The Indian state election victory for Rahul Gandhi’s Congress party in Karnataka has revived the group's hopes of overthrowing Prime Minister Narendra Modi in next year’s national election. However, Congress still has a challenging path ahead, as the next five state assembly elections are set to take place largely in the BJP-controlled regions of the north and west. The win in Karnataka was significant as it was the only southern state the BJP had m ..politics-and-nation
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...
Unless INDIA provides unemployment insurance flexible labour laws are not desirable which could disrupt demand during crises...
Former RBI governor Raghuram Rajan has expressed concern over the threat to the banking sector over the long-term . He notes that there might be a potential profitability problem with the banking system where rates on safe assets have gone up but banks are struggling to pass off half percent or 1% increase. Also, the broader problem is that entities make money in normal times taking risks but throw the risk back to the government in bad times. He sa ... rajan-is-worried-about-a-time-bomb...
The main problem is inflation and not deposits backed by insurance since the central banks are there to control excesses and increase emergency help. The difference between the banks borrowing cost and lending rates may go up in the short run due to inflation, though long-term rates are low based on inflation expectations, everybody is expecting inflation to go down in the future.
Low inflation and interest rate and expectations point that business cost expectations would go down too which increases productivity and demand and growth may go up. The central banks and banks picture is altogether fine... India's NPAs of banks have gone down significantly which during Rajan increased a lot, he advised the government to build houses which created oversupply and recession in the real estate market.
Central banks have the capacity to increase the credit line during higher NPAs. No such event has happened in the near time and the probability is also low.
It is a mirage that Fed and policymakers control inflation through interest rate adjustments rather they aggravate the situation. If inflation is increasing, a rate hike would further increase inflation since it would reduce economic activity and production and vice versa, though, if the interest rate is kept constant supply and production would catch up with demand and lower inflation, rate hikes and rate cuts are self-reinforcing.
The change in the inflation rate we see in the current period is the result of the inflation in the base year. GDP at constant prices or adjusted for inflation shows the actual demand-supply inflation ie inflation caused by demand and supply or quantity produced and supplied and demanded. Therefore, it is always better to stabilize the situation than reverse the course increase unemployment.
Other things remaining constant, if prices or inflation increase supply or imports, would increase and lower demand and inflation relatively if there is full employment, though if prices go down, other things constant, supply or exports would go up if there is unemployment. Stabilizing the condition is the best way around rather than debating on demand and supply theories.
The higher money supply is sterilized through higher savings and lower interest rates or borrowing costs and higher investment and supply which could lower prices. Keynes advocated fiscal policy in the concept of the free market when there were already central banks... We never have had a FREE MARKET ECONOMY....
One shall not fear flexible prices or inflation our problem is prices that are sticky and are constantly going up like the price of standard living and things of daily use like food and shelter since flexible prices are an opportunity to increase investment, supply, and profits and that is possible when credit is cheap.
The price of capital is going down due to an increase in savings which has made savings an unprofitable venture and exposed us to risky investments like equities and debt, though investment in supply has increased and the US experienced a prolonged period of low prices. There shall be balance and stability to avoid reallocation and adjustments that are unproductive and uninnovative. Low and stable prices mean that supply and demand are high and inflation-adjusted incomes and returns are high...
In the long run, we need high returns and incomes to pay for public goods... The real measure of where interest rates are headed is reflected in bond prices... Bond prices change on interest rate adjustment and expectations by the central banks, first... We shall not fear short-run prices or inflation changes if long-run prices show stability... A higher price base in this period would lower price expectations in the next period if other things remain intact, that is an observation...
Higher unemployment and lower supply could reinforce higher prices, and both demand and supply would go down...
