Economic growth around...

 Food and fuel inflation is high in INDIA... the main sources of inflation... Lower fuel taxes could help lower inflation and increase productivity and demand and growth... Lower taxes could also help... Government is not a family business... It is there to increase happiness and prosperity... productivity increases when the cost goes down, the government is a big cost at present... The government has failed on employment and inflation... There are not enough skills to increase productivity and employment... Personal loans are available easily, but business loans lack as the govt discourage risk taking... One reason for higher prices or inflation is the fiscal deficit, 6.5% of it could increase inflation expectations by economists.

 

Unemployment in INDIA is grave despite being the goal of all policies and all governments and central banks around the world try to push infrastructure and construction as it consumes a lot of unskilled labor and creates a lot of employment and gives rise to shadow banks and asset price bubbles or inflation and instability and correction... like US and China in 2008 and 2023 respectively... The unskilled population is a big burden for policymakers around the World... INDIA's cheap labor is its competitive edge which shall be employed productively to meet its unmet demand... Instead of betting on property and real estate to create employment, INDIA shall try to promote other businesses by subsidizing costs... Credit for investment is costly and scarce in INDIA to do business on a large scale... It should promote large scale business though with proper risk management... Cheap credit is must for productive investment...

 

INDIA has $ 620 billion in foreign debt and it has 600 billion in foreign reserves, the debt if not hedged could create uncertainty for the rupee and inflation and employment which could prove self-fulfilling if people expect that the rupee would depreciate. Inflation expectations could increase nominal exchange rate...

 

INDIA needs FTA for itself, for exports, but negotiable trade for imports, this is the diplomacy part... How the government would increase employment?

 

 

In the US, lower price expectations and higher real interest rate expectations could reduce/delay spending and increase supply relatively reinforcing lower prices If the Fed skips the rate hikes it would not lower supply further and could help lower prices and expectations. Higher interest rates could lower supply and increase price pressure and interest rate expectations. A lower base increases price expectations and vice versa...

 

If people expect that borrowing cost could go down in the near future they might delay their spending which could make rate cuts self-fulfilling and earlier than expected because demand would go down and supply could increase relatively. Money demand lower than money supply could lower market interest rates...

 

People have seen that 2% inflation is possible, last decade, Fed policies with ultra-lose policy, quantitative easing, et al., did not produce much inflation. The memory is still fresh. The supply disruption could be attributed to covid and the GDP and prices have recovered. We have observed a special quantity theory that more money supply reduces borrowing costs and increases supply in developed economies as productivity is increasing, too.

 

Expectations shall play an important role in decision-making because consumers and investors spending actions and actual inflation depend upon future prices in order to maximize gains, they are forward-looking. And, inflation expectations are drifting down and demand and spending could go down, relative to supply and prices would come down quickly because people would delay spending in the expectation of lower prices, faster than we expect, as per rational expectations. Fed's impatience to tighten could lead to lower prices than the inflation target. We forget that full employment is 0 unemployment when people have no incentive to switch/swap between jobs ie frictional unemployment and other types of unemployment due to low inflation and wage expectations because their loyalty would be questioned....

 

Prices and growth are connected and have a negative relationship, higher prices and interest rates lower growth and vice versa, and therefore price and growth expectations are connected, too. Lower prices increase demand and growth, but, lower price expectations, including interest rate expectations, delay demand and increase supply reinforcing lower prices and growth. If we have lower price expectations we might have a period of slow demand and growth though it depends upon the level the Fed chooses to offer. 3% interest rates or 1% real interest rates seem reasonable after accounting for 2% inflation. It could prevail as long as people have rate cut expectations and the Fed would not like to push the economy into liquidity trap because rate cuts and expectations could be self-fulfilling, delay in demand could lower prices and interest rates. Therefore, we might have a slowdown...

 

People realised that price and wage expectations are self-fulfilling and unemployment is no solution to higher prices and higher unemployment would reduce supply further reinforcing higher prices. That could be the collective perception.

 

 

Spending is the answer to deflation to increase demand and defend a bottom while increasing price or inflation expectations, in China. Fiscal policy has a higher multiplier than the monetary policy. Higher money supply could lower interest rate expectations and delay in spending though higher government spending would increase price expectations. Higher inflation and depreciation could increase exports, nonetheless, depreciation expectations could delay export demand. This is the time to increase appreciation expectations therefore selling dollars could help... Higher prices and interest rate expectations through higher government spending could help increase private sector spending and multiplier...

Nobody knows how to maximise returns in a stock. Union is also important in the stock market, unison of buy and sell prices. If everybody set same buy and sell prices profit could be maximised for all. The upper and lower circuit are given, low price range and higher price range, use lower circuit to buy and upper circuit to sell, the market price would be either at the lower circuit or the upper circuit and quite predictable.

Ultimately a successful economy would have full employment and low inflation in order to maximise products, investors' concern is what the prices would be in the future in the short run, everybody wants to earn quickly and easily and have more leisure and health at their disposal by technological advancement. The real wages and incomes are higher in the US and people consume more than in China, adjusted for population.

Collective Consciousness Has Never Been So Speculative...

 Changes in prices and interest rates and expectations are self-reinforcing. Higher prices and interest rates increase demand and demand for money relative to supply and money supply which further reinforces higher prices and interest rates and vice versa.  

Similarly, changes in prices and interest rate expectations are also self-reinforcing, lower price expectations delay demand or increase supply which reinforces low prices and interest rates, and demand would go down relative to supply, the opposite is true, too.  

Therefore, our target is NAIRU, an employment level consistent with stable inflation of 2 or 4%, though changes in unemployment and prices or inflation are again self-reinforcing... Higher prices are enough to control demand, if a limit is prescribed, and rate hikes by the central banks would reduce the money supply and supply and further reinforce demand, prices, and rate hikes...  

Instead of signaling agents, the Fed shall directly communicate to act in the way inflation or prices are controlled, to increase demand or not, or lower demand for stable interest rates and borrowing costs and credit. The Fed shall make people economically conscious of how to deal with prices and interest rates and behave in the marketplace...  

Blue-collar workers' employment and wages hurt more because of the impermanent nature of jobs and their income is fixed in the short run. 

The inflation we are seeing is the product of inflation we have in the base periods, base years are the determinant of the current percentage of inflation, how our past had been, decides our future inflation percentage. Inflation percentages are not directly comparable because the base year is changing every quarter and year.  

GDP at constant prices has recovered from the covid trough completely though and we need stable real interest rates or natural real rates when near to full employment at which there is neither inflation nor disinflation.  

1-1.25% real rates are quite good for savings to reduce spending and lower inflation. Stability everywhere is what we want, interest rate stability is akin to financial stability and stability of expectations.

 

Biden's spending provided floor to demand and growth and increased inflation during a disrupted supply which increased inflation and expectations and actual inflation on a low base.  

The US economy has bypassed one of the major reasons for inflation expectations, now it has a sufficient buffer for OIL prices and the other is labor-force which is still there and the labor market is tight that is due to which we have actually is wage-inflation expectations, possible cause of stagnation and interest rate hike expectations even in a lower inflation expectation environment.  

Lower exports due to the strong dollar, have also increased the supply to the domestic market and contained inflation due to uncertainties like Russian war engagement. The US doesn't need foreign exchange and the economy is close to full employment. Lower import prices have contributed to a disinflationary economy and higher real wages which we want.  

If we are at full employment and prices are going down that natural rate theory suggests that we need to stabilize prices while stabilizing interest rates. Lower price expectations could be self-reinforcing and could increase real rates.  

Low prices and the coupled expectations and conditions point to delayed spending, ahead and rate cut expectations... 

 

It is now common for people that price expectations are self-fulfilling because they are factored into wage expectations and cost and prices, again, which further reinforces prices and is self-feeding.

Rate hike expectations have led to lower price expectations which are also significant, lower price expectations are also self-reinforcing.

 

Rate hikes and EXPECTATIONS and Fed's credibility are important for lower price expectations and delay in demand and increase in supply, at full employment, imports too, due to a strong dollar. 

The developed economies have strong currencies and the developing and lower economies' currencies are weak which is self-fulfilling. In an attempt to reduce the trade deficit developing countries use depreciation to increase exports and this depreciation expectation makes consumers delay demand for weak countries and/or currencies and increase demand for developed countries and currencies. Which is self-reinforcing...  

INDIA may commit to a stable currency in order to stabilize export demand and demand for currency and gradually strong currency expectations to internationalize its currency... Its convertibility and store of value credibility would depend upon its stability and responsible central bank. Chinese currency instability has made it an unviable option... 

Dollars demand depends upon the things the US sells/exports and it accepts only dollars. If that is the right model everybody shall buy, the American dollar policy, and follow the same policy, if that is right. Other countries have made dollar, dollar.  

It seems just that if a country exports higher it shall accept its own currency like the US, any government has to spend that money largely domestically to provide public goods. But it has different values for different countries and that is a partiality.  

Money is a standard that is changing with other country exchange. For the poor it is expensive and for the rich it is dear. This is the World we live in. 

Before the advent of the Internet, the collective consciousness never proved so speculative. When people get a piece of information they act if have an opportunity. Information is flowing freely despite maps and differences. Prior to it, the Fed maintained its secrecy, but now people try to get ahead of the Fed Policy... It has made expectations or collective expectations and actions self-fulfilling and self-reinforcing... 

 

We are in creation and destruction at the same time, demand for money is very high.....

Unemployment and price rise are going to be national poll issues for decades... Economic policy is judged on these two critical parameters... Maintaining a balance is crucial since this involves considerable trade-offs... When unemployment increases or employment decreases it lowers prices and vice versa... Inflation coupled with unemployment, like the previous UPA2 regime, price rise, has been proven a colossal policy mistake... Though BJP has won elections demonetization, oil prices, farm policies, covid, and Russia-Ukraine War did not let the regime's economic policies work with a full demand multiplier and held it back unfortunately lower than potential... In the face of price rises controlling employment and demand and increasing supply through imports at costly exchange rates meanwhile has made INDIA a king in the WORLD of blinds... 

 

The RBI, under former governor Raghuram Rajan, had suggested the introduction of Rs 5,000 and Rs 10,000 notes. Information provided by the RBI to the Public Accounts Committee had revealed that the central bank had made the recommendation in October 2014, TOI had reported in 2017. The reason behind this idea was that the value of the Rs 1,000 note was being eroded by inflation.

Raghuram Rajan's Rs 10,000 currency note idea, and why it didn't take off   Read more at: https://economictimes.indiatimes.com/news/economy/policy/raghuram-rajans-rs-10000-currency-note-idea-and-why-it-didnt-take-off... 

There is no need to introduce different denominations in the cashless age. I-RR-elevant... When a person faces a problem due to impatience and information asymmetry creates new problems and it becomes self-reinforcing..... For example, when inflation becomes a problem higher inflation reduces production and supply, and vice versa, which means further inflation, supply goes down more than demand... Had the RBI target black money and adjusted / demonetised 2000 Rs without increasing the money supply a lot of illegal demand and higher prices, had come down..... 

The ultimate relief would be to end deals in cash then only notes culture would be put to an end and the menace of black money ends... Formalization of the economy entails bank accounts and data of the black money... If the govt wants to know data on black money it could consider the money supply just before the demonetization and after, it could get some black money... at least in bank accounts... It is not very difficult to know the magnitude of black money... since all the mathematics is there... what comes in, what goes or goes out... It could be done by a 10th grade... 
 
 

Reserve Bank of India (RBI) governor Shaktikanta Das said the monetary policy committee (MPC) will be guided by “what’s happening on the ground” at its June meeting and added that he expects retail inflation to ease further in May from April’s 4.7%.

Ground Reality to Guide June Rate Action: Das   Read more at: https://economictimes.indiatimes.com/epaper/delhicapital/2023/may/25/et-front/ground-reality-to-guide-june-rate-action-das... 

It is now a misconception that Monetary Policy works with a lag, in this age of information at the speed of light, demand and the actual price of anything depend upon its price expectations, it is the factor that decides its current demand coupled with investment demand, not only its consumption demand. The actual interest rate and demand plus investment demand, in the same way, depend upon interest rate expectations. Lower price expectations delay demand and increase supply which actually lowers prices and vice versa. Expectations are self-fulfilling, when people expect something they work on it if they have money, they tend to speculate on the outcome with the best available information which are the underlying factors in determining prices (Of inventories and stocks too) which includes the interest rate, wages, and exchange rate. Through expectations future prices are factored into current and actual prices, we often hear this in terms of prices that the expectations are already factored into the prices. The whole stock market workS on this principle... 

Inflation and interest rate changes are self-reinforcing, higher inflation means people would demand more and supply would go down and prices would go up again and a higher interest rate means lower employment and demand and supply, too, which further increases prices. Demand and supply are not two, the person who supplies, demands, too. Our ability to supply depends upon how much we demand, what we demand is what we supply, and if demand goes down supply goes down, too. Demand could not be met without supply. Maintaining stability proactively fosters the central bank's credibility and for stability a top and bottom of inflation and interest rates are assigned to manage demand and supply. At the bottom, everybody would increase demand and at the top everybody could supply which would help stabilize demand and supply and prices and interest rates. Prices and interest rates would move around the Mean or Average of the demand price and the supply prices. It would help reduce uncertainty about prices and demand and supply. Everybody would demand and supply at the same price or interest rates and maximize returns. Excess demand and supply determine future prices. Prices and interest rate expectations could increase volatility, but the central bank's job is to curb this volatility. 

Other things remaining constant the current real rate is 1.5% and if prices go down due to past rate hikes the real rates would rise and we would be able to architect a rate cut. A 1.25 - 1.50% real rate is good for saving purposes has been foretold by past RBI governors. Food inflation is out of the ambit of rate hikes, we can't control food inflation through rate hikes... Agriculture is not an interest rate-sensitive sector... 

Demand for the rupee is derived from the demand for its exports and if INDIA makes it clear that it would accept only a rupee settlement the demand for dollars would go down which could be self-reinforcing since strong rupee expectations would pour in more dollars, and its debt in foreign currency could pose less trouble. Every country shall do it to increase investment in the country and currency... Lower depreciation or higher appreciation and/or higher real exchange rate expectations would also increase demand for exports and imports..... It is called internal devaluation in which productivity and competitiveness are gained by lowering and containing inflation and real interest rate, wages, and the exchange rate when others are depreciating. 

 

While debate surrounds the impact of flagship schemes, we believe it is more meaningful to delve deeper.

4M mantra: How the Modi government delivers   Read more at: https://economictimes.indiatimes.com/news/economy/policy/4m-mantra-how-the-modi-government-delivers... 

The rate of growth of inflation has been 1% per month and every year 10%-12% which means that in the past 8 yrs inflation has increased by 80% which means that the value of the rupee 100 bill is now only 20 rupees. Creating inflation to cut real wages, interest rates, and exchange rates to make the economy competitive has backfired in terms of domestic demand... Inflation expectations for "achche-din" are not in line with the objective of creating value for the rupee and INDIANs... On one side we have the US and Germany where low and stable inflation has increased the value of the country and currency... The value of money must increase over time... 100 rupees shall buy more...  

On the other, we have China whose policy is criticized regularly... 

 

It may make sense to continue moving rates higher in the coming months, but at a more moderate pace, Powell said in response to lawmakers' questions about the Fed's plans. The timing of additional hikes will be based on incoming data, he said in his opening statement. 

Higher rates needed to curb inflation: Powell   Read more at: https://economictimes.indiatimes.com/markets/stocks/news/higher-rates-needed-to-curb-inflation-powell... 

I could easily remember the continuous argument to increase the inflation target to 4% since it constrained prices and demand and growth. According to the Phillips Curve, the relationship between inflation and unemployment. 4% inflation and 4% unemployment seem consistent with the curve theory which was missing during 2% inflation, the relationship broke down. We have full employment and falling price expectations, 4% inflation and 5.25% interest rate, and positive real rates. Lower price expectations mean that real rates may rise as a consequence of low prices. The central bank shall specify the short-run real rates/targets to shape expectations and spending. What real rates the Fed has in its mind and where the economy would go? All businesses are run on borrowed money. Interest rate expectations are quite significant for spending decisions. The Fed shall also avoid lower interest rate expectations to avoid delay in spending, lower price expectations could delay demand and price expectations. 

 

We need to work on skills multipliers how many skills have been multiplied and how and how much they could contribute to increasing productivity and real wages and demand and supply and growth. Income and investment increase the supply, of skills, too, and supply increases demand and income, in the broader economy too... INDIA is labor abundant it shall specialise in labour intensive sectors which could increase productivity too... 

Data for Unemployment is a must for inflation expectation, the shadow Economy of which we have no account, of the less formalized economy. INDIA is dependent on Unemployment data for better policy outcomes. Higher unemployment expectations and lower inflation expectations could delay demand and increase supply begetting lower (actual) prices and vice versa... Labour Demand expectations are critical for Price expectations and investment. Higher price expectations are positively significant for demand and negatively significant to supply and further higher prices and the opposite is also true... Price expectations are self-reinforcing because they subconsciously work this way, everybody wants to profit from the situation both consumption and investment demand. 

Road and construction have been topmost in creating employment... But, no data on how much has been paid as wages and created stable growth in people's incomes... Wages paid in bank accounts could set up data points on how much variable employment has been created... Skills improvement could increase productivity and help climb the career ladder... Road construction has been quite visible development..... 

Honourable PM shall try to fill the void within BJP, too. He shall create a credible leadership and a PM candidate after he leaves. He should help find an alternative to him since he is against Parivaarvaad... Who would be his Political Nominee? 

INDIA is a Superpower in terms of land size and human capital which present enormous investment opportunities. Ranking firms must claim their stake in this growth... This is the best time to invest in INDIA for 25 yrs horizon... Free trade in food could help lower food prices and increase real wages and demand. Farming costs would go down, too... Healthy food at low prices could help increase health outcomes and productivity. Government shall ensure the food at the lowest prices. Here protectionism could fail since farm wages increase too... 

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