Monday, May 6, 2019

Economic Policy INDIA, US...



Congress has seen the fiscal profligacy of Pranab and the resulting inflation and election results... Food and fuel inflation have been the sources of worry for INDIA, though both are going through a benign period...


Poor people have a higher propensity for consumption, which may stoke inflation and interest rate expectations... and lower investment and increase outflow of capital... We have evidence of easily overheating in the economy in the case of INDIA...


If the government borrows money it could also increase interest rate and crowd out private investment... Increasing productivity through training and skills may also help increase real wages/incomes, instead of wage spending by the government....


The policymakers are worried about lower prices or inflation in the US. The prices in the US may also fall due to rising productivity due to lower borrowing or capital cost, which might increase real wages/incomes... ORC lower prices would increase nominal and real wages/incomes near full employment and demand if people do not expect lower prices or expect higher prices...


Real rates in the US are near zero or neutral, 2.25 nominal rates and close to 2% inflation, which needs to be maintained for stability in the market... Low inflation means more demand and higher price expectations and vice versa...


Stable interest rate and inflation expectations are important for growth... Lower price and interest rate expectations might delay demand and spending and increase supply and higher price and interest rate expectations may delay supply and increase demand and spending...


We need to balance both demand and supply to shape prices and growth expectations...


We are experiencing low inflation in US, which could possibly mean lower demand and higher supply, which need higher price expectations to increase demand that could be achieved by a loose monetary policy or neutral interest rate or longer lose policy to increase demand near full employment or little higher interest rate to curb some supply and increase price expectations...


The interest rates in the US are still low compared to the past and developing countries. But, the problem is that the Fed is either likely to overtighten or undertighten because lower interest rate further reinforces lower prices through lower borrowing cost and vice versa...


Government should promote hedge investment to control risk... Both, lower cost and prices and higher cost and prices and expectations can benefit businesses if they are anticipated correctly... Investment at lower prices increases profitability to sell at higher prices...


Bonds work well during slowdowns and equities during growth... Businesses and investment needs to know price and expectations before investment... If you can rightly predict prices, lower or higher, and act accordingly, any investment would give you better returns...


Easy money and higher inflation and financial assets prices and consequently higher interest rate and expectations are the problems that trigger slowdowns... Low inflation and interest rates in both, the developed and developing countries point the capacity to expand further.


Nonetheless, stock markets could go for bigger correction in the case of a slowdown, which is so far far given low demand and spending and prices... The biggest problem to the growth is oil prices, which may feed into inflation and asset prices, including dollars...



Few years back lower demand and commodity prices in the global economy had helped INDIA contain the CAD and inflation, that low global growth was good for INDIA… but due to increased demand for employment and exports the need is a steady growth in demand in the other countries, too...



No comments:

Post a Comment

"Everybody is worried about rate cuts and nobody for lower interest rates on savings, when all save and few borrow..."

Growth is sacrificed when the value of the money is sacrificed because spending goes down due to inflation, and people buy less due to high ...