Business to the Buddha

Tag: debt

  • Measuring growth







    I had been asking myself a very naive question. How do we measure growth? Well the answers is not “the GDP” etc. What if I sell things very expensive? GDP might grow, right? So, I zeroed down to interest rate as one vehicle to measure growth.

    Well, let me be more fairer in providing one more reason for taking debt as a metric. I had been wondering about 2008 crisis and the fancy word – Corporate Debt Restructuring. When we look at these and other special purpose instruments we would realize that humans try to fool themselves or fool others. Therefore I considered  Debt as one metric to measure growth. I noticed Kingfisher drowning  recently – I mean the airline in India. We all have witnessed crisis of 2008. In the enthusiasm and to show fat books banks start providing loans to people; once a person is not able to repay the debt banks auction those properties. These two big cases and the housing bubble, all these things are examples of our assumption based “Growth” of economy. Here we assumed growth is represented by the ability of people/organizations to take loan. Interest rate of loans would become a representative of metric of growth.

    We all are in this mess of economic slowdown because of the concept of debt. The ability of big, smart and mighty people and organizations to restructure these debts. When I was doing a course on Independent Directors with Institute of Directors I was wondering in one session – “What if  we don’t have this concept of Debt?” In Islamic banking there is no concept of debt. We may say that Islamic banking has a more refined concept (debt), it is called as profit sharing.

    I am not a scholar of Islamic Banking and therefore whatever I am writing here is with reference to what I was told by one of my colleague and friend (Abdullah Pijvi). He too suggested to me that he is speaking from his experience (he had taken some loan) and therefore he knows that there is no straightforward concept of Debt/loan. It was interesting to know that concept however I had a question in my mind – if Islamic banks don’t have the concept of debt how do they grow? And I started defining metric of growth as – debt and interest rate!

    Related blogs – Where is growth?, What else you need? and Abundance of scarcity

    Disclaimer – 1. In this blog technicalities of economics were not considered very seriously. So readers are warned to do their research in formulating their arguments for/against such thoughts. 2. More thoughts on Islamic banking in future blogs

  • Double dip!!







    “There seems to be high likelihood of double dip!” When we heard our professor of macroeconomics Prof Mankad say that we could not believe it. I recently thought to plot some charts and realized that human sentiments are also equally responsible for this. The following is a graph, here we see an increase in the center yet once the peak is achieved there is a drop and no gain. Some call it correction. Well, frankly speaking these are my semester-wise undergrad scores.

    When I had a quick look at the graph I said – ok! I did ok initially, and then my performance dropped, it hurts I improved myself and went down back somewhat. Alas! My undergraduate was over therefore I could not extrapolate things. Yet, if you sem one to two movement there seemed some similarity.
    I tried relating it to the last 10-years NYSE performance. There were phenomenal similarities. I took 10 year performance because it seemed to me that post DOTCOM bubble burst would be a good point to start from, and some other logics. See sentiments are again at work.

    Then I thought about the statement of Prof Mankad, double dip, what about that? There could be a possibility of double dip, why, how and when? Yesterday I was reading Financial Times front page news – Ireland resists bail-out pressure, and viola I got a hint. If nothing is done at this time perhaps the other bottom is not far.
    I recalled another part of macroeconomics class. “Essentially all banks are bankrupt.” Though for self satisfaction we may call them BANKS, on which we bank. Nonetheless banks are sitting eternally on a time bomb ready to explode any time. The bomb of Debt!
    If Ireland does not accept the support from EU perhaps we all would be doomed to see the second dip. The situation is a double edged sword – the world needs an enhanced banking system yet what I read somewhere “if you actually tried to manage according to the regulatory measurements, your bank would fail.” At such times I resort to TRIZ – the theory of inventive problem solving. I would comment on the SYSTEMS in general and TRIZ in next posts.