Origins...

The first thing is that the depreciation has origins out of the country which are out of control and since it increases exports the economists do not worry about it too much and they say that the real effective exchange rate of rup vs dol is overvalued, some depreciation would help exports, moreover it would make oil and other imports dear which could work to reduce demand for imports and improve CAD... 

Higher depreciation would work like tariff or higher prices to control demand imports and lower price and price expectations, that would be followed by appreciation and more imports. 

But, both, appreciation and depreciation or volatility is good only to an extent, and the RBI shouldn’t and couldn’t respond to every little shock and sometimes shocks are important for adjustments and may start outside the economy. 

Moreover, foreign capital rarely invest in bank deposits… they invest on bonds and stocks mainly, when bond prices and bond yields are inversely related a lower interest rate would increase bond prices and profits and expectations. 

Therefore, lower interest rates are also good for bond prices and capital inflows, and when interest rate is lowered it would also increase domestic investment in stocks and foreign capital inflows leading to the strong rupee if currency risk are hedged, which is same risky as debt in foreign currency.

A depreciating currency could also be good for value investors in currency which could again make the currency strong and restore investment in the stock market. 

Uncertainty on the interest rate front and slow revival in the investment and consumption, demand cycle could be a reason of higher NPAs... 

Too much higher nominal or real interest rate has kept demand and supply back when cheap foreign capital investment increased... 

Our domestic investors are at loss due to higher rates, which is also responsible for higher imports too, goods too... 

INDIA is one of the higher interest rate economies in the world... at over 6%....

Since, INDIA is a major economy… rates must be compared with other major economies…

Inflation has been a big contributor to lower savings and higher real interest rates and lower investment and growth, which has made the country dependent on foreign capital to increase investment and employment in the economy... 

Moreover, most of the small households’ savings do not reach banks, since for a long time households were devoid of bank accounts... 

Cashless transactions could increase bank deposits and lower interest rate and increase investment and employment in the economy...  

Higher savings could lower interest rate and improve investment and supply leading to lower inflation...

Farmers should be given bargaining power in the market and the ability to hold supply like oil firms... MSP is only a short run aid... 

Farmers would benefit when they would unite and make collective bargaining..... 

The ability to hold produce like holding investments is important to weather lower prices and sell when prices are high... 

Marginal farmers should be given basic income.....

It is possible to have 2 rates one for the poor (0%) and (18%) for the rich, including the middle class... 

Lower taxes make the economy competitive... 

There is no need for sin taxes because it does not work and it also makes cure costly.... 

Lower taxes would increase compliance... 

Tax revenue would depend on the government policies to bring more and more people under tax bracket and increase tax base.....

Rich choose expensive and poor cheap goods (even shops)... 

Rich and poor have considerably different consumption patterns... 

Simply... they use different products…

It is not about taxing the goods... it is the profit or revenue that needs to be taxed....

Turkey might try to sell the dollars it has, it would reduce lira money supply and inflation and could help reduce price level and interest rate and expectations... 

Higher tariffs would worsen inflation…


Nonetheless, capital outflow from emerging market would cause the US imports to rise leading to higher trade deficit and, moreover, capital back to the base would put downward pressure on the Feds fund rate... We see that rate hikes now give rise to rate cuts later... Similarly at the domestic front higher rates might give rise to lower prices and interest rate and expectations... However, we are insearch of the neutral real rate...

The Economists... (*Rev.)

The Economists generally regard higher prices as a sign for the economic activity, but especially in a liquidity trap, when the interest rate refuses to bounce back in order to increase or reward savings, because without savings investment is not possible.  


* However, lower prices due to lower borrowing cost could also increase real wages savings and investment and demand, consumption, too, and supply and growth and expectations.

People demand or hoard money and reduce spending, when they see or feel higher prices that increase supply and reduce demand and expect lower prices ahead, which increase demand and spending, if everybody is employed and has an income which has not gone down, because real wages and incomes would increase. 

Otherwise, they (economists) admit that lower prices and interest rate are good for economic activity or expansion and financial stability ie that goal of economic policies, full employment and stable price level, everybody accepts that lower prices increase demand and supply if real wages, incomes and profit increase. 

We think that lower prices reduce supply, but forget that law of supply says that higher supply lowers the price level, the combination, which increases demand and price and expectations, 

More specifically volatility is imminent in the case of data gap and ineffective demand and supply management with half informed economic policies, 

Excess demand leads to higher prices and increase supply, which often leads to excess supply and lower prices, the economy moves between excess demand and excess supply in the absence of reliable data and information (asymmetry). 



And, more importantly on the future or expected demand and supply data from an investors or agents or subjects interest point of view…….

Nonetheless, higher inflation and inflation expectations after full employment and higher interest rate and expectations increase deleveraging and cut back on investment resulting in lower investment spending and consumer spending, too, which could turn into recession, if, there is a sudden increase in inflation and interest rate and expectations. 

Nonetheless, higher interest cost could also be a reason for lower supply and demand and lower price and price expectations, which could delay spending

i think Paul is trying to make a simple point, here, that trade increases the production possibility frontier for the economy to produce more and consume more (globally, too)... However, higher production and lower prices (or cost) could increase real wages, incomes, profits... or vice versa....