Wish I had his money

Wish I had his money

There’s a 21st century trendiness to this latest economic crisis that all the reams of analysis seems to have ignored. It is about the preference for the fashionably chimerical presence of the straw house that one can actually huff and puff and blow right down. It is also known as a financial economy, divorced from demand and supply economics, grown globally to be many times the size of the real one. In America, it was a holographic forty times the size of the real economy till recently, puffed up on borrowed money.

It makes the solidity of the old brick and mortar real construct look positively prehistoric on a good day when it is delivering bumper returns, even though such a day may now be a long time coming.

John Lennon, during the eight, largely private years in New York, living in the very solid, very Gothic Dakota Building, used to take his young son Sean out on walks. They would go to the park and play-ground, to eat ice cream, to the shops, just like any other regular father and son. If anybody recognised the ex-Beatle, telling him he looked like John Lennon, he would always reply, “I wish I had his money”, garnishing the remark with a suitable leer.

There’s universality in that thought, like a lot of Lennon’s thoughts, and transference too. But it is an old fashioned, working class, everyman-must-work-for-his-pay notion from a more innocent world that has been given a go by for some time now.

In the 21st century, and more so lately, the financial wizards have shown the world that you don’t really need to have money to spend money. You merely borrow it. And in case being spendthrift is not your pleasure, you can build assets with borrowed money too. But it’s not “Go West Young Man” or East, or to The Gulf, or Bollywood, to “make your fortune”, as one did in the 20th C. It’s learn “leverage” instead. The basic point being that you don’t have to hold back your ambitions and their gratification just because you can’t afford them.

When individuals borrow, they sign papers labelled “credit” or “loan” or “mortgage”. When banks do it and take risky bets with the proceeds, it’s called “investment banking”. When companies do it, and apply it to expansion of capacity or to buy another company, it’s called “growth”, both “organic” and “inorganic”, and there are experts in mergers, acquisitions, bridge-financing, long-term financing, initial public offerings, private equity and so on, to help them do it. And when countries do it, using the proceeds on anything the politicians deem fit, but hopefully spending at least some of it on public works, it’s called “deficit financing”.

But, all of it predicates on the earnings of the morrow in advance, and is conjoined at the hip in a daisy chain of debt. So the individual borrower and the sovereign are connected in their owing, often reckoned and trotted out on digital tickertape that announces the national debt per every individual in the nation in a minute to minute fashion.

And the tickertape tab doesn’t even include the individual’s personal debt, nor the global interfaces of debt in a shrinking world. But real experts, worth their mounds of considerable salt, count their expertise in the sheer amounts of borrowed money they can generate.

And the inevitably sad fact of it is, not everyone who borrows has the resources to pay the instalments due, let alone the entire sum borrowed. In hindsight it becomes clear that neither should such people borrow, nor should they be lent to. But, whom do you blame and how does the blame game help you make recoveries when it comes down to it?

So inevitably, some profligate individuals go under, financially speaking, insolvent but largely unrepentant, because insolvency is essentially sympathised with, at the individual level, and not treated as that much of an offence, let alone a crime. Witness the court restraints on debt recovery agent bullying.

But the mood changes to outrage when viewing the institutional level because the problem does not stop at the collective, only becomes very much bigger. Highly trusted and respectable banks and mortgage companies also default on their debts. But more often than not, they qualify for rescue and are often deemed too big to “fail”.

And sometimes, incredibly, it applies also to little fishing and farming countries like Iceland, population 300,000, gone wild in a multiple year orgy of borrow and spend, before going bankrupt.

Such current economic horror stories from around the world may not be India’s fate but they have exposed our woeful lack of room to manoeuvre because India too is struggling with a huge current account and fiscal deficit hovering at the 10 per cent of GDP mark from years of refusing to balance its books. So, if we weren’t growing, we’d be sunk.

It makes it all the more ironic because till the other day this present government was doing everything it could to curb this very growth in an attempt to rein in the runaway inflation, brought on, not by our growth but imported via high oil prices of a few months ago.

But as we slow down, with companies sacking staff and staggering production, we have very little money to throw at our problems. And, the frantic loosening of our monetary stays will take some months before they show favourable results. We cannot use the stock markets either because, in the global mayhem and sharp FII withdrawal of resources, our financial markets have shrunk to half as big as our real economy.

China is using her considerable reserves of over a trillion US dollars to stimulate its domestic economy by building up its infrastructure. They are throwing half of it into the fray. India’s rulers are contenting themselves with reassurances that they will do “the needful as and when needed” with their usual flair for inanity. But what might that be? Do we use our 250 billion US dollar reserves to prop up our imports or to provide fiscal stimulus to infrastructure? Like John Lennon masquerading as a man in a street, our powers that be must be wishing that that they had Hu’s money- that’s President Hu Jintao to you, and please don’t go writing him a letter like Aravind Adiga.

(1,055 words)

12th November 2008
Gautam Mukherjee

Published in The Pioneer on Monday, November 17th, 2008 as "You don't need money" on the OP-ED Page and online at www.dailypioneer.com. Also archived online under Columnists.