even accelerating the pace of growth and employment. The ensuing budget is expected to take note of the current scenario and announce policies and reforms to support and form a suitable base for the economy to continue to grow at 8%+ levels. In general one can feel that the budget would be skewed towards investment rather than consumption. Agriculture & related activities would continue to be the focus area as inflation and food Agricultural-Sectorsecurity is high on the government agenda. Government would allocate higher amounts towards infrastructure (logistics, rural infrastructure and water management), education and technology to give a multiplier effect to the economy to sustain high GDP growth in the coming years.

The Union Budget 2011-12 might be a key from a policy stand point and may provide incremental direction to markets. There is an inherent value in India economy given the growth story and favorable demographics, but catalysts are required at macro level to deleverage the underlying value.

India was among the few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. These policy actions has helped Indian Economy to clock a growth of 8.6% in FY11 (advance estimates). While rising strongly in the world economic order, India faces the most critical challenge of crossing the ‘double digit growth barrier’. Current macroeconomic challenges are manifold

1. Controlling inflation, including that for essential commodities,

2. Maintaining fiscal deficit amongst rising oil prices,

3. Absence of one-time revenues such as 3G, WiMax license fees,

4. Allocation & channelising investment in Infrastructure,

5. Domestic financial sector liquidity management with large government borrowing can potentially be a dampener for private investments,

6. Reducing current account deficit from current elevated levels,

7. Over and above, handling corruption issues.

The upcoming elections in some of the major states may prompt the government to continue to take some populist measures

Normal Expectations, on few Specific Fronts, from Upcoming Budget  are Deliberated Here Under

Higher short term capital gains tax for FIIs:

The volatility in Indian stock markets over the past six to nine months can to a large extent be attributed to fickle mindedness of the FIIs. Loose monetary policies in developed markets have not helped either. Hence, a stricter policy to curb short term capital gains earned with the hot money is in order. While the DTC has proposed to tax all FIIs, the current budget should lay a foundation for the same by hiking the taxes on short term gains.

Incentivise low income housing: Housing Sector

The construction sector is unlikely to have a very peaceful fiscal ahead. Low bank funding and high interest rates could stall projects and build up inventory in the sector. Allowing higher fiscal incentives on low income housing loans could address the problem of high cost for the houses as well as offer a solution to builders to increase sales.

Incentivise long term investment in equities:

Institutional investors such as insurance companies, PFs and mutual funds should be offered fiscal incentives on their schemes wherein investments are locked in domestic equities for 5 years and above. This could help draw more retail savings into equities for a longer term.

Money INR

Pool in private sector funds for infrastructure investments:

Floating SPVs that can pool in private funds for meeting the 12th and 13th Five year plan targets may be an ideal way to meet the funding gap. Especially given that the contribution from the private sector is seen going up from 30% in the Eleventh 5-Year Plan to 50% in the Twelfth Plan.

Decontrol of Urea Prices:

Where as Government seems to be planning to raise Urea Prices by 2 to 5 per cent in 2011 – 2012. De-canalization of Urea imports is also expected once it comes under Neutrient Based Scheme Regime. Perhaps the fertilizer industry expects Rs 50000 Crore in cash for Financial Year 2012 by way of subsidies. It would not be a great surprise if import and export restriction on Urea trade are lifted.

Deepen India’s corporate debt market:

Developing a vibrant corporate debt market is paramount to serving the long term funding needs of corporates. The Budget should initiate policies in this direction so that retail participation in corporate debt issuances becomes easier and more transparent . The debt papers also need to be rated to suit investors’ risk profiles.

Rejig subsidies and off balance sheet items:

An increase of 245%! This is exactly how much the cost of major subsidies has gone up in India in the last five years. And mind you, this does not even include oil. In CAGR terms, it amounts to a huge 28%. When one considers India’s nominal GDP growth rate of 14%-15%,Pair of the Budget Scissors it quickly becomes clear that such a growth in subsidy is not sustainable at all. Fortunately, the Government seems to have woken up to this fact. Hence, rather than trying to increase subsidies further, it is now looking to reduce pilferage in the system. As a big step towards the same, it has set up a task force to create a way to directly transfer cash to the ultimate beneficiaries of various subsidy schemes. We believe in addition to reducing indirect subsidies, investing more in warehouses and logistics could help keep the food prices in India under control to an extent.

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Always Yours — As Usual — Saurabh Singh

Future Business Administrators – Need Know China for Winning the Markets

Attempting to Introduce China to Individuals  With A Wish to make Career in International, trade, business and Governance

THIS COULD BE BEAUTIFUL

While most industries trend downwards in the wake of the global financial crisis, demand for designer apparel and accessories in the world’s third-largest economy is expected to grow 7% this year. According to global consulting firm Bain & Co., the sector will expand faster than any market in the world — with the possible exception of Brazil — until at least 2012.

Club Beautiful is one of many ideas that have surfaced to tap into the growing pool of upwardly mobile young Chinese with the aim of handing the demographic to advertisers on a plate. The social network, brainchild of Jesper Lodhal (above), 34, and co-founder Christian Rajkai, 39, unabashedly trumpets its desire to connect stylish people together so they can judge and be judged: it is the web-based sibling of the trendy cafes that line Fifth Avenue in New York or Oxford Street in London.

“We want to make people more beautiful and stylish. The first step is to create a community for those people to share ideas,” says Lodhal. “We are focused on the connections between people who want to become better looking or who want to share their fashion and style.”


According to the company, their audience is split between “style leaders” — the primary market — and “image seekers,” who look for some of their idols’ stardust to rub off on them. “The interesting point is that [your reception] is based not so much on your natural beauty but the effort you make,” says Lodhal. “In China, the saying goes that beauty is 30% nature and 70% nurture.”


While anyone can join Club Beautiful, the network specifically targets 20 to 35-year-olds that hold steady jobs and, in Lodhal’s words, “spend a lot of time on their appearance.” They are further encouraged to spend time on their looks by Club Beautiful, with other users able to vote on their pictures − higher scores give access to better looking people and higher profile events.

“Once you’re in, you can sign up to see who likes you, and how the opposite gender rates your profile and your pictures,” says Lodhal. “If you want to be influential you can build up your activity level, your experience in beauty and style, which you do through voting on other people and sharing style information.”

There is a certain amount of vain gloriousness attached to the concept, and it might not be one that would gain cultural acceptance in many Western markets. However, the 80s generation of Chinese consumers are distinctive because of their unashamed desire to stand out from a particularly large crowd. Around 60,000 of them have signed up to Club Beautiful since its inception last year, as well as a few thousand expats − enough to attract funding from a handful of angel investors and American IT outsourcing company Symbio Group.

While the company cut its staff of 22 down to around 12 after the economic downturn, the retained employees are, according to Lodhal, desperate to make a success of the venture because they feel excited to be part of such a pioneering project. The website has been up for just over a year, and last month was relaunched with a facelift and fresh features after Lodhal dispatched his management team into the shopping malls of Beijing and Shanghai, as well as gathering feedback from a series of focus groups.

“What we found was that the style leaders don’t connect with Kaixinwang (which offers a normal social networking service and simple internet gaming) because they see [the gaming] as a waste of time,” says Lodhal. “Users were also having trouble identifying [other] stylish people on other social networking sites. If you go to Kaixinwang then you have to browse through around 50% of profiles that are fake or partly fake.” Club Beautiful solves this problem by sending members a unique code, which they must take a picture of themselves with in order to be verified by the site’s content managers.


Ensuring the site is populated by real people adds significant value, not least because they can be guided towards real world venues and products that generate revenue. Users have the option to create events, and to screen who is invited by their classification. Events are currently entirely user-generated but Lodhal is aware of the potential for tie-ups with sponsors and clubs in the future, with current events including hook-ups at KTV and clubs like Lan and Coco Banana in Beijing.

The new content is entirely in Chinese, though an English version of the update is in the pipeline. “One of the better decisions I have made was to remove Westerners (including me) as the driving force behind product management,” Lodhal says. “Since I did, development speed doubled and user feedback improved dramatically.”


The site is, as yet, uncluttered by advertising, as Lodhal and his team are keen to avoid alienating users by forcing products down their throats that they may or may not necessarily wish to buy.

It is a risky ploy, but one that is part of a longer-term development strategy. “We are focusing on growing users; we need to add value to the database,” Lodhal says. “Then we’ll focus on stickiness and keeping people on the site. Step three is the revenue phase where we will, sometime in the next year, embark on a new venture capital round.”

Lodhal is waiting for his user base to reach a critical mass before investing in a serious marketing campaign. Obtaining a sufficient “viral factor,” as Lodhal calls it, is key to ensuring there is enough awareness of the site to maximize the benefits of an advertising drive. However, playing the long game in China carries additional risk because there are countless other entrepreneurs waiting in the wings to hijack a good idea and exploit it. While the country’s intellectual property protection laws have made considerable progress in recent years, the brouhaha in the more tightly regulated US market over who created Facebook’s original code should be enough to prompt developers of even the most niche products to bind their target audience as quickly as possible.

The company is considering a number of revenue models; from micropayments in order to acquire other users’ feedback, to pay-at-the-door events. “Then there are of course the advertisers,” Lodhal says raising his eyebrows. “There are some smart targeted advertising models out there − some of the style leaders can endorse products, for example. If I have an idol on Club Beautiful and he likes the Omega brand − I like Omega as well now.”

They are also open to the idea of a profit-sharing agreement with a site like Taobao who could directly sell products owned and showcased by Club Beautiful users.


The problem for the company is that it evidently does not have a clear idea of how it is going to make money. While existing funds may be plentiful — Lodhal would not disclose his investment capital but the lack of urgency over securing an income stream suggests he is not short of a buck or two — the company will have trouble attracting capital in the future unless it can demonstrate a functioning and successful revenue model.

Lodhal is adamant that no-one else is pioneering his idea in China, and that very few, if any, are attempting it elsewhere. Yet there is an existing website, P1, that plays upon a slightly different but related idea. Their website is the social networking equivalent of the Freemasons – potential members must convince the site’s operators that they are trendy enough to enroll, or obtain one of the restricted number of invites from the site’s 500,000 existing users. The site is emblazoned with ads from brands like Bentley and Versace.

Club Beautiful’s decision to shun direct advertising may very well have been motivated by the need to offer users a reason to steer clear of potential competitors. The network is catering to some of the world’s most sought-after consumers and it is important to make them feel special and influential or they might take their business elsewhere. However, implementing the type of viral advertising model Lodhal is toying with is easier said than done, and it is hard to envisage a high-end brand warming to the idea when the company has yet to demonstrate that its idea works any better than direct advertising.


Lodhal knows that success is not guaranteed: “It’s all untested, but it’s such a big market out there,” he says. The company is well worth keeping an eye on, but the longer it operates at a loss the harder it will be to convince investors, advertisers and sponsors that beauty truly is everything.

Always Yours — As Usual—— Saurabh Singh, India

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