Swamionics at its best

I am somewhat surprised that the sensex as well as other stock markets the world over have taken off after the US Federal Reserve cut its short-term interest rate by 0.5%, to 5.5%. Other central banks are also expected to either cut interest rates or forbear from increases which had earlier been expected. Most central banks have opened their liquidity spigots after the subprime mortgages crisis.

The markets think the Fed will cut interest rates further, maybe to 4% by the end of 2008. This monetary easing, they think, will save the world economy from the recession threatened by the housing bust. Corporate profits may slow, but will pick up again. Based on this optimism, the bulls are dominating the markets again.

Yet some followers of the late Milton Friedman’s monetary economics may regard the reaction of markets as suspect, even crazy. Friedman would have said that the 0.5% cut was no more than a short-term ploy that would fool only the credulous. He held that the real economy could not be affected by monetary policy, save in the very short term.

Monetary policy could lift prices, but could not lift entire economies, and could not solve real-economy problems like the excess housing overhang that today threatens a global recession. So, those who are basking today in the rise of the sensex to record heights may be in a fool’s paradise.

The Fed’s interest cut has not fixed and cannot fix the real economy. This does not mean a recession is inevitable. But it does mean that, if a recession is averted, it will be for reasons other than the Fed’s monetary policy. What would Friedman have said about the current situation? He held that an injection of money into the economy would raise nominal GDP (which is real output plus inflation).

In the first few months, most of the increase might be in real output, but prices would soon catch up, and then the entire increase in nominal GDP would be on account of inflation. Real GDP would not be affected at all. Real GDP would be determined in the long run not by money but other factors such as innovation, productivity, entrepreneurship and investment.

Friedman’s most famous phrase summing up his philosophy was “inflation is always and everywhere a monetary phenomenon.” This did more than suggest what monetary policy could achieve. It also suggested what monetary policy could not achieve. It could be translated as, “real-economy booms and busts are never and nowhere a monetary phenomenon.”

Not all economists are fans of Friedman. I myself have grave doubts about the practical utility of some of his monetary economics. But most mainstream economists and central bankers are avid fans of Friedman. Ben Bernanke, head of the US Federal Reserve said in a 2003 conference in Dallas that “Friedman’s monetary framework has been so influential that in its broad outlines at least, it has nearly become identical with modern monetary theory.”

And yet it seems that central banks the world over believe that monetary policy can, in fact, steer the real economy. Indeed, most Americans believe that Fed chairman Alan Greenspan was responsible in large measure for the sterling performance of US economy after the mid-1980s.

Greenspan himself makes no such claims in his recent book. The Fed controls only short-term interest rates. Long-term rates are set by supply and demand in the market, and the Fed is helpless to fix them. Surely no monetary chief, Greenspan or otherwise, can control the fate of an economy by changing just one parameter, the short-term interest rate.

Yet Greenspan has widely, and incorrectly, been credited with steering the US economy to prosperity. Greenspan himself gives the credit to the rise in US productivity, globalisation, and deregulation of markets (much as Friedman would have).

In the last two years, short-term interest rates have risen above long-term ones in the US, inverting the yield curve. In earlier times, this would have indicated an imminent recession. But today Bernanke interprets it as a global savings glut (mainly in China, Japan and Opec countries) which has pushed down long-term interest rates everywhere.

If indeed the global savings glut is so powerful as to overpower short-term interest movements, should the markets get carried away by a cut of 0.5% in short-term rates by the Fed? Marketmen can justify their euphoria by saying that central bankers have done more than just cut interest rates. They have ended the financial panic after the subprime mess by pledging to inject enough liquidity to soothe roiled financial markets.

The Bank of England, which originally took a tough stand on imprudent borrowers, ended up by rescuing distressed mortgage lender Northern Rock. The British government said it would guarantee all deposits in all banks fully. In the US too, President Bush offered a rescue of distressed home borrowers who could not meet an increase in mortgage payments. This is not monetary policy. It is a fiscal guarantee backed by the full tax power of the government. It can certainly have real effects on the economy.

Whether this is enough to wipe out the negative wealth effect of the housing bust remains to be seen. Economic textbooks often imply that consumption is linked just to income. But in real life people spend more if they think their wealth has increased (because of a housing or stock market boom). Financial liberalisation in the US has enabled people to freely borrow against their increased wealth to finance a consumption spree, which far exceeds their income.

The housing bust now means that in the US, UK and other countries, the wealth effect may turn sharply negative, and induce people to spend much less. Whether that is an effect strong enough to cause a recession remains to be seen. Central banks have warded off a financial sector crisis. But monetary policy alone cannot ward off a recession. The business cycle, with its booms and busts, is alive and well.


Copied from an Article in ET: Will rate cuts avert a recession?
26 Sep, 2007, 1500 hrs IST,Swaminathan S Anklesaria Aiyar.

Paradigm shift?(poem)

This gibberish is what I call a warm up poem. I am little bit rustic from a long slumber and thus this.



What forms your agony
what makes you despair
is a fine line in Harmony
with whats not and whats fair

For in everything negative
exists hidden, shy
Surely something that is positive
unseen by the eye

There is Darkness encompassing
unrelenting through the night
But this night is in waiting
for first streaks o' morning light.

A noble heart but into shreds,
shattered to lost love
But its when fragrance spreads
as it is capable to be loved and to love.

It is undoubtedly better
to have loved and lost
than have not known ever
the sweetness of love, 'bout.

It is the Dark clouds
flashing in dark yonder
herald the arriving of rains
with lavish percussions of Thunder

There a mother giving life
to her baby ever in gratitude
prior there; occurred a strife
of pain and the mothers fortitude

Not even a flower withered
is laid a waste
proved by fruits delivered
of sweet smell and taste

Its Gold that comes
through flame blazing
its only the sun that shines
through the Hazing

Cause Life is always
made of roses a bed,
but roses one says
come thorns connected.

Party people .... through new year nite ...

what I have written below is mainly based on incidents, accounts and information cited by my friends, people I know like the hotel guy, bhel walah etc. Would take no responsibility for the contents of this Blog

continuation from my earlier blog...

      Now lets have a look at the mob mentality. It is always said, the mob has a mind of its own. But whats that mind ? it is a collective manifestation of the individual desires, feelings and of course a sense of invincibility, for no one can identify the perpetuator. A grope here, a pinch there has always been the problem for women since a very long time. But this was more sporadic. Never took this mammoth proportion.
      Now let us examine the buildup to this. Where did this happen ? an one of the most posh locations on Mumbai. What were the hooligans doing there ? Firstly they had nothing better to do on New year night, than loiter around aimlessly. They certainly do not have enough money to enter the party, nor do they have company, and stags are not allowed (and should not be). What else can they do ? loaf around. eve tease. Now this group of people reach an area which has a lot skimpily clad girls, who are probably bold enough to be explicit on the roads, as far displaying your affection is concerned. whats is the direct result on these people? when they can why cant we ? This has been a problem with the Indian youth for quite some time now. Then why did it not happen earlier to 2 years, never in this manner? There was a place where these people had a chance to satisfy their needs. Which though an evil was a necessary one. Yup the infamous Dance Bar of Mumbai. I am sure if anyone did read this blog they would twitch their noses and frown. But they cannot deny this fact. What else could explain a sudden rise in incidents of this kind. I did ask some of my commies who had been to such a place. All of them seemed to agree on one thing, Sex was cheap (in both senses of this word) in such a place. On one fine day, the goverment of Maharashtra, think it is a social evil and BANG! close the doors leaving everyone high and dry. But the most of the inmates of these bars, being what they are , either migrated to different places or to some safe havens outside the city. I myself once saw such a group when traveling out of Mumbai. I sure did eavesdrop some talk between the 2 people who were sitting behind me, confirming my suspicion. But what has this got to do with this molestation ? Everything. The migration and ghetto-istic attitude of these people has made them inaccessible to the people who have caused this incident. Secondly the arrival of the "escort" agencies have corporatized this oldest profession in the world. What has this meant? this has resulted in more classy and glossy facade on this, as made up and surely more expensive version of the these people. Finally, without proper location to do whatever they want to, has led to these girls demanding hotel room or a flat and ofcourse some good drinks. This has surely whisked these people away from the masses and into the hands of a few perverted classes. Secondly there is no avenue to vent the desired of these people who are mainly migrant workers, who have stayed away from their families for years together due to various job related problems. No TV, No Dance bars and certainly no money to pay for a good time. This has resulted in a rise in assaults on women.
      In my view the single most important reason for this incident in spotlight is the closure of Dance bars. I am sure the government had good intentions in banning the dance bars, but this has surely backfired. The number of women who were tricked or forced into this trade are increasing. This also has led to "passing the parcel" to other states/ cities. This was bound to happen. Not to mention the rise of "foreign" origin (read bangladeshis) people coming to the city in search of "work", and now this. I think the government has all the machinery and brains and statistical data to find a solution and it is about time, it brings a rabbit out of its hat.I am keeping my fingers crossed. until then, watch where you go girl, my the force be with you!

One Word too Profane for me to Profane it .

One word, one 3 letter word, a word too profane for profanity arises from the this very word. For nothing sells better, be in its true form, in a perverted form or simply a fling, than the infamous SEX.

      Why on earth am I talking about SEX. Well i've been reading, hearing and filling my head with this wacky molestation thing that happened in Mumbai on the 1st of Jan. Wacky? Yes i called it just that. What else would you call 80 dogs (Sorry Bingo. demeaning your kind) pouncing on 2 seemingly innocent people and ripping their clothes.

      What I am going to write here may not be liked by many. Certainly not a majority of the women folk. I strongly advise to read no further if you do not posses an open mind about it.

      Lets go into the psyche of the molester ... What is he? SEX starved, he sure is. Do you think he had something on his mind? probably not, else he would have gotten himself into a fight with some other guy, no nothing heavy on his mind alright. Was he hard wired to look at women like something to try his stress busting techniques on .... well maybe. Was he a criminal? may be not , why not? cause you simply cannot get 80 criminals in a location like Juhu, without police raising the alarm bells.Was it just plain entertainment? fun? Yes I am afraid most of them might have thought so, without realizing the consequences on the poor victims. So what have we deduced by now? This was started and probably continued by a group of Sex Starved individuals who as a single person would not have dared to look at a girl let alone touch her in public, who were brought up or atleast made to believe that women are some kind to stress buster entertainment(Not that I am liking the sound of it).
      Lets look at history. Huh? history? well not the one with long long ago, just a rewind to the last year, Something like this happens in Mumbai, again in a crowded place like the Gateway of India [what an irony]. Are we seeing a pattern here of some kind? One event being a cause for another? Unfortunately I believe so. We leave it at that; for now and lets go through some statistics . I remember reading an article in some leading business magazine about the market conditions in India in the late 80s and the early and mind 90s. It remember the world quite vivid. I quote

"When we did the research in India, it was astounding to see the results. The 2 biggest or best sellers in India was Sex and Watches in that order"

Speaks a great deal about us, the second most populous country on earth, soon to be number one. This one dubious distinction we could have done without. but then no, The warm temperature and probably high levels of hormones, we have achieved it. Secondly, where does the population go to vent its sexual fantasies? There is no legal way to do this. Universal movies/ entertainment on TV, Erotic/exotic movies banned and shunned IN public (I am sure every one including the people who banned it would watch it in private), No Gentleman's club (hope you understand what you mean by that) basically nothing. Where does this ire, this rage bubbling in ones mind get spent? in Public, in Bus Stands, Railway stations, crowded markets and in places you would never imagine.

      I think I have written enough for now. Lots more to write, but after a short break.

I think of a thought

I want to write about something, something I believe in, without the fear of reprimand, sneer, backlash. Something which is quite a touchy subject, but is brash and staring at us in the face. Do I have the permission ... God ? is some one listening up there, out here ? Well I guess yes ... here goes. Watch this space for more.