A persistent current account surplus is a symptom of unbalanced growth, just as deficit is! Countries that save too little to cover their capital spending are at the mercy of foreign investors; Countries that save too much are at the merch of foreign demand!!
To every action there is equal and opposite reaction :)!!
Monday, January 19, 2009
Friday, September 5, 2008
5th September, 2008! Teacher's Day!!!
5th September, 2008! -- Teacher's Day!
Does it hold any significance!?? Guess YES!! to most of our teachers!...
(and to me too!, so should it to you....)...
In a mark of 'respect and thanking for their teachings (and time, specially on my doubts!)', I posted a SMS (cited below) to few of my favourite SPJain and REC Professors....
It's interesting (and am really glad and thankful) to see the "intensity of the feelings" in the response's that I got!
*********************************************************************************
SMS that I posted:
"Happy Teacher's Day! Thanks for everything!" -- 08 18 AM, 5th Sept, 2008.
Response from:
Professor Sanjoy Sarcar (He taught us Corp. fin., and truely for me amongst the best)
" wish there was a students day 2 remind teachers of all the memories students leave behind -part of us that u took wid u and part of u that remaind wid me !" -- 22 34 PM, 5 th Sept, 2008.
Professor Preeta George (She taught us Economics, again, truely amongst the best, and a inspiration indeed)
"Thank you so much dear.its wonderfui when you remember us on this day.god bless" -- 08 31 AM, 5th Sept, 2008.
*********************************************************************************
View now fromt the other side!! A recent convert!!
" I jst cant explain the euphoric feelin in words! 2day, a full batch of 25 students walked up 2 me n handed over 2 me a bouquet n said 'Happy Teacher's Day Sir'"
This is SMS from a friend of mine (from SPJain): Mr. Parasharan Chari (aka PC). He has set up a coaching institute for CAT/GRE/GMAT in Baroda/VVnagar/Ahmd -- after leavin his BA IT Job. It would be his first time (professionaly) as a teacher, and knowing the amount of effort he puts in the setup (that he is in making), His words and SMS truely reflect his intensity of JOY!
*********************************************************************************
Sadly, Its 'Opportunity Cost' now, and 'money and time', 'matter the most'!! --- Ritesh Shah (post 15months in finance)
I believe, we guys truely forget our teachers as we grow old (literally!); Guess, we should'nt be doing that!! and believe its our duty to thank them for what all knowledge and inspiration they provided us with!!
Believe me, 'Knowledge nor time' would come for free at Mumbai CBD!! Its not ARROGANCE, but whomsoever you meet, would certainly factor their "OPPORTUNITY COST"; in imparting/sharing the same....
Hence I strongly feel, we should be thankful to our teachers, for their time and efforts in imparting to us (in shortest possible time, at GMBA), to what we are today!!!!
Happy Teacher's Day!! and yes, its still not that late!!! :-)))))))))))))))))
Does it hold any significance!?? Guess YES!! to most of our teachers!...
(and to me too!, so should it to you....)...
In a mark of 'respect and thanking for their teachings (and time, specially on my doubts!)', I posted a SMS (cited below) to few of my favourite SPJain and REC Professors....
It's interesting (and am really glad and thankful) to see the "intensity of the feelings" in the response's that I got!
*********************************************************************************
SMS that I posted:
"Happy Teacher's Day! Thanks for everything!" -- 08 18 AM, 5th Sept, 2008.
Response from:
Professor Sanjoy Sarcar (He taught us Corp. fin., and truely for me amongst the best)
" wish there was a students day 2 remind teachers of all the memories students leave behind -part of us that u took wid u and part of u that remaind wid me !" -- 22 34 PM, 5 th Sept, 2008.
Professor Preeta George (She taught us Economics, again, truely amongst the best, and a inspiration indeed)
"Thank you so much dear.its wonderfui when you remember us on this day.god bless" -- 08 31 AM, 5th Sept, 2008.
*********************************************************************************
View now fromt the other side!! A recent convert!!
" I jst cant explain the euphoric feelin in words! 2day, a full batch of 25 students walked up 2 me n handed over 2 me a bouquet n said 'Happy Teacher's Day Sir'"
This is SMS from a friend of mine (from SPJain): Mr. Parasharan Chari (aka PC). He has set up a coaching institute for CAT/GRE/GMAT in Baroda/VVnagar/Ahmd -- after leavin his BA IT Job. It would be his first time (professionaly) as a teacher, and knowing the amount of effort he puts in the setup (that he is in making), His words and SMS truely reflect his intensity of JOY!
*********************************************************************************
Sadly, Its 'Opportunity Cost' now, and 'money and time', 'matter the most'!! --- Ritesh Shah (post 15months in finance)
I believe, we guys truely forget our teachers as we grow old (literally!); Guess, we should'nt be doing that!! and believe its our duty to thank them for what all knowledge and inspiration they provided us with!!
Believe me, 'Knowledge nor time' would come for free at Mumbai CBD!! Its not ARROGANCE, but whomsoever you meet, would certainly factor their "OPPORTUNITY COST"; in imparting/sharing the same....
Hence I strongly feel, we should be thankful to our teachers, for their time and efforts in imparting to us (in shortest possible time, at GMBA), to what we are today!!!!
Happy Teacher's Day!! and yes, its still not that late!!! :-)))))))))))))))))
Monday, June 30, 2008
Oil Conundrum!!!
Benefits of rising crude prices
1) Helps middle east petro-dollars wipe our the US investment bank write-off’s!!
2) Helps propel US economy, considering rising freight costs (proportional to rising crude costs). Rising freight costs offsets the cheaper labor cost advantage that china offers.
E.g. Steel imports to US (from China) dropping significantly, also US domestic
steel production rising significantly. To delve a bit, CIF cost of Chinese per ton HRC (including freight cost of US$90/t) has well exceeded domestic production cost!! (Metals Analyst!!)
Believe the same would be for other goods and commodities, with freight eating
away the china advantage (i.e. wage arbitrage).
3) Depreciating USD – helping exports, also possibility of relocating manufacturing bases back to USA, read somewhere of BMW thinking of re-locating its plant somewhere in US (from Germany), if the trend in EUR/USD continues… too much!! Well if that’s the case then Mr. Ben won’t have to worry about rising unemployment levels!!!
4) Thinking…. …
Disadvantages
1) Obama supporting ethanol policy, his point of contention with rising crude prices stands even stronger. Thou, only at the cost of lower supplies on other crops (as acreage under maize increases), eventually leading to food inflation… India, has nothing to worry, as is self sufficient (on date, except for edible oils)
2) Further political tensions or rift among OPEC???? Vague thoughts….Pardon me..
Just as BHP got freight premium for iron ore supplies to Baosteel, China (price up 90%yoy, against CVRD-Brazil up65%yoy); why could the same not be applied to South American oil producers (say Venezuela, etc) supplying oil to US. Really am not sure on the dynamics of Oil pricing, would need to dig into it…invite thoughts/ideas on this…
3) GS has predicted double digit inflation for rest of year, and Sensex bear case of sub 10k levels…. Well, in that case… I might end up loosing a job and then shall only write blogs!, also triggering a subprime in India (read tipping point), with PLR’s expected to go up…and no cash inflow , GOD help India’s largest pvt. Bank and me!!!
Oil Conundrum – in triple digits till when!!!
Is really the demand for oil increasing (I don’t think so), and supply increasing (don’t know, recent Saudi announcement doesn’t really change the way things are). Then what is the root cause….
*****Sixth Sense says, Post US Elections…. Things would be fine… ******
Higher oil prices…. Funding democrats or republicans this elections,
OR
May be it’s the last chance for Bush cohort to make money!! (if I get it right, top republicans enjoy fair share of direct/indirect profitability in Exxon, Shell, who I believe are direct beneficiaries of rising crude prices)
Thought’s / IDEAS invited…..
<>
1) Helps middle east petro-dollars wipe our the US investment bank write-off’s!!
2) Helps propel US economy, considering rising freight costs (proportional to rising crude costs). Rising freight costs offsets the cheaper labor cost advantage that china offers.
E.g. Steel imports to US (from China) dropping significantly, also US domestic
steel production rising significantly. To delve a bit, CIF cost of Chinese per ton HRC (including freight cost of US$90/t) has well exceeded domestic production cost!! (Metals Analyst!!)
Believe the same would be for other goods and commodities, with freight eating
away the china advantage (i.e. wage arbitrage).
3) Depreciating USD – helping exports, also possibility of relocating manufacturing bases back to USA, read somewhere of BMW thinking of re-locating its plant somewhere in US (from Germany), if the trend in EUR/USD continues… too much!! Well if that’s the case then Mr. Ben won’t have to worry about rising unemployment levels!!!
4) Thinking…. …
Disadvantages
1) Obama supporting ethanol policy, his point of contention with rising crude prices stands even stronger. Thou, only at the cost of lower supplies on other crops (as acreage under maize increases), eventually leading to food inflation… India, has nothing to worry, as is self sufficient (on date, except for edible oils)
2) Further political tensions or rift among OPEC???? Vague thoughts….Pardon me..
Just as BHP got freight premium for iron ore supplies to Baosteel, China (price up 90%yoy, against CVRD-Brazil up65%yoy); why could the same not be applied to South American oil producers (say Venezuela, etc) supplying oil to US. Really am not sure on the dynamics of Oil pricing, would need to dig into it…invite thoughts/ideas on this…
3) GS has predicted double digit inflation for rest of year, and Sensex bear case of sub 10k levels…. Well, in that case… I might end up loosing a job and then shall only write blogs!, also triggering a subprime in India (read tipping point), with PLR’s expected to go up…and no cash inflow , GOD help India’s largest pvt. Bank and me!!!
Oil Conundrum – in triple digits till when!!!
Is really the demand for oil increasing (I don’t think so), and supply increasing (don’t know, recent Saudi announcement doesn’t really change the way things are). Then what is the root cause….
*****Sixth Sense says, Post US Elections…. Things would be fine… ******
Higher oil prices…. Funding democrats or republicans this elections,
OR
May be it’s the last chance for Bush cohort to make money!! (if I get it right, top republicans enjoy fair share of direct/indirect profitability in Exxon, Shell, who I believe are direct beneficiaries of rising crude prices)
Thought’s / IDEAS invited…..
<
Friday, May 16, 2008
Sunday, March 9, 2008
Agflation!!
What would the RBI do next? are global variables having a upper hand..?
Just brooding over inflation... and rising food prices ('agflation')?
Demand Supply Equation!! Demand drivers and love for monies!!
Wrt Emergining Economies: Say India, China...
1) Rising population >> More bread, chapattis and Kellogg’s consumed.....>> more cereals required to make them...
2) Data points indicate rising income levels are highly co-related with meat consumption...say avg. Chinese consumed 20kg of meat in 1985, now consumes more than 40kg of meat...!! so more meat required, means, more chickens and pigs need to be slaughtered...and hence more fodder required to feed them (chickens/pigs)!!... also comes in the 'love for money'... as meat fetches
higher realization -- farmers would love to switch their occupation to animal husbandry... and hence more pigs/chickens for you, but as the number of pigs/ increase.... they would take away more of your chappatis/bread/kellogs... (I mean equivalent raw material to produce them (i.e. cereals) to feed and grow healthy pigs and chickens)
3) Now, Mr. Bush... and Ethanol policy (most Imp factor, as i see it...)
Did you ever think this could bother you: "... to increase the use of renewable fuels almost fivefold though 2017, primarily relying on ethanol"... in a pledge by President Bush in state of union address some time back...
Few stats:
"113 ethanol distilleries are operating and an 77 new are under construction, will have potential capacity of 11.8 billion gallons, or 44.7 billion liters in USA, according to the Renewable Fuels Association" .... "Record output of 4.9 billion gallons of ethanol last year — triple the 1.6 billion gallons produced in 2000 — accounted for 2.8 percent of the U.S. fuel supply"!!!!!, a trade
group in !! (--extract from nytimes)
As per (news) articles.. US is the largest corn grower and exporter, accounting for 40% of world supply...however, with rising demand for ethanol, CY07 saw 20% of its corn harvest feed ethanol (ignoring stomachs!!) and corn harvest feeding ethanol distilleries is expected to rise to 50% over next two years... if new distilleries come up on schedule... In 2000, US consumed 15mt of maize to produce ethanol, same variable is expected to touch 85mt in current year.. hence the largest exporter of maize (USA)... wont export as much as it used to in the past.. .as it has to feed its fuel guzzling SUV's, hurting.. D-S equation further!!
--- IMPACT ON US!!
Wheat prices up 120% last ten months... corn, maize (up 50% from 06 levels), soyabean, etc.. follow the trend...!! (Wheat prices also impacted by drought in Australia over last two years…)
I love money.. !! So do (now) Richie rich US (maize) farmers...
As prices of maize shot up in US on account of increased demand, farmers began to ‘switch the crops’ from wheat, soyabean and rice...
Articles indicate... maize production for US for 2008 to be almost a quarter high than last year.. which can only happen if the yield of the crop increases or more land is brought under cultivation or the former (starts switching crops).. which would feed D-S gap further....for other crops!
US Govt. has done everything to encourage the same, from subsidies to import tariffs (esp. for cleaner Brazilian ethanol)!! I believe, doing this... .US Govt. achieves a number of objectives... first it reduces its deficit, by decreasing oil imports (though would be a very minute amount), plus... it would able to reduce its farm subsidy bill.. as farmers would now get good prices for their produce.. and could gradually do away with the subsidies, and in turn ..thou not very sure... also help negotiate in the DOHA WTO round... on green box subsidies..and agri product negotiations.. not much of clue on the latter..!!
--Who benefits from these?
The farmer... if he gets the right price (removing the middle man), would stand to benefit maximum…but in our country we have MSP (ie. minimum support price); i.e. the price which the govt. (I believe FCI) pays to the farmers to buy their produce, e.g for wheat currently at Rs1000.
Moreover, to see a political angle, in favour of farmers... CPI (M) would ask the govt. to increase the MSP on agri products as the farmers, not being able to sell their produce at lucrative global prices... (Which can fuel inflation, its not impossible :))!!!
A middle class guy, would stand to lose the most,... as the price of end produce rises, it lowers the price of the money. I would consider the demand for agri produce to be elastic in cases, say some one like me would have the option to switch from Kellogg’s to bread or to biscuit... or some fruit…or say would have a option to cut down on the number of movies i see in a month... keeping the quantum of atta I consume constant *so partly elastic*. However, for a poor guy (migrant, construction worker, etc.), who uses atta (the basic component) of chappatis/rotis -- and atta being the first in the value chain (and also the lowest cost), wont have the option to switch to anything else, but to decrease his consumption of atta.. means *so partly inelastic in nature*, and forced to reduce his consumption... and would feel the pinch the most...!!
--Why only India’s inflation is rising? :)
Developed economies like US and EU... have less than 10% of inflation weight on food, hence minimum impact... vis-à-vis, for developing nations like India (WPI-15.4% Food +6.1% - Non food articles; commonly rffd index), however CPI continues to have 57% wt. on food items; for Bangladesh and Nigeria almost 66% of the consumer price index.
--What would India do? Food for thought...
Despite good domestic harvest of wheat, rice and cotton... we see the domestic prices rising up? why so? a common trend across all products.... I see it as a direct impact of global (US induced) agri-price...hike!! do u... (Check the last paragraph... 'more food for thought')
To keep a check on inflation... countries have imposed price controls on domestic prices... and also banned exports to feed the domestic demand. India has done the latter, and wont be surprised to see the former being implemented (any take on this??)
More Importantly, I don’t see agflation (15%+9% wt. in WPI) directly related (correlation) to softening interest rates,... considering the elastic (middle class)-inelastic (daily wage workers) impact scenario explained above, (i.e. more of Maslow’s hierarchy... staple food...basic necessity) !!
***Hence to conclude, I wont be surprised to see RBI's softening interest rates (to boost IIP- primarily manufacturing growth); as i believe agflation to be mutually exclusive (being impacted by more of global D-S gap, rather than domestic factors). To keep the India growth story alive, one needs capex... and with ECB route frozen (US$20m cap), IPOs going phusssss... bank lending seems the only alternative... hence... softening rates is a must...!! Also not to forget of Tax buoyancy & FD targets, considering.... Corporate taxes contribute (~32%) of total tax revenue!!***
More Food for thought:
"Globally, Food reserves were at their lowest level in 30 years .... with emergency deliveries for 53 days, compared with 169 days in 2007. ".... bbc.com and FED Chief Bernanke admits "US tariff on ethanol imports being eliminated" -- on 8th March, 2008. !!!!
I believe US ethanol demand has global repercussions, with many countries riding high on exports say Indonesia, Malaysia (land exploited, crops shifting to produce more palm-oil), S. America-Brazil (maize, sugar), India(jathropa crop, not really, as it is grown on arid land), US (soyabean produce). This has resulted to alteration in global cultivation on crops, and hence can continue to impact global agri prices, if US doesn’t change its stance on biofuels (ethanol). Not to forget…sugar prices jumped up some time back… on ethanol news in India J
Open to thoughts, views, and debates!! – Views expressed are personal.
Regards,
Ritesh Shah
( wrote on 8th March 2008)
Just brooding over inflation... and rising food prices ('agflation')?
Demand Supply Equation!! Demand drivers and love for monies!!
Wrt Emergining Economies: Say India, China...
1) Rising population >> More bread, chapattis and Kellogg’s consumed.....>> more cereals required to make them...
2) Data points indicate rising income levels are highly co-related with meat consumption...say avg. Chinese consumed 20kg of meat in 1985, now consumes more than 40kg of meat...!! so more meat required, means, more chickens and pigs need to be slaughtered...and hence more fodder required to feed them (chickens/pigs)!!... also comes in the 'love for money'... as meat fetches
higher realization -- farmers would love to switch their occupation to animal husbandry... and hence more pigs/chickens for you, but as the number of pigs/ increase.... they would take away more of your chappatis/bread/kellogs... (I mean equivalent raw material to produce them (i.e. cereals) to feed and grow healthy pigs and chickens)
3) Now, Mr. Bush... and Ethanol policy (most Imp factor, as i see it...)
Did you ever think this could bother you: "... to increase the use of renewable fuels almost fivefold though 2017, primarily relying on ethanol"... in a pledge by President Bush in state of union address some time back...
Few stats:
"113 ethanol distilleries are operating and an 77 new are under construction, will have potential capacity of 11.8 billion gallons, or 44.7 billion liters in USA, according to the Renewable Fuels Association" .... "Record output of 4.9 billion gallons of ethanol last year — triple the 1.6 billion gallons produced in 2000 — accounted for 2.8 percent of the U.S. fuel supply"!!!!!, a trade
group in !! (--extract from nytimes)
As per (news) articles.. US is the largest corn grower and exporter, accounting for 40% of world supply...however, with rising demand for ethanol, CY07 saw 20% of its corn harvest feed ethanol (ignoring stomachs!!) and corn harvest feeding ethanol distilleries is expected to rise to 50% over next two years... if new distilleries come up on schedule... In 2000, US consumed 15mt of maize to produce ethanol, same variable is expected to touch 85mt in current year.. hence the largest exporter of maize (USA)... wont export as much as it used to in the past.. .as it has to feed its fuel guzzling SUV's, hurting.. D-S equation further!!
--- IMPACT ON US!!
Wheat prices up 120% last ten months... corn, maize (up 50% from 06 levels), soyabean, etc.. follow the trend...!! (Wheat prices also impacted by drought in Australia over last two years…)
I love money.. !! So do (now) Richie rich US (maize) farmers...
As prices of maize shot up in US on account of increased demand, farmers began to ‘switch the crops’ from wheat, soyabean and rice...
Articles indicate... maize production for US for 2008 to be almost a quarter high than last year.. which can only happen if the yield of the crop increases or more land is brought under cultivation or the former (starts switching crops).. which would feed D-S gap further....for other crops!
US Govt. has done everything to encourage the same, from subsidies to import tariffs (esp. for cleaner Brazilian ethanol)!! I believe, doing this... .US Govt. achieves a number of objectives... first it reduces its deficit, by decreasing oil imports (though would be a very minute amount), plus... it would able to reduce its farm subsidy bill.. as farmers would now get good prices for their produce.. and could gradually do away with the subsidies, and in turn ..thou not very sure... also help negotiate in the DOHA WTO round... on green box subsidies..and agri product negotiations.. not much of clue on the latter..!!
--Who benefits from these?
The farmer... if he gets the right price (removing the middle man), would stand to benefit maximum…but in our country we have MSP (ie. minimum support price); i.e. the price which the govt. (I believe FCI) pays to the farmers to buy their produce, e.g for wheat currently at Rs1000.
Moreover, to see a political angle, in favour of farmers... CPI (M) would ask the govt. to increase the MSP on agri products as the farmers, not being able to sell their produce at lucrative global prices... (Which can fuel inflation, its not impossible :))!!!
A middle class guy, would stand to lose the most,... as the price of end produce rises, it lowers the price of the money. I would consider the demand for agri produce to be elastic in cases, say some one like me would have the option to switch from Kellogg’s to bread or to biscuit... or some fruit…or say would have a option to cut down on the number of movies i see in a month... keeping the quantum of atta I consume constant *so partly elastic*. However, for a poor guy (migrant, construction worker, etc.), who uses atta (the basic component) of chappatis/rotis -- and atta being the first in the value chain (and also the lowest cost), wont have the option to switch to anything else, but to decrease his consumption of atta.. means *so partly inelastic in nature*, and forced to reduce his consumption... and would feel the pinch the most...!!
--Why only India’s inflation is rising? :)
Developed economies like US and EU... have less than 10% of inflation weight on food, hence minimum impact... vis-à-vis, for developing nations like India (WPI-15.4% Food +6.1% - Non food articles; commonly rffd index), however CPI continues to have 57% wt. on food items; for Bangladesh and Nigeria almost 66% of the consumer price index.
--What would India do? Food for thought...
Despite good domestic harvest of wheat, rice and cotton... we see the domestic prices rising up? why so? a common trend across all products.... I see it as a direct impact of global (US induced) agri-price...hike!! do u... (Check the last paragraph... 'more food for thought')
To keep a check on inflation... countries have imposed price controls on domestic prices... and also banned exports to feed the domestic demand. India has done the latter, and wont be surprised to see the former being implemented (any take on this??)
More Importantly, I don’t see agflation (15%+9% wt. in WPI) directly related (correlation) to softening interest rates,... considering the elastic (middle class)-inelastic (daily wage workers) impact scenario explained above, (i.e. more of Maslow’s hierarchy... staple food...basic necessity) !!
***Hence to conclude, I wont be surprised to see RBI's softening interest rates (to boost IIP- primarily manufacturing growth); as i believe agflation to be mutually exclusive (being impacted by more of global D-S gap, rather than domestic factors). To keep the India growth story alive, one needs capex... and with ECB route frozen (US$20m cap), IPOs going phusssss... bank lending seems the only alternative... hence... softening rates is a must...!! Also not to forget of Tax buoyancy & FD targets, considering.... Corporate taxes contribute (~32%) of total tax revenue!!***
More Food for thought:
"Globally, Food reserves were at their lowest level in 30 years .... with emergency deliveries for 53 days, compared with 169 days in 2007. ".... bbc.com and FED Chief Bernanke admits "US tariff on ethanol imports being eliminated" -- on 8th March, 2008. !!!!
I believe US ethanol demand has global repercussions, with many countries riding high on exports say Indonesia, Malaysia (land exploited, crops shifting to produce more palm-oil), S. America-Brazil (maize, sugar), India(jathropa crop, not really, as it is grown on arid land), US (soyabean produce). This has resulted to alteration in global cultivation on crops, and hence can continue to impact global agri prices, if US doesn’t change its stance on biofuels (ethanol). Not to forget…sugar prices jumped up some time back… on ethanol news in India J
Open to thoughts, views, and debates!! – Views expressed are personal.
Regards,
Ritesh Shah
( wrote on 8th March 2008)
Saturday, February 16, 2008
Hyper Inflation !!
Pondering over Hyper Inflation!!
Brief on the what scenario Zimbabwe is in:
Exchange rate: 7.4mZ$ = 1US$, few months ago it was 2mZ$=1US$
People fleeing the country
Ruled by President Mugabe, more of a dictatorship
So why... Infation at whooping 4000%
Am taking top down approach, though views will go right centre left... !!
President Mugabe to check inflation has capped prices on certain commodities, though it goes against the cause. Say, you are a producer -- with factory cost of the produce coming 100$, however the end price is capped at 80$ only (political situation warrant that, u dont have a excuse there), depsite your raw material cost being higher, i.e. business being economically unviable because the domestic currency has depreciated --> Hence you stop producing it, why would one produce something for a loss... automatically the demand is constant and supply going down..... causes Supply constrained inflation ... ... ...(A)
Now, Zimbabwe has not had good history of BOP -- same has been the case in recent past, with most of the bugdetary revenue already spent... a very obvious mismatch... with no funds to support development projects. Also, With the history of bad international payments and not so healthy political relationship, country finds difficult to raise foreign debt....
So, Mr. Mugabe runs his own printing press..... prints more and more local zimb. dollars -- thereby increasing domestic supply, pushing inflation further.. UP... ... ...(B)
So if you are made a zimb. resident, to save ur A**, you would want to sell of what all domestic currency you have now, as u know the same dollar is going to fetch you far less in the future.... Hence all M1 chasing for stable currencies... (i.e., if u buy USD, u got to pay him something in return ie. Zm$ --- hence demand for USD increases, so USD appreciates and domestic currency depreciates further).... so guess thats the reason for people fleeing the country and more supply and more inflation... (C)
So A+B+C causes HYper INflation !! ~ Hence root cause for the A+B+C, being Poor governance --> BOP going for toss --> no Foreign Debt available --> Print More money... (dictatorship at its best) !! --> Hyper Inflation :)
So this explains the causes for hyper inflation...at 4000 levels,... however there are a few doubts in above discussion... 1. if u know the currency is to depreciate further, who fool would buy it (or exchange it for) 2. there has to be some rationale in the limits of printing dometic currency (say Gold reserves, Country reserves, SDR, etc. etc....)
Looking for comments/corrections/.... :)
"All views expressed are personal"
Brief on the what scenario Zimbabwe is in:
Exchange rate: 7.4mZ$ = 1US$, few months ago it was 2mZ$=1US$
People fleeing the country
Ruled by President Mugabe, more of a dictatorship
So why... Infation at whooping 4000%
Am taking top down approach, though views will go right centre left... !!
President Mugabe to check inflation has capped prices on certain commodities, though it goes against the cause. Say, you are a producer -- with factory cost of the produce coming 100$, however the end price is capped at 80$ only (political situation warrant that, u dont have a excuse there), depsite your raw material cost being higher, i.e. business being economically unviable because the domestic currency has depreciated --> Hence you stop producing it, why would one produce something for a loss... automatically the demand is constant and supply going down..... causes Supply constrained inflation ... ... ...(A)
Now, Zimbabwe has not had good history of BOP -- same has been the case in recent past, with most of the bugdetary revenue already spent... a very obvious mismatch... with no funds to support development projects. Also, With the history of bad international payments and not so healthy political relationship, country finds difficult to raise foreign debt....
So, Mr. Mugabe runs his own printing press..... prints more and more local zimb. dollars -- thereby increasing domestic supply, pushing inflation further.. UP... ... ...(B)
So if you are made a zimb. resident, to save ur A**, you would want to sell of what all domestic currency you have now, as u know the same dollar is going to fetch you far less in the future.... Hence all M1 chasing for stable currencies... (i.e., if u buy USD, u got to pay him something in return ie. Zm$ --- hence demand for USD increases, so USD appreciates and domestic currency depreciates further).... so guess thats the reason for people fleeing the country and more supply and more inflation... (C)
So A+B+C causes HYper INflation !! ~ Hence root cause for the A+B+C, being Poor governance --> BOP going for toss --> no Foreign Debt available --> Print More money... (dictatorship at its best) !! --> Hyper Inflation :)
So this explains the causes for hyper inflation...at 4000 levels,... however there are a few doubts in above discussion... 1. if u know the currency is to depreciate further, who fool would buy it (or exchange it for) 2. there has to be some rationale in the limits of printing dometic currency (say Gold reserves, Country reserves, SDR, etc. etc....)
Looking for comments/corrections/.... :)
"All views expressed are personal"
Sunday, November 11, 2007
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