Thursday, February 24, 2011

WSJ: over-stimulated india by jahangir aziz of jp morgan

feb 24th, 2011 CE

the 'brilliant economists' have been stoking inflation like there's no tomorrow.

the first reason is to transfer money to their cadres and supporters: like the wasteful NREGA, the babus' pay-hike etc. 

the second reason is that inflation forces people to spend, not save: thus artificially increasing demand and thus creating the illusion that industrial growth, GDP growth etc are greater than they really are. 

these sins are now coming back to roost, as investors pull vast sums out of india, and the sensex starts falling (i predict there will be a trough somewhere around 13,500 to 15,400 -- at PE of 12 to 14 on FY12 earnings).

my prediction? they will bring in GST, which, like VAT, is a regressive tax that will affect the poorest the worst; and it will simply go into the central kitty to fund things like largesse to pakistan for floods, haj subsidies, and the many and varied scams. and they will bring in the hellishly idioitic 'right to food', which means more money being transferred to congress cadres, and 100 billion rupees vanishing from the account books. the best way to create a right to food would be build agricultural infrastructure such as cold storage, better far price information networks etc and help agricultural productivity. but no, they want to come up with harsh-mander-jean-dreze-authored crap like the 'right to food' which is NREGA 2.0.

the net result: indians will have to tighten their belts. literally. a recent study highlighted by the economist ( ) quoting the medical journal lancet ( showed that people had grown fatter everywhere in the world, except in india, afghanistan (state of war), and congo (state of war). in other words, india is in a state of war too: the UPA is waging war on indians (except of course on mohdan and xtists indians who get all sorts of government giveaways). in india people have actually gotten thinner over time, unlike say, in china, or even pakistan. so much for the aam admi, eh, fat cats of the UPA?

i echo what arvind was saying: exit currency, get into commodities. although commodities like gold, silver and real estate are all oversold and overly expensive. maybe into wheat futures, considering china's drought?


sansk said...

I have to specifically agree that real-estate is oversold. The already small cultivable land in india is rapidly decreasing thanks to Real-Estate 'industry' which is naturally linked to CONs.

I am sure, India will have some sore of real-estate bust within next 5 years, which would be severe were it not for the so-called black money.

sansk said...

my bad prose...
I wanted to write Real-Estate is a trap that is going to hurts indian in several ways.
1. reduces land available for agriculture.
2. sinks buyers of properties into long term debt, thereby reducing consumable wealth, and investment capital.
3. RE is now probably the biggest source/sink of black money, which causes (mostly) silent and deadly inflation in economy.

Arvind said...

although commodities like gold, silver and real estate are all oversold and overly expensive.

No, it is NOT overly expensive. The big mistake is to treat gold as a commodity. Sure, it is a commodity, but it is ALSO a CURRENCY. In fact, the primary function of gold is that of a currency. You need to start thinking like your grandfather and think in terms of gold as THE currency.

This perspective is extremely important because if you measure things in terms of worthless paper printed by the government, you will only see gold as a commodity.

Think over this - if you do not have faith in gold which is the free-market currency, you automatically put faith in government paper.

We're heading towards a major crisis. Japan, Greece, Spain, Ireland are in dire straits. There was a recent bank-run on a Korean bank. United States is reaching a point when the existing crisis manifests itself. That day may be just days or weeks away when the debt ceiling is hit by the government. Even they "avoid" this crisis, that means they printed more paper and so gold and silver are the only safe havens.

China is a separate case. Unlike what has been said by Gordon Chang and you, it can NEVER collapse. A state of collapse implies that the economy was good and the quality of life of people deteriorated after the collapse. What if I told you that the current state is already bad and most people live a life of slavery and are forced by their government to work? There is utter poverty in rural areas and Shanghai, Guangdong and Beijing are their facades. Even when they build brand new ghost-cities into which they will force their populace to move, it is the result of forced labor and not voluntary action resulting from economic boom. So the concept of collapse or meltdown does not apply to China.

Apart from the above countries, India is printing money. Manmoron has gone bonkers and believes in Keynesian nonsense. The people of India are foolish and worship him and confuse knowledge of English with knowledge of economics.

Those who think that I am exaggerating should ask themselves this question: Can there EVER be another economic crisis in a million years? If the answer is yes, reduce million to a hundred thousand years and ask yourself the same question. Keep doing this and you will see that we are on the verge of savings getting depleted due to governments around the world.

Again, GOLD is a CURRENCY and moving from dollar is merely capital flight from government paper. Gold and silver are natural currencies chosen by the people in their free state. If gold is merely a worthless commodity and not a currency, why did FDR and various Indian governments confiscate gold? Even they did not have faith in their paper.

Don't analyze too much. Just move to gold and get rid of government paper.