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Economy in Crisis and RBI

Wednesday, October 22, 2008

Not only Indian Economy but also in all over world's economy is in crisis. People don't know real problem of economic problems that is why they are talking about population, money and other things but no one talking about capitalist systems who created the problem.

In all over world economic crisis main reason is products consumers are not in market and the product which has been produced are in crisis. It is the main reason. But people think that money is not there in economic crisis.

Recently, RBI has cut its repo rates about (repo) by 100 basis points. It was the decision after the crisis of banks. But now banks crisis is OK but economic crisis is not OK. Lets see what happened after RBI repo rate.

In a statement P. Chidambaram, Finance Minister said, “...RBI has decided to reduce the repo rate under the liquidity adjustment facility by 100 basis points to 8 per cent with immediate effect....” But how effective it is, now undecided.
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Economic Crisis and Rivals are in Debate

Tuesday, October 14, 2008

Not only America but also all the world are in economic crisis. You can see all the data which shows the unemployment and further will rise unemployment. These data are the indication of economic crisis of the world. In spite of job, there are crisis in all the sector which create unemployment.

What is the reality of world economic no one knows because big gigantic banks are announcing to their bankruptcy. Recently, ICICI share is unexpected down. No friends, it is the crisis of capitalist systems economy.

Among these crisis two rivals in the US election are in debate of economic crisis. About the crisis writes,

“...Meanwhile, the two rivals have disagreed on delaying a TV debate over the economic turmoil.

Mr McCain said he was suspending his campaign to return to Washington to help agree a deal, saying he feared the rescue package would not pass "as it currently stands".

He also called for his first presidential debate with Mr Obama on Friday to be suspended - something Mr Obama did not support.

Americans needed to "hear from the person who in approximately 40 days will be responsible for dealing with this mess", Mr Obama told journalists.

Mr McCain stressed his desire to help Congress agree a viable deal in a speech on Thursday to the Clinton Global Initiative, a conference headed by former President Bill Clinton, a Democrat.

Mr McCain insisted on clear oversight of any plan, and said no Wall Street executives should profit from the injection of public cash.

But he made no mention of Friday's planned presidential debate, instead praising Mr Obama's decision to join him in Washington to broker a deal...”

I don't think all the crisis debate will only for the election not to solve the crisis of economy. It is not only in the US but also the crisis is in the world.
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Global Crisis and US Finance Statement

Sunday, October 5, 2008

About the global crisis there is much discussion and people are afraid about it. To escape the crisis there are some tips by Hindustan Times, “

Product Structures
When an economy adapts a market-led approach to financing assets, the assumption is that risks are priced, spliced, and distributed across several entities. Securitisation of home loans, the subsequent structures and swaps were based on this assumption. The crash in asset values across several balance sheets, when housing prices fell steeply, tests this assumption. Several of our local financial institutions have not even begun to experiment with new product structures. A better understanding of risk will emerge from this crisis and more choices about how we could deal with risks in product structures.

Bail Outs
Proponents of capitalism swear by creative destruction. The cyclical corrections in markets are seen as the much-needed purging of excesses. The events in the US show that the choice between allowing failure as a natural consequence and bailing out a failing entity, is not a simple one to make. The modified capitalism of bail-out based on judgment is something that appeals to our psyche, but is currently applied selectively (Would the bail-out have been the same, if UTI were in the private sector, for example?). Our handling of IFCI illustrates our muddled thinking. Rather than fantasise a world without crisis, we need ability and willingness for swift action.

OTC Vs Exchange-traded
The large leveraged positions in derivatives, which lost value rapidly and triggered losses for several players, is at the centre of the current meltdown. But much of the risk came from the structure and not the product itself. The credit default swaps were not exchange-traded products, but over-the-counter (OTC). This meant that the counter-party risks were high; there was no margining based on open positions; and valuation and liquidity were questionable. India’s exchange-traded currency contract is a great first step. Introducing exchange-traded products in the interest rate and credit markets is the next crucial step for us.

Mark-to Market
The drop in value of assets in the balance sheets of investment banks, banks, investors and others, has led to the plea that ‘marking-to-market’ might not be the correct thing to do. Several are asking for assets to be shown at costs, and for a write-off of the value, after manifestation of risk, through accounting entries in the income statement. This thinking assumes that a risk, unless accounted for, does not exist. We in India subscribe to this view, allowing banks to value assets depending on how they are classified, and keeping most institutional portfolios (like provident funds) at cost. We need alignment with global standards that will emerge.

Every crisis creates spill-over of risks from one segment to another. The defaults of global investment banks have spread into money markets. The takeover and conversion of investment banks by commercial banks, creates dual regulation by the Fed and the SEC. Back in India, we have regulators for each type of institution, with limited understanding of the commonalities in functions they perform and the markets they operate in. We need unification of regulation, as has been recommended for a very long time in financial sector reforms.

We may be fooled into thinking that only large-sized entities can extend themselves. The financial sector in India is badly compartmentalised. Several companies clamour to create new banks; many small banks hope to be taken over at good value; some thousands NBFCs operate with limited supervision; existing banks are constrained from expansion; and we are loathe to allow foreign banks in. The growth of multiple small entities, working in the credit markets in their own ways, creates risks and regulatory challenges, about which we may not even know. We need to implement reforms that enable larger institutions, that are easier to supervise. Regulatory and policy resistance to such change, remains a puzzle.

Leverage is seen as the villain of the piece. As asset sizes shrink, spreads increase and lenders shy away, the credit markets in the US will shrink. This may lead US into a recession, as much of their growth is credit-driven. Without the advantages of leverage, it is not possible to expand in size, but this lesson may be lost on several regimes like India, which traditionally discourage borrowing. In an economy that needs capital to grow to its potential, we need more long term borrowing options. If we picked up only the disadvantages of leverage, and shrunk back, we might scuttle growth

Several economies including India, have built up large reserves as a defence mechanism. They also practice various forms of currency management. They will be impacted by the global recession and dollar depreciation.

The current crisis will have its impact on the currency markets. Last time around, we were able to claim ‘insulation’ due to lack of currency convertibility. Given the size of our resources, and the depreciation of our currency, we may need to act. Our stance on global capital flows, capital controls and currency will need review.

The lessons from this crisis will flow in over the time it takes to spill over, initiate another round of regulatory reforms, and create global realignment of macro-strategies. It is up to us to use the opportunity to implement long overdue reform of our systems, structures and institutions.”

Along with about the US finance what the magazine says read from here,

"The amount of innovation taking place, the amount of investment is actually greater today than ever," Gates said.

"Because you not only have more American companies with more scientists and engineers and innovators, but now you have ... people from all over, including lots of people in India and China, now contributing to new drug design, new software design, new energy generation design."

It was the word of Bill Gates about the US finance.

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