Fed begging the beggers and USD falls

In my earlier post I had referred to scarce resources. Yesterday Mr. Ben Bernanke the chairman of Fed Reserve appealed to the institutions to help the community. But interestingly these institutions were helped by the Government with trillion dollars packages. Now this is the problem. As per Keynes theory stimulus had to be introduced at the level of people not institutions. Now institutions have survived but the people are suffering and money for people is scarce. Read and mark the words in italics:

Taking an entrepreneurial approach to community development results in innovative and effective programs, making communities more desirable places to live and more resilient in hard times. The CRA regulations encourage banks and thrift to invest in activities that provide affordable housing or financial services for individuals, promote economic development, or revitalize or stabilize low- or moderate-income areas.At a time when the needs of these communities are so great and the resources available to meet those needs are so scarce, it behooves financial institutions to think broadly about their CRA obligations. By partnering with other community stakeholders, these institutions can help address existing community needs and lay the groundwork for stronger credit demand in the future.I don’t want to underestimate the difficulty of the task. The recession damaged communities of all types, but particularly lower-income neighborhoods, and economic recovery has been stubbornly slow. Nonetheless, the commitment and innovation demonstrated in communities all across the country is encouraging. Taking an entrepreneurial approach to community development and thinking about the needs of both people and places will, I believe, make for stronger, more resilient communities in the future.

via FRB: Speech–Duke, Building Sustainable Communities–March 27, 2012.

Jahangir - Abu al-Hasan

In India King Jahangir was the first emperor to provide stimulus to masses by engaging labour during the day to construct and different labour at night to demolish what was not upto the mark.(It is however not mentioned in his wiki page)  He was able to generate employment and beautiful buildings. Here stimulus goes in the hands of corrupt and greedy institutions who had committed fraud in the first place by creating artificially secured instruments a.k.a. Toxic Assets.

© Sandeep Bhalla.

Ben Bernanke, chairman of the Board of Governo...

Rich who??

India having a deficit of 5% in its budget is actually spending what we the citizens have earned and we will lose it by way of inflation from higher taxes and prices. How simple. No transfer involved. The Babus of Pranab Da are genius. Pranab Da took 2 hours to explain the budget. It can be done in three sentences:

“All services taxed except 17 (or 19). All excise duties raised by two percent. Rest is for entertainment of the house without any effect on the people (a.k.a : go to heaven).”

I can not deny that other countries are also facing similar deficit problems but should we not start thinking and planning things in a different way? Following is the excerpt from a mail I received. The facts are amazing.

Your income is the “asset” they borrow against.

‘Consider what has happened to the amount of money the Federal government has borrowed over the past decade: In 2001, the total amount of U.S. government bonds in issue stood at $11 trillion. By the end of 2011, the total amount had climbed to $31 trillion.

That’s the debt story at just the national level. What about closer to home?

Well, the 2007-2008 stock market inflicted grave losses on the public pension funds of many states and municipalities. The real estate market only made matters worse, because as home values fell so did property tax collections.

For example, two of New York state’s largest counties (Suffolk and Nassau) must borrow $85 billion this year just to pay their required contribution to the state’s pension system. A decade ago pension costs consumed three percent of New York’s property tax collections; by 2015 that figure will climb to an estimated 35%.

On the other side of the country in California, “the top 24 independent pension systems are collectively $136 billion in debt and have only 54 cents for every dollar they owe.” The city of Stockton is effectively (if not yet formally) bankrupt, and ceased paying bondholders months ago.’

If above quoted facts are true then very soon these cities will run out of money and America will soon be Eastern Uttar Pradesh/Bihar. Spending what you have not earned that too by the government was an innovative idea propounded by John Maynard Keynes, which worked well in the beginning of the century till the information explosion took place. My suggestion is that time has come to revise the economic thinking once again. Shake up the Keynes theories and perhaps reconsider some of the other thoughts including Gandhian philosophy and find different way of living which creates lesser rich people and lesser miseries for more and more people. According to the Keynes ‘aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment’. He was further of the view that the effects of business cycle of ‘Recession and Depression can be mitigated by fiscal and monetary policies of the Government. However as it turns out mere demand by affluent people of sections of the Globe is not enough. Demand by one section and employment of other section without corresponding increase of demand in the later section will confuse the economy. That is the mess we are in. Economists are always busy explaining the mistakes in their previous estimations. Resurgence of Keynesian measures in the wake of economic crises of since 2008 by itself without realizing the need to remove disparities in living conditions between different sections of people of the same Globe would not produce result. Therefore all sections of the humanities on the Globe, irrespective of the colour or race or flag, must be involved in sharing the cumulative benefits/resources available on this planet.


An interpretation of the Samuelson condition u...

P.S.: For the record India was the first casebook study of Keynes on the basis of which he wrote his first published work “Indian Currency and Finance”in 1913.

© Sandeep Bhalla