Deficit financing (DF)
to increase productivity may help... Finance should flow to sectors that may
increase inflation expectations... Like oil and agriculture in INDIA...
Nonetheless, market may
also be incentivized through lower interest rate by monetary policy...
Lower inflation and
inflation expectations were very slowly recognized by the RBI which sent
confusing signals to the investors or failed forward guidance about inflation
and interest rate and expectations...
A higher real interest
rate did not lest investment spending materialise... so low inflation is also a
problem for supply, but good for real wages or incomes, nonetheless lower real
interest could help increase productivity or supply to match demand levels...
The NPAs and higher
inflation and interest rate and expectations the UPA left did not let
investment and employment materialize in the economy later fully...
Increasing productivity
means higher production and higher investment and employment and lower prices
and increase in demand and supply and growth expectations...
The slowdown during the
UPA did not let demand and supply recover completely...
Private investment did
not pick up due to NPAs and the resulting NPAs of banks... that stretched too
long...
Lower and stable prices
were a miss during UPA...
Liquidity is also
important for rate cut transmissions 'coz it would increase bank's scale of
business, they would lend more and earn profits...
Moreover, number of
banks mostly dominated by the public sector banks and less competition among
banks to sell loans is also responsible for slow rate cut transmission...
Higher real interest
rate compared to the peers has led to incompetitive businesses and exports...
Nonetheless, lower
inflation is also responsible for higher real rates which needs to be
corrected...
Both, liquidity and
competition have restricted rate cut transmissions, too....
The most appropriate
response to reduce uncertainty in farm incomes would be crop insurance due to
lack of irrigation and credit facilities, like hedge investment for farms...
The share of
agriculture in the GDP has gone down though number of dependents for jobs has
had been very high which has reduced share per person...
The average income
could be misleading since income of marginal farmers could be lower given their
number...
Nonetheless, 3000
Rs/month is quite insignificant for a farm family to sustain spending on the
basics including education...
A recession was
expected (in US) in the backdrop of the inverted yield curve and too much
tightening that are likely to cut the expansion cycle...
Nonetheless, if
inflation and inflation expectations are contained through a stable or neutral
real interest rate, expansion could continue longer...
During the next
recession the Fed does not need to harbor too much lower interest rate
expectations since it could delay spending to lower cost expectations...
If people do not expect
lower interest rate too much they might increase investment soon…
Too much lower interest
rate and price expectations might delay spending and recovery…
The dollar never
depreciated too much to attach a tag of currency manipulator to US... It has a
huge demand, within China also, and due to peg to oil prices...
Any correction in
dollar increases its demand and prices or makes and made it strong and
depreciation in yuan, though...
The main difference in
dollar and yuan is that dollar is world’s reserve currency and has a safe
heaven image due to credible US monetary or economic policy...
Too much higher oil
prices may point lower demand and supply and expectations... consumers would
demand less and producers would supply less...
On the contrary, at
lower oil prices consumers would increase demand and producers would supply to
contain profits...
Nonetheless, higher
prices lower demand or increase supply and lower price expectations... and lower prices increase demand or lower supply and increase price
expectations...***
But, a stable price
(movement in a narrow band) is the best to manage demand and supply and prices
or quantity and price...
***correction
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