Sunday, August 28, 2011

The Tale of Two Hurricanes: Irene and Anna


Storms are brewing over the largest and the longest running democracies of the world.
America’s east cost is facing the wrath of Hurricane Irene. As of this moment, the eye of the storm is 30 miles south of New York City. Some towns near our place have witnessed some flooding’s and are without electricity since last night. Irene will pass over New York/ New Jersey area by this afternoon. Damages to properties have been significant in the coastal areas. This time around states have braced themselves well for category 2 (now, 1) hurricane Irene. I guess lessons have been learned and implemented from the deadly 2005 hurricane Katrina.
Now, coming to the second storm that is facing the world’s largest democracy, India. Hurricane Anna has made the landfall on New Delhi this morning. The Anna’s version of the Jan Lokpal bill (citizens' ombudsman bill) has been approved by the Parliament. The people power has spoken. It indeed has been the victory of the democracy. You know there is something wrong with the system when most of the nation is rooting for a cause and our elected officials are taking the other side. Jan Lokpal bill will be a good add-in to India’s democratic values. The whole nation is rejoicing, it’s as if Diwali has come in August.
But this is again a glass half full. As someone said, ‘With Power comes Responsibilities’. I am not being a party pooper here, but trying to see the whole picture. Since now we have what we wanted, the system should work. Agreed? What Anna Hazare did was nothing short of an achievement. It will definitely go down in the history books, but where does Jan Lokpal bill stands when it comes to the oversight of its functioning? After all that is what is expected of a well running democracy: checks and balances.
As of now, it seems that both the storms have done what they were supposed to do; Irene on her part did create havoc and destruction of properties. Her eastern hemisphere counterpart, Hurrican Anna has brought joy on people’s faces…for now!!

Wednesday, August 24, 2011

The Marshall Plan II

           This morning I was following my daily ritual and was listening to Ken Prewitt & Tom Keene on Bloomberg Surveillance. By now we are all familiar with the economic turmoil that Europe is facing, especially the Euro zone nations. Hence, I wasn’t surprised to hear 2 year Greek bonds yielding…are you ready…a whopping 40.5%. That’s right; now compare this to the backbone of Euro: The German Bunds (Bonds), they are yielding 0.67%.

            More then $500B have been loaned to Greece, Portugal and Ireland, yet there economies are still in a state of shock. In fact the above lending has lead to speculative attacks on strong but shaky and vulnerable economies of Spain and Italy. The only ‘feel good’ story out of the Euro mainland is Germany. But then for how long would it keep on providing economic and more importantly, moral support to ‘Euro’.
            I think what Euro area needs is a second version of the Marshall plan. After World War II, when Europe was trying to rebuild itself, United States of America, under the then Secretary of State George Marshall provided the monetary support. But this time around the role of US has to be taken over by the IMF and ECB. I know, IMF has already committed $320B to the Euro zone economies as part of the EU-IMF bailout package of $950B in May 2010. But more needs to be done, considering EU’s economy is as big as US. Also, considering the recent market hostilities towards Spain & Italy, EU needs to do much more. I understand it’s controversial to ask but US should also contribute towards the package considering EU is one of there biggest trading partner. A stronger Europe is in US interest. It makes both, economic and political sense.
            Many generations of efforts have gone into creating ‘Euro’ and it will be a pity if we loose it within a decade. Times were tough in 2008-09 for US, but we came out (well, sort of) of the crises with a black eye and lessons learned. This time around its EU’s turn to take the blow and hopefully learn a lesson or two.

Thursday, August 18, 2011

And so the Nation awakens…Again

             Till yesterday the one thing that I really want to get an answer for was ‘what happens after death?’ but now my most important curiosity is ‘which Congress leader decided to put Anna Hazare behind bars?’ It’s been more then 48 hours since Anna’s arrest and the way things are unfolding, this is turning out to be a mini version of ‘Operation Bluestar’ for the ruling Congress party, a sense of déjà vu.

            We are all aware of the social issues faced by different nations of the world. Be it Egypt, Libya, Bolivia, Algeria, China and the most recent being our former rulers. We witnessed how the lives were lost and properties damaged during the violent protests in the above countries. And then when you turn towards India, you see people across the socio-economic status, marching and agitating with candle light vigil, in peace not by vandalism or violence.

            Coming back to the point in question, how often have you seen an IIT student and a rural farmer protesting for the same cause (ex-cricket!!)? Anna and his intent of bringing transparency to the political system of India has done the unthinkable…united, India. Gone are the days when Young India would take a dictation from the Old Political India. India’s class of 2011 is different, or it seems, as of now. The ruling party has made a serious lapse of judgment, not just by arresting Anna, but by not being serious about the Jan Lokpal - Citizens' ombudsman bill.

            I, just like most Indians, am totally behind Anna and his team who are fighting to bring accountability to the political leadership. But at the same time, we must keep in mind the ‘limits’ of the bill. The first, and foremost being the ‘selection’ of the committee members to oversee the ‘elected representatives of the people’. True, the current crop of Lokpal leaders are the best in there class but what assurance do we have that the next bunch will have the same work ethic? What if the next committee member is a product of corruption? What then? Wait for another Anna Hazare or create one more super committee?

            Think about it…in the mean time, as expected the opposition party’s have grabbed the Golden opportunity of supporting Anna, with both hands, after all ‘An Enemy’s, enemy is indeed a Friend”!!

Monday, August 15, 2011

India, state of mind

Happy 64th, India

            I was thinking about writing something for the Independence Day since last week but couldn’t think of anything. A lot has been written about India’s Economic Journey, Political Ride and Social Trip across a wide range of platform and I don’t think I can add anything to it, except…

            Today’s India, as I see it from a distant land, has a split personality. India, the economic power house, which had a tremendous past decade and will have a prosperous future, the other India which is the Political (Social) India, is going through its worst phase in its 64 year old democracy.
           
            On one hand you have a common man, Anna Hazare, a Gandhian, who wants to change the way Political India functions. His 4 month long ‘Movement against Corruption’ (Andolan against Corruption)has shaken the corrupt political fabric of India. Most Indians were tired and fed up of the political scenes. The only thing needed to ignite there fire of opposition was a small spark which was ignited by Anna. But the only thing that is working against the good causes of Anna Hazare and millions who have joined his movement is ‘Time’. The worst part is, even the political leaders know this for a fact that Indians have a short term memory. Politicians will try to weather the storm of opposition by lengthening the process of negotiations with Anna and his team till the time that the common Indian will divert there attention to there day to day worries of living and surviving another day.

            I know some might say that India never gets full credit for what she has achieved and her ‘progress’ is always seen as ‘glass half empty’. My apologies, but I do think that the glass is half empty. Political landscape has to change in India for the betterment of both, economic and social India. The way things are going I would say more so for social India.

Happy Independence Day!!


Tuesday, August 9, 2011

The Unthinkable

             So, the unthinkable happened during this past weekend. US long term debt was ‘downgraded’ by Standard & Poor’s, one of the three leading credit rating agencies. The reason behind the downgrade was not financial but the political instability in the US congress to make fiscal decisions.

            John Chambers, the head of sovereign debt rating at S&P became the most hated man in the world. S&P had sent a note to the US Treasury at around 1:30 on Friday afternoon that it is going to downgrade long term US debt from AAA to AA+. US Treasury replied back indicating a $2 trillion error in there calculation at around 5:30pm. At 7pm S&P acknowledged the error and at 8:15pm Wall Street time, S&P took the historic step of downgrading the most secure of the securities in the world. All the TV channels stopped there regular programs and called in there ‘experts’ to evaluate the situation. John Chambers was on the top of every channels list. To add insult to the injury, the AA+ rating is on a Negative watch, which means that if US Congress doesn’t act, the debt can be downgraded to AA- in 2 years time.

            S&P and Treasury are still at odds over the $2T error. Markets world over took a blood bath on Monday. Ironically, the debt that S&P downgraded, US 10-30 year bonds, were high in demand and investors were selling stocks to buy into bonds. This shows that world doesn’t have any alternative to the US securities. US dollar is the world reserve currency, period. Not that I support the current fiscal policy of US, but out of all the nations, two emerging countries had the audacity to tell US to rein in there spending; Really, Mr.Hu Jintao. Let me refresh your memory, the Chinese central bank in early 90’s put its printing press in over drive to pay out its debt. Russia actually defaulted on its debt and later did the same thing in 1998.   

            One thing to notice is that after flooding the system with US dollars, Fed and Treasury are still not able to increase the US domestic consumption, so now the focus has to turn on increasing the investments and one way to attract companies is to lower your corporate tax rate, which is highest in the developed world (after Japan). But it seems that this Whitehouse is busy with there own agenda of making US the first Socio-Capitalist economy. The energy that President Obama invested in passing the healthcare bill should have been diverted into fixing the economy. Republicans are also to be blamed, especially the Tea party advocates, who are narrowly focused on there tax policies and don’t take into consideration the whole macro economic picture. The damage has been done.
           
According to S&P, 5 countries have gotten back there AAA rating but it took them 9 to 18 years!!

Friday, August 5, 2011

Oh! The Beauty of Democracy…

And so on Monday, August 1st, World was once again saved by American Superheros(!!).
Two days before the ‘hypothetical’ dead-line of the US default, the drama on the Capital Hill ended. The President and the Democratic & Republican leadership did what was expected of them. They showed that they are no different than their counterparts in Asian & African developing democracies. They didn’t behave as ‘Peoples representatives’ instead they acted as a typical ‘incumbent’ facing an election in 15 months.
US has the top notch credit rating since their inception…News Flash…S&P cuts US credit rating from AAA to AA+ with negative outlook. (Friday, August 05, 2011 10:30 pm) and I thought that my 401(K) won’t see the dark days of 2008, come Monday and I will be proven wrong…again!!
Just when we thought that S&P will play the ball. But then again what credibility does the credit rating agencies have? After all they had re-confirmed AIG & Lehman’s AAA rating just before a week of Lehman going under. So, hopefully market will take that into consideration when it opens on Monday.
I have heard many of my friends say that if US was a company or a household, it would have not raised the borrowing limit, after all everyone should live in their own means. True. Agreed, but US is not a company run by a CEO nor it’s a household whose decisions are made by the bread earner, instead US is a ‘democracy’, a ‘capitalist democracy’. The decisions are not based on ‘right’ or ‘wrong’, but on ‘popularity’.
A society reflects the character of the citizens of that nation and when those citizens are living beyond their means (from 2000 to 2007 US saving rate was 1-3%, it went negative briefly in 2005) how can we expect the nation to live within its means.