I have moved FinanceCapsules(c) to it's own domain http://financecapsules.com. The old blog at http://financecapsules.blogspot.com would still be active for a few more weeks; however all new articles will only be available at the new URL. Please update your RSS feeds accordingly.
Thanks for inspiring me through your regular visits & lots of comments through emails/ on the blog. Your support has encouraged me to take this activity little more seriously. Let's hope you continue to enjoy the articles. Please let me know if you have any suggestions/ comments. I would also like to know if you want me to write on any specific topic.
Sunday, January 25, 2009
Sunday, January 18, 2009
Bright days ahead!
A rare day today for me with 2 articles. It was necessary since both the current affairs would remain “current” only for a while :-).
While the world economies have been plunging, India was affected, but not as bad as compared to the rest. India is still looking ok to attain around 6% growth. This is significant as compared to the World bank forecast that the world would see 0.89% growth this year. However India managed to keep in the limelight - all for the wrong reasons! Last 3-4 months have been quite fatigued for India. Mumbai terror attacks, initially failed & prolonged diplomatic pressure tactics over Pakistan, Satyam scam & to top it all – 4 Golden Globe awards for the movie “Slumdog Millionaire”! While all the other hiccups are there & will anytime exist elsewhere in the world, the last one really sealed the fact that 2009 is perhaps a rough year for India too.
Generally speaking, many critiques acclaimed “Slumdog…” as a very realistic movie. I think it is a shameful encashment (by a few Indians who were involved in making of this film) by showing quite exaggerated & dramatic scenes of the underbelly of India. This is an insult to the have-nots while the haves (of India itself) are making exaggerated movies, sitting in their living rooms/ multiplexes to watch & laugh at the plight. I have never seen such blatant & misleading (for a few dramatic scenes) depiction of one’s own country by the citizens of the same country! Why are we proud to get awards? Are we proud to have mastered the art of deceiving the vast population of our nation? Are we proud to have started the series of such insane & exaggerated movies to continue getting these awards? What an art at the cost of murdered reality!
In general, the terrorism, scams, diplomatic delays etc. happen in any country. We should not be really bothered too much beyond learning from the incident & moving on. I think we are at that stage of moving on. But for that we really need a good PR machinery in place at all levels! For next year or so, if the trend continues, the PR fiasco might continue. However I strongly feel that India is one of the rare bright spots in the current world forum.
While the entire world is witnessing a financial bloodbath, India has not been so drastically impacted. There is indeed an impact & hence the economy has slowed down from 9% growth to about 6%. However still this is an excellent growth figure for 4th largest economy (based on PPP) on the backdrop of forecasted 0.89% growth for entire world. Impact to India’s economy has been limited due to the prudent policies such as lesser reliance on exports as compared to other emerging markets, tighter regulatory controls & general prudent practices (while lending) by banks in India.
Various aspects that show recently developed strengths for India are mentioned below. Most of these are forward looking indicators & hence cannot be ignored.
1) Diplomatic wins - Nuclear energy deal, Qatar agreeing to invest 5 billion in exchange of security assurances by India,
2) Science & technology - Chandrayan 1 at record breaking cost effectiveness, Shaurya missile test launch, multiple other missiles test completed, launch of 10 satellites using indigenous PSLV
3) Economic strengths - Limited export focus as compared to other emerging/ developed nations (only 15% of GDP), vast domestic market - potential for self sufficiency (except power, oil & natural gas), 4th largest economy on PPP size, one of the highest growth rates despite global shrinkage, increase of productive portion of population while most developing nations are facing negative growth in productive population: 25% of world’s population of under 25 years, 60% of India’s population is < 35 years old, ten Indian citizens in the list of richest persons in the world (as on Feb-08), steady rise in middleclass population that is projected to be around 150 million by 2020, exponentially rising foreign investment.
4) Entertainment – IPL (Indian Premier League) is the biggest & richest cricket league in the world where global cricketers are actively seeking the spots, Mumbai film industry is recruiting globally.
Few other indicators
India’s Balance of trade has been negative. That means imports are more than the exports. The major commodity that we import is crude oil. By & large, size of oil imports (net) has been 70% of the total trade deficit. Due to this fact, loss of money by speculators & real slowdown of fuel guzzler economies have indirectly & immensely helped India ease the situation with Balance of Trade deficit. Speculation money was coming from those economies which are facing the hardest hit of the downturn. Lack of this money as well as decrease in demand for oil by the developed economies has brought down the crude prices by 75%. Indirectly, India (like many other economies in similar situation) is benefitting largely at the cost of others.
There is a theory that Forex reserves (2007-08) USD 300+ billion could have been eroded to just USD 50 billion had FII’s divested at the peak of the stock markets. Theoretically that is true. However were our markets equipped to absorb such a selling pressure? Would the index have been more or less at the same level? In fact the actual trigger for FII sell was near the top of the markets. Which means FII’s really started selling near the top; however it is evident that markets could not withstand that kind of selling frenzy. We are obviously better off any time any giant investors suddenly start selling. However if FIIs got the opportunity to slowly withdraw the money, then it would have probably been a different story with our Forex reserves today. However in that case probably we would not have seen the same peak around 21K sensex. Anyways, whatever could have been the various scenarios, the fact is the India is much better off in terms of Forex reserves & our obligations to FIIs. Much of the FII money has already fled the country which means our liability as a country is now limited. This is a good news!
Along-with the strengths, obviously India has some tough challenges before her such as lack of adequate infrastructure, energy, reducing female ratio, unrest (internal & external) etc. However knowing the Indians’ “never say die” attitude, India can certainly hope to overcome these challenges in the long run. Despite the political dividedness, lack of right political ability/ will & multi-party democracy, this “never say die” & “find a solution by hook or crook” attitude of an average Indian is the one that has propelled the nation to where it is right now.
Bottom line – The global downturn may present an opportunity of the lifetime if we stay the course as a growing economy. This in turn means a huge upside for the individual investors. Invest now (not immediately though) to reap significant rewards later. Would 40,000 Sensex in next 5-7 years be a reality? Who knows? Frankly, I believe in it!
While the world economies have been plunging, India was affected, but not as bad as compared to the rest. India is still looking ok to attain around 6% growth. This is significant as compared to the World bank forecast that the world would see 0.89% growth this year. However India managed to keep in the limelight - all for the wrong reasons! Last 3-4 months have been quite fatigued for India. Mumbai terror attacks, initially failed & prolonged diplomatic pressure tactics over Pakistan, Satyam scam & to top it all – 4 Golden Globe awards for the movie “Slumdog Millionaire”! While all the other hiccups are there & will anytime exist elsewhere in the world, the last one really sealed the fact that 2009 is perhaps a rough year for India too.
Generally speaking, many critiques acclaimed “Slumdog…” as a very realistic movie. I think it is a shameful encashment (by a few Indians who were involved in making of this film) by showing quite exaggerated & dramatic scenes of the underbelly of India. This is an insult to the have-nots while the haves (of India itself) are making exaggerated movies, sitting in their living rooms/ multiplexes to watch & laugh at the plight. I have never seen such blatant & misleading (for a few dramatic scenes) depiction of one’s own country by the citizens of the same country! Why are we proud to get awards? Are we proud to have mastered the art of deceiving the vast population of our nation? Are we proud to have started the series of such insane & exaggerated movies to continue getting these awards? What an art at the cost of murdered reality!
In general, the terrorism, scams, diplomatic delays etc. happen in any country. We should not be really bothered too much beyond learning from the incident & moving on. I think we are at that stage of moving on. But for that we really need a good PR machinery in place at all levels! For next year or so, if the trend continues, the PR fiasco might continue. However I strongly feel that India is one of the rare bright spots in the current world forum.
While the entire world is witnessing a financial bloodbath, India has not been so drastically impacted. There is indeed an impact & hence the economy has slowed down from 9% growth to about 6%. However still this is an excellent growth figure for 4th largest economy (based on PPP) on the backdrop of forecasted 0.89% growth for entire world. Impact to India’s economy has been limited due to the prudent policies such as lesser reliance on exports as compared to other emerging markets, tighter regulatory controls & general prudent practices (while lending) by banks in India.
Various aspects that show recently developed strengths for India are mentioned below. Most of these are forward looking indicators & hence cannot be ignored.
1) Diplomatic wins - Nuclear energy deal, Qatar agreeing to invest 5 billion in exchange of security assurances by India,
2) Science & technology - Chandrayan 1 at record breaking cost effectiveness, Shaurya missile test launch, multiple other missiles test completed, launch of 10 satellites using indigenous PSLV
3) Economic strengths - Limited export focus as compared to other emerging/ developed nations (only 15% of GDP), vast domestic market - potential for self sufficiency (except power, oil & natural gas), 4th largest economy on PPP size, one of the highest growth rates despite global shrinkage, increase of productive portion of population while most developing nations are facing negative growth in productive population: 25% of world’s population of under 25 years, 60% of India’s population is < 35 years old, ten Indian citizens in the list of richest persons in the world (as on Feb-08), steady rise in middleclass population that is projected to be around 150 million by 2020, exponentially rising foreign investment.
4) Entertainment – IPL (Indian Premier League) is the biggest & richest cricket league in the world where global cricketers are actively seeking the spots, Mumbai film industry is recruiting globally.
Few other indicators
India’s Balance of trade has been negative. That means imports are more than the exports. The major commodity that we import is crude oil. By & large, size of oil imports (net) has been 70% of the total trade deficit. Due to this fact, loss of money by speculators & real slowdown of fuel guzzler economies have indirectly & immensely helped India ease the situation with Balance of Trade deficit. Speculation money was coming from those economies which are facing the hardest hit of the downturn. Lack of this money as well as decrease in demand for oil by the developed economies has brought down the crude prices by 75%. Indirectly, India (like many other economies in similar situation) is benefitting largely at the cost of others.
There is a theory that Forex reserves (2007-08) USD 300+ billion could have been eroded to just USD 50 billion had FII’s divested at the peak of the stock markets. Theoretically that is true. However were our markets equipped to absorb such a selling pressure? Would the index have been more or less at the same level? In fact the actual trigger for FII sell was near the top of the markets. Which means FII’s really started selling near the top; however it is evident that markets could not withstand that kind of selling frenzy. We are obviously better off any time any giant investors suddenly start selling. However if FIIs got the opportunity to slowly withdraw the money, then it would have probably been a different story with our Forex reserves today. However in that case probably we would not have seen the same peak around 21K sensex. Anyways, whatever could have been the various scenarios, the fact is the India is much better off in terms of Forex reserves & our obligations to FIIs. Much of the FII money has already fled the country which means our liability as a country is now limited. This is a good news!
Along-with the strengths, obviously India has some tough challenges before her such as lack of adequate infrastructure, energy, reducing female ratio, unrest (internal & external) etc. However knowing the Indians’ “never say die” attitude, India can certainly hope to overcome these challenges in the long run. Despite the political dividedness, lack of right political ability/ will & multi-party democracy, this “never say die” & “find a solution by hook or crook” attitude of an average Indian is the one that has propelled the nation to where it is right now.
Bottom line – The global downturn may present an opportunity of the lifetime if we stay the course as a growing economy. This in turn means a huge upside for the individual investors. Invest now (not immediately though) to reap significant rewards later. Would 40,000 Sensex in next 5-7 years be a reality? Who knows? Frankly, I believe in it!
The slowly evolving new world order?!
I would like to begin today’s articles with 2 disparate series of current affairs – The Gaza conflict & India PR fiasco. Though these series of events prima facie do not appear to be connected with the theme (money) of this blog, I will make an attempt to connect the dots. In this article I would spend a few paragraphs on Gaza.
The Gaza Saga
Most of the headlines in media today are occupied by the massive assault by Israelis on the Gaza strip. Many questions are being raised. Few of these have been discussed ever since Israel came to the being. Why the conflict? Why is world at large not pressurizing Israel enough to end the war? Why are deaths of thousands of innocent civilians being grossly ignored? While the history of Israel is full of hatred between Arabs & Jews, some of the recent reasons for this assault have relevance to the financial situation in world today.
The invasion plan of the Gaza Strip under "Operation Cast Lead" was set in motion in June 2008. This is a war of conquest – conquest for control of territory & oil reserves! Discovered in 2000, there are extensive gas reserves off the Gaza coastline. The BG Group drilled two wells in year 2000: Gaza Marine-1 and Gaza Marine-2. Reserves are estimated by British Gas to be of the order of 1.4 trillion cubic feet, valued at approximately 4 billion dollars. There is strong belief that these 2 reserves are probably the tip of the iceberg. As soon as you realize this, all the questions begin to answer themselves. Why is Israel launching an assault on a weak neighbor who does not even have a trained army? Why are most sophisticated weapons being used against a country that has only the crude rockets? Why are civilian dwellings the primary target of attack? On the surface, one struggles to find any strong justification for these.
The second set of questions relate to passive approach so far by rest of the world, especially the west. However those questions also start looking too naive once we take a look under the covers:
1) Need of strong ally in Oil rich Middle East. Israel is perfectly placed due to the fact that it is the only democracy in that part of the world.
2) Global leadership in innovation – science, technology, military, health care etc.
3) Controls financial superpowers of the world
4) Most holy site for 3 major religions – Judaism, Christianity, Islam
5) All this present mostly “artificially created war situation” is a perfect excuse to refresh accumulation of weapons, troops & military bases in a possible attempt to tame Iran in future.
6) War is probably a good way of absorbing the pile of new money supply that the current crises have forced, without increasing the inflation too much, at least in the short to medium term.
It is no secret that most of the biggest financial institutions of the world are controlled directly or indirectly by the Jews. In the recent bloodbath in the financial world, many of those financial superpowers collapsed. In many cases petrodollars have saved parts of these fallen superpowers. Which means rise of Arabs while Jews have been losing financial ground. In this light, the current Gaza battle may be the prologue to the bigger conflict in the region.
What currency scenarios could emerge from this point?
Now let’s continue the discussion on financial systems from where I left it in my last article. The Matrix may have been ponz’d & eventually will have to sort itself out. Here is my attempt at various scenarios that may evolve in the long term.
1) USD remains the currency of the world – This means USA will be able to continue influencing all the important countries that matter in global trade scene - to keep their faith in USD. This scenario also assumes that the non backing of USD by gold continues without too much of turbulence in the cross currency rates. USA would continue to convince the world not to relinquish their USD reserves (thereby devaluating the currency). In the long run (5 to 10 years), this scenario becomes more & more difficult to maintain. Please see my earlier articles for understanding why.
2) Some other currency replaces USD – This is an extreme & quite unlikely scenario. If this happens, then the pivot would change for capital flows, Forex market, international trade etc. All countries with USD reserves will go into a tailspin till the valuation of dollar dominated current reserves are revalued at acceptable level. At this point, I do not see any single currency taking the seat of USD.
3) Mixed scenario – Common currency for oil trade combined with USD for other major international trades. This option may emerge in the light of the six countries of GCC (Golf Cooperation Council) objective of coming up with common currency (named Khaleeji) by 2010. However by the speed of execution so far, it appears quite unlikely that the schedule would be met. Could be a long term option though.
Scenarios 2 & 3 have a great potential to cause worldwide aggression. Has a remote chance of a widespread war in the short term. This has a possibility of mass destruction while US would primarily focus on its resources to manufacture, deliver (including sell to allies) & use weapons. One of the major limitations of the third scenario is that this will put 2 very significant powers in the hands of the oil cartel nations – currency control & oil control. For the right balancing of the economic power, it is perhaps very important for the world to decentralize these 2 powers.
4) No single world currency - Each currency would be revalued against Gold. Gold would be the official pivot for all currency markets. The individual central banks would be required to back their own money supply with some percentage of Gold (say 5-10%). Every country would then be free to undertake their international trade in the currency of their choosing. This scenario means that world returns to “partial gold standard”. The partial gold standard is likely given that the full gold std has already been tried & it’s major limitations known.
5) A limited variation of “partial gold standard” - In this scenario, only USD is backed by some quantity of Gold reserves. The current financial system may be treated like a partially bankrupt or sick unit. May lead to big financial restructuring of the world economy. Somewhat similar to revival package for a sick corporation. In this scenario, every country gives up some value of their USD reserves. USD is revaluated against Gold. US treasury may be forced to back the USD supply with some percentage in Gold (say 5-10%). This is the most advisable option in the given situation. All countries help each other in propping up world economy in unison. The biggest advantages of this system are that we will not get into the kind of reckless situation that we are in today. The money supply will be determined by the amount of gold available with US treasury. The disadvantage is that the growth of the world economy would be limited since US treasury/ Fed would not be in a position to issue as much money supply as they wish. However this necessarily is not really a disadvantage. This would mostly truly encourage the market forces to determine the countries to gain comparative advantage over each other. The real disadvantage would be that all countries that have dollar reserves, will have to take an initial hit in revaluating their reserves. The countries that have international debt, would mostly benefit because their liability would go down. However I think this is the price that we need to be willing to pay if we want to correct the huge mistakes we have committed.
Handle with care…
Whatever may be the situation right now or long term evolution, an average individual ought to stay prudent, looking for options all the time. A static portfolio is definitely not the order of the day.
There are few assets that have appreciated despite the slowdown – Gold, high quality corporate bonds, distressed assets, fixed income Govt. securities. Gold has been a strong performer compared to most other assets in 2008. Significantly, gold is the only asset that is outside the credit system and the only asset that has no liability. In 2008, spot prices gained a modest 1% - not much in absolute terms but certainly impressive compared to other plunging assets. Also Gold has appreciated or stayed at the same levels despite sharp decline in oil prices. This indicates a very solid intrinsic value for this metal.
This is not the time to aggressively invest in equities. For those who have compelling urge to invest in stocks, I would suggest very limited exposure. I expect the industries like Security (physical, logical, insurance), Entertainment (includes sports), Energy & Infrastructure to perform relatively ok.
Depending on your risk appetite, keep good quantity (40% or more) of your portfolio in cash or cash equivalents, 10-20% in gold, not more than 5-10% in stocks, rest in high quality corporate bonds & Govt. securities. Cash in hand is required due to two factors – to take care of any impact due to economic uncertainties and to take advantage of buying any distress assets. Also this cash would help you be flexible in balancing your portfolio as we go towards relatively less turbulent era.
The Gaza Saga
Most of the headlines in media today are occupied by the massive assault by Israelis on the Gaza strip. Many questions are being raised. Few of these have been discussed ever since Israel came to the being. Why the conflict? Why is world at large not pressurizing Israel enough to end the war? Why are deaths of thousands of innocent civilians being grossly ignored? While the history of Israel is full of hatred between Arabs & Jews, some of the recent reasons for this assault have relevance to the financial situation in world today.
The invasion plan of the Gaza Strip under "Operation Cast Lead" was set in motion in June 2008. This is a war of conquest – conquest for control of territory & oil reserves! Discovered in 2000, there are extensive gas reserves off the Gaza coastline. The BG Group drilled two wells in year 2000: Gaza Marine-1 and Gaza Marine-2. Reserves are estimated by British Gas to be of the order of 1.4 trillion cubic feet, valued at approximately 4 billion dollars. There is strong belief that these 2 reserves are probably the tip of the iceberg. As soon as you realize this, all the questions begin to answer themselves. Why is Israel launching an assault on a weak neighbor who does not even have a trained army? Why are most sophisticated weapons being used against a country that has only the crude rockets? Why are civilian dwellings the primary target of attack? On the surface, one struggles to find any strong justification for these.
The second set of questions relate to passive approach so far by rest of the world, especially the west. However those questions also start looking too naive once we take a look under the covers:
1) Need of strong ally in Oil rich Middle East. Israel is perfectly placed due to the fact that it is the only democracy in that part of the world.
2) Global leadership in innovation – science, technology, military, health care etc.
3) Controls financial superpowers of the world
4) Most holy site for 3 major religions – Judaism, Christianity, Islam
5) All this present mostly “artificially created war situation” is a perfect excuse to refresh accumulation of weapons, troops & military bases in a possible attempt to tame Iran in future.
6) War is probably a good way of absorbing the pile of new money supply that the current crises have forced, without increasing the inflation too much, at least in the short to medium term.
It is no secret that most of the biggest financial institutions of the world are controlled directly or indirectly by the Jews. In the recent bloodbath in the financial world, many of those financial superpowers collapsed. In many cases petrodollars have saved parts of these fallen superpowers. Which means rise of Arabs while Jews have been losing financial ground. In this light, the current Gaza battle may be the prologue to the bigger conflict in the region.
What currency scenarios could emerge from this point?
Now let’s continue the discussion on financial systems from where I left it in my last article. The Matrix may have been ponz’d & eventually will have to sort itself out. Here is my attempt at various scenarios that may evolve in the long term.
1) USD remains the currency of the world – This means USA will be able to continue influencing all the important countries that matter in global trade scene - to keep their faith in USD. This scenario also assumes that the non backing of USD by gold continues without too much of turbulence in the cross currency rates. USA would continue to convince the world not to relinquish their USD reserves (thereby devaluating the currency). In the long run (5 to 10 years), this scenario becomes more & more difficult to maintain. Please see my earlier articles for understanding why.
2) Some other currency replaces USD – This is an extreme & quite unlikely scenario. If this happens, then the pivot would change for capital flows, Forex market, international trade etc. All countries with USD reserves will go into a tailspin till the valuation of dollar dominated current reserves are revalued at acceptable level. At this point, I do not see any single currency taking the seat of USD.
3) Mixed scenario – Common currency for oil trade combined with USD for other major international trades. This option may emerge in the light of the six countries of GCC (Golf Cooperation Council) objective of coming up with common currency (named Khaleeji) by 2010. However by the speed of execution so far, it appears quite unlikely that the schedule would be met. Could be a long term option though.
Scenarios 2 & 3 have a great potential to cause worldwide aggression. Has a remote chance of a widespread war in the short term. This has a possibility of mass destruction while US would primarily focus on its resources to manufacture, deliver (including sell to allies) & use weapons. One of the major limitations of the third scenario is that this will put 2 very significant powers in the hands of the oil cartel nations – currency control & oil control. For the right balancing of the economic power, it is perhaps very important for the world to decentralize these 2 powers.
4) No single world currency - Each currency would be revalued against Gold. Gold would be the official pivot for all currency markets. The individual central banks would be required to back their own money supply with some percentage of Gold (say 5-10%). Every country would then be free to undertake their international trade in the currency of their choosing. This scenario means that world returns to “partial gold standard”. The partial gold standard is likely given that the full gold std has already been tried & it’s major limitations known.
5) A limited variation of “partial gold standard” - In this scenario, only USD is backed by some quantity of Gold reserves. The current financial system may be treated like a partially bankrupt or sick unit. May lead to big financial restructuring of the world economy. Somewhat similar to revival package for a sick corporation. In this scenario, every country gives up some value of their USD reserves. USD is revaluated against Gold. US treasury may be forced to back the USD supply with some percentage in Gold (say 5-10%). This is the most advisable option in the given situation. All countries help each other in propping up world economy in unison. The biggest advantages of this system are that we will not get into the kind of reckless situation that we are in today. The money supply will be determined by the amount of gold available with US treasury. The disadvantage is that the growth of the world economy would be limited since US treasury/ Fed would not be in a position to issue as much money supply as they wish. However this necessarily is not really a disadvantage. This would mostly truly encourage the market forces to determine the countries to gain comparative advantage over each other. The real disadvantage would be that all countries that have dollar reserves, will have to take an initial hit in revaluating their reserves. The countries that have international debt, would mostly benefit because their liability would go down. However I think this is the price that we need to be willing to pay if we want to correct the huge mistakes we have committed.
Handle with care…
Whatever may be the situation right now or long term evolution, an average individual ought to stay prudent, looking for options all the time. A static portfolio is definitely not the order of the day.
There are few assets that have appreciated despite the slowdown – Gold, high quality corporate bonds, distressed assets, fixed income Govt. securities. Gold has been a strong performer compared to most other assets in 2008. Significantly, gold is the only asset that is outside the credit system and the only asset that has no liability. In 2008, spot prices gained a modest 1% - not much in absolute terms but certainly impressive compared to other plunging assets. Also Gold has appreciated or stayed at the same levels despite sharp decline in oil prices. This indicates a very solid intrinsic value for this metal.
This is not the time to aggressively invest in equities. For those who have compelling urge to invest in stocks, I would suggest very limited exposure. I expect the industries like Security (physical, logical, insurance), Entertainment (includes sports), Energy & Infrastructure to perform relatively ok.
Depending on your risk appetite, keep good quantity (40% or more) of your portfolio in cash or cash equivalents, 10-20% in gold, not more than 5-10% in stocks, rest in high quality corporate bonds & Govt. securities. Cash in hand is required due to two factors – to take care of any impact due to economic uncertainties and to take advantage of buying any distress assets. Also this cash would help you be flexible in balancing your portfolio as we go towards relatively less turbulent era.
Friday, December 26, 2008
The Ponz'd Matrix!
I am sure many of my readers have watched the film called “The Matrix” in which the virtual world is supposed to be controlled by a super-super computer called “Matrix”. Many of you also must have read about Madoff's recent Ponzi scheme that duped people of their billions. I see a great connection in both these concepts in real life like never before.
In the real life, mankind has turned itself into the slaves of a Matrix called “The paper/ credit Dollar based Monetary System”. This matrix is virtually ruling the most vital aspects of life on this planet. Take this as an example - What is the most precious thing on this earth for any average individual? I am certain – few years back – the answer could have been “Human life”, “My family’s life” or “My own life”. Not anymore. Not at least for all the human beings. I have been readings & watching news in recent times that suggest that many individuals are ready to sell themselves as “Human bombs” in exchange of money! That is the ultimate example of slavery to the Matrix!
The making of the Matrix
To understand how this Matrix got in the being, we need to step back a little to level set ourselves with some reality.
Let me start by asking a very simple question. Who is the richest person on this planet? The answers may vary from Bill Gates to Warren Buffet to Mukesh Ambani. Well… you are completely wrong. The world is not so straight forward as it seems. The statistics that you & I see around us may not be entirely true.
Try again. After thinking hard, some may conclude that perhaps due to the un-announced wealth, one of the Sheikhs of the petro rich OPEC nations could be the richest person on earth. Close but not the right answer again! Given up already? The answer is - the faceless creators of the Federal Reserve of USA. Surprised? These are the people who “create” the money supply for virtually the entire world. Technically speaking they could create trillions of dollars in a stroke of one board resolution & the US treasury would normally oblige. The world gave them this power through the current monetary system – normally referred to as Bretton Woods. Since the gold-exchange standard gave way to the paper/ credit dollar standard in 1971, the U.S. economy in general & US Fed in particular has become unique in being able to create credit – and foreign debt – without constraint.
Matrix enslaving the masses
Since the present monetary system does not warrant backing by Gold, the Fed & US Treasury got the freehand to create any amount of money to support their greed & ambition. This greed encouraged concepts like consumerism, living beyond means, debt etc. People are vastly encouraged to borrow & spend. In many cases the prices that we pay for are mere perceptions or interpretations of the real value the things bring to us.
The basic laws of economics indicate that scarcity should normally drive prices/ value. If that were the case, then should the prices of stocks, crude oil and houses all around the world drop like stone in just a few months? These are clear examples that all the buying in past was not attributable to real need. Speculation & greed for windfall was contributing to the bulk of the price rise in recent times. The consequence has been that debts on the economy-wide have grown more rapidly than the ability to pay.
You borrow going beyond your savings thereby discounting the future earnings, that are uncertain day by day & to top it, they (future earnings) do not rise as fast as the inflation does! So what you have at the end is a vicious circle of debt until the end of the borrower’s life. In the past generation, at least the life after retirement was somewhat guaranteed to be peaceful. However, the erosion of Social Security, pension & employee provident fund has converted “peaceful retirement” into a myth. You work until you die just to keep afloat over your debts.
In the process who wins? The Matrix & its creators. They are the suppliers of credit money that you & I borrow.
Matrix destroying the creators
The very greed that prompted the creators of the Matrix to pump more & more money into the system is now coming back & haunting them. In the few decades, The Matrix itself grew so big that it turned into an unstoppable predator. To keep feeding the monster, the creators needed to pump in more & more credit & paper money; lest we all go down under & the creators will not be spared themselves. This spiral created an unprecedented situation that perhaps not even the creators could have envisioned. Now the Matrix is turning to the creators to feed itself! There is a grapevine making rounds – the creators preparing to pump in trillions in the stock markets across the globe in perhaps their last ditch attempt to save themselves. Let’s see if the monster has grown bigger than the imagination of it’s creators!
The ultimate - Matrix in self-destructive act
The size & nature of Madoff scheme made it known to all; however such schemes existed even before. Many chit funds in many countries have duped thousands/ millions of investors in past. However there are examples that are more well-known that have shocking resemblance to such Ponzi schemes – Social Security in US, Employee Pension & Provident Funds in India. Even the global financial system is a big Ponzi scheme where more & more money is created to fund the inflation & debts.
The Ponzi schemes rely solely on the amount of principal inflow being constantly more than or at least equal to the amount of interest outflow at any point of time.
E.g. I launch a Ponzi scheme with a promise of an obscene guaranteed return say 5% per month or 60% p.a. I get $100 as the deposit by an investor. At the end of first month, my interest
obligation is $5. So I need to find another investor who is willing to invest at least $5 so that I can pay my interest to investor 1 without doing anything. My total cash in hand still remains at $100 & my total liabilities have gone up to $105. The difference between liability & cash balance is my goodwill ($5). The goodwill is the valuation of the trust shown on me by the general investors. However as the time goes by, the system itself propels out of proportion as you can see from the adjacent table.
Same has happened to the Matrix. The “borrow & buy” system has gone out of bounds even for the system to manage. The trust (goodwill) reached its pinnacle & one fine day as the defaults started to come in, the whole pyramid started collapsing as goodwill started going down. Recently the Fed was compelled to buy trillions worth of toxic assets from the troubled banks in return of US Treasury bills. These bills/ credit money will eventually slowly find its way in circulation. Significantly more money chasing the same or just incrementally more number of goods/ services. A sure-shot recipe of generating exponentially more toxic waste, just to be consumed again by the Matrix. So what happens then? Fed issues yet another exponential quantity of Treasury Bills in exchange of toxic waste? Is the Matrix getting more toxic intake than it can digest? Is the Matrix Ponz’d?
In the real life, mankind has turned itself into the slaves of a Matrix called “The paper/ credit Dollar based Monetary System”. This matrix is virtually ruling the most vital aspects of life on this planet. Take this as an example - What is the most precious thing on this earth for any average individual? I am certain – few years back – the answer could have been “Human life”, “My family’s life” or “My own life”. Not anymore. Not at least for all the human beings. I have been readings & watching news in recent times that suggest that many individuals are ready to sell themselves as “Human bombs” in exchange of money! That is the ultimate example of slavery to the Matrix!
The making of the Matrix
To understand how this Matrix got in the being, we need to step back a little to level set ourselves with some reality.
Let me start by asking a very simple question. Who is the richest person on this planet? The answers may vary from Bill Gates to Warren Buffet to Mukesh Ambani. Well… you are completely wrong. The world is not so straight forward as it seems. The statistics that you & I see around us may not be entirely true.
Try again. After thinking hard, some may conclude that perhaps due to the un-announced wealth, one of the Sheikhs of the petro rich OPEC nations could be the richest person on earth. Close but not the right answer again! Given up already? The answer is - the faceless creators of the Federal Reserve of USA. Surprised? These are the people who “create” the money supply for virtually the entire world. Technically speaking they could create trillions of dollars in a stroke of one board resolution & the US treasury would normally oblige. The world gave them this power through the current monetary system – normally referred to as Bretton Woods. Since the gold-exchange standard gave way to the paper/ credit dollar standard in 1971, the U.S. economy in general & US Fed in particular has become unique in being able to create credit – and foreign debt – without constraint.
Matrix enslaving the masses
Since the present monetary system does not warrant backing by Gold, the Fed & US Treasury got the freehand to create any amount of money to support their greed & ambition. This greed encouraged concepts like consumerism, living beyond means, debt etc. People are vastly encouraged to borrow & spend. In many cases the prices that we pay for are mere perceptions or interpretations of the real value the things bring to us.
The basic laws of economics indicate that scarcity should normally drive prices/ value. If that were the case, then should the prices of stocks, crude oil and houses all around the world drop like stone in just a few months? These are clear examples that all the buying in past was not attributable to real need. Speculation & greed for windfall was contributing to the bulk of the price rise in recent times. The consequence has been that debts on the economy-wide have grown more rapidly than the ability to pay.
You borrow going beyond your savings thereby discounting the future earnings, that are uncertain day by day & to top it, they (future earnings) do not rise as fast as the inflation does! So what you have at the end is a vicious circle of debt until the end of the borrower’s life. In the past generation, at least the life after retirement was somewhat guaranteed to be peaceful. However, the erosion of Social Security, pension & employee provident fund has converted “peaceful retirement” into a myth. You work until you die just to keep afloat over your debts.
In the process who wins? The Matrix & its creators. They are the suppliers of credit money that you & I borrow.
Matrix destroying the creators
The very greed that prompted the creators of the Matrix to pump more & more money into the system is now coming back & haunting them. In the few decades, The Matrix itself grew so big that it turned into an unstoppable predator. To keep feeding the monster, the creators needed to pump in more & more credit & paper money; lest we all go down under & the creators will not be spared themselves. This spiral created an unprecedented situation that perhaps not even the creators could have envisioned. Now the Matrix is turning to the creators to feed itself! There is a grapevine making rounds – the creators preparing to pump in trillions in the stock markets across the globe in perhaps their last ditch attempt to save themselves. Let’s see if the monster has grown bigger than the imagination of it’s creators!
The ultimate - Matrix in self-destructive act
The size & nature of Madoff scheme made it known to all; however such schemes existed even before. Many chit funds in many countries have duped thousands/ millions of investors in past. However there are examples that are more well-known that have shocking resemblance to such Ponzi schemes – Social Security in US, Employee Pension & Provident Funds in India. Even the global financial system is a big Ponzi scheme where more & more money is created to fund the inflation & debts.
The Ponzi schemes rely solely on the amount of principal inflow being constantly more than or at least equal to the amount of interest outflow at any point of time.
E.g. I launch a Ponzi scheme with a promise of an obscene guaranteed return say 5% per month or 60% p.a. I get $100 as the deposit by an investor. At the end of first month, my interest
obligation is $5. So I need to find another investor who is willing to invest at least $5 so that I can pay my interest to investor 1 without doing anything. My total cash in hand still remains at $100 & my total liabilities have gone up to $105. The difference between liability & cash balance is my goodwill ($5). The goodwill is the valuation of the trust shown on me by the general investors. However as the time goes by, the system itself propels out of proportion as you can see from the adjacent table.Same has happened to the Matrix. The “borrow & buy” system has gone out of bounds even for the system to manage. The trust (goodwill) reached its pinnacle & one fine day as the defaults started to come in, the whole pyramid started collapsing as goodwill started going down. Recently the Fed was compelled to buy trillions worth of toxic assets from the troubled banks in return of US Treasury bills. These bills/ credit money will eventually slowly find its way in circulation. Significantly more money chasing the same or just incrementally more number of goods/ services. A sure-shot recipe of generating exponentially more toxic waste, just to be consumed again by the Matrix. So what happens then? Fed issues yet another exponential quantity of Treasury Bills in exchange of toxic waste? Is the Matrix getting more toxic intake than it can digest? Is the Matrix Ponz’d?
Subscribe to:
Comments (Atom)
Posts
