Supply creates demand... This is the best time to increase investment spending because we are going through correction... it would increase employment and demand... Lower prices mean lower cost for business; both wages and interest rates are low... Increasing just consumption demand in a disrupted scenario would increase inflation; business cost would also go up, especially the food and fuel inflation, higher wages and interest rate... Reinforcing supply and productive investment by the Govt also would lower prices and increase real wages and demand, lower prices would also contain interest rate, and would also increase real interest and savings and investment…
If supply comes first it doesn't mean its supply side economics.... It tells us how to increase demand by increasing supply, it is the goal, increasing demand... Higher supply means higher productivity (and lower prices) and higher competitiveness and demand... Higher real wages due to higher productivity would further reinforce demand and savings and investments and growth.... Nominal wages are rigid which means lower prices would increase real wages and demand...
INDIA must design policies that increase, both, demand and supply to stabilise prices and growth... Any demand stimulus with supply side disruption due to lockdown could be inflationary... The Govt must increase employment and productivity, both, which would increase real wages and profits (due to low cost) and demand by lowering prices and higher supply would reinforce stable prices....
The RBI could manage to lower domestic inflation and also imported inflation by reinforcing the supply side which would also increase investment employment and demand through lower interest rate, lower interest rate would further reinforce lower prices, increase capital inflows, capital inflows would further reinforce lower interest rate and prices and strong rupee, strong rupee would further reinforce foreign cash inflows...
The 50% of the population is occupied by the agriculture, the govt has helped the sector with money on a scale basis and higher food price would increase demand and spending... loan waivers have also helped...
If inflation is not increasing at the full employment or falling at the full employment it means productivity and competitiveness and demand is increasing, higher real wages, due to lower prices, would reinforce higher demand and prices and expectations... in the face of lower population and potential growth rate...
It should be a flexible inflation band, higher during low growth and lower during high growth... Though 8-10% inflation would help boost nominal incomes in farm and manufacturing, higher nominal incomes and lower prices due to lower borrowing cost would increase real wages and demand... Lower borrowing cost increase productivity of capital... Business lament loss when they should produce or buy stocks when prices are low and sell or supply during high prices... This is true for all business ...
10% is not that high it just makes 10 11 or 100 110... It is just thin margin... If stocks are allowed 1 to 20% margin, a day… Real economy business agriculture and manufacturing must also be allowed 20% margin... and cheap credit too...
Lower prices and higher demand and price expectations are important for spending, and, higher prices and low demand and price expectations could delay spending... The Fed may lower prices through lower borrowing cost and prices to increase demand and price expectations, but avoid too much higher prices through higher borrowing cost and prices to lower demand and price expectations to achieve full employment and supply and investment and prices and economic growth and expectations and contain spending...
A 2% average inflation target (US) also means that inflation expectations are also at 2%, though 2% inflation seems to be very low, it means a $ 10 good would swell only $10.20 during inflation which is a very low inflation margin which would require frequent tightening... Nonetheless, a 5% inflation and inflation expectations could help the economy build demand and wages and prices and higher interest rates...
The central bank's
guidance that it would tolerate only 2 -2.25% inflation would induce business
to lower debt and demand when the inflation reaches the limit due to rate hike
expectations...
Notwithstanding, higher inflation target, than 2% and expectations and lower borrowing cost and prices could increase demand and prices expectations and spending.
Higher bond yields mean that the bond market has factored in inflation expectations...
Maintaining inflation expectations has had been pursued since the GFC, which is not new, that has been a consistent goal, but not in policy...
The Fed said that the economy we are in a Wicksellian economy... means we need to stabilise prices at full employment... a neutral or natural real interest rate, wages and exchange rate to stabilise demand and employment and supply and investment and the economic growth and expectations...
The productivity could and has increased and help(ed) achieve full employment... to increase demand and price expectations and spending... Higher productivity means higher production and supply which would help stabilise prices and expectations...
Growth is not negative in INDIA, it has just shrunk by 30%... it has grown 70% compared to the last quarter...
MOSPI data says that
gdp is shrunk by 30% and growth is not negative, but has grown only 70%
compared to the last quarter... The INDIAN economy grew 0.7% in the last
quarter... trading economics . com...
United States... gdp...
People think that correction and lower stock prices are not good, but they are an oppourtunity to buy more to increase returns... If i had money i would be very happy to further increase the exposure slowly to lower average cost or increase returns... The economy and stocks have probably bottomed out, no major correction expectations are probable in the near term, until-unless a black-swan appears...
Quarterly reports come after a time lag, it is the past which cannot be changed... Investors are forward looking... There is certainty that the economy would recover soon... vaccines have arrived... Moreover, the death rate in INDIA due to virus is among lowest and cure rate is high... Recovery rate is higher than the death rate...
If investors follow few rules of thumb, never sell in a falling market or sell only during high prices, and buy on corrections or low prices everybody's money would be safe, it would also help stabilise prices and market... The same is also true for the real economy... invest or buy or demand when prices are low and supply during high prices...
Stock market investors must not buy/sell large quantities at once... They must buy slowly as long as the average cost becomes zero that would reduce average loss, coz prices may fall and they must sell slowly to increase average returns, coz prices may increase further...
INDIA has grown 0.7% in the latest quarter and the US -30%... Moreover, the US is demand constrained that's why they could choose to stimulate demand without much pressure on the supply and (muted) inflation... INDIA is supply constrained with higher inflation and expectations...
