Dashing Through the Economy…Printing Currency all the Way !…Oh what Fun it is to ride on a one PIIGS Open Sleigh !… Hey ! Warning Bells ! Warning Bells ! Warning all the Way !…Santa Claus is not Coming riding on a Sleigh !

Sing this to the Tune of Christmas Carol “Jingle Bells”

“Dashing Through the Economy…Printing Currency all the Way !…Oh what Fun it is to ride on a one PIIGS Open Sleigh !… Hey ! Warning Bells ! Warning Bells ! Warning all the Way !…Santa Claus is not Coming riding on a Sleigh !”

Have a Look at this chart below (moneyandmarkets.com)  and see the crazy percentage of  Central Bank Assets as a % of the GDP in that Country

Central Banks of USA,Europe,England and Japan have printed more Currency in the past four years than in the whole of the past 50 years ,prior !….in an attempt to revive their Economies….and the result is simply not showing !…it is a matter of time that the currencies will lose their function as a ‘store of value’ 

You want a figure ! ?..it’s over US $  10 Trillion worth of freshly printed Currency pumped into the Economies in the last four years 

In 2008 USA’s FED  Assets to GDP ratio was just 6% …it’s now a record 20% !…England matches this !

Both,Japan and Europe are even more precarious…the ratio here is an unbelievable 30% !

Dangerous Levels of Printing Money to Fund Economy

PIIGS ~ Europe

Portugal,Ireland,Italy,Greece and Spain….currently the faltering Eurozone Economies…The Quantum in % of Sovereign Bonds of the Total Bonds Issued in the World stands at 40% according to S & P….In Spain the yields on Sovereign Bonds have climbed over 6% while the default hedge cost is now 5% ….The Unemployment rate is a stagerring 22% !….All PIIGS Nations have a dangerous level of Debt to GDP Ratios…Greece’s Debt is 160% of GDP…and all countries are battling recession and struggling to implement stringent austerity measures which is a prerequisite for bailout funding….social tension is the inevitable fallout….riots,strikes,demonstrations….and at an extreme can lead to anarchy…How Long can France and Germany continue to prop up the Eurozone !…they,themselves are answerable and have to counter increasing domestic challenges and arguments and debates to providing sustenance to others in the Eurozone…There is a growing fear of the Collapse of the Eurozone….inevitably countries like Greece and even Portugal may contemplate to exit the EuroZone and revert to their own or new currency and at a new exchange rate….the situation is tense and huge dollops of Bailout Funds are required over a sustained period of a few years…problem is where will such Funds come from !?….Printing Currency was the only Option left,perhaps !….Italy approached China for Funds by soliciting subscription to it’s sovereign bonds….China demanded Tangible Assets and stakeholdings in top Italian Companies !…as Bond Values can substantially be wiped off if economy continues to falter  !

India

Stock Indices are now Flat but threaten to drop…India was a bubbling Soda…which has now lost a lot of it’s Fizz…It too has been resorting to a higher level of  ‘printing currency’ ‘ for deficit financing in recent years….but it has the lever of higher GDP Growth Rate…Even in a tough 2011/2 it grew at 6.9% and the RBI’s Balance Sheet Size is in single figure % to the GDP

Yet….India’s Outlook has just been dropped from ‘Stable’ to ‘Negative’ by Standard & Poor’s Rating Group…The Fiscal Deficit has ballooned to dangerous levels of 5.9% of the GDP at Rs 521980 crs in 2011/12 from a targeted 4.6% …largely due to a huge surge in Subsidies (most of it Fuel related as Oil Barrel basket averaged US $ 114 but was budgeted at US $ 90 and we import @ 75% of our requirement) from the Budgeted Rs 143570 crs to a record Rs 216297 crs

This has kept up the Pressure on the Government to Fund the Deficit from Gross Borrowings in excess of Rs 500000 crs…as also kept our Rupee weak…Its again threatening to move towards Rs 60 to the US $…Currently it is a shade below Rs 53…Competitive for Exports but not good for Imports…in 2011/12 Exports were US  $ 302 Billion while Imports were @ US $ 490 Billion….Crude Oil remains our major Import…Domestic Release is @ 38 Million tonnes with Cairns beginning to contribute to the @ 30 Million tonnes from ONGC and Oil India…2012/13 should see @ 45 Million Tonnes with Cairns increasing output…but we need in excess of 200 Million Tonnes to fuelour high GDP Growth rates and with Global Price of Crude Oil per Barrels remaining high over US $ 100 with the Iran and North Korea geo poilitical issues playing spoilsport, you can imagine the pressure on the Indian Rupee and on our Current & Fiscal Deficits

Yet the Government is budgeted a lower Subsidy Level for 2012/13 and a lower Fiscal Deficit Level of Rs 513590 crs being 5.1% of GDP…Government’s mindset and ‘way to go’ to meet these targets is revealed by their intention to tackle this in two specific ways,given the difficulty to increase direct or indirect taxes rates and collection  or reduce plan and non plan expenditure

  1. To reduce Fuel Subsidies by allowing a significant increase in the price of Petroleum products
  2. Disinvestment Targets are not being met on account of unfavourable Markets….but the Government has another weapon…. TRAI,the Telecom Regulator has just issued a figure for Renewal and granting of 2G Licenses of a whopping Rs 300000 crs + !

I  remain an Optimist…though it’s easy to be a Realist or even a Pessimist given the huge  Domestic &  Global Tension on all Environmental fronts…Economic,Social and Political ….and the acute lack of  Political Leadership or Will to take the Right Decisions

Most Countries have gone or are going into Self Protection or Survival Mode…while China remains an enigma…looked on by some as the Aggressor and by others as the Saviour !……It continues to grow at high GDP rates,despite a slowdown recently…it continues to devour global mineral resources….it continues to grow it’s infrastructure in record time and with latest technology……flexing Economic and/or Military Muscle and Aggressively Acquiring Tangible Global Assets…it continues to control it’s Currency ‘Yaun’ not allowing it to appreciate,but has made recent moves to allow Non Dollar Swaps and bilateral trade in Yuan,  to signal it’s strength and the potential to becoming the world ‘s  reserve currency after the US $ has outlived it’s utility and Oil Trade ceases to be only in Petro Dollars

So that India regains it’s rightful place and glory on Planet Earth with adequate financial inclusion of the  1.2 Billion populace ,it desperately needs a New,Strong,Energetic,Enthusiastic,Decisive,Compassionate,Fearless,Young,Selfless,Intelligent, Incorruptible in Thought,Word or Deed and Forward Thinking Political Leadership to navigate successfully the  tightrope without tripping or  being tied up in knots !…and without the constant refrain of coalition compulsions….How can we ensure this does not simply remain wishful thinking !

2 thoughts on “Dashing Through the Economy…Printing Currency all the Way !…Oh what Fun it is to ride on a one PIIGS Open Sleigh !… Hey ! Warning Bells ! Warning Bells ! Warning all the Way !…Santa Claus is not Coming riding on a Sleigh !

  1. Dear Gaurav,
    1)Falling/rangebound indian indices 2)Lot of negative Indian and global economic data in last 2-3 years(as well as last 6 months) are only fooling investors. In reality leaders in all quality industries are making continuous multiyear high in last TWO months be it Phara(DrReddy, Stride, Sun, Ranbaxy etc), Cyclic Cement(UltraTech, ACC, Shree etc), Cycle Tyre(MRF, Apollo), Auto Anciallry (Bosch, Many small capp good quality cos) , Auto(Eicher, Bajaj auto, Tata Motos, Ashok), All themes of consumption stocks, … this is true for almost all sectors in India … Last two months are much different from last 2 years(we saw serious momentum in 2009 and now we saw another serious monemtum from jan 2012). Reason behind nifty/sensex not rising are company specific problems of companies having highr weightage in nifty/sensex like Reliance KG lower prodctio, ONGC/Coal India-Gov issues, Airtel- sector problems etc …. Strong momentum like march 2009 already started in Jan 2012 whcih made many-many leaders in many-many sectors multi year high when others looking at rangebound indeex in last two months

    Regards
    Sameer

  2. Sameer,Look at the Bigger Picture….Clearly few sectors have outperformed in 2011/12….but most have lagged behind,and some quite badly too like Metals,Oil & Gas,Capital Goods,Realty,Power,Banks,PSUs…..Refer to my new blogpost today on the Performance of the BSE Sector Indices…makes interesting reading….the macros are not good in the short term….economy has slowed down,reforms process has stopped,tax collection has not met targets,orders are being backtracked on,interest rates remain high….corporates are feeling the pinch and pain in a competitive environment…Stock Markets are a barometer of the Economy and not the other way around !…It’s risky to play markets on Liquidity and Expectations throwing caution to the stark fundamentals that stare in the face…be selective and have conviction ,patience and temperament if you want to make monies….Cheers,Gaurav

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