Prices and Expectations and Cartels/Quota...

 Expectations or forward guidance about future inflation and unemployment and interest rate to shape and take investment decisions wisely and avoid sudden change in course in the face uncertainty and the then economic policy and the resulting effect on investment is what is expected from the central bank which is described in the monetary policy... Todays central banks are like a big rating agency run by the govt jointly to guide investors to take the right decisions...

Investment reinforces or crowd in investment... More investment would lower yields due to higher money supply and increase bond price expectations which means more investment... especially in the short term which is more predictable than the long run... Like higher fiscal deficit has been well received by the investors as that is likely to crowd in more investment by the private sector...

The govt is increasing layout on a lot of issues... The govt has plans to increase spending through sale of shares for the private investor... It would have more money for productive purposes... The effect on the total economy would be minuscule...

Spending on infra means that wages would go to the unskilled vulnerable labourers... Moreover, it increases productivity and more revenue from tolls means more investment and more wages...

The govt may set quota for every state to include farmers from all states in the FCI purchases...

The govt should implement the quota system so that dumping by states and lower prices do not happen... Oversupply depress the prices, supply must match demand... It is important to to save the livelihoods of small and marginal farmers which do not produce in high scale... Contract farming could help the mismatch in demand and supply... 

Like opec has quota for the member countries, to match demand and supply and control prices, the farmers must produce in accordance to the demand... The govt has subsidised the agriculture even though farmers plight are unavoidable especially the small farmers... The Farmers Unions must set prices according to the cost of production... Farmers are businessmen, they must decide prices on their own based on demand and supply...

To gain the Kisan Unions themselves follow the aggregator of the aggregators model, Unions must invest in this model, themselves...

Investors shall set the stock prices at the high price range after buying... To gain in the short run... If all would set same sell high price all would gain...

Money from investors is likely to reduce yields and increase prices in the short term... Bond demand would increase bond prices... Fiscal deficit to increase productivity and supply would contain yield and prices... Lower yields would reinforce supply from the private players and prices...

If the rupee becomes strong, to 68-69, if the RBI sells dollars, oil prices could become 7-10% cheaper, moreover it would also increase foreign exchange inflows to recoup the dollar slowly... It would also lower imported inflation and could make the economy competitive and more productive... Lower inflation and higher domestic exchange rate would also increase exports...

The RBI may sell dollars to contain fuel prices... and, the govt may try to settle oil contracts in rupees... moreover, the govt could ink a long run contract with the US to import either biodiesel or oil... which is now a net exporter of oil... EVs have changed the dynamics in the oil market... Storing too much oil or investment in it is a too much risky bet... The oil prices have increased on the back of production cuts...

Oil from the US and Saudi, lowest cost, in opec are in direct competition and conflict to increase market share, even china imported alot of oil from the US last years and a big importer of crude oil from Saudi... Nevertheless, china is the new US, a big guzzler of oil... Low oil demand and cov19 benefitted china as far as oil prices are concerned...

The evidence from the West suggest that as money supply has expanded the price level has remained muted even though the FDs continued to be high, low borrowing cost has increased the productivity and productivity of capital and supply with innovation... The interest rate in INDIA would converge to the developed countries like the US and Japan...

Rational Expectations and Prices and Spending...

 Complete price stability is a myth, the economy moves between high and lows based on the demand and supply or between high and low demand and high and low supply... Low prices and full employment mean there would be higher demand and price expectations and higher prices and full employment mean there would be higher supply and lower price expectations... 

Unemployment and lower demand/high supply and lower prices mean slowdown and unemployment and high demand /low supply and higher prices mean high growth... The economy moves between high prices and high growth and low prices and low growth... 

Base effect ie lower prices and growth means there would be higher demand and price and growth expectations and the same with debase effect ie there would be a correction or lower demand and prices and growth expectations... which seem rational expectations... The economy moves between high demand and high supply and between higher spending and lower spending... 

Lower prices mean there would be more spending and higher prices mean less spending... Both consumption and investment decisions depend upon price and price expectations... Lower prices mean there would be more spending and higher prices mean there would be less spending ahead even if there is full employment and fixed income... 

Intervention could reinforce volatility, for example, lower borrowing cost could reinforce lower prices and higher borrowing cost higher prices... Therefore, we need stability in the borrowing cost...

Inflation would increase after full employment...Unemployment and lower borrowing cost would mean that there is space for expansion means higher demand and supply... When both would increase equally prices may remain stable, though if demand is higher prices may increase, but not that much and in supply case prices may go down, the market move between excess demand and supply...

The govt may educate the masses how to take advantage of price expectations and corrections in the G&S/inventories market... If they expect 1-2% profit/day they may increase investment demand as this could double investment in 100 days, for this they must wait for price corrections and increase supply when prices increase...

The govt and RBI must instill business acumen in the public and how to handle inflation and make profits... The RBI has allowed 2-6% inflation which could help grow money returns if investment is made wisely, at corrections... 

Like the stock market, the broader economy and the inventories market could also be made profitable where prices could move from 2% to 6% and from 6% to 2% it could be a buying oppourtunity and increase supply when the price increases... If people buy when prices are low and sell when prices are high it would also help stabilise the economy...

Disinvestment is often regarded as selling family silver, though the meaning in current perspective is to raise capital in the market for more investment... Today only a part of the promoters’ stake or shares are sold to the investors... Disinvestment in today’s context is a lot different than used to be in the past... It means more money would be raised through sale of the companies’ shares for investment...

This time there is a change in the commentary that Das has expressed concerns of inflation expectations instead of lower inflation due to low demand... Inflation expectations mean that he sees revival in demand and growth which could further increase demand and spending... The central bank has projected a growth rate of 10.5% in 2021-22...

Fixed interest rate income assets does not benefit from volatility... For this investment in the short run gov secs is rewarding since they capture the loss in real interest rate due to inflation when the central banks increase the nominal interest rate to control inflation and restore the value of money, in the short run... Instead of bank deposits savers may park their money in g-secs and benefit from volatility...

It is quite a coincidence that INDIA's foreign exchange also stands $500 billion which is a major reserve with the central bank lying unused and idle... if invested in the economy could prove to be a major source of investment and higher productivity and demand and growth... If sold in the market vis-a-vis Rupee could make it strong which could attract inflows... Investment reinforces Investment ie multiplier...

The ratings are used to mobilise savings and investments on a very large basis which include FIIs, FPIs, both, debt and stocks, every country now want more foreign exchange for maintaining a stable exchange rate regime... Rating Agencies are at investors’ service... 

But, the 2008 Crisis exposed the vulnerability of the investment banks even after good ratings... INDIA has been the fastest growing major economy with stable inflation, notwithstanding its rating has been the lowest investment grade...