"One-stop shop" for the TOTAL transformation of India

Category: Economics

Let this be clear: 1) “Blacks” are NOT disproportionately killed by USA police; 2) Minimum wages are destroying the “black” community

Two facts that people need to get their head around very clearly in the current global debate on the condition of the “blacks” in the USA:

  1. “Blacks” are NOT disproportionately killed by USA police. You’ll need to read this research paper to get this point. [Copy on my server here]
  2. Minimum wages are the MAJOR cause of “black” poverty and unemployment in the USA. Read this (and this) to understand this point.

We can see how the leftists, in their total ignorance of economic principles, have created the race monster in the USA. Multiple generations of the “blacks” have now been raised without a proper family and in poverty (of course, that’s not real poverty – compared with India).

The results are entirely predictable. Milton Friedman had predicted these 50 years ago. Thomas Sowell has extensively elaborated on these social results of extremely bad economics.

Till the deluded leftists and socialists start understanding basic economics, the USA will start seeing major social unrest, and decay into a Third World nation.

Racism, casteism, etc. CANNOT be eliminated through government regulation, but through markets.

When the “blacks” start working (which they currently can’t – since the “well-meaning” government kicks them out of jobs through minimum wage laws), learning, and saving money, they will start on their journey to success. So long as they depend on the teat of the government to look after them, they will lose liberty, dignity, knowledge, and the capacity to stand on their feet.

ONCE AGAIN, I’m not in the least condoning the murder of many innocents by US police every year. That’s a serious issue that the police needs to fix.

But it is not solved by crazy, ignorant, racist movements like Black Lives Matter. The problem is solved by 1) eliminating minimum wage laws and 2) following the actions regarding the police that I’ve outlined in my previous blog post on this topic.

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China received EIGHT times more FDI than India between 1986 and 2014. Even today, China gets MANY times more than India,

There are two key data sources on FDI: UNCTAD, World Bank and the CIA Factbook (see Wikipedia). It appears that Wikipedia data are cumulative, not annual.

I have used detailed data from the World Bank to knock up the following cumulative chart of FDI:

FDI-cumulative-India

Annual data

Things have barely improved since 2005:

annual FDI-flows-Indai

We see that Hong Kong receives anywhere from three to four times the FDI that India receives, and that China continues to receive around 8 times what India receives.

BOGUS CLAIMS THAT INDIA GETS MORE FDI THAN CHINA!

Data for 2014 is difficult to attribute to Modi. However, data for 2015 may indicate the results of Modi’s policies. A bogus report came out earlier this year, stating: “India pips China as top FDI destination in 2015: Report

I’m reproducing the chart below:

Why is this bogus?

It is entirely inconsistent with past China performance. There is no reason for FDI to drop from around $289 billion in 2014 to only $56 billion in 2015 in China.

Once World Bank data are produced, we’ll know the truth.

It is crucial to remember that much of MOST FDI committed to India never eventuates, as companies find the going very tough and renege. Further, investments that cross a financial year are counted in the actual year of investment. Annouceables could take many years to materialise.

FDI received -lower-than-announced-india[Source]

Actual FDI flows are the only ones that count. We must wait for 2015 data from the World Bank to comment about any improvement in India’s FDI performance in the Modi regime.

We could – once real data emerge – potentially give Modi government some credit for trying to raise the level of FDI in India, but the cumulative position is clear: India has a VERY long way to go in order to achieve the levels of FDI that China has achieved.

FDI was pivotal to China’s growth. India simply doesn’t have the conditions necessary to achieve such levels of FDI.

SBP raised this issue here: Mr Modi should first make India makeable, says SBP President, Vishal Singh

==ADDENDUM===

Akshay Shah kept pursuing the data source, etc. (see this) and I was able to locate this report in Economic times as the cause of the confusion: http://economictimes.indiatimes.com/news/economy/finance/india-replaces-china-as-top-fdi-destination-in-2015-report/articleshow/51932057.cms

The report is by fDi Intelligence, a division of The Financial Times Ltd.

I’ve downloaded the report – attached. The last page talks about the data and states that this is ONLY new projects.

It doesn’t include include mergers and acquisitions or other equity-based or non-equity investments. Only new investment projects and significant expansions of existing projects are included.

The data presented includes FDI projects that have either been announced or opened by a company. The data on capital investment and job creation is based on the investment the company is making at the time of the project announcement or opening. As companies can raise capital locally, phase their investment over a period of time, and can channel their investment through different countries for tax efficiency, the data used in this report is different to the official data on FDI flows.

This data is therefore telling us something useful (being a lead indicator) – but not at all the full story. The full story is in the World Bank report which compiles actual flows of money in a given year. That clearly takes a lot of time to compile (around 2 years).

While this is good information, there is no substitute for the aggregate flow – which measures actual real money that is coming into a country. In that sense, China remains far ahead of India, although if this lead indicator is correct, India could catch up with China in a few years – particularly if Chinese economy continues to languish due to its own debt bubble.

So the underlying data was not bogus but the way it has been used is incorrect, bogus and highly political. It is grossly improper to not include a discussion of the issues I’ve clarified on this blog post.

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The real issue with India’s foreign reserves – the US is playing a ponzi game

My follow up email to my previous blog post. I copied Raghurajam Rajan into my email, plus bccd. some senior leaders of India.

===

Shubhendu. So long as India’s reserves hold their value, there is no issue with having large reserves. Indeed, a freely floating and convertible INR (which is not the case today, sadly) would have risen in response, making imports cheaper and distributing the benefits of the reserves to our consumers.
The issue that since the 1971 default by the USA (going off the gold standard), currencies are no more equivalent to gold and don’t hold their value. US Treasuries are not God-mandated values but are contingent on the actions of the the US government – which has been driven by Keynesian and socialist ideas for many decades. US policy makers have gone bonkers. They are borrowing as if tomorrow will never come.
Accordingly, the US has no choice but to default on its debt. A Trump Presidency seems most likely to be the time when such default will occur. Such a default will send shock waves across the world, but this outcome can’t be reversed, now. The die is cast. US debt levels are just too high to service with a normal interest rate environment.

Now, Raghuranjan Rajan has been calling for a more normal interest rate environment, but as we know, Janet Yellen is NOT going to oblige him, given the risks of a meltdown of US government finances. Therefore, the US is fooling the world in plain sight. Those left holding the USD and US government debt will be left holding the [wooden] spoon. This is a sort of Ponzi game.

If Rajan carries on holding USD and US securities, he could cause tens of billions of dollars of losses to India.

I consider he should immediately diversify – and away from currencies (since almost all fiat currencies are excessively debt-ridden). Gold appears to be the best safe haven. And maybe Bitcoin/ cryptocurrencies – anything of value whose supply is limited. Fiat currency always tends towards unlimited supply. They are all a bogus piece of paper.

Regards
Sanjeev
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Raghuram Rajan MUST switch from US treasuries to gold or Bitcoin asap. Trump WILL give the world a haircut. The US has NO OPTION but to default.

The US government debt ceiling is $14 TRILLION.  Total debt including unfunded social security liabilities is up to $90.6 TRILLION.

Of this, the Fed holds $2.4 TRILLION and foreigners hold $6.3 TRILLION. India is currently the world’s 12th largest holder of the US government debt to foreigners – at appx. $120 billion. This is around one-third of India’s foreign exchange reserves.

In this low interest environment – of close to zero per cent – the US Government pays $400 billion in interest costs each year. The moment interest rates get closer to normalcy, the US will (MUST) default on its debt. There is simply no way to normalise interest rates in the USA without doing that.

Either the USD must collapse or the US must default on Treasuries.

Donald Trump has already a plan for default. Since more than half the US debt is held by the Fed and foreigners, it is politically much easier for the US to default, than to depreciate the dollar.

Most likely the US will default on foreign debt first, since that is the most politically palatable. But an increase in interest rates will involve both default and a depreciation of the USD.

Remember, God did not create US Treasuries. These are just pieces of PAPER. They are a promise by the US Government to pay a certain amount of dollars at a particular date. And we know that most governments have defaulted on their debt in the past, since governments tend to rack up huge borrowings, given the public choice incentives at work.

The US has defaulted as recently as in 1971, when it stopped fulfilling its promise to convert Treasuries into gold.

This time the US will default on ALL its foreign debt.

I agree entirely with Peter Schiff on this (his analysis is usually rooted in very sound economics).

It is high time Raghuram Rajan converts the US Treasuries RBI holds into gold or Bitcoin. He should also convert a portion of USD holdings into gold. 

Yes, he should diversify – including into Bitcoin – given the 100 per cent certainty of US default. He could slowly shift around a quarter of the US Treasuries into Bitcoin, and the rest into gold.

ADDENDUM

Re: Raghuram Rajan: my emails published here: RBI can look at other options too, not just Forex

FB discussion here: https://www.facebook.com/sabhlok/posts/10154246579088767

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The real reason why banks behave badly

This is a placeholder post – will add when time permits. In the meanwhile, I suggest you read Larry White and George Selgin. [I had mentioned this issue earlier on this blog in 2011]

Agency Problems and Risk Taking at Banks  – by Rebecca S. Demsetz, Marc R. Saidenberg, Philip E. Strahan, Federal Reserve Bank of New York, 1997 [Rebecca, a labour economist with PhD from MIT, seems to be a close relative of the great Harold Demsetz – both have cited each other in their papers]

Sir John Vickers’ banking report: bankers pay too low a price for high risks

Break Up the Banks? Here’s an Alternative – Tyler Cowen, New York Times

Bank Reform Needs Unlimited Liability for Owners: Jonathan Berk – Bloomberg

Contingent capital and risk taking: Evidence from Britain’ banks 1878-1912 by Richard S. Grossman and Masami Imai (banks with greater liability for their debts took on less risk).
Limited-Purpose Banking—Moving from “Trust Me” to “Show Me” Banking – by Christophe Chamley, Laurence J. Kotlikoff and Herakles Polemarchakis, The American Economic Review, Vol. 102, No. 3, PAPERS AND PROCEEDINGS OF THE One Hundred Twenty Fourth Annual Meeting OF THE AMERICAN ECONOMIC ASSOCIATION (MAY 2012), pp. 113-119

“[W]here owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. Unlimited liability is not capped at a maximum amount and exists regardless of the amount of investment each owner has personally made. If the business is unable to meet any financial obligations or settle any outstanding liabilities, the owner’s personal assets can be seized to satisfy the debts.” Unlimited liability greatly reduces the incentive within the the financial industry to make one-way bets in which insiders get all the gains and socialize the losses [Source]

A number of papers have studied the reason for high leverage of banks, going back to Buser, Chen and Kane (1981), who conceptually discuss banks that optimize deposits in the presence of FDIC. [Source]

The history and future of banking, according to Andy Haldane

Contingent Liability in Banking: Useful Policy for Developing Countries? – Anthony Saunders, Leonard N., and Berry K. Wilson, November 1995

THE TRADING OF UNLIMITED LIABILITY BANK SHARES: THE BAGEHOT HYPOTHESIS – Charles R. Hickson and John D. Turner

Limited liability is the real issue with banks

Here’s an interesting JSTOR article: Unlimited Liability and Free Banking in Scotland: A Note, by Jack Carr, Sherry Glied, Frank Mathewson, The Journal of Economic History, Vol. 49, No. 4 (Dec., 1989), pp. 974-978

Vernon Smith’s comment: https://www.facebook.com/vlomaxsmith/posts/720188108120377

Keywords

Unlimited banking, limited banking, free banking

 

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