Business to the Buddha

Tag: Quantitative easing

  • Did Keynes fail in Japan?







    It all started in 1990s when Japan took the step to deflate its economy – Yen devaluation, lower interest rate, money supply etc. The effect is observed till today and in fact we may get into another slowdown in 2015-16. Actually, that’s what is the fear. Some experts are forcing Euro-zone not to make the same mistake Japan made in 1990s. If one sees debt of the developed countries one may be forced to conclude – we are sitting around next slowdown. Take Japan – about 250% debt to GDP ratio! Surprising right? Nope, situation is not better in US either, USA is also at 100% debt to GDP. Many are already blaming Quantitative Easing for the next likely downfall.

    I happened to read a news last month on Keynes failing Japanese economy. Well, I agree with the concept of Keynesian economics; you may even call me anti-capitalistic – though I am not. I am more in the league of following the middle path. May be Japanese have become too devoted of Keynes’ concept – so I started questioning myself on many fronts i. Is Keynesian economics the problem? ii. Did Japan over do it? iii. How things work around here? Etc These questions may be comforting to those who are against the Keynesian economic theory.

    Economic_Policy_-_Intervention_Strategy_MatrixSince, Keynesian economics had worked in relatively less connected world of 1930s I dismissed the question 1 for future blog. Japan’s overdoing it and how the system works were somewhat related questions. So, that question became central in my very tiny analysis.

    The question I had was – how does Govt issue bonds and how does it get circulated in the market? Well, that is done through the banks and the bankers. Aha! did I hear bankers? Those bankers who went to the President (USA) and said – “we would buy Jet for our executives?” Ok! If those who still blame Keynes, would you ask with each slow down who makes the most money? Is not it the same – bankers? At least the Govt is putting money in the system in the hopes that this method will work to keep the economy afloat. I was checking Wikipedia article on Economy of Japan. An external states that – Japan possesses 13.7% of the world’s private financial assets (the second largest in the world) at an estimated $14.6 trillion [2010 data]. This data states that – Keynesian economics is doing more services to the Capitalism than otherwise!

    [Tweet “Japan has 13.7% of the world’s private financial assets! #Keynesian #economics does more service to #Capitalism than otherwise”]

    Who is playing with the hopes and cheating the system? I am little too critical when I say “cheat” because some people are in the profession of making investment decision and those decision at times counter intuitively work against the basic premise (hope) on which at the first place Govt had put money in the system. I think a solution for the problem of Japan or for that matter world economy (likely next economic burst) lies in answer to the question(s) – who has actually hoarded the money? How to make amend for this workaround of Keynesian method of boosting economy?

    I asked Prof Mankad about his opinion on Japan. He shared this – “One of the real reasons for Japanese stagnation through the last decade of twentieth century had little to with Japanese policy. It was caused by two important external forces viz., depreciation of dollar (and hence default appreciation of Yen) and rise of ‘low cost’ China which deprived Japan of its traditional export markets. The fault of Japanese policy makers was absence of policy response to the changing situation and rise of China.”

    So there is seemingly an emotional explanation [which questions the other side] from my side. There is another more analytical, logical and thoughtful explanation from Prof Mankad. Whichever you want to ponder upon – Keynes did not seem to have failed Japan.

    Yet at the same time, every generation needs a revised look at things & our generation too! Keynesian Economics was successful when the world was not that connect, now QE of USA is invested in India/China which did not happen in 1930s.

    Image source – http://upload.wikimedia.org/wikipedia/en/a/a7/Economic_Policy_-_Intervention_Strategy_Matrix.png

  • Solutions…







    The security guard welcomed with this question साहब, आज रविवार है! आज दफ्तर मैं? (Sir, its Sunday today! You came to office?)

    With a sigh I looked at the guard, asked him if someone is around ask him to give me a cup of coffee and some water. I’d not tell him – my wife and I fought, nothing new happens in almost all families. We were struggling with our personal relationship and there came another dispute of her relatives and my relatives. I could not stand that problem, came to office thought it would be a change and I can catch up with some of my deliverables.

    Neither coffee came nor water, it made me little annoyed adding fuel to fire. Well, I understand office boy was not in office on weekend. A couple of days went by, same thing happened next weekend. Again no water or coffee came in. Now I was very furious. No solace here too. I decided to join our office’s team which has organized a recreation trekking event the next weekend. My wife wanted a change she had already gone to her parents home.

    For a first timer like me the trek was tough. An accident happened and I sustained fracture and few bruises. I had to spend some days in hospital. My wife rushed to the hospital however there were same issues at the back of the mind. Those few days at hospital gave me time to think.

    I was running away from problems. I avoided one problem, just to meet with another. Running from this other problem, ended up in being hospitalized.

    How often this happens that we run away from one problem instead of solving that problem, just to bump into other. Solutions require patience and a serious thought. Why the problem occurred? What are the possible reasons, can we fix the reasons? In Operations Management these fixes are called – preventive actions and corrective action. According to ASQ corrective action deals with a nonconformity that has occurred. A preventive action addresses the potential for a nonconformity to occur.

    I observe short term quick fixes – patchwork (in Hindi – थूक पट्टी) everywhere. Look at the reaction to 2008 financial crisis. We should have strictly handled the responsible however some of the culprits made millions and left the world tattered. No action taken against them. We’re fixing the economies by pumping money, those who could not game the system earlier, came and made their millions. Now once things seem hunky dory, QE may going to put us back in trouble.

    The solutions we device in our desire for quick fixes are – avoid the problem. The same happened in above example at micro level, same is happening at macro level in national and international levels.

    Post Script – Author is unmarried. Story narrated is a work of fiction, any resemblance to living/dead is merely a coincidence.

  • Special situation needs special solution







    Crisis unites, for how long? I was thinking about Quantitative Easing of Fed in the US. While thinking undoubtedly read G20 communique of 2009 e.g. London Summit here. A prologue about this communique. In 2008, US financial market collapsed. This resulted in domino effect across geographies. Every country, its financial system and thus citizen of the country were adversely affected. Do not ask me – what happened to those who were responsible for this collapse? Many of them made huge money and (almost) vanished! as – according to the books – they earned legitimately. Coming back to the point – otherwise a competitive world became a co-operative world. The mindset changed like this –

    “…We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive…” (source – London Summit communique para 12).

    I am forced to think – do we need crisis to unite the world and people?

    The thought is in the mind because now, when things seem to be fine with the US economy or may be just because US Fed wants to reduce burden on its balance sheet they came up with a solution of QE and rest of the world feels US is renaging the agreement/communique.

    I assume, we may go in another set of moderate crisis in coming time, we have not come out of the crisis completely. However, perhaps, this time world would have lesser belief on Govts, financial system and the cooperation as agreed by the leaders, economists and Financial Organizations.

    The trust deficit we live in – or we will live in – requires special measure. A special situation demand a special solution. Since, I am more of an spiritual person I feel the solution is moving towards spirituality. This can be done two ways – bringing spiritual lessons in corporate life or making corporate values resonate, implemented and executed spiritual life. Signing a document does not solve problem in long term – we are seeing that happen through tapering of quantitative easing by USA.

    Disclaimer – Author doesn’t intent to criticize QE, author is of the opinion of looking at the basics of the problem – Greed. Author has written few blogs on Greed earlier here.