Dark Clouds and Silver Linings

 

Dark Clouds and Silver Linings

The Sword Of Damocles has been shoved further up the calendar to January 2014, in an act of what the Americans call ‘kicking the can down the road’, resulting however in happy consequences for India. This even as the wrangling over the most beneficial insurance provisions for the poor, dubbed ‘Obamacare’ continues.

Obamacare is really what Republican challenger Mitt Romney from Obama’s second- term campaign implanted successfully in Massachusetts as its Governor, and what the Clintons tried and failed to get going during their 8 in office. So it is ironic that the Republicans should be so opposed to it.

 For now, the US Debt Ceiling has indeed been raised, for three odd months, preventing the US defaulting, and setting off a Domino Effect around the globe.

The earlier threat emanating from the US, of the intended tapering of the $85 billion per month stimulus, voiced by Mr. Ben Bernanke of the US Federal Reserve, has now been dwarfed.

But till days before, it had much of the world, particularly the emerging markets, in a tizzy of currency volatility and foreign investment flight since it was first mentioned in May of 2013. Now, thank god, it has been eclipsed, and probably rendered impossible till the debt ceiling matter is resolved on a surer basis.

 This debt ceiling business is a bigger, infinitely bigger, threat, involving countless trillions, and yet it is engineered and precipitated by some 40 petulant ‘Tea Party’ conservatives amongst the US Republicans.

The original ‘Tea Party’ activism was against the British imperial authorities, who wanted to impose a fresh tax on the stuff. This resulted in a sampling of the irate citizenry of Boston chucking the tea chests on board the British ships, probably sent on from India or China, into the harbour. But that excellent anti-colonial spirit is now being employed as a reckless bipartisan tactic in a domestic setting!

So much so, that like Virginia Woolf, no one is afraid of the taper being announced in December 2013 anymore. There is a lot of stimulus money about, more will be generated, and it will keep finding its way to opportunity wherever it may be found, including the Mumbai bourses.

India has seen, fortuitously for us at a time when we have made a sorry mess of our finances domestically, about $ 1.2 billion flowing into our stock markets this month alone from abroad, thereby raising the cumulative tally for the year to about $14.5 billion, despite the periodic flights of FII capital in between.

 Diwali, or thereabouts, could therefore see an all-time high in the Sensex, better than the 21,206 last seen  on January 10^th 2008, before the financial markets of the world began to implode with the collapse of Lehman Brothers  on Wall Street.

Nothing has been the same since Lehman became history, truth be told, and it has been five years already. First it was financial sector companies collapsing, then brokerages, hedge funds, main- street mortgagers, insurers, car companies, banks, cities in the US, and then it was the smaller European countries and so on. Nothing in the US or Europe is out of the woods yet.

 The developed world, as a consequence, is awash in stimulus money for its very survival to this date, even as India is starved of capital by its financial overlords.

 The US and the EU and their political heads and central bankers have unanimously decided their entities would cease to exist financially if they weren’t propped up by trillions in debt and counting. Nobody knows what will happen if the spigot is turned down a twist or two let alone what will happen if it is turned off. And no one is willing to try.  Classic economics has been suspended till further notice.

So it is perhaps not surprising that this very imperative is being tested as a political bargaining chip in the US, even if it is the financial equivalent of playing eenie-meenie- miney- moe with nuclear activation buttons. Is financial annihilation less final than nuclear vaporisation? Is that how it seems to some?  Caution, if not better sense however is expected to keep the gravy train in motion.

India though, along with some of the other EMs, is going to gain investment from abroad through all this, because its financial health is only artificially suppressed. In a relatively globalised scenario these days the government won’t be able to prevent this foreign money coming in, despite its obsession with inflation and high prices.  And notwithstanding its attempts to bankrupt India with a  massive welfare bill that we cannot afford.

Besides, the gush of foreign money coming in will prop up the rupee, and help reduce our deficits, both strong objectives of our government. So, never a dark cloud but there is a silver lining in it for someone, even if it is UPA II but also its successor. Narendra Modi as PM may not inherit empty coffers and a disheartened, debilitated economy after all.

(828 words)

October 20^th, 2013

Gautam Mukherjee