Formalisation, Central Banks and Expansion, and Arabs...

There is no connect between formalisation and wages... Even with the Unions in developed countries wages are lagging productivity…Formalisation basically means more data and information on the economy to frame consistent policies… Low skills and productivity are reasons behind jobs and joblessness and lower wages… Formalisation also lowers tax evasion by maintaining accounts…

The central banks or the RBI are to curb irrational exuberance and excesses and try to control too much volatility in prices in the stocks and the broader economy, but not all the prices... Price change and expectations play an important role in investment or speculation...

Lower prices or inflation increase demand and price expectations and higher prices lower demand and price expectations...People buy low and sell high in the expectation of higher prices and higher price increase supply and lower demand and price expectations...

The same is with inflation people try to gain from rational expectations... But, too much volatility in G&S prices might increase change in the interest rate and expectations and demand and spending and growth worsening financial and economic stability... Irrational exuberance creates booms and busts, the central bank must curb too much boom and busts…

Depreciation is a failed strategy because it lowers domestic demand... competitiveness could also be increased by lower borrowing cost and increased capital productivity which could also increase domestic demand... Lower oil and inflation is one of the reasons of strong rupee which means higher real exchange rate, more demand for domestic products...

2.5% nominal interest rate and 2% inflation mean a 0.5% real interest rate which is likely to increase savings and lower spending even when inflation is tamed resulting in lower price and interest rate expectations... During the last recession the Fed has already tried negative real interest rate when nominal rates were close to zero and inflation below target...

The healthy balance sheet maintenance could work as precautionary money during the next recession... Too much tightening could lower price and interest rate expectations leading to a slowdown...

The expected inverted yield curve as a precedent for recession in the US is exaggerated since this time the Fed is more cautious about its past mistakes of too much tightening and defaults and higher unemployment and lower prices and interest rate, later...

This time it has recognised that there is a neutral real interest rate at which there is price stability and full employment and it admits, now, that we have reached the neutral real rates or zero real interest rate at which prices and inflation are stable near full employment...

Nonetheless, labourforce participation rate has been low compared to a decade ago, before the Recession 2008, which might be increased by increasing real wages and if the Fed waits for wage build up when inflation and expectations are low....

Nevertheless, there has been a gap in productivity and real wages since 1970s... By delaying the rate hikes with respect to inflation the Fed has lengthened the expansion... Things move slowly in the economic world, the next slowdown is expected when higher real wages increase demand and price and real interest rate expectations...

…it might still take 3 - 5 years depending on the speed of increase in real wages... lower inflation also means higher real investment and profits...

Higher productivity and lower wages and natural real interest rate since 1970s could be responsible for lower inflation and expectations... Data shows that inflation has increased with rate hikes since 2015... Low inflation and expectations have lowered premium on long term interest rates... Nonetheless, if inflation and expectations increase it could again increase long term rates...

                                                                   Interest rate          

                                                                   Inflation

Withdrawing accommodation and raising interest rate are like taking away money from people and supplying loans and consumption/investment spending, actually backed by banks reserves, even when it has not created inflation and inflated assets, but rolling back money supply and increasing interest rate might lower demand/supply and price and growth expectations...

The Fed should never increase interest rates so much that it increases chances of default and slowdown in the economy even when inflation is muted which might lower price expectations and delay in economic activity...

The stand-off between the US and China is also a major cause of further slowdown in already slow European economies... Germany, the best performing economy in the Euro-area has considerable trade with China which might sour investments...

We have reached a state where no economy can claim insulated from foreign trade and investment and grow in isolation... Even the US growth has slowed down since the inception of trade and tariff war...

Arabs said they want oil at $70… even with supply cuts, but what would happen when the sanctions on Iran and Venezuela would be removed altogether? Prices might fall like the house of cards... Both are among the biggest oil producers... Shale would also suffer along with Arabs...It is just a matter of politics... 

China-Pak, Imports, Data, Liquidity, Neutral Rates and DF...

China is on its way to become a terror(ist) country... It posits in US'' shoes...But, Superpower does not mean supporting terrorists... 

The US this time has backed INDIA, but China only slowly...

China is still secretly working on the Manifesto... and now terror supporting Superpower through its clout...

We do not need to curb Chinese exports to INDIA at once... we should impose tariff and delay the date for effectiveness till it changes stance on azhar... 

Moreover, china has less space to retaliate than INDIA ''coz of low exports to china... 

It could fall heavily on china added the US tariffs on china which is supporting INDIA... 

Additionally, higher tariff on china could help domestic industry and employment... local jobs are also important...

Had China declared azhar a terrorist back in 2009, Pulwama had not happened... china is as equally responsible for terror attacks in INDIA as is pak... jem is already banned in UNSC and everybody knows that masood is the chief... 

INDIA should boycott china and its products... Trade deficit with china is around $ 51 billions, it would cost china as dear as its investment in pak 50 billions... 

INDIA should impose 100% tariff on china and delay till hold on azahar in UNSC...

Why we are importing when wages are cheap in INDIA... Higher price imports are bad for real wages and demand in INDIA... china is famous for protecting its domestic market...

We are importing costly chinese products when we can produce at lower cost and prices...

China is overlooking long term gain for short run gain... China has already made a mistake to invest in a terror affected region... knowingly has risked its money... 

Peace is a sin e qua non for growth in investment...

Recently, there has been a discussion on the quality and credibility of data in INDIA… what else you can expect from an economy that is largely informal and unorganized?

The RBI has thought of increase liquidity through foreign exchange swap…

But, buying dollars would make it strong means costly or inflationary imports like higher oil prices and depreciation of rupee and outflows and higher interest rate and expectations... 

Lowering CRR could be a better liquidity improving lever... or just OMOs... 

Neutral real interest rate means 0 (zero) real interest rate, neutral means 0... 

It would neither increase savings and investment, means constant increase in savings and investment and growth...

If it increases productivity through investment in health, education, skills and innovation, deficit financing (DF) could help... 

When monetary policy works investment flows to sectors having higher price expectations, but fiscal policy could crowd out private investment and increase demand without creating supply and increasing inflation and inflation expectations...

Demand/Supply and Prices (Stocks, too)...

Higher prices and expectations further increase prices and price expectations which lowers demand or increase supply and lower price expectations and lower prices and expectations further lower prices and expectations and increase demand or lower supply and increase price expectations… therefore, trade cycles are imminent, in the stock markets and in the economy, too…

For example, if a stock market investor expects higher prices based on past data s/he increases investment (or demand) and would delay supply which further increases prices and expectations, similarly if s/he expects lower prices s/he would delay demand and could increase supply, which would further lower prices and expectations... 

Foreign investment inflows also work in the same way if they expect inflation and higher interest rate and expectations based on data they are likely to sell which further increases inflation and depreciation and interest rate expectations, outflow of foreign exchange would again increase depreciation and inflation and interest rate and expectations…   

On the otherhand, if foreign investors expect lower inflation and interest rate and expectations they increase investment which further increase foreign currency inflows and appreciation and lower interest rate and expectations.   

Nonetheless, higher prices to an extent are good for investment in stocks and also in the case of broader economy; it increases the pricing power of businesses… Higher prices are good for supply and demand if real wages or price of labour or incomes increase, but too much higher prices might increase supply or lower demand and price expectations, 

Moreover, lower prices are also good to a degree for investment in stocks and the broader economy; it also reduces the cost for businesses. Lower prices are also good for demand if real wages or price labour increase, at lower prices people would demand more or supply less, but too much lower prices might increase demand or lower supply and increase price expectations.

The trade war is actually a tariff war... which has actually benefited the US... Higher tariff makes domestic industry competitive in the country... Even with the tariff war the US has been able to carve a strong growth...

Trump should look within for answers... a strong dollar is one of the reasons of uncompetitive US exports... Rupee is depreciating every year and dollar becomes strong making US exports shrink... Higher tariff on imports increase the cost and prices of US exports which increases inflation and interest rate expectations... The US economy is too costly... and lower growth expectations...

Too much lower prices (stocks, too) or inflation point lower demand due to higher real interest rate and confusion created by monetary policy signals due to lower oil prices, demonetisation and lower growth and expectations... Lower oil prices, though not full to consumers and demonetisation and now lower food prices all lowered inflation and inflation expectations, but not resulted in rate lower interest rate and expectations, however with a 25 basis points reduction only recently... INDIA...

People do not know that they can bid and offer equity prices and if everybody bid to buy low and sell or offer high they can control equity prices in a bigway... People should always wait for high price... and lower price to buy...

Credibility of rating agencies is also important... During the US Recession 2008 rating agencies underestimated the risk of too much debt and defaults... Even INDIA''s growth rate highest in the world has not been reflected in the rating agencies ratings... Moody has improved INDIA''s rating after a long period but Fitch has not changed its rating just a notch above the lowest investment grade...

1000 or 2000 Rs is just a piecemeal to discourage unemployment, but could be sufficient to spend on education and skills training... In the US unemployment is measured by demand for unemployment benefits which could help target basic income only to the unemployed...  Education and training are the best response to the problem of low productivity and wages and demand...