(DE)mand for (B)etter (T)oday and tomorrow.... (DEBT).........,

There is no other way of increasing growth and income and demand and growth expectations... Domestic investors have been weak due to higher short run interest rate and expectations and uncertainty due to the RBI neutral stance.... But, there is a difference between neutral stance and neutral or natural real interest rate at which there is no unemployment and no inflation or both constant and stable... INDIA's real rates are much higher than the investment partners’ economy... There is a sect that's demanding higher public spending to counter slow growth... That should be productive... And, lower real rates, lower unemployment could increase spending due to higher supply and lower prices and higher nominal or real wages, (there is also nominal upward rigidity also because higher wages would increase cost and reducing demand for labour, but commodity prices could be lowered by reducing the borrowing cost and increase demand and debt (TOO)... All the big businesses are run on credit, moreover, higher consumer debt, due to better economic growth and expectations... Expectations about income and interest rate could help achieve the spending for the rational warranted growth, full employment and lower or stable prices....

INDIA's foreign exchange reserves are at comfortable levels... oil prices should not be a problem... The government has the capacity to lower taxes and duties during high prices... only, if, it uses, it.... If you have a reason to demand dollar then you would not be accused for currency manipulation, but only if wage hike is offset by lower borrowing cost, which could help contain cost.... Nobody could also be set responsible for depreciation due to change in domestic monetary policy....

In the US…

Higher wages and expectations after full employment would itself control investment demand, demand for labour, too, and spending and inflation and and growth expectations....But, would increase consumption and savings of labour due to full employment, and, spending and inflation and expectations which would increase investment employment and growth and expectations...When population and potential growth has gone down, in short, lower supply and demand and growth.... higher real wages would also increase capitalists profits, savings and investment due to higher demand, price and growth and expectations....Higher interest rate and expectations could lower investment employment and growth....Through higher wages market would itself control demand for labour and wage cost and competitiveness...The central banks intervention would aggravate the problem of investment cost and unemployment, in the time of higher wage and expectations after full employment....

STILL… INDIA IS THE SECOND FASTEST GROWING ECONOMY AMONG THE MAJOR ECONOMIES.... IT IS GROWING AT A FASTER RATE........., IT USED TO BE AND NOW THE FASTEST... BEFORE THE DISRUPTIONS... INNOVATIONS ARE OFTEN DISRUPTIVE... DUE TO TIME SPEND DURING REALLOCATION WHICH MIGHT DELAY GROWTH........

Inflation, interest rate and the economic policy making...

The short run outlook for the Indian Economy... which can change the medium to the long run expectations on the economy that it would be in equilibrium, full investment, full employment and full supply and lower prices to increase real incomes and demand which would also increase savings and lower nominal interest rates and increase investment leading to further increase in supply, lower prices and increase real incomes and demand and growth and expectations.... instead of inflation and inflation expectations....  on the assumption that money supply increases demand and inflation, but that depends on full employment and the utilization of the excess capacity... The unemployment rate and the production in the economy and the foreign supply would decide that prices or inflation would rise (or not)... The global economy growth has not yet actualized its potential growth which points that there could be much unemployment and scope to increase production/supply demand and growth, in INDIA, too... in the face of the absence of the data on the unemployment and demand for skills which could lower pressure on the price level by increasing production and productivity.... and lower medium to long run prices and price expectations and increase demand supply and lower unemployment and increase investment and growth and expectations.........,

Nonetheless, now that, higher inflation has increased the chance of bottom out of the rate cut cycle which should reduce spending and increase the excess capacity, because of interest rate hike expectations. The inflation targeting in, INDIA too, has given less space to the price adjustments to increase supply/production and more profits and incomes and more demand and growth expectations. When people expect higher rates in the short run they would borrow and invest less which would also lower the medium to long run spending and expectations.

The US was the first to use inflation targeting framework to kick-off rising price and price expectations during recession to induce supply and reduce unemployment, which forget that higher prices could further increase supply and reduce unemployment and increase demand and growth expectations which reduced the speed of adjustment in the market or the economy through the price level.

Interest cost inflation when wage cost inflation is increasing would make the cost inflation self fulfilling and would make lose competitiveness and demand... At one place wage cost is expected to go up, which may strengthen the case of inflation and rate hikes... But, does it seem wise to increase capital cost when wage cost is also expected to rise and that is likely to reduce investment demand and spending due to higher nominal interest rate and lower real rates due to higher wage inflation (?) and, consumption demand and spending, too, due to lower real wages because of higher interest cost inflation and higher price level... In order to escape too much low demand due to higher interest and wage cost, it looks promising to offset increasing wage cost with lower interest cost to keep the demand supply prices unemployment and growth and expectations, stable....

It was later also adopted by Japan, then in INDIA, but failed to give the desired results due to less scope for higher supply and lower unemployment and excess capacity and achieve the potential growth rate and the warranted or projected growth rate.

Higher Sales Tax in Japan might lower real wages, incomes, salaries and profits when inflation has a downward pressure.... it would further restrict demand and prices leading to lower inflation which might aggravate to problem of lower aggregate demand and the general price level.... Inflation and inflation expectations after full employment, when prices are low could mean higher real wages commensurate with productivity, the revenue-per-labour and revenue per skills.... The real interest rate in Japan is negative to create demand, supply and inflation and increase nominal interest and real interest rate and expectations to create inflation expectation to increase spending, growth and inflation and expectations, but the economic policies might be redirected to lower inflation and inflation expectations, which would also help increase real - wages, interest rate and domestic and foreign currency exchange rate and higher domestic and foreign demand and growth and growth expectations....

The evidence from the last UPA government's management of the demand through higher public spending resulted in higher inflation and depreciation which increased exports, but killed the domestic economy through higher nominal interest rate or lower real interest rate and savings and lower real wages which also restricted imports....

Consistency and Credibility....

The Economic Models and the reasoning and logics in the parlance of Economics have been charting a course set by the empirical evidences on the effect and causes of the economic policy and banking on the economy, for which, both, the government and the central bank are directly linked with the work of deciding the inducements, incentives and stimulus for the economic subjects and expect an outcome based on the promise of jobs for all and the value of money or the purchasing power or higher real wages, incomes, salaries and profits, since the central banks’ commitment to maintain the value of money and jobs for all to boost demand and supply and real prices and the economic growth and expectations gives credibility to its actions…. The government could not have different objectives since it would override the case for the consistency of the economic policy, also called the time consistency of the economic policy, but we have still evidences for brinks between the government and the central bank goals due to the political objective of votes, which also rests on the public spending and the central banks role to augment private spending by adjusting to interest rates, depending on the promise of jobs and value for money, however the central banks’ job is the get a neat work with the trade-off between prices and unemployment which uses the evidences put by the Phillips Curve Analysis which has seen further improvements with the time, of which lower prices and higher real wages, also put in the form of one of the Stylised Facts (economic conclusion based on real time data or empirical evidences), is a further improvement besides effect of the international trade on the prices and jobs.

The concept of the frictional unemployment or the natural rate or the NAIRU – non accelerating or constant or the consistent inflation rate of unemployment - has the same root in the Phillips Curve, which is based on the evidence of the UK economy that an unemployment rate of 5% was consistent with a 5% inflation rate to maintain jobs and price stability, which is equivalent to the 2% inflation in the US and 4% in INDIA target with full employment, otherwise overheating could increase interest rate and expectations, nonetheless the price level has shown a downward bias due to lower borrowing cost and higher supply with time in both the US and INDIA, which could be helpful to bring about an adjustments in the real interest rate and nominal interest rate and increase investment and employment and growth (higher demand and supply) through lower borrowing cost or nominal interest rate and higher real interest rate and prices. When nominal interest rate hits zero and the general price level falls due to higher supply, foreign trade, too, which would be expansionary in terms of demand supply and growth and expectations through higher real prices, real wages and real interest and consumption, and, savings and investment due to lower price and price expectation by lower the borrowing cost. Since, wages are sticky, but commodity prices and interest rates, are not, which could benefit supply and economies of scale and real return on investment.

Notwithstanding, the argument that inflation cuts real wages and real interest rates and makes the economy competitive is not acceptable, because, ORC, if inflation would increase due to higher borrowing cost and lower supply, it would make the economy uncompetitive because it would also increase nominal wage cost inflation and interest cost inflation…. It would reduce demand supply and growth expectations….

Moreover, higher real wages, lower domestic exchange rate and foreign exchange rate in the face of lower borrowing cost would also increase, both, imports and exports and the global demand and growth, apart from the domestic demand….

Inflation and inflation expectations, due to higher borrowing cost and lower supply and lower demand, would reduce ALL, consumption, savings and investment and employment and growth and expectations………,        

The market was anxious.....

The market was anxious about the full employment and the tightening cycle and the higher bond yields and the lower bond prices... The objective is to achieve the natural or non accelerating (ie constant) inflation rate of unemployment...

RBI must promote hedge investment... to reduce risk... it is like insurance in investment assets...

There are many funds with the commercial banks and those also find ways to equity and debt/bonds market with high returns.... do banks pass on profits to the depositors... NO........, depositors invest money in the stock market, themselves or their agents.......,

True, lower tariff on the raw materials or intermediate goods would involve greater participation in the supply or chain or of value addition by INDIA to increase supply of finished goods........, it would help increasing productivity and lower domestic unemployment increase production and lower prices and increase real wages and export led demand....... for other countries too...

The base year for data to calculate real GDP must be changed back to 2004.... under new methodology.... when inflation has been under control... which is likely to increase real GDP expectations or expected real GDP.... when prices would go down real GDP expectations may rise... a lower price level or lower price level base year could increase relative real GDP (in the current year) to real GDP expectations in the year 2003-04...

Bad timing, infra is labour intensive... Spend on increasing education skills innovation and higher supply or productivity... US may cut down on importing skilled labourforce by investing at home... 

PAD/h lo, kaam aayega....

Would this not increase demand in construction, which is a unskilled labour intensive and increase much demand that directly add's to inflation...

However, even this only may increase inflation if we have crossed full employment which is not the case........,

The evidence from the US suggest that prices increase very slow if there is unemployment in the economy... prices expectations have failed to materialize, even with negative real interest rates...

Nonetheless, wage demand has increased, that is still less sharp...

But, supply side is further gotten strong which lower borrowing cost which has further lessen pressure on other prices and cost of capital expectations...

Inflation targeting would not let supply increase beyond price limit, in INDIA, it is 4 %, in the US 2 %,.........

Imagine if you were spending 10 % and now, you pay 11 % it is only 10 %.... In the US and INDIA inflation targets are two low...

Prices in the US are allowed to go up 10.2 % or 102 (index wise) and in INDIA 10.4 0r 104...

Higher prices increase supply and demand, both, the Central Banks should target higher real incomes 10 % or 8% when prices are low....

It would increase labour skills and productivity leading to higher real wages... Complete automation is not possible, therefore, but, skills are important...

Equality in the Economy through effective real income distribution and jobs for the young and expertise of the old is a sine-quo-nan...

The World is worried about tightening and higher bond yields and less investment when fundamentals tell that capital is not scarce or actually no capital cost in a capital rich country like the US....

Rent on capital is a rent on debt fuelled demand and growth and expectations........., The whole business community is run on debt...

Equity is profitable when you buy low and sell high and again buy at lower 10%.... and sell again.... buy.........,

Stock price rise and fall, take full advantage of that...

Otherwise, bonds and FDs are better if you donot want to work harder...

But, ofcourse, stocks might double money in two years, easily....

Bond market is worried about tightening and lower bond prices... but, the evidence suggest that interest rates might go to around zero, as the Western countries feel....

People in share market, mainly, invest over less than 3 months horizon... when quarterly results come...

However, there could be other styles of investing, but it is profitable to buy a share at lower prices and sell high, and, could again buy more when prices fall more than 10%, of the same consistent shares with higher price expectations...

Tax on LTCG won’t affect day trading and people investing for less than a year.........,

Commodity-Stocks and Interest Rates...

If we could susidise during high prices or increase supply, it would help contain wage cost and interest cost means more competitiveness.... it could also help earn profits unless the market overexpects... knife edge or the problem of over expectation... is also experienced in the stock market... Over supply and over demand are frequent when stock prices touch short term lowest or when the company wants to borrow more at lower prices after the quarterly data, it supplies more shares and demand increases because of consistent performance and higher expectations, too... And, when demand for shares increases it increases stock prices, above and more than the high price of the day... bigger gap between daily higher price and low price target means it is time to buy... higher daily prices increases higher daily target...

But, buy a credible and consistent stock with higher expectations….

People in share market, mainly, invest over less than 3 months horizon... when quarterly results come... However, there could be other styles of investing, but it is profitable to buy a share at lower prices and sell high, and, could again buy more when prices fall more than 10%, of the same consistent shares with higher price expectations... Tax on LTCG won’t affect day trading and people investing for less than a year........., 

By tightening, the central banks forget, that they are tightening credit and supply and also lower demand, to lower growth and expectations... which would increase inflation through higher borrowing cost, afterall... The normal argument given in its favour that it would reduce employment and demand which is also contradictory because during high inflation you need higher wages to keep inflation adjusted wages, intact... But, higher interest rate reduces investment, increases unemployment, and reduces production and supply which increases prices and decreases real wages buildup and that would hurt the real economy or employment and demand and growth and expectations... And, that also makes the economy lose supply and employment (which means demand) too... How reducing supply could help during high inflation? Nonetheless, it could help increase unemployment and reduce labour bargaining power and reduce wage demand which might lower price level... But, think of a situation where unemployment increases, leading to lower demand, and then supply also goes down, which means first prices would go down and then it would increase due to lower supply, making no real difference in the economic variables and parameters... they would first fall and then increase… would it make any difference in the economic handling… it would make no results… actually……..,

Paul Krugman always says that debt in own currency is not that much risk (for which the central banks could increase real money supply or higher inflation adjusted money supply) for demand and growth and expectations......

Fiscal slippage requires lower interest cost payment... Higher oil prices also need higher investment at lower borrowing cost... There is no matter in the argument........,

OTHERTHINGS REMAINING CONSTANT.... LOWER BORROWING COST WOULD REDUCE COST INFLATION AND INFLATION EXPECTATIONS LEADING TO HIGHER SPENDING, SUPPLY AND DEMAND, BOTH.... MOREOVER, CONSUMPTION, DUE TO LOWER PRICES AND HIGHER, REAL WAGES AND EXPECTATIONS AND SAVINGS, DUE TO THE SAME HIGHER REAL WAGES [ AND EXPECTATIONS] AND HIGHER REAL INTEREST RATE AND EXPECTATIONS AND LOWER NOMINAL INTEREST RATES AND EXPECTATIONS WHICH MAY INCREASE INVESTMENT AND EMPLOYMENT AND GROWTH, AND EXPECTATIONS... AND, VICE VERSA... MOREOVER, HIGHER DOMESTIC COMMODITY-CURRENCY EXCHANGE RATE AND EXPECTATIONS WOULD ALSO INCREASE IMPORTS/EXPORTS AND EXPECTATIONS LEADING TO HIGHER DOMESTIC AND EXTERNAL INVESTMENT EMPLOYMENT AND GROWTH AND EXPECTATIONS... HIGHER VALUE FOR MONEY OR LOWER INFLATION OR PRICES AND FULL EMPLOYMENT WOULD LEAD TO HIGHER REAL WAGES/INCOMES/SALARIES AND PROFITS... AND FURTHER TO MORE SPENDING AND GROWTH AND EXPECTATIONS.........,

The US economy has already has a real wages and productivity gap since 1970s... then what is the use of new productivity and demand... How would you fill the gap... who will...?

The Budget (18), Free Market, Borrowing Cost, Housing…

The stock market has saluted the stock market by back firing 1000 points... The market was finding a way for correction... it has relieved the market from tension of correction... it was an outburst of irrational expectations... it has a reason... which has happened as expected... Nonetheless, people think that budget is not populist… but it is a big push for the rural economy where 65% of the people live, which is a big constituency... Moreover, lower tax on corporate or business income is a feather in the cap, too... last year the GOI planned to reduce CT from 30 - 25, slowly in 3 - 4 years, but this year it has done it before the time... The budget has it ALL, push for rural demand, push for business and the promise to review Income Tax for the middle class... it could be inflationary to push everybody's demand for more income.... any spending in the economy affects everybody's income through multiplier... the same crowd in effect, spending increase income and further spending... the government budget is bigger that the last year, estimates too.... which points that the Government would spend more this year... In the (different) words o/f/rom Milton Friedman... it is true that the medical spending is important, but even a dollar spent by the government increases inflation... but, i would add that prices fall as the economy approaches full employment because supply and production increase, but they could increase due to rising wages after full employment, nonetheless, foreign trade could help increase supply, even after full employment.... and increase real wages/incomes/salaries/profits and spending and spending expectations, supply, too....

Coordination runs against the FREE MARKET ideologues... In a market, both, the seller and buyer have equality of oppourtunity to take calculated risks... However, investment or profits run on capital or access to capital... Lower savings and debt and investment, except the borrowed money from the US dollar reserves on which china has bet on, is a big risk, due depreciation and inflation (which it doesn’t admit), which might instigate dollar outflows, and has also lowered real wages and domestic demand in china... China is not a model to emulate... INDIA should follow a secular trend or slow convergence of nominal exchange rate to the real effective exchange rate, means stronger domestic exchange rate, how much things at the current exchange rate, except how much domestic currency, which would also increase inflows... Nonetheless, protecting livelihood or increasing jobs are important for demand of foreign products, too... How a poor country could buy foreign capital goods and services it they are workless and have no money...

Private investment would increase when borrowing cost would go down and the RBI has the ball... The past government cut interest rate as low as 4% when the recession hit back in 2008... But real interest is way above the real rates in the main trading or investors partners economy... which has given less space to domestic investors constrained by higher nominal interest rate and higher FDIs... Even this, less populist budget, due to lower fiscal deficit and debt compared to the last government, and inflation, too... could not work if there would be uncertainty on the RBIs front... how domestic investor would invest... Nonetheless, the government could increase awareness among domestic investors to borrow abroad at cheap rates... since FDIs are permitted by the RBI... Domestic investors could borrow through Masala Bonds from lower rates countries...

Don't worry if RBI doesn't lower nominal interest rate... inflation and inflation expectations would cut real interest rate, due to full employment and higher cost inflation in time.....

Otherthings remaining constant or cost inflation or the borrowing cost, an increase in demand for wages, due to full employment, would mean higher real wages incomes profits... leading to higher consumption savings and debt and investment and employment and growth and prices and expectations....

There is excess capacity or supply in the housing market... vacant houses..... there is actually no need for new houses, but to sell the existing ones... if a builder is unable to fulfill demand on time, he must accommodate demand in the existing supply... construction has the highest of NPAs.... it would accelerate investment and demand and employment and growth and expectations...

18 Budget.....

The Budget 2018 has been dedicated to rural-agriculture, health insurance, women, elderly, corporate, exports, education and skill development, smart cities, MSMEs….. heads mainly…

The FM proposed to give 1.5x more MSP to farmers, which is quite welcome keeping the condition of the poor famers in the mind… He put to stress on its promise to double farmers’ income by 2022… The budget set line to setup food parks and repeated to promote domestic and foreign investment in the food processing and marketing… It sought to improve credit to farmers through NABARD and better credit facilities through NBFCs, which is mainly responsible for farmers’ suicide, credit penetration in rural areas in much lower… However, investment in food storage and irrigation has been a long pending demand which could help boost farm incomes further… Nonetheless, there has been less eye on promoting (rich) farmers or farmers group to invest in value addition in food by the famers themselves by incentivizing them through interest rate schemes… The government should give MSME status to agriculture to increase value addition and employment in the rural areas… The idea to bring rich farmers in the tax net could help bridge the revenue deficit… The government could have brought agri-bonds to increase investment in agriculture… The government has also given a fund of Rs 500 crore to ensure onion and potatoes during low supply, the main two which the poor consume more… The government has also showed interest in organic farming to increase production of food in the country…

Moreover, the government has given much attention to health of the masses through increased coverage under the health insurance schemes that seek to benefit 50 crore people… on the same side it has also allocated more money for people those suffer from TB… The FM, on the line of the developed countries, tried to cover people under universal health insurance plans… Moreover, it pledged to cure the problem of under or mal nutrition … Good food add value to human capital…

The women working force in the offices has now to contribute less in the first three years of employment… as low as 8% towards EPF... As far as income tax is considered the government has made a standard reduction of 40000 for the salaried… Nonetheless, the long held expectation on reduction in income tax has been promised to consider in due time with the evolving revenue needs to bridge the deficit… indirect tax reform is still on the anvil… which is likely to come as low as the corporate taxes, atleast expected… The budget has sought time for indirect tax reforms… Nonetheless, pensioners have also been given relief on investment limit to Rs 15 lakh…

The government has thought to reduce corporate tax to 25% on a limited turnover which is likely to increase investment and employment by the corporate… The business majority is happy with the proposals in the budget that is likely to catalyze investment and employment… Notwithstanding, the business and MSME’s are among the biggest beneficiaries and easy credit in the budget that are employment and labour intensive sectors of the economy… especially the apparels, textile and footwear…

  

The government has raised import duty and cess on wide range of imported items to increase local productions and employment in the economy… including cell phones… to stimulate domestic investment and employment…..

The government has proposed to increase enrollment in primary education by incentives… it has sought to promote digital education to reduce cost of skill development through online video classes… The government would increase skill development through local skill development centers… Skill development is crucial for employment and demand…..