Push Me Pull You But Don't Stop Now!

Push Me Pull You But Don’t Stop Now!

A Push-Me-Pull-You is a creature that goes both ways at once; rather like splurging on liquidity and demanding austerity at the same time. It is a strange mutant creature with two heads on opposite ends of its body; but don’t ask which is front and which posterior. It is supposedly a cross between the legendary Unicorn and a lithe Gazelle. And the world knows of it from literature’s Dr. Dolittle, capable of conversing with animals.

The pushmi-pullyu is a perfect metaphor for our complicated economic times. And the prescription from Europe and America is a full-on flow of money, printed by their mints and guaranteed by their governments, to keep the financial system working; while simultaneously getting reacquainted with austerity and thrift from another, older, neither-a-borrower-nor-a-lender-be era. It’s like applying the brakes slowly so as not to go into a death spin from all that reckless speed built up in the past.

It was mighty Sir Bailout again, that saved the US economy from collapse in 2008. Otherwise we might have been revisiting the Great Depression of the 1930s. Refusing to skid off the road was good strategy that prevented calamity.

In retrospect, it was a mean–spirited blunder to let Lehman Brothers go under in 2008 while saving all the rest. But perhaps Lehman was the victim of its own first-mover advantage. Keeping liquidity plentiful and intact is the open secret of ongoing economic recovery in Obama’s America. The same formula is, and must continue to be, applied in Europe.

The fact is, despite apocalyptic and hysterical prognostications, only 20 % of the Eurozone GDP is suffering from Sovereign Debt woes, made acute by negligible to negative growth figures practically everywhere in the developed world.

But for all the fuss, Greece accounts for just 1% of Eurozone GDP. The lack of confidence contagion could, of course, spread, but with sufficient access to institutional funds, is unlikely to do so. The Great Depression came about because first a hundred and then a thousand banks were allowed to fail. Today also, the others lurking on the insolvency bus are Spain, Portugal, Ireland, Italy. But together, jointly and severally, they still account for no more than 20% of the GDP that backs the beleaguered Euro.

This is not to take away from the fact that when entire countries go bankrupt because of profligate financial management, and not, say, due to catastrophe or war, it is a profoundly disturbing and destabilising phenomenon. Especially since they belong to the supposedly enlightened, democratic, developed, and “free” West.


But surely the 80% better-off in Eurozone can pull their delinquent brothers out of the mire? You’d think so commonsensically, but there are dire predictions from Left-leaning Nobel-laureate economists such as Joseph Stiglitz and Paul Krugman, who expect things to get a lot worse. They can’t visualise the bailout recipient states bucking up soon enough with their newly minted responsible ways; and hold out a high unemployment, hyper-inflation spectre, fuelled by all that freshly printed money. They don’t expect Eurozone to survive.

But the sad thing is, many centrists and right wingers around the globe are also sceptical about the West’s ability to pull it off. They see the countries already in trouble as harbingers of things to come. They think the other 80% are technically better off but not by that much.

Meanwhile, the Eurozone national parliaments are glumly voting to pony up their share of the US$ 1 trillion bailout package announced recently, and as long as this is distributed efficiently and swiftly, much of the pain and panic should indeed subside.

It’s another story that the Communist Labour Unions in Greece are acting up and don’t want to accept the austerity measures that are required as a quid pro quo by the lending agencies. They refuse to understand that without drastic reform, the first trillion dollars, already pledged, will disappear into the abyss and much more will have to be conjured up to feed the ravenous belly of the beast; and still not solve the problem.

Unfortunately for the bankrupt sections of the Eurozone, all they can hope to do is finally cut their coats according to their cloth. It is a humiliating business and is going to be painful after years of consumption led boom. This has been the American formula over the last two decades, and Europe has become no more than an American satellite in the interim. But the common man in every bankrupt country is uncomprehending and bewildered and feels betrayed by his leaders.

But they in turn are equally hoisted on their own petard. They thought the good times would go on, like Madden’s Ponzi scheme, from the US led boom through the William Jefferson Clinton years, carried on uninterrupted through the George W Bush ones and on and on, to Obamaland.

But then there was 9/11. And afterwards there was acute jingoism and war: waged half a world away in Afghanistan and Iraq and the NWFP areas of Pakistan, and even more frantic hyper growth just before the bubble burst, with housing being sold to anybody at all who cared to apply.

And the latest is that China, which has been stimulus spending its way out of its own impacted economy while propping up the West, has decided to take the warnings on a real-estate bubble developing on home turf seriously. Ergo it is cutting back on the easy money liquidity that tempted too many to chance their arm. But now the same Western analysts are saying China is sucking out the liquidity that the Europeans and Americans are putting into the global financial system!

So what’s next- currency revaluation? After all, that too is a Western demand. But if the Chinese strengthen their currency their own export led growth engines will slow and impact the already depressed Western economies yet again.

Bottom line: this is shaping up to become the Asian century despite the tremendous volatility on the global bourses at present. The growth is here in India and China and parts of ASEAN for many years to come.

And the way around our mutual problems as the MEA has been saying lately, both with regard to China and Pakistan, is not to let individual issues of disagreement or contention prevent cooperation on the rest.

(1,047 words)

27th May 2010, Buddha Purnima.
Gautam Mukherjee

Old Baton, New Hands

Old Baton, New Hands


Swedish crime fiction has, deviating from the stereotype, taken the world of popular literature by storm. It has grabbed pole position, pumping red blood and excitement into a largely passé genre associated with vintage works by the likes of Agatha Christie and Erle Stanley Gardner.

Its most popular practioner, the late Stieg Larsson, used a thrilling combination of kinky sex, internet era techno-sophistication, captivating characterisation and crackling pace. The result: over 27 million copies sold worldwide by early 2010 and counting. So niche phenomenon this is not! Larsson was the world’s second biggest seller of fiction in 2008 after the tear-jerking offerings of Khaled Hosseini, the Afghan-American author.

Unfortunately for the reading public, Larsson, a liberal-left leaning journalist, died of a heart attack at fifty. He had completed the first three of his planned 10 book series, and, poignantly, this just months before the first of them was published in 2006.

But not only has Stieg Larsson’s imagination kicked a moribund literary genre into pulsating life but established a new world capital for crime fiction. It only seems strange at first, before the new associations are forged, and the paradigm shift is fully absorbed. And herein, as recognised by the IMF recently when it meekly accorded greater say and voting rights to both China and India, lies the unlikely parallel, with the increasing clout of the BRIC countries.

Like Swedish crime fiction rewriting the definition, the top four emerging markets are historically poised for a re-rating that will go a distance beyond the erstwhile patronising benevolence accorded to it. As investment destinations, the BRIC’s are rapidly changing from being useful for prudent hedging allocations, designed, at best, to bolster the averaged net profits; to the one sustainable bright area in a sea of problematic gloom.

Of course, the sizing disparities remain substantial as yet, and breed reluctance on the part of the richest countries to come to terms with the new reality. For example, China may be bigger already than the other three members of BRIC combined, and hold trillions of dollars in reserves, but it is still only one fifth the size of the US economy.

And the US has indeed turned the corner. Nevertheless, it is the US which realises that it must cede economic and political power to BRIC, each country of which has an economy of at least a trillion dollars in GDP, for the economic stability of the world. Accordingly, it has been making the necessary policy shifts, as in the IMF, the G-20 and so on. The biggest loser in the relative rankings is likely to be the European Union. Their only hope is to increase bilateral and multilateral trade with BRIC and other regional groupings such as ASEAN too.

As yet, the investment budgets have not tilted dramatically, but the OECD (Organisation for Economic Co-operation and Development, the rich man’s club), has begun to acknowledge that stable and worthy returns are likely to be in BRIC and other non-traditional and emerging market growth scenarios boasting of rich natural resources and cheap labour.

In fact, during the global meltdown of 2008, it was the stimulus programmes, growth rates and domestic consumption of the BRIC’s in particular, that helped stave off a demand-supply crisis of unprecedented proportions. After all, BRIC now accounts for 40% of the world’s foreign exchange reserves.

On its own, BRIC is also picking up the pace in bilateral cooperation. Its principals met in June 2009 and again this April. Brazil, Russia, India and China are admittedly an unlikely bloc, because they are neither contiguous nor even all that like-minded politically. China and India may have pumped up bilateral trade to USD 60 billion now, but there are several thorny issues between them.

Nevertheless, when Jim O’Neill of Goldman Sachs coined BRIC, his researchers envisaged a gradual passing of the economic baton, partially by 2020, and almost completely by 2050, to a duopoly of India and China. Opinion remains divided, like the tortoise and the hare parable, on which of the two will win the top economy slot eventually.

Russia, diminished from its glory days of the USSR, and Brazil, are both powers underpinned by massive oil resources. They will constitute the next rung of world economies in future. America and the European Union are, of course, expected to retain their memberships in the league of most influential nations.

But even the authors of that original and prescient Goldman Sachs report and its successors since, did not anticipate such acceleration in the pace of the change occasioned by the meltdown of 2008.

BRIC has gone from being considered potentially lucrative but risky investment destinations to becoming the most likely of safe havens. After all, with Greece, Spain, Portugal, Ireland and others waiting in a queue for massive re-flotation funds, the richer elements in the EU, concerned big brother the US, and all the global lending agencies, are having to undergo a sea-change of outlook. They are forced to ask for stringent and measurable belt-tightening, unpopular as such measures will be politically, as qualifiers at every stage of the bail-outs. But such conditions were routinely applied only to the Third World not so long ago.

Compared to the problems of the rich countries, BRIC has manageable challenges ahead. And the voluntary nature of the transition, the altered perception, is the real difference this time. After all, each of the BRIC countries have been stymied in their geopolitical ambitions in the past by the obduracy of the rich nations.

But this time, they are on sure ground because the increase in their power and influence is happening at the instance of the rich nations in a bid to pull themselves out of the mess they’ve created for themselves.

The Economist magazine quotes Robert Hormats, America’s under-secretary of state for economic affairs: “Especially after the financial crisis you can’t go back to having the system run by a few rich economies. Our big challenge is to work out how large emerging economies integral to the financial and trading system take some responsibility for maintaining it.”

This is not to say the BRIC countries will not compete between themselves for resources and influence globally in Africa, Asia, and elsewhere. But they will also cooperate, wherever possible, in order to get a larger lick at the global pie.

(1,051 words)

1st May, 2010, Labour Day
Gautam Mukherjee

Published as Leader on Edit Page of The Pioneer on 19th May 2010 entitled: As US wanes BRIC waxes. Also published online at www.dailypioneer.com and is archived there undr Columnists.